Question

What do you understand by structure of financial markets? Explain the function of financial markets.

Answer 1

Financial market is a market place where trading of financial instrument take place that can be bonds, equity, commodity, currency etc.

The function of financial market is to furnish a platform where exchange or trade of goods (commodity) or any other financial instrument take place. This helps in trade from one region to another region without knowing the seller and buyer. All the information is available to exchange. Basically, it is platform for trader to buy or sell their goods or financial instruments. Financial market create a regulated system for company or individual to raise large amount of capital by selling their financial instrumets. This provide liquidity in financial assets. Financial market also lead to discover the price of assets according to supply and demand in the market for the assets. It furnish in flexibility to invest in various financial instrument by taking a very small norminal cost to trade.

The structre of financial markets depend on various classification such as on term of Institutional investors, functional of financial market, in terms of tenure of credit etc

According to tenure of credit:

Money market and capital market: Money market where an investor invest in financial instrument for less than a year while for capital market where an investor invest for more than a year.

According to function:

Organised and unorganised market: Unorganised market place where ther are no regulated or define system for trading of goods. In this kind of market there is high chance of default and lead to higher risk. All trade perform in unorganised market is based on goodwill. While in unorganised market place where there is specific rule and regulated body responsibile for execution of trade. Less default and less risky.

According to investors:

Institution investors, High net individual investors, retail investors etc.