FINANCIAL MARKET

FINANCIAL MARKET

BY VANDANA DALAL

​PGT COMMERCE

​KV JUTOGH CANTT SHIML

​CONCEPT OF FINANCIAL MARKET

​A financial market is a market for the creation and exchange of financial assets.

Financial markets exist wherever a financial transaction occurs.

Financial transactions could be in the form of creation of financial assets such as the initial issue of shares and debentures by a firm or the purchase and sale of existing financial assets like equity shares, debentures and bonds.

​Functions of Financial Market

​1. Mobilisation of Savings and Channeling them into the most Productive Uses: It gives savers the choice of different investments and thus helps to channelise surplus funds into the most productive use.

​2. Facilitating Price Discovery: You all know that the forces of demand and supply help to establish a price for a commodity or service in the market. In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

NCERT

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​3. Providing Liquidity to Financial Assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required. Holders of assets can readily sell their financial assets through the mechanism of the financial market.

​4.Reducing the Cost of Transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would have to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfillment of their individual needs.

Multiple Choice

1. Financial market ________ financial assets. 

• (a) Creates

• (b) Exchange 

• (c) Creates and Exchange

• (d) None of the above 

Multiple Choice

3. Money market deals in ________ securities. 

• (a) Short-term

• (b) Long-term 

• (c) Short-term and long-term

• (d) Mid-term

Multiple Choice

Primary market is associated with ________ issues. 

• (a) Old

• (b) New 

• (c) Old and New

• (d) Very Old