1. Financial market
A financial market is a market in which
people and entities can trade financial
securities, commodities, and other
fungible items of value at low transaction
costs and at prices that reflect supply and
demand. Securities include stocks and
bonds, and commodities include precious
metals or agricultural goods.
There are both general markets (where
many commodities are traded) and
specialized markets (where only one
commodity is traded). Markets work by
placing many interested buyers and
sellers, including households, firms, and
government agences, in one "place", thus
making it easier for them to find each
other. An economy which relies
primarily on interactions between buyers

2. and sellers to allocate resources is known
as a market economy in contrast either to
a command economy or to a non-market
economy such as a gift economy.
Definition
In economics, typically, the term market
means the aggregate of possible buyers
and sellers of a certain good or service
and the transactions between them.
The term "market" is sometimes used for
what are more strictly exchanges,
organizations that facilitate the trade in
financial securities, e.g., a stock
exchange or commodity exchange. This
may be a physical location (like the
NYSE, BSE, NSE) or an electronic
system (like NASDAQ). Much trading of
stocks takes place on an exchange; still,

3. corporate actions (merger, spinoff) are
outside an exchange, while any two
companies or people, for whatever
reason, may agree to sell stock from the
one to the other without using an
exchange.
Trading of currencies and bonds is
largely on a bilateral basis, although
some bonds trade on a stock exchange,
and people are building electronic
systems for these as well, similar to stock
exchanges.
Financial markets can be domestic or
they can be international.
Types of financial markets
financial markets can be divided into
different subtypes:

4. • Capital markets which consist of:
o Stock markets, which provide
financing through the issuance of
shares or common stock, and
enable the subsequent trading
thereof.
o Bond markets, which provide
financing through the issuance of
bonds, and enable the subsequent
trading thereof.
• Commodity markets, which facilitate
the trading of commodities.
• Money markets, which provide short
term debt financing and investment.
• Derivatives markets, which provide
instruments for the management of
financial risk.
• Futures markets, which provide
standardized forward contracts for

5. trading products at some future date;
see also forward market.
• Insurance markets, which facilitate
the redistribution of various risks.
• Foreign exchange markets, which
facilitate the trading of foreign
exchange.
The capital markets may also be divided
into primary markets and secondary
markets. Newly formed (issued)
securities are bought or sold in primary
markets, such as during initial public
offerings. Secondary markets allow
investors to buy and sell existing
securities. The transactions in primary
markets exist between issuers and
investors, while in secondary market
transactions exist among investors.

6. Liquidity is a crucial aspect of securities
that are traded in secondary markets.
Liquidity refers to the ease with which a
security can be sold without a loss of
value. Securities with an active
secondary market mean that there are
many buyers and sellers at a given point
in time. Investors benefit from liquid
securities because they can sell their
assets whenever they want; an illiquid
security may force the seller to get rid of
their asset at a large discount.
Raising capital
Financial markets attract funds from
investors and channel them to
corporations—they thus allow
corporations to finance their operations
and achieve growth. Money markets
allow firms to borrow funds on a short

7. term basis, while capital markets allow
corporations to gain long-term funding to
support expansion.
Without financial markets, borrowers
would have difficulty finding lenders
themselves. Intermediaries such as banks
help in this process. Banks take deposits
from those who have money to save.
They can then lend money from this pool
of deposited money to those who seek to
borrow. Banks popularly lend money in
the form of loans and mortgages.
More complex transactions than a simple
bank deposit require markets where
lenders and their agents can meet
borrowers and their agents, and where
existing borrowing or lending
commitments can be sold on to other
parties. A good example of a financial

8. market is a stock exchange. A company
can raise money by selling shares to
investors and its existing shares can be
bought or sold.
The following table illustrates where
financial markets fit in the relationship
between lenders and borrowers:
Relationship between lenders and
borrowers
Financ
Financial
Lender ial
Intermedia Borrowers
s Marke
ries
ts
Individu Banks Interba Individuals
als Insurance nk Companies
Compan Companies Stock Central
ies Pension Exchan Governme

9. ge
Money
nt
Market
Municipali
Funds Bond
ties
Mutual Market
Public
Funds Foreig
Corporatio
n
ns
Exchan
ge
Lenders
Who have enough money to lend or to
give someone money from own pocket at
the condition of getting back the
principal amount or with some interest or
charge, is the Lender.
Individuals & Doubles

10. Many individuals are not aware that they
are lenders, but almost everybody does
lend money in many ways. A person
lends money when he or she:
• puts money in a savings account at a
bank;
• contributes to a pension plan;
• pays premiums to an insurance
company;
• invests in government bonds; or
• invests in company shares.
Companies
Companies tend to be borrowers of
capital. When companies have surplus
cash that is not needed for a short period
of time, they may seek to make money
from their cash surplus by lending it via

11. short term markets called money
markets.
There are a few companies that have very
strong cash flows. These companies tend
to be lenders rather than borrowers. Such
companies may decide to return cash to
lenders (e.g. via a share buyback.)
Alternatively, they may seek to make
more money on their cash by lending it
(e.g. investing in bonds and stocks.)
Borrowers
Individuals borrow money via bankers'
loans for short term needs or longer term
mortgages to help finance a house
purchase.
Companies borrow money to aid short
term or long term cash flows. They also

12. borrow to fund modernisation or future
business expansion.
Governments often find their spending
requirements exceed their tax revenues.
To make up this difference, they need to
borrow. Governments also borrow on
behalf of nationalised industries,
municipalities, local authorities and other
public sector bodies. In the UK, the total
borrowing requirement is often referred
to as the Public sector net cash
requirement (PSNCR).
Governments borrow by issuing bonds.
In the UK, the government also borrows
from individuals by offering bank
accounts and Premium Bonds.
Government debt seems to be permanent.
Indeed the debt seemingly expands rather
than being paid off. One strategy used by

