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What is Financial Market & Its Types?

Financial market may sound like a technical term at first but once you understand it, you will realize that its very easy and practical. Market refers to a place where there is an exchange of goods, services. Similarly, Financial market refers to place where  bonds, equity, securities, currencies are traded. Just like normal market, some shops are big while some are small similarly here, few financial markets do a security business of trillions of dollars daily, and some are small-scale with less activity. 

Types of Financial Markets

There are different types of financial markets and some of them are given below:

Over the Counter or OTC Market – All those public stock exchange and New York stock exchange that are not listed in on NASDAW, American Stock Exchange and New York Stock Exchange are managed here. This market primarily deals with companies that are usually small companies that can be traded in cheap and has less regulation.

Bond Market – This refers to the market where investors loan money on bond as security for a specific time period and that too at a predefined rate of interest. The bonds are largely issued by corporations, states, municipalities, and federal governments across the world

Money Markets –This refers to the place where high liquid and short maturities are traded, lending of securities that matures in less than a year.

Derivatives Market – This refers to the place where the value of traded securities are determine from its primary asset.

Forex Market –This refers to the market where investors trade in currencies.

Financial Markets and Institutions

Any organisation that helps in the efficient flow of investments and savings in the economy and helps to facilitate the growth of funds for producing goods and services is termed. The demands of investors, receiver and the overall economy of a country is progressed by the financial products and instruments and financial markets and institutions. This vast Financial market gives an opportunity to investors to specialise in specific services and markets. Financial market and financial are two pillars of a country growth

Financial Market: Functions

Given below are some of the functions of financial markets:

  • Financial market is mainly responsible to mobilizes savings by trading it in the most productive methods.
  • The securities prices are also decided by the interaction with the investors and depending on the demand and supply in the market.
  • The bartered assets gets liquidity through Financial Market.
  • Financial market is the most effective place for parties as they don’t have to spend extra time and money to find potential clients to deal with securities.

Stock Markets of India

Most of the trading in the Indian stock market takes place on its two stock exchanges: the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

The BSE has been in existence since 1875 and Ahmadabad Stock Exchange in 1894 were the oldest stock exchanges in India. Alter liberalization and setting up of National Stock Exchange (NSE) which was founded in 1992 and started trading in 1994, finally, 22 other Exchanges in various cities sprang up. However, NSE and BSE are the major stock exchanges accounted for 99.98% of the total turnover in India. Both exchanges follow the same trading mechanism, trading hours, settlement process, etc.

Classifications of Financial Markets

One needs to understand that markets are classified based on different concepts:

  1. Based on Nature of returns
  • Debt Market: These Markets offer debt instruments and fixed returns like bonds and debentures, etc. for trading. Traders can buy these Financial holdings at debt Markets  for a fixed return and an agreed-upon maturity period.
  • Equity Market: These Markets are designed for residual claims meaning Share holders are given profit at the end.
  1. Based on maturity period
  • Money Market: Certificates of deposits, treasury bills, etc. are available in these Markets for trading. Maturity period is less than 1 year.
  • Capital Market: Among classification of Financial Markets, capital Markets are divided into primary and secondary Markets. Primary Markets allow newly listed companies to issue new securities, while also allowing listed companies to issue new shares. Maturity period is more than 1 year
  1. Based on Time of Delivery
  • Cash Market: These Markets offer real time transactions which are immediately settled between different sellers and buyers. SEBI presently has T+2 days transaction cycle.
  • Futures Market: Among various types of Financial Markets and their functions, these Markets offer transactions where settlements and commodities are delivered in future dates.
  1. Based on organizational Structure
  • Exchange-Traded Market: These are centralised trading Markets which record immense trading on a daily basis. These have standard procedures which regulate their functioning while trading Financial holdings like shares. Eg BSE, NSE.
  • Over-the-Counter Market: These Markets have customised procedures and do not have any centralised organisation. Traders can trade without involving any broker in their transactions. Typically offering shares from small companies, investors can trade in these Markets online.

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