Question

Explain the meaning and significance of financial markets

Answer 1

Financial market is a market where buying and selling of securities such as stocks, bonds, currencies etc takes place. It is a place where companies are able to raise funds through issuance of securities such as equities and bonds. It also enables traders to trade in stocks, currencies and derivatives. There are two types of financial markets: primary and secondry market. Primary market is where companies raise money and secondry market is where trading of security takes place.

Financial markets are significant as it helps companies raising extra funds for inevstment. Without financial markets, borrowers would have difficult time finding lenders. Financial intermediaries such as banks, investment banks, brokers help connecting borrowers and lenders.

Financial markets also help investors in increasing their wealth by providing adeqaute retruns on their investments. Funds such as pension funds are invested in financial market which acts as retirement income in later stages of life.

Financial markets also reduce the cost of information. Much time and miney would be spent if these markets didn't exist. Financial markets provide most of the information which saves lot of time and money.

Financial markets also helps to discover the price of an asset. The price of an asser is the supply and demand of that asset. The price also includes the funadamentals of the company.