13. governments to reduce the value of the
debt is to influence inflation.
Municipalities and local authorities may
borrow in their own name as well as
receiving funding from national
governments. In the UK, this would
cover an authority like Hampshire
County Council.
Public Corporations typically include
nationalised industries. These may
include the postal services, railway
companies and utility companies.
Many borrowers have difficulty raising
money locally. They need to borrow
internationally with the aid of Foreign
exchange markets.
Borrowers having similar needs can form
into a group of borrowers. They can also

14. take an organizational form like Mutual
Funds. They can provide mortgage on
weight basis. The main advantage is that
this lowers the cost of their borrowings.
Objective basis for the
introduction
The financial markets are inevitable
product of market economy, the
emergence and existence of this
market comes from the objective
requirements of the settlement of the
conflict between demand and supply
capacity in major capital economic
development. The economy has
always existed two conflicting state
between a demand and a party is the
ability of capital. This conflict was
originally settled by the bank's

15. activities as an intermediary in
relations between the borrowed
capital and capital needs. When the
commodity economy is highly
developed, many forms of raising
new capital raised and more flexible
development, better contribute to the
solution of the balance between
supply and demand for financial
resources in society, as matched
funding tools such as bonds, shares
of the business, government bonds ...
- It is the papers of value, referred to
as securities. And it appears from the
need to purchase, sale, transfer
between different owners of
securities. This causes the
appearance of a market to balance
supply and demand for capital in the
economy as the financial markets.

16. Therefore, the objective basis for the
emergence of financial markets is
resolved conflicts between supply
and demand for capital in the
economy through financial
instruments, especially the types of
securities, give rise need to
purchase, transfer of securities
between the different stakeholders in
the economy. The development of
commodity economy and currency is
the peak of the market economy
gives rise to a new market is the
financial market.
Financial market formation and
development associated with the
development of market economy.
The development of market economy
gave rise to the entity to finance and

17. those who are able to provide
financial resources. As the economy
growing market, the activities on the
issue and sale of securities also
developed, formed a separate market
to make provision for financial
resources to meet more easily and
conveniently, that the financial
markets.
Tools of the financial markets
To transfer the right to use the
financial resources, the main tool
used on the financial market as
securities. Securities are documents
or papers as indicated on the

18. electronic system confirm the legal
rights of certificate holders for which
the issuer; or stock certificates or
book entries, correct recognize the
legitimate rights and interests of the
owner of such documents to the
issuer.
Securities are many different types;
securities can be classified according
to different criteria:
Based on the time period:
Short-term securities, for less than 1
year;
Medium and long term securities.
Medium term from 1 to 5 years is
more than 5 years term.

19. Based on the subject of issue:
Securities of central government and
local;
Securities of banks and credit
institutions;
Securities of corporation.
Based on income:
Stable income Securities
Unstable Income securities
Based on legal standards:
Beares securities
Registered Securities

20. Based on the nature of securities:
Stocks (equity securities);
Bonds (debt securities);
Derivative securities.
Based on the nature of the issuer:
Primary market
Secondary market
Financial market structure
Based on the time to use funds
raised
1.The money market: As financial
markets have only short-term
instruments (maturity less than 1
year);

21. 2.Thi capital market: The market
place for buying and selling long-term
debt instruments such as stocks and
bonds. Capital markets are divided
into three parts as the stock market,
mortgage loans and bonds.
Based on the method of raising debt
financing
1.The debt market: the most common
methods that companies use to
borrow on financial markets is to
borrow a tool, such as bond or a
mortgage loans. The debt instrument
is an agreement contract with the
nature of fixed interest rate and
repayment term capital late period.
Maturity is less than 1 year is short,
on a year long and medium term.
Debt market is a market place for

22. buying and selling of debt
instruments mentioned above;
2.The equity market: The second
method is to attract companies to
issue shares. Shareholders own part
of the assets of a company. They
would receive dividend from the
company net profit after deducting
expenses, taxes and payments to
creditors (holders of debt
instruments).
Based on the flow of financial
resources
1.Thi primary market: As the
financial market place where buying
and selling securities are issued or
new securities. The buying and
selling securities on a market level is
often conducted through intermediary

23. banks;
2.Thi secondary marketl: The market
traded securities issued. When the
operation takes place to buy or sell
securities on the market of securities
who has received money from the
sale of securities issuers are not paid
more, a company which is only
collected when it sold the securities
of first on the primary market.
The functions and role of financial
markets
1.Transfer funds from the owners
may be able to provide financial
resources to the entity to finance:
Financial markets serve as a channel

24. funds from savers to businesses.
Help for the transfer of funds from no
profitable investment opportunities to
those who have profitable investment
opportunities.
Financial markets and promote the
accumulation of concentrated capital
to meet the needs of construction
material and technical basis,
production and business.
Financial markets make effective use
of capital, not only for investors who
have money but with people who
borrow money to invest. The lender
will profit through interest rates.
Borrowers must calculate capital
loans that use the most effective

25. because they have to repay principal
and interest to the lender at the same
time to generate income and
accumulate for them.
Financial markets to create favorable
conditions for the implementation of
the open-door policy, economic
reforms by the Government through
means such as issuing bonds
abroad, selling shares, attracting FDI
in addition to the business sector in
the country.
Financial markets allow the use of
valuable papers, stocks, bonds,
money exchange.
2. Providing liquidity for the

26. securities;
3. Providing economic information
and assess the value of the business.
The role of financial markets
1. Financial attract and financial
resources from local and abroad,
encouraging people savings and
investment;
2.Thi financial contribution to
promoting, improving financial
efficiency;
3.Thi financial performance in fiscal
policy, monetary policy of the state.