Overview of Financial Markets | MODULE D: FINANCIAL PRODUCTS AND SERVICES

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MODULE D: FINANCIAL PRODUCTS AND SERVICES

Overview of Financial Markets

Overview of Financial Markets | MODULE D: FINANCIAL PRODUCTS AND SERVICES

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What is a Financial Market?

A financial market is a platform or mechanism that facilitates the buying and selling of financial instruments like stocks, bonds, derivatives, currencies, and more. It helps channel savings into productive investments.

Evolution of the Financial Market

Financial markets have evolved from informal money lending practices in ancient times to formal institutions like stock exchanges and digital trading platforms. Key milestones include the formation of the Amsterdam Stock Exchange in 1602, the growth of central banks, and the advent of online trading and cryptocurrencies.

Segments of Financial Markets

Financial markets can be broadly categorized into:

  • Money Market – Short-term funds (less than a year), e.g., Treasury Bills.
  • Capital Market – Long-term securities like stocks and bonds.
  • Forex Market – Exchange of foreign currencies.
  • Derivatives Market – Trading in financial instruments based on underlying assets.
  • Commodity Market – Trading in raw materials like gold, oil, etc.
Functions of Financial Markets
  • Mobilization of Savings: Encourages individuals to invest.
  • Capital Allocation: Efficient transfer of funds to businesses.
  • Liquidity: Easy conversion of assets into cash.
  • Risk Management: Instruments like insurance and derivatives help manage risk.
  • Information Dissemination: Provides data for informed investment decisions.
Price Discovery

Price discovery is the process of determining the price of an asset through the interaction of buyers and sellers in a market. It reflects demand and supply dynamics and is influenced by factors like market sentiment, news, and economic indicators.

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Money Markets and Capital Markets

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Tags:- Financial Market, Functions of Financial Market, Evolution, Segments, Price Discovery

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