Types of Financial Markets - Example

Running Head: FINANCE ESSAY 2 Finance Essay 2 of the Institute] Types of Financial Markets: There are many markets whose functions are associated with the financial markets so there are so man y markets which are the part of financial markets these are: Capital markets, Bonds markets, Stock markets, Money markets, The financial instruments markets, Commodity markets, Future markets, Foreign exchange markets. Capital Market: The capital market is that market which is associated with the buying and selling of the securities. These are the markets where there are two types of participant different multinational companies and the other one is governments. There are so many securities which sell by the government in these markets and they are purchased by the companies. These all functions are with the objective of raising the long term funds. The securities which are the part of these markets are the securities such as the bonds and common stocks this common stock is the buying and selling associated with the shares of companies. The capital market is divided in to the primary market and the secondary market. The functions of primary market in the capital market are to raise the short term finance. These are associated with the newly issued securities by the government and the corporate. This market also serves to raise the long term capital and the primary stage of selling the securities in the markets. These markets are called the newly issued markets as their functions are related with the selling. If the newly issued securities for the first time in market these securities are issued by different companies to many investors. In order to raise the long term capital for these selling’s, the companies issue and sell the securities to investors and receive money for that security. However these markets functions are not associated with the issues of the long term loans such as the loans from different financial institutions. In these markets there are all the borrowers who can easily sale and purchase the securities also. They convert the private capital in to the public capital too. The secondary markets in capital markets are associated with the buying and selling of those securities which are already the part of market and they are not new they are transferred from the primary to secondary and they are the existing securities in these markets. The selling of securities takes place by transferring the security from one of the investor to others like the speculator and then from that the security goes forward. Secondary market is called the efficient market in the capital markets and this is the market for all types of those goods which already exist and the used goods. Bond Market: The bond markets are the markets which are called the credit, debt and the fixed income market. These are the financial markets in which the buying and selling of the securities are done by the different buyers and sellers of debt securities. Debt securities transfers is the transfers of those assets which one person own him self to others. These are the securities which are in the form of bonds with different maturities. The bonds market participants are the investors government and traders and many individuals. There participants are as same like the participants of the other markets, however it is noted that the bonds markets are not so strong like the other markets. The liquidity problems which are associated with the bonds maturities that why many people do not take interest in the bonds and these are mainly in the hands of different institutions which includes banks such as the governments banks who gave the pensions, other different financial institutions and the mutual funds banks. However, individuals can easily participate in the bonds market by making the investments in bonds markets. In many of the countries these bonds markets have not such active markets like the stock markets future markets and the commodity markets so the bonds markets are not so strong. Stock Markets: Stock markets are the markets for trading the companies stocks and the company’s financial instrument. These are those securities by different companies which are listed on the stock exchange and also those which are the company owned securities. This is the markets which are used by the companies fort trading there shares and securities as well as the financial instruments. These markets serve as the main resource for the companies to raise the money. The exchange provides the liquidity to the investors to raise money from the securities. Many of the people invest in these securities, in order to easily convert them into cash and raise the profits. These mutual funds are used by the company to make their small investments at some other places and the buying and selling of shares are the most important part of every economy. Money Market: The money market is also the part of the financial market, which provides the availability of the borrowing and lending of the financial instruments. These are the markets whose functions are associated with the short term finance. In these money markets, the participants are engaged in the borrowing and lending of the financial instruments that are for the short term basis and are easily converted into cash. These are engaged in the trading of papers which is termed as the short term financial instruments and the opposite of this market is the capital market which is associated with the long term finance. Many of the money markets consist of the financial institutions which are engaged in buying and selling of the financial instruments and the instruments are commercial papers, re-purchase agreements and other instruments. Financial Instruments Market: This is called the derivative market and these derivatives are the financial instruments. This market deals with the buying and selling of the financial instruments. These are the markets which are divided into the two markets such as the over the counter markets and the exchanges traded derivates. These markets are involved in the future transactions and made the contracts for future. Commodity Market: These are the markets which deal with the exchange of the primary products. There buying and selling are done with the help of future contracts. In these markets some of the assurance is given by the government in case of any default, like insurance and to make such standards by which the liability is released from the person. Due to the high risk associated with such commodities so release of half of the debt is necessary in these markets. Future Markets: The future markets are associated with the functions of buying and selling of some securities on future contracts made. These future contracts are made for the underlying instruments to buy and sell them in future at some fixed price and the price which is to be set by the companies in advance and are treated as the future price of the instrument. It is the contract t by which the right of owner ship given to the buyer or the seller to buy and sell the instrument in future and the total obligation of instrument. The date of contract would be fixed and the parities which are involve in the transactions arte necessary to fulfill the future contract at the specified and predetermined time and date. The future instruments are those which are always traded on the exchange. Foreign Exchange Market: The foreign exchange market is the currency market which is associated with the trade of currency in other currencies. This market is considered to be the largest of all the markets in the world and the trade would be between the financial institutions speculators the companies such as private companies and the financial markets which are the part of the foreign exchange market. There is large number of liquidity which exists in the foreign exchange markets and the most observable thing in this market is that it has large number of traders and it works for all hours of the day and the market which never closed. An accommodation or facility provided on the basis of participation in profit and loss, mark-up or mark-down in price, hire-purchase, equity support, lease, rent-sharing, licensing charge or fee of any kind,  purchase and sale of any property  including commodities, patents, designs, trade marks and copy-rights, bills of exchange, promissory notes or other instruments with or without buy-back arrangement by a seller, participation term certificate, musharika, morabaha, musawama, istisnah or modaraba certificate, term finance certificate. Financial Institutions: Financial institutions are the institution which serves as the body for the financial transactions and provides the financial services to their customers. The financial institutions are concerned with the working on the finance and the financial structure of the country. All the economies must have the good financial system to make the healthy growth of the economy. These financial institutions are regulated by the governments which are engaged in the strengthening of the companies and the industrial section of the economy too. If these financial institutions are weaker then there is no such growth in the economy and it takes place as the economies of the developed countries of the world. These financial institutions act as the intermediate between the capital and debt markets and provide the services of transference and issuance of funds. They help in transfer of the funds from investors to the companies and from various companies to some other financial institutions. These financial institutions, if present in the economy serves as the good instruments for transfer of money and to increase the flow of money in the country. The financial institutions mainly includes banks, the credit companies, stock brokerages and the building societies and there are also some other businesses and firms which are the part of financial institutions today. The most common working of the financial transactions is associated with the financial institutions like the banking sector of the economy. These financial institutions are the government financial institutions and the private institutions too. The commercial banks Islamic banks many financial companies and the credit companies all comes under he category of the financial institutions. All market economies rely on the voluntary relationships of autonomous individuals acting in their self-interest to create wealth through productive enterprise. For most enterprises, economic inputs fundamental to the entitys success are not initially owned by the enterprise. Entities and individuals contract with one another to form borrower/saver relationships. Savers provide economic inputs to borrowers who use such inputs to generate economic outputs. Borrowers, in turn, promise a return of their inputs, as well as a portion of the net output (i.e., principal plus interest), to savers. By serving as "intermediaries between savers and borrowers," banks have eliminated much of the inherent inefficiency and risk in this process. Banks thus "raise funds by issuing their obligations to savers, and provide these funds to borrowers by acquiring the borrowers obligations." In effect, banks have earned their profits through the interest rate spread between the rate they pay on deposits and the rate they charge for loans. The advent of banks resulted in an "efficient payment system" that financed the Industrial Age. Today, banks are much larger and more complex than they were a few hundred years ago, yet their main function as intermediaries between savers and borrowers remains, and they continue to flourish. The most significant trend in banking is "globalization." For the past decade, American banks have been establishing branches, subsidiaries, agencies, and representative offices in foreign countries at astonishing rates, and other nations banks are doing the same in the United States. Bank customers are no longer only individuals and entities from the banks home country. For example, an American bank (intermediary) may loan British corporation (borrower) money that was initially deposited by a Japanese bank (saver). International banking centers have emerged, creating more competition among banks and expanding the parameters of commercial payment systems. The current legal systems of individual nations, however, are more or less insufficient to address the tumultuous changes arising from globalization. The banks role as a financial intermediary involves many specific risks, of which the most predominant is credit risk--which a borrower will default on a loan. On a banks balance sheet, a loan is classified as an asset, because it is an entitlement of the bank to receive a certain amount of money (plus periodic interest payments) on a given date from a borrower. The main liabilities on a banks balance sheet are its deposits, or obligations to reimburse savers on a specified date or upon demand. The amount of net assets (assets minus liabilities) is thus the banks capital. Capital is generally "a financial cushion that absorbs banks losses and thus protects depositors--or any entity that insures depositors--from loss." REFERENCES 1. The Washington Post, p. A1, January, 2013. 2. The Journal of Commerce, p. 6A, September 13, 2012. 3. BSR Education Fund publication, "Whats at Stake for Business," Electric Utility Deregulation Information Series 2006 report. 4. The Wall Street Journal, p. A3, December 19, 2013. 5. The New York Times, p. D1, December 19, 2013 6. Deputy Energy Secretary Charles B. Curtis, National Journal, November 30, 2013, p. 2595 7. Amel, Dean F. (1993). "State Laws Affecting the Geographic Expansion of Commercial Banks." Unpublished manuscript, Board of Governors of the Federal Reserve System. 8. Andrade, Gegor, Mark Mitchell, and Erik Stafford (2001). "New Evidence and Perspectives on Mergers." Journal of Economic Perspectives 15, 103-120. Read More