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In: Finance

   What is a market? In a short answer differentiate between the following types of markets:...

   What is a market? In a short answer differentiate between the following types of markets: physical asset markets versus financial asset markets, spot markets versus futures markets, money markets versus capital markets, primary markets versus secondary markets, and public markets versus private markets.

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Expert Solution

Market is a place where two parties interact to for a transaction of purchase and selling of either goods or services. These parties are called buyers and sellers. The market could be a physical outlet on geographic location, like retail stores or it could be a virtual one like online market like Amazon where no physical contact is made between the parties.

  1. Physical asset markets versus financial asset markets,

Markets the deal with physical assets are called physical asset market and market that deal with financial assets are called financial asset markets. The main difference in both the assets is explained below:

  1. Physical assets are tangible assets that can be seen and touched versus financial assets are intangible so that can’t be seen or felt.
  2. Although both of these assets reflect in balance sheet, physical assets depreciates whereas financial assets don’t lose their value due to wear and tear, they majorly loss their value due to market change.
  3. Example of physical asset is gold, silver, equipment’s, land, buildings, et, whereas, financial assets include stocks, bonds, goodwill’s, etc.
  1. Spot markets versus futures markets,
    1. Spot market, also known as cash market is where assets are bought and sold for cash and delivered at the same time , whereas future market is a market where future contract is being made between buyer and seller to make buy and sell in the future period at a specified rate and time, the delivery is not immediate.
    2. Spot market solely works on demand and supply of the product, whereas future market works on the future price, market predictions, cost predictions, etc.
  2. Money markets versus capital markets,
  1. Money market is a market where banks and financial institutions trade in short term instrument like trade credit, commercial paper, T bills, etc., whereas capital market is where instruments like stock, debentures and bonds are traded for a longer period of time.
  2. The main difference between the money market’s asset and capital markets asset is that money market is used to trade asset for a period of 1 year or less whereas capital market is used for asset s traded for a longer period of time.
  3. Money market is dealt by banks and financial institutions, whereas in capital market the dealing is done among individuals like stock brokers, underwriters and also institutions like banks.
  4. The assets in money market are highly liquid whereas the assets in capital market are comparatively less liqui
  1. Primary markets versus secondary markets,
    1. Primary market is a new issue market , where a new security is offered to the public, whereas in secondary market, the already issued securities are bought and sold.
    2. In primary market there is an issuer and buyer and the security is purchase directly from the issuer, but in secondary market security is bought from either seller, stock exchange or broker.
    3. Initial public offering (IPO) is an offering of primary market, whereas purchasing of any company’s stock from stock exchange is secondary market offering.
  2. Public markets versus private markets.
    1. In public market the selling of shares is to the general public, where the shares could be purchased by anyone, whereas in private market, the shares are sold to professional investors.
    2. The buyer in public market is general public, whereas in private market, they are investors like venture capital firms or private equity firms
    3. There is higher regulation in public market compared to private market.

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