THE FINANCIAL MARKET

HELLO READERS,

Hope you all are doing great. Today, I covered a topic regarding Financial Market.

When I say Financial Market, I mean a market in which people trade (buy or sell) the Financial securities (or financial assets).

Financial Securities?? What does that mean? … Let find out!

Financial Securities are the shares (or stocks) or bonds or any instrument in which people are expected return on their invested amount.

So, financial securities are traded in the financial markets.

Now, Financial market can be divided broadly into 2 categories:

1. MONEY MARKET

The Money Market deals in the demand and supply of short term funds, with the maturity of 1 year or less than 1 year. Mostly traded in the marketable securities like Treasury Bills and Commercial Papers. 

There are several other money market instruments, including certificate of deposit, bills of exchange, treasury bills.

Such securities are of high liquidity and low risk nature.

Liquidity=high

Risk=low

2. CAPITAL MARKET

The Capital Markets are the markets in which the long-term debt (Bonds) and the equity (shares) are bought and sold.

The financial instruments in both equity and debt are issued and traded in this market.

Further, Capital market can be categorised into two segments i.e., primary market and secondary market.

Now, let us understand each one of them.

                        i. Primary Market

                        It is a market where securities are offered to the public for the first time. In this market, a borrower offers new securities in exchange for cash from the investors. Treasury Bills, stocks etc. are all such financial securities whose sale take place in the primary market. Such securities are being issued by the Companies and the Government with the purpose to receive cash from people who buy such financial securities.
                        When such fresh securities are being sold for the first time, it is termed as Initial Public Offer (IPO).

                         ii. Secondary Market

                         Secondary market is the place where buying and selling of existing securities take   place. Here, the securities may trade repeatedly. It is also termed as aftermarket   and follow on public offering. Basically, in this market the securities are being   transferred from one investor to another.

Financial Markets can also be divided into Organised Exchange Market and Over the Counter (OTC) Market.

Now, let’s understand the aspect regarding the organized exchange market and OTC Market.

Ø Organized Exchange Markets

In such type of markets, there is a regulatory body which carry out the transactions. These markets basically have a specific physical location where the trading activity takes place like Bombay Stock Exchange (BSE), National Stock Exchange (NSE).

Ø Over the counter (OTC) Markets

In such type of markets, there is no regulatory body which carry out the transactions. These markets do not have physical location, instead they are categorised by the networks of dealers connected by the mobile phones or computer networks. The example of such market is Over the Counter Exchange of India (OTCEI).

So, this is all about the concept of financial markets and its categories.

Thank You

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