Classification of financial markets
|Classification of financial markets|
Classification of financial markets with regard to type of instrument traded we can distinguish:
- securities market - stock exchange the market we can buy and sell in stocks, bonds, shares and other securities
- debt market - involved in the trading of debt instruments for example corporate bonds and government also deal with the trading of packaged loan products that are sold to investors
- equity market - the trading of debt instruments: corporate bonds and others
- money market - sell and buy of securities of short-term dates, of one year or less for example treasury bills and commercial papers
- stock market - relates to the assemblage of markets and exchanges where the systematic operations of selling, buying and issuance of shares of openly held companies occur
- derivatives market - is for offshoot, financial implement for example options or futures contracts, which are derived from different molds of assets
- commodity market - trades in primary economic sector preferably than manufactured products; soft merchandise are agronomical products such as wheat, cocoa, coffee, vegetables and sugar, hard commodities are mined for ecxample oil and gold
- long-term/short-term loans market - one-time, short-term or long-term loan whereby the lender ensures the borrower with a certain amount of currency, national or foreign for a term not exceeding one year or exceeding one years. Full repayment of nominal and interest due to the lender must be paid at the end of the facility period
- government papers market - debt securities that are spend or guaranteed by a supreme government, this is paper as the least risky debt securities in country and will offer investors the lowest efficiency liken with debt of a like maturity published by other entities in that nation
- interbank market - segment of the money market in which the banking establishment are the pages and interbank deposits in the national and foreign currency and the short-term financial instruments are transacted
With regard to area of activities we can distinguish:
Functions Financial Markets
Financial markets take many different forms and operate in various ways. But all of them, whether very well organised or highly informal.
- Price setting - the value of an ounce of gold or a part of stock is no more and no less, than what someone is eager to pay to own it. Markets ensure price discovery, a way to establish the comparative values of different items, based up on the prices at which person is willing to buy and dispose them.
- Asset valuation - market prices offer the best way to constitute the price of a company or of the company's assets or property. This is essential not only to those buying and selling firms, but also to controllers. An insurer, for sample, may look strong if it values the securities it possess at the prices it paid for them years ago, but the important question for thinking its solvency is what prices those securities could be sold for if it required cash to pay claims now.
- Arbitrage in countries with weakly developed financial markets, merchandise and values may trade at very different prices in miscellaneous locations. As businessmans in financial markets sample to profit from these discrepancies, prices move towards a homogeneous level, making the entire economy more effective
- Raising capital - company often need funds to build new facilities, exchange machinery or broaden their business in other ways. Bonds, shares and another types of financial instruments make this passable. The financial markets are also an important origin of capital for person who wish to buy houses or cars, or even to make credit-card purchases
- Commercial transactions - as well as long-term capital, the financial markets ensure the grease that creates many commercial transactions possible. This allow such things as getting up payment for the sale of a product abroad and providing working capital so that a company can pay employees if payments from customers run late
- Investing - the stock, bond and money markets ensure an occasion to earn a return on funds that are not required immediately and to collect assets that will provide an revenue in future
- Risk management - options and other derivatives contracts can ensure protection against many knds of risk, such as the prospect that a foreign currency will lose price against the national currency before an export remittance is received. They also enable the markets to attach a price to risk, allowing companys and person to trade risks so they can reduce their exposition to some while retaining exposition to others (Levinson M. 2014, p. 2-3).
- Bonanno, G., Caldarelli, G., Lillo, F. i in. Eur. Phys. J. B (2004) Networks of equities in financial markets Springer Berlin Heidelberg, No. 38, p. 363-371.
- Levinson M. (2014) Guide to Financial Markets The Economist in Associattion with Profile Books Ltd, No. 1, p. 1-16.
- Wurgler J. (2000) Financial markets and the allocation of capital Journal of financial economics No. 58, p. 187-214.
Author: Paulina Pietroń