Financial Markets: The Different Types Of Financial Market

Introduction financial markets are known by many names, including capital markets, Wall Street, even simply "the markets". Whether known by any name, financial markets are essentially where stock-brokers buy and sell stocks, bonds, derivatives, foreign exchange and commodities etc. These markets are where big corporations go to raise cash in order to expand, other corporations decrease their liabilities and stock-holders make their money.

Different Types of Financial Markets

1. The Stock Market – The stock market is an array of exchanges where profitable companies go to raise huge amounts of cash in order to grow. Stocks are shares of ownership of a public company that are sold to shareholders through broker dealers. The shareholders make money

The Bond Market – The bond (debt) market is where companies go to get very big loans. Generally, when the share prices increase, the bond prices decrease. However, there are many distinct kinds of bonds like: Treasury Bonds, corporate bonds, municipal bonds etc. Bonds also provide some of the liquidity that keeps a free market economy like the American economy operating effortlessly. It is important to comprehend the relationship between Treasury bonds and Treasury bond yields. Essentially, when Treasury bond values decrease, the yields increase in order to compensate. When the Treasury yields increase, mortgage interest rates also increase. Even worse, when Treasury values decrease, so does the value of the American dollar. This makes import prices rise, which can trigger inflation in the American

Forex Trading – Forex trading is where different currencies of different countries are purchased and sold. More than $5.3 trillion is bought and sold per day, and 87% involves the American dollar. Nearly 25% of the forex trade is undertaken by major banks for their clients, in order to reduce the instability of doing business overseas. Hedge funds are responsible for another 11%, and some of it is pure speculation. This market affects exchange rates, and therefore the value of the American dollar and the values of other major currencies.

Functions of the Financial Markets

Financial markets create an open and regulated system for corporations to get large amounts of financial capital quickly to grow their businesses. This is accomplished through the stocks and bonds markets. Markets also allow these businesses to offset risk with commodities and foreign exchange futures contracts, as well as other derivatives. Because the Financial markets are public, they provide an open and transparent way to set prices on everything that is traded. These prices assume that all available knowledge about everything traded is taken into consideration (Efficient Market