Question

Explain and give an example of the following financial markets, make sure to include who participates in each market:

money market

capital market

bond market

mortgage market

stock market

foreign exchange market

derivative security market

Answer 1

1. Money market refers to the financial market where the financial instuments that have short maturity period and high liquidity. The participants of this market are banks and financial institutions.

2. Capital market refers to the market where financial instruments with long term maturity are traded. The participants are stock exchanges, brokers, investment bankers etc.

3. Bond market refers to the marketplace where the debt securities are bought and sold. The participants in this market are companies who can issue bonds and raise money. There are also individual investors who can biy and sell the bonds. Both primary market and secondary market players are also part of the bond market.

4. Mortgage market refers to the marketplace where the financial institutions give loans for purchasing house and other property. The mortgage can also be bought and sold separately. The participants are banks and individual investors who want to take mortgage or trade in mortgages.

5. Stock market refers to the market where the company issues its share in the market and the individual investors buy them. This is a way to raise money by the company. The investors may later buy and sell the shares to get profits. Its participants are individual investors, brokers, central bank, speculators etc

6. Foreign exchange market is the market where the currencies are exchanged for each other. The foreign exchange market involves the investors and companies of different companies. They trade for import-export or for getting profits.

7. Derivative security market is the marketplace where the assets of investors are traded. This is done by option contracts, future contracts etc. The participants are individual investors and companies.