Question

A special market where the commodities are not sold but the securities are bought and sold by various people. The buyers and sellers are participated in the securities market for the purpose of buying and selling of shares and it will reduce the time, effort and money. They converted the securities into cash very conveniently. Generally, in all economies if there is not stock exchange then the funds remain blocked. The money blocked in the houses should come out so that the flow of money in the security market will create positive impact on the economy. Any person those who are holding the shares are eligible to sell that share at any time at any cost which will give him profit. There is no government intervention to predict the price of the securities. The security market runs based on the demand and supply of the particular sectors in the market. Naturally no company’s economy can grow without participation of financial market.

(a). Identify and explain the functions of financial market discussed in the above case.

(b). what type of financial market this case is deal with? How does it differ from money market?

Answer 1

(a). Financial market is a place where large number of buyers n sellers participate to trade the financial instrument or securities . the functions of financial market are as follows:

1. Price determination: financial markets is a vehicle for financial instruments like shares that are newly issued and existing in the market .the prices of these financial instruments are derived by market forces that is demand and supply in the market. financial market discovers the price of the financial instruments by which buyers and sellers trade easily.
2. Mobilisation of funds: mobilisation of funds particular function lets the fund in market available for those who are ready to lend or invest to those who needs it with a pre determined rate of return the allocation takes place .
3. Liquidity: Liquidity simply means that the investors always gets to sell their securities and convert it into cash they can prevail it for a fair price anytime during the market working hours.
4. Saves time and money: since Potential buying and selling takes place in a single place they have to go around searching for their requirements or information ,because its provided within no time and money .
5. Capital formation: financial market always works a channel through which new savings of investments flow in to the country which helps in capital formation to the country.
6. Economic development: As mentioned above if there is a potential flow of capital the economical growth of industry is high and so is the economy of the country.

(b) By the maturity of claim there are two types of financial markets they are:

1. Capital market :capital market is a place where buyers and sellers come together to trade the financial instruments like shares,bonds
2. Money market :money market is a place where short term lenders and borrowers come together to full fill their fund and interest requirements

this case derives capital market ,because it deals with shares or securities .

the difference between money market and capital market are

basis	MONEY MARKET	CAPITAL MARKET
investment outlay	in money market there is a huge amount of money required to invest	in capital market it doesn't require huge money because the outlay of securities and trading lot are low
borrowing term	in money market the borrowing term is low	in capital market borrowing term is longer comparatively
purpose	money market serves short term requirements	capital market serves long term requirements
relevance to economy	money market boosts liquidity	capital market helps savings flow in to productive instrument
risk factor	money market has low risk	capital market has high risk

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