Financial markets: A comprehensive guide to mastery
As the name itself suggests, financial markets are the kind of marketplaces that serve as a platform for the purchase and sale of a variety of assets like foreign exchange, derivatives, stocks, bonds, etc. Financial markets are places where investors and businesses raise money from.
Individuals maintain a savings bank account. The money deposited there is used by the bank to lend loans to either individuals or other organisations. They charge a percentage as an interest fee in turn. This way, the depositors also earn a benefit. There are many different kinds of financial markets that people should be aware of. Awareness about the financial markets is of the utmost importance as it allows you to take a call on the smartest way in which you can use your money.
Different Kinds of Financial Markets
There are different types of financial markets, some of which are discussed below:
- Bond market: A bond market is a place where the government and the companies can secure money so that they can finance an investment or a project. In this market, the investors purchase bonds from a company on the condition that the company will return the bond amount along with interest within a given period of time.
- Stock market: This is a platform that trades the public companies’ shares of ownership. There is a price allotted for each share. The performance of the stocks in the market determines the amount of money that the investors will make. The catch here lies in choosing the best stock that will be able to reap the investor the most benefits. An investor can choose the right kind of stock by counting on a number of indicators that can help to assess the performance of the stock market.
- Commodities market: In this kind of market, investors and traders meet to sell and buy commodities like oil, corn, gold, meat, etc. and other natural resources. These items do not have a specific price, nor can the price be predicted. In a commodities futures market, the price of items to be delivered in the near future are identified and then sealed.
- Derivatives market: Derivatives market is the kind of market that involves contracts or derivatives whose value depends on the market value of the commodity that is being traded.
Importance of These Financial Markets
There is no point in keeping your money tucked under your pillow. The value of money increases when it revolves around the market. Listed below are some of the functions of financial markets:
- These markets will help to invest your savings into something more fruitful: Financial markets do not let your money sit idle. Let us again take the example of a bank. When we deposit money in a bank, the bank then opens up the money to companies and individuals who are looking for loans and charges a rate of interest from them in return.
- It helps to determine the price of the securities: Investors are likely to reap benefits from their securities. While the price of services and goods is determined by the ‘supply and demand’ law, it is the financial markets that determine the price of these securities.
- Financial markets help to turn the assets to liquid easily: Financial markets are a place where sellers and buyers can trade their securities whenever they want. They can make investments or sell securities as and when they want.
Financial markets are a great platform where the different kinds of participants like the debtors and investors, disregarding the size, are able to transact in a fair manner while receiving proper treatment. With the help of these financial markets, government organisations, companies and individuals can gain quick access to capital. Not only this, but financial markets also bring about many job offers and, therefore, help to lower the rate of unemployment.
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