• 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 market, 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.
o Futures markets, which provide standardized forward contracts for 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 consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.
Raising capital
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 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:
No comments:
Post a Comment