Question 31. What do you mean by Financial market ?
Answer 31. Financial market are defined as markets , where the financial assets, such as shares , bonds etc are sold and purchased. They channelise the savings of different sectors, having surplus funds to the sectors having deficient funds . The main participant/contributors in financial markets transactions are households , businesses and government , which purchase or sell financial assets.
Financial market is divided into two components :
1. MONEY MARKET : Money market deals with short term transactions. A transaction which is able to meet short term fund requirements of business houses, having a maturity of one year is called money market transaction. The instruments used are Treasury bills , commercial bills, commercial papers etc. The basic purpose of money market is to meet working capital requirements of firms.
2. CAPITAL MARKET : Transactions related to long term instruments , having maturity above one year like shares, long term debts etc. Capital market are markets for financial investments that are direct or indirect claims to capital . Capital market is further divided into two parts i.e primary and secondary market. Primary market deals with new issues market while secondary market deals with buying and selling of securities on the stock exchange.