A financial market is a marketplace where financial securities are sell and purchase. In other words, the marketplace where buyers and sellers trade securities such as bonds, derivatives, foreign stock, exchange of currencies, cryptocurrencies, and more.
The vital importance of the financial market are :
The type of financial markets are mentioned below:
The bond market is also known as the debt, credit, or fixed-income market. It is a marketplace that allows investors to buy company bonds to finance their projects. Bonds are like debenture, but they are used in banks and large companies such as in municipalities, states, and sovereign governments finance projects and operations. Bonds are issued for a pre-defined time period with a pre-defined interest rate.
Stock market/stock exchange is the marketplace where companies are looking forward to raising their capital. Various companies register their share and register them to the interested investors via an initial public offering(IPO).
A derivative is a financial marketplace where derivatives market trade in future and option contracts that drives their value from underlying instruments. This market involves contracts whose value totally depends on the market price of the asset being traded.
The foreign exchange, also known as Forex, FX, and currencies market, determines the global rate of foreign currencies. The forex market is the most liquid market, consisting of banks, commercial companies, central banks, investment management firms, forex dealers, and investors. Candidates in this market can buy, sell, and exchange various currency pairs.
Cryptocurrency is a digital currency that operates free of any central oversight of banks or government control. Instead, it relies on blockchain to record person-to-person transactions and centralized ledgers. In addition, cryptocurrency relies on cryptography to secure transactions where buyers and sellers can transact directly using encrypted digital wallets or exchanges. The ledger is maintained through a revolutionary technology blockchain that maintains all the transactions and public ledgers.
A commodity market is a physical and virtual marketplace where buyers and sellers sell/ buy commodity products like oil, gold, silver, wheat, barley, and copper.
The financial markets perform different functions:
The financial markets determines the price of various financial instruments trade between buyers and sellers. The price depends upon the market forces factor that assists in deciding the price of trade.
Liquidity allows investors to sell their financial instruments and face value in the market anytime.
Financial markets perform the function of risk sharing as the risk transfer from the person who is investing and selling funds/assets.
Financial markets provide a place/venue where buyers and sellers meet, interact, agree, and deal. Moreover, It helps in making trade much more accessible.
The financial market provides various types of information for doing the transaction of buying and selling securities.
The financial market provides a channel for new savings and cash flow by adding country capital formation.
The financial market brings buyers and sellers together and allows them to trade. It is a marketplace where investors and businesses raise funds to grow their businesses for long-term growth. In this marketplace, sellers and buyers get an appropriate candidate for their specific products, such as bonds, stock, and futures contracts.
In addition, the financial markets, buyers seek to buy products at the lowest price, and sellers seek to sell at the highest price. This process is done through an auction or price discovery mechanism.
Summing up the above article, financial markets help companies to raise funds to finance their growth. Moreover, It also brings buyers and sellers together to trade and broadens the scope of inclusivity in terms of economic integration.