Mechanism that allows people to buy and sell financial securities(such as stock and bonds) and items of value at low transaction cost. Market works by placing many interested buyer and seller in one ‘place’, thus making easier for them to find each other.
Financial market facilitate;
1. Raising of capital
2. Transfer of risk
3. International trade
HOW FINANCIAL MARKET WORKS:
Borrower: issue a receipt to lender promising to payback the capital Receipts: securities which may be freely bought and sold.
Lender:will expect some compensation in the form of interest or dividends in return.
TYPES OF FINANCIAL MARKET:
1. Capital market:
-stock markets: which providing financing through the issuance of shares or common stock, and enable subsequent trading. -bond market: which provide financing through issuance of bonds, enable subsequent trading.
2. Commodity markets: which facilitate the trading of commodities 3. Money markets: which provide short term debt financing and investments. 4. Derivative markets: which provide instruments for the management of financial risk. 5. Insurance markets: which facilitate redistribution of various risk 6. Foreign exchange markets: which facilitate the trading of foreign exchange.
Thus financial market:
1. Acts as a backbone of financial structure of any country 2. Acts as a inference between prospective buyers and sellers 3. Improves overall business liquidity
4. Helps in raising capital and international trade.
1. Direct Finance
* Borrowers borrow directly from lenders in financial markets by selling financialinstruments which are claims on the borrower’s future income or assets 2. Indirect Finance
* Borrowers borrow indirectly from lenders via financial intermediaries (established to source both loanable funds and loan opportunities) by...
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