A Financial Market is a market where securities can be bought and sold between the parties on the basis of demand and supply. They encompass equity markets, bond markets, derivatives market, commodities market, foreign exchange markets and other similar forms of markets. They can be split into two levels. Primary markets, where new securities are issued and secondary markets where existing securities can be traded. They can be further split into capital markets and money markets on the basis of the tenure of the securities. Stock exchanges like BSE and NSE and commodities markets like MCX are examples of financial markets. There are mainly three participants in such markets – The issuer of the securities, the investor in the securities and the market intermediaries. These issuers are the ones who raise money by issuing securities in the market. The investors are savers who invest their money in those securities to gain return after a definite time period. The intermediaries are the agents who match the needs of issuers and investors in return of commission.
Need for Financial Market
Financial Markets are considered integral to development of a sound economy. They create liquidity in the system and facilitate raising funds easily for entrepreneurs and enterprises. At the same time, it channelizes the savings towards investment. This ensures that money flows where it’s needed the most and assists in capital formation in a country. For example, Amazon and Google were small businesses and to widen their operations, they needed funds. So, they got listed on the NYSE(New York Stock Exchange) by IPO and raising equity.
Benefits of Financial Market
- Creates Liquidity – A sound financial market is essential for pricing of bonds and other securities. It gives the platform to buyers and sellers to interact and trade. It assures investors of their investment.
- Capital formation – It allows businesses to raise money for investment purposes and at the same time channelizes the savings towards investment.
In a nutshell, modern and advanced financial markets are the blood of a sound economy. By performing various functions, it ensures stability in the system and a fall in such markets may bring mayhem in the whole economy.
All the concepts of this topic <Financial Markets> have been compiled into a Certification Assessment Course. This Assessment will help you to check and enhance your knowledge about the subject and offer you to get certified from The Growth Central VC. This Assessment has been made considering the latest scenario of the industry.