Question

This is econ330. "The Economics of Money, Banking and Financial Markets Eleventh Edition"

CHAPTER 2: Importance and Structure of Financial Markets: WHY ARE THEY IMPORTANT? WHAT IS THE DIFFERENCE BETWEEN DEBT AND EQUITY MARKETS, PRIMARY AND SECONDARY MARKETS, MONEY AND CAPITAL MARKETS?

Answer 1

Financial market transfer funds from those who have surplus funds like households, firms, government to those who need them again it could be households, firms and government. Without financial markets there would be no channeling of funds. That is why they are important.

Debt has a lender borrower relationship like a bank loan or a mortgage. There is a contractual agreement between the lender and borrower. The lender agrees to lend an amount of loan to the borrower who will pay interest on the loan and repay it after an agreed period.

Equity means shares of a company. The equity holder is an owner of the company and is entitled to dividends.

Primary market is where new securities like shares or bonds are sold to initial buyers by corporations or government and secondary market is when securities are resold.

Money market is a financial market where short term securities (having a maturity of less than 1 year) are traded. Capital market is a financial market where long term securities (having a maturity of more than 1 year) are traded.