Explain what are the Different Types of Financial Markets

Financial markets

  • 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.

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