Introduction to Financial Markets

Financial Markets, also widely called ‘capital markets,’ are markets where traders buy and sell financial assets. These comprise stocks, foreign exchange, derivatives, bonds, and commodities. The financial markets offer a platform to the buyers and sellers to trade financial instruments at a value determined by the demand and supply forces.

Functions of Financial Markets:

Price Determination:

Demand and supply of a financial asset in markets determine their price. Investors supply the funds while industries need the funds. Consequently, a price is estimated based on their interaction and other exterior ground rules of markets.

Establish Liquidity:

Financial markets are considered the most liquid markets in the world. Financial market assets are stocks, commodities, bonds, etc. have sky-scraping liquidity. It implies that investors can easily sell financial assets and convert them into cash at any time. Liquidity is an imperative reason for investors to partake in trade.

Mobilization of Savings:

Flourishing economies direly rely on cash flow. Therefore, capital markets help in activating the
economy by correlating buyers and sellers. Globally the economies that have strong money markets likely to perform well.

Reduce the Cost of Transactions:

Financial markets diminish the cost of the transactions by providing every type of information without spending any money.