Financial instruments are paper documents. Yet just as a surgeon uses instruments as financial instruments to undertake crucial exchanges of financial resources. They also can use financial instruments to help reduce the risks of financial loss.
There are two basic ways to categorise financial markets. One, which distinguishes between primary or secondary markets, separates types of financial markets depending upon whether or not they are markets for newly issued instruments. The other, which distinguishes between capital and money markets, defines financial markets on the basis of the instrument maturities. The maturity of an instrument is the time ranging from the date of issue until final principal and interest payments are due to the holders of the instruments. Maturities of less than a year are short-term maturities, while maturities in excess of ten years are long-term maturities. Maturities ranging from one to ten years are intermediate-term maturities.
Institutions that serve as the middlemen in this process of financing are financial intermediaries. These intermediaries exist solely to take the funds of savers and redistribute those funds to the ultimate borrowers.
When individual savers allocate some of their saving to a business by purchasing a corporate ...