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Introduction to financial Markets - Essay Example
Finance & Accounting
Pages 5 (1255 words)
Introduction to Financial Markets Name Institution Introduction A financial market is a trading environment where individuals and business entities can buy and sell financial assets, securities, and other fungible products at relatively low transaction costs…
The essay is developed from the Financial Markets Theory that avails classical asset pricing hypothesis, a hypothesis composed of objectives such as portfolio choices, basic asset pricing theorem, risk management, portfolio limit, information in financial markets and no risk neutral assessment. Financial Markets Functions The functions of the financial markets are geared towards fulfilling the theory statements and they include: Financial market price determination usually offers modes by which prices are determined both for freshly issued financial assets as well as the available stock of financial assets. The next function is the Information Aggregation and Coordination within the financial markets that work as aggregators (computers) and gatherers of information of financial asset worth and the flow of finances from borrowers to lenders (Banks, 2001). Information Aggregation and Coordination also help in Risk Sharing. Financial markets permit a transfer of vulnerability from those who assume investments to those who supply funds for these ventures. Additionally, it promotes Liquidity where the financial markets offer the financial assets possessors with a possibility to liquidate or resell the already available assets. Finally, it is worth noting that Information Aggregation and Coordination promotes efficiency in the functioning of financial markets. Financial markets cut transaction costs and information expenses (Roberts, 2008). ...