Different Types of Financial Markets
• Capital Market
Capital Market consists of primary market and secondary market. In primary market newly issued bonds and stocks are exchanged and in secondary market buying and selling of already existing bonds and stocks take place. So, the Capital Market can be divided into Bond Market and Stock Market. Bond Market provides financing by bond issuance and bond trading. Stock Market provides financing by shares or stock issuance and by share trading. As a whole, Capital Market facilitates raising of capital.
• Money Market
Money Market facilitates short term debt financing and capital.
• Derivatives market
Derivatives Market provides instruments which help in controlling financial risk.
• Foreign Exchange market
Foreign Exchange Market facilitates the foreign exchange trading.
• Insurance Market
Insurance Market helps in relocation of various risks.
• Commodity Market
Commodity Market organizes trading of commodities.
Contribution of Financial Markets
Financial Markets are essential for fund raising. Through Financial Market borrowers can find suitable lenders. Banks also help in the process of financing by working as intermediaries. They use the money, which is saved and deposited by a group of people; for giving loans to another group of people who need it. Generally, banks provide financing in the form of loans and mortgages. Except banks other intermediaries in the Financial Market can be Insurance Companies and Mutual Funds. But more complicated transactions of Financial Market take place in stock exchange. In stock exchange, a company can buy others' company's shares or can sell own shares to raise funds or they can buy their own shares existing in the market.
Basis of Financial Market
Basis of Financial Markets are the Borrowers and Lenders.
Borrowers of the Financial Market can be individual persons, private companies, public corporations, government and other local authorities like municipalities. Individual persons generally take short term or long term mortgage loans from banks to buy any property. Private Companies take short term or long term loans for expansion of business or for improvement of the business infrastructure. Public Corporations like railway companies and postal services also borrow from Financial Market to collect required money. Government also borrows from Financial Market to bridge the gap between govt. revenue and govt. spending. Local authorities like municipalities sometimes borrow in their own name and sometimes govt. borrows in behalf of them from the Financial Market.