Financial Markets

financial_markets

