In the field of economics, a financial market is a type of system through which people do buying and selling of commodities, financial securities, and other items of value at a price that display the efficient market hypothesis.
In the real world, both the specialized and the general markets exist. The ultimate objective of a market is to bring buyers and sellers at a single place for trading. A market economy is a structure whereby the economy fully focuses on the interactions between sellers and buyers.
In the finance world, the objectives of the financial markets are:
• Raising the capital.
• The shift of risk.
• The shift of liquidity.
• Foreign or global trade.
In the financial market, a buyer issues a receipt to the seller who guarantees to pay back the capital. These receipts are taken as financial securities and can be sold at any time. In reply to lending money to the buyer, the seller gets some time of compensation that is known as dividends or interest.
Categories of the financial markets
The financial markets are further divided into various types like:
• Capital markets that includes stock markets and bond markets.
• Commodity markets.
• Money markets.
• Derivatives markets.
• Foreign exchange markets.
• Future markets.
• Insurance markets.
Raising the capital
To understand the financial markets in depth, first we need to look at their usage. It is the financial market that makes it easy for the borrowers to seek the lenders. As an intermediary, bank dos this job. Banks take money from those who are willing to save it. Then they use this saved money and forward them to the borrowers. The most popular ways of lending money from banks are mortgages and loans.
For further complex transactions, a market is required agents from the lender side interacts with the agents from the borrower’s side, and hence a contract is taken place. One of the best examples in this regard is the stock exchange. It is a place where a company sells its shares to investors for raising the capital.
Who are lenders?
These are those individuals/companies that have enough money to lend it to those who are seeking for it. As a result, the borrowers’ pay them interests along with the basic amount of the loan.
Usually companies are referred as the borrowers of the loan. When companies are having surplus cash that is not in usage, then they use this cash for the lending purposes through the short term markets.
There are usually very fewer companies that are having stronger cash flows. These companies appear as lenders than the borrowers. These companies can decide to return the cash flows to the lenders.
The individuals borrow money from the banker’s loan to meet their short term requirements. On the other hand, companies tend to borrow loan to help in raising the short or long term cash flows.
Analysis of the financial markets
With the passage of time, a detailed and continuous study is carried on the financial markets about how the price varies. The basis of technical analysis is the Dow Theory that brings various analyses to measure the future prices in the financial market. A market trend is a useful indictor that comes under the title of technical analysis and gives the useful information about the short and long-term perspective of the market.