Financial Markets

The Financial Market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives.

Financial Market promotes savings and investments and provides a mechanism that requirements of  lender and borrowers are met.

Financial Institution
A financial institution is an institution that provides financial services for its clients or members. One of the most important financial services provided by a financial institution is acting as a financial intermediary.

A financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary institution (such as a bank), and that institution gives those funds to spenders (borrowers).

Importance of Financial intermediary:

• Re-packing finance
• Risk reduction
• Liquidity transformation
• Cost reduction 
• Financial advice

Financial instruments
Financial instruments are tradable assets of any kind. They can be cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument.

Financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Primary markets
The primary market is the part of the capital market that deals with issuing of new securities. 

Methods of issuing securities:

• Initial Public Offering
• Right issue
• Preferential issue

Secondary markets
A secondary market is a market where investors purchase securities or assets (financial instruments) from other investors, rather than from issuing companies themselves.

Debt and Equity market

Market is where participants(Government, Traders, Institutional investors and individuals) Buy and sell debt securities.

Debt securities may be classified as debentures, bonds, deposit notes or commercial paper.

Debt securities issued by government:

• Treasury bills
• Treasury notes
• Treasury bonds

Debt securities issued by companies:

• Secured bonds
• Debentures
• Subordinate bonds
• Convertible bonds
• Zero-coupon bonds

Equity Market is also known as stock market and trading of stocks at an agreed price takes place. [Participants: Individual investors, Institutional investors]

Type of equity:

• Ordinary shares
• Preference shares