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Classification and Functions of Financial Markets

The document summarizes the classification and functions of financial markets. Financial markets allow buyers and sellers to trade assets and are typically defined by transparent pricing, basic regulations, and market forces determining prices. There are several types of financial markets including the capital market where individuals and institutions trade securities to raise funds; the stock market where investors buy and sell shares of publicly traded companies; and the money market where short term financial instruments are traded to facilitate borrowing and lending. Other markets discussed include the bond market, foreign exchange market, commodity market, and insurance market.

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75 views18 pages

Classification and Functions of Financial Markets

The document summarizes the classification and functions of financial markets. Financial markets allow buyers and sellers to trade assets and are typically defined by transparent pricing, basic regulations, and market forces determining prices. There are several types of financial markets including the capital market where individuals and institutions trade securities to raise funds; the stock market where investors buy and sell shares of publicly traded companies; and the money market where short term financial instruments are traded to facilitate borrowing and lending. Other markets discussed include the bond market, foreign exchange market, commodity market, and insurance market.

Uploaded by

KongskieRic
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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FIN.

321

CLASSIFICATION AND
FUNCTIONS OF
FINANCIAL MARKETS
Financial Markets

Is a broad term describing any marketplace where


buyers and sellers participate in the trade of assets

Are typically defined by having transparent pricing, basic


regulations on trading, costs and fees, and market forces
determining the prices of securities that trade.
Classification
of
Financial Markets
CAPITAL MARKET

It is composed of primary and secondary market

Individuals and Institutions trade financial securities

Public and Private sectors sell securities in order to


raise funds
-through buying and selling of securities, this enables
the government or corporation to finance its operations
and engage in its own long term investments .
Stock Markets

Allows investors to buy and sell shares in publicly


traded companies.

They provide companies with access to capital and


investors with a slice of ownership in the company
and the potential of gains based on the companys
future performance.
Bonds Market

This market is alternatively referred to as the


o Is a debt intrument in which an investor loans
debt, credit or fixed-income market
money to an entity, which borrows the funds
for a defined period of time at a fixed interest
rate.
Provides financing by accumulating debt
through bond
o Used by issuance
companies, and bond trading
municipalities, states,
and foreign government to finance a variety of
project and activities.
Money Market

This market is where financial instruments with high


liquidity and very short maturities are traded.

It is used by participants as a means of borrowing and


lending short term, from several days to just under a year.

It facilitates the interaction between individuals and


institutions with temporary surpluses of funds and their
counterparts who are experiencing a temporary shortage
of funds
Cash or Spot Market

Here, the goods are sold for cash and are delivered
immediately

Contracts bought and sold on the spot market are


immediately effective.

Prices are settled in cash on the spot at current market


price.
o Its value is derived from its underlying
asset/assets.
It facilitates the trading in financial instruments such as
o Is a contract,
futures contracts but the to
and options contract price is determined
help control financial
risk. by the market price of the core assets.

It can be used as part of a risk management program


Foreign Exchange
Market
Abets the foreign exchange trading.

Its the largest, most liquid market in the world with an


average traded value of more than $5 trillion per day.

It includes all of the currencies in the world and any


individual, company, country can participate in it.
Commodity Market

Manages the trading in primary products which takes


place in about 50 major commodity markets entirely
financial transaction increasingly outstrip physical
purchases which are to be delivered.
Hard Commodities
Raw material typically mined. (e.g. gold, oil, rubber,
iron, ore, etc.)

Soft Commodities
Are typically grown agricultural primary products
(wheat, cotton, coffee, sugar, etc.)
Insurance Market

It helps in relocating various risks.

The insurance market is a place where two peers, an


insurer and the insured, or the so-called policyholder,
meet in order to strike a deal primarily used by the client
to hedge against the risk of an uncertain loss.
Quiz

1. This market is where financial instruments with high


liquidity and very short maturities are traded.
2. Its the largest, most liquid market in the world with an
average traded value of more than $5 trillion per day.
3. is a place where two peers, an insurer and the
insured, or the so-called policyholder, meet in order to
strike a deal primarily used by the client to hedge
against the risk of an uncertain loss
4. Here, the goods are sold for cash and are delivered
immediately
5. Are typically defined by having transparent
pricing, basic regulations on trading, costs and fees, and
market forces determining the prices of securities that
trade.
6-7. Two main subgroups of Capital Market
8-10. Give at least 3 examples of financial markets.
1. Money Market
2. Foreign Exchange Market
3. Insurance Market
4. Cash or Spot Market
5. Financial Market
6. Stock Market
7. Bond Market
Thank You

Kingsoft Office
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