Types of Financial Markets: Money Market, Capital Market, and FX Market

The video tutorial provides an overview of financial markets, focusing on the money market, capital market, and foreign exchange market. It explains the types of financial assets traded, their maturity dates, and the purposes these markets serve. The money market deals with short-term finance, offering liquidity and low risk. The capital market caters to medium to long-term finance needs, involving bonds and shares. The foreign exchange market is the largest, facilitating currency trades through spot and forward contracts. The tutorial highlights the importance of understanding risk and reward in these markets.

What is the primary function of financial markets?

• To trade physical goods

• To regulate government policies

• To facilitate the exchange of financial assets

• To provide employment opportunities

Which of the following is a characteristic of the money market?

• Short-term loan finance

• Long-term financial instruments

• Real estate transactions

• High-risk investments

Why are Treasury bills considered low-risk investments?

• They have a long maturity period

• They are backed by private companies

• They offer high returns

• Governments control their own currency

What is the primary difference between the primary and secondary markets in the capital market?

• Primary market is only for government bonds

• Primary market is for short-term finance, secondary for long-term

• Primary market deals with new issues, secondary with existing ones

• Primary market is riskier than secondary

Why might a company prefer the capital market over the money market?

• To avoid dealing with banks

• To invest in foreign currencies

• To fund large expansion plans

• To raise short-term finance

What is the main activity in the foreign exchange market?

• Trading stocks and bonds

• Exchanging different currencies

• Buying real estate

• Issuing new shares

How does a forward contract benefit businesses in the foreign exchange market?

• It allows immediate currency exchange

• It locks in exchange rates for future transactions

• It increases the risk of currency fluctuations

• It provides higher returns than spot transactions

What is a key feature of the spot market in foreign exchange?

• Delayed currency exchange

• High transaction fees

• Fixed future exchange rates

• Immediate currency exchange at current rates

Which financial market is known for dealing with short-term instruments?

• Money market

• Real estate market

• Foreign exchange market

• Capital market

What is the role of the secondary market in the capital market?

• Issuing new stocks and bonds

• Providing short-term loans

• Regulating currency exchange

• Facilitating the trade of existing securities