Financial Markets
Financial markets are not so much physical places as they are mechanism for channeling savings to the ultimate investors in real assets. The role of financial markets and financial institutions is in moving funds from the savings sector to the investment sector. From the figure we can also note the prominent position held by certain financial institutions in channeling the flow of funds in the economy. The secondary market, financial intermediaries, and financial brokers are the key institutions that enhance fund flows. Financial market has two kinds.
Money and Capital Markets:
Financial markets can be broken into two classes (i) the money market and (ii) the capital market. The money market is concerned with the buying and selling of short term (less than 1 year) government and corporate debt securities.
The capital market, deals with relatively long term (greater than 1 year) debt and equity instruments (bonds and stocks).
Primary and Secondary Markets:
Within money and capital markets there exist both primary and secondary markets. A primary market is a “new issues” market. Here, funds raised through the sale of new securities flow from the ultimate savers to the ultimate investors in real assets.
In a secondary market, existing securities are bought and sold. Transactions in these already existing securities do not provide additional funds to finance capital investment.
