What does mean the term financial market?
Equity market is a great part of financial market, that’s why it’s very important to understand what does mean the term financial market.
Financial markets provide a forum in which suppliers of funds and demanders of loans and investments can transact business directly. Whereas the loans and investments of institutions are made without the direct knowledge of the supplier of funds (savers), suppliers in the financial markets know where their funds are being lent or invested. The two key financial markets are the money market and the capital market. Transactions in short-term debt instruments, or marketable securities, take place in the money market. Long-term securities (bonds, stocks, etc.) are traded in the capital market.
The money market is created by a financial relationship between suppliers and demanders of short-terms funds, which have the maturities of one year or less. The money market exist because certain individuals, businesses, governments and financial institutions have temporarily idle funds that they wish to put in some type of liquid assets or short-term, interest-earning instruments. At the same time, other individuals, business, governments and financial institutions find themselves in need of seasonal or temporary financing. The money market thus brings together this suppliers and demanders of short-term liquid funds.
The capital market is a financial relationship created by a number of institutions and arrangements that allows the suppliers and demanders of long-term funds – funds with maturities of more than one year – to make transactions. The backbone of the capital market is formed by the securities exchanges that provide a forum for debt and equity transactions. Major securities traded in the capital market include bonds and both common and preferred stock.
All securities, whether in the money or capital markets, are initially issued in the primary market. This is the only market in which the corporate or government issuer is directly involved in the transaction and receives direct benefit from the issue – that is, the company actually receives the proceeds from the sale of securities. Once the security begins trade among individuals, businesses, governments or financial institutions, savers and investors, they become part of the secondary market. The primary market is the one in which “new” securities are sold; the secondary market can be viewed as an “issued” or “preowned” securities market.
During the last two decades the Euromarket – which provides for borrowing and lending currencies outside their country of origin – has grown quite rapidly. The Euromarket provides multinational companies with an “external” opportunity to borrow or lend funds with the additional feature or less government regulation.