Question

Choose 4 financial markets or institutions. Briefly explain what each specializes in (mortgages, stocks, government securities, etc.).

Compare how each financial market you identified

Answer 1

Types of Financial Markets

There are so many financial markets, and every country is home to at least one, although they vary in size. Some are small while some others are internationally known, such as the New York Stock Exchange (NYSE)  that trades trillions of dollars on a daily basis. Here are some types of financial markets.

1. Stock market

The stock market trades shares of ownership of public companies. Each share comes with a price, and investors make money with the stocks when they perform well in the market. It is easy to buy stocks. The real challenge is in choosing the right stocks that will earn money for the investor.

There are various indices that investors can use to monitor how the stock market is doing, such as the Dow Jones Industrial Average (DJIA) and the S&P 500. When stocks are bought at a cheaper price and are sold at a higher price, the investor earns from the sale.

2. Bond market

The bond market offers opportunities for companies and the government to secure money to finance a project or investment. In a bond market, investors buy bonds from a company, and the company returns the amount of the bonds within an agreed period, plus interest.

3. Commodities market

The commodities market is where traders and investors buy and sell natural resources or commodities such as corn, oil, meat, and gold. A specific market is created for such resources because their price is unpredictable. There is a commodities futures market wherein the price of items that are to be delivered at a given future time is already identified and sealed today.

4. Derivatives market

Such a market involves derivatives or contracts whose value is based on the market value of the asset being traded. The futures mentioned above in the commodities market is an example of a derivative.

basis	stock market	bond market	commodities market	derivatives market
tradable securities	stocks of different companies are traded	bonds of different company and ratings are traded	various commodities like bullions and energy are traded	derivaties of various marekt such as stock indices commodities are traded
exchange	New york stock exchange	over the counter (mostly)	Chicago mercentile exchange	new york stock exchange and chicago mercentile exchange
volume	it has the largest volume	it has low volume	comparitively low volume as compares to shares and more than bonds	high volume
Underlying asset	companies	not required	commodities such as gold crude	Anything such as shares commodities indices etc