- Relates to a place/meeting place/forums that facilitates the flow of funds amongst investors, firms, government units,etc.
- It facilitates the suppliers of loans, funds to those who require them.
Basically, there are two types of financial markets:
(1) Money Market
- Dealing with short-term securities that have a life of one year or less.
- These securities are very liquid hence easily converted into cash
- Plays a critical role in balancing surplus and shortage of funds amongst banks after the cheques are cleared. Enable banks to convert a portion of their cash reserves into assets that generate returns.
- Also facilities corporations to obtain short-term loan and investment in banker’s acceptance, money-market funds, certificate of deposits,etc
- Money market is simply the activity transactions mainly by telephone and without any meeting place.
(2) Capital Market
- Markets where securities have a life of more than one year. Examples of long term securities are common stocks, preference stock and bonds.
- Involves in getting long-term funding for national development, capital investments and others.