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What are Financial Markets ? Types of Financial Markets

Financial Markets means a market place which allows certain entities and / or people to borrow and lend money, or trade (i.e. buy or sell) in certain assets like equities, bonds, commodities, currencies or derivatives etc. at a low transaction cost and at transparent pricing.. Thus, financial markets are a wide term and it encompass various markets.

We can broadly divide the financial markets into following sub categories :-

Types of Financial Markets :

Money Market : Money market deals with short-term borrowing and lending practices of securities with a maturity period of one year or less. Various instruments such as treasury bills, commercial paper, certificates of deposit and several other financial instruments are part of the trading in the money maket. This markets essentially facilitate short term debt and capital financing.

Capital Market : Capital markets deal with the trade of certain types of bonds or stocks. Capital markets can either relate to newly issued bonds / stocks, or it may handle trades of pre-existing bonds and stocks. Thus, capital market can be broadly subdivided into segments, namely (a) Stock markets; and (b) Bond markets. The capital market is also frequently categorized into (i) Primary Market and (ii) Secondary markets

Commodity Markets : These allow trading of various types of commodities inclduing agriculture commodities and precious metals etc

Derivative Market : provides trading of instruments which help in controlling financial risk;

Foreign Exchange Markets : This market facilitates trading of foreign exchange or trading of popular currencies of the world;

Financial markets are present in almost every country of the world. However, size of such markets vary a lot from one country to another country.