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Financial Market



Financial Market         
When a company invests idle funds in marketable securities, it has to connect with financial market.
Purpose behind Financial Markets
It is because the savings of various individuals, financial asset exist in an economy.
Purpose of Financial Markets in an economy is to allocate savings efficiently to ultimate users.

If in Real Asset,
Savings = Investment
There would be
NO External Financing
NO Financial Assets
NO Money or Capital Market
In the economy,
Savings-Surplus Unit (Savings> Investment)
Provide funds to
Savings-Deficit Unit (Investment> Savings)

Types of Financial Markets
a)     Money and Capital Markets.
b)    Primary and Secondary Markets.


Money and Capital Markets

Money Market
 For Short-term securities less than one year maturity.
 Includes Government and Corporate debt securities.

Capital Market
  For Long-term securities more than one year maturity.
  Includes debt and equity instruments (e.g., bonds and stocks).

 Primary and Secondary Markets

Primary Market
  New issue market.
  Funds are raised through the sale of new securities.

Secondary Market
  Second hand market.
  Existing securities are bought and sold.

For Example,
The sale of a new motorbike provides cash to the bike manufactures and the sale of used motorbikes provides cash to the second hand bike dealers.

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