What is Financial market

Some experts even simply refer to it as the stockmarket, even though they are referring to stocks, bonds and commodities.Quite simply, that is what the financial markets are - any type of financial transaction that you can think of that helps businesses grow and investors make money.

Here is an overview of the financial markets, from the simple to the complex.A place where individuals are involved in any kind of financial transaction refers to financial market.

The raising of capital (in the capital markets).

Financial markets facilitate:

The transfer of risk (in the derivatives markets) Price discovery Global transactions with integration of financial markets. The transfer of liquidity (in the money markets).

International trade (in the currency markets). and are used to match those who want capital to those who have it

Various types of financial market

Capital Market A market where individuals invest for a longer duration i.e. more than a year is called as capital market. Money market: Money market is a market for dealing with financial assets and securities which have a maturity period of up to one year. Capital Market is further divided into: Primary Market: Primary Market is a form of capital market where various companies issue new stock, shares and bonds to investors in the form of IPOs (Initial Public Offering). Secondary Market: Secondary market is a form of capital market where stocks and securities which have been previously issued are bought and sold.

HOW FINANCIAL MARKET WORKS

Borrower-Issue a receipt to a lender promising to payback the capital.

Receipts-Securities which may be freely bought or sold.

Lender-will except some compensation in the form of interest or dividends, in return.

FINANCIAL MARKET EFFICIENCY.

Allocative efficency: A Market is allocatively efficient if channels fund to those firms & organisations with most promising real investment opportunities. Operational efficency : carries its operation as low a cost as possible. Information processing efficency :Any new relevant information is quickly & accurately impounded in price.

Relationship between lenders and borrowers

Lenders Financial Intermediaries Financial Markets Borrowers

Individuals Companies

Individuals Banks Interbank Companies Insurance Stock Exchange Central Companies Money Market Government Pension Funds Bond Market Municipalities Mutual Funds Foreign Public Exchange Corporations

Conclusion
Financial market act as backbone of financial structure of any country. Act as an interface between prospective buyers & sellers. Improves overall business liquidity. Help in raising capital & improving international trade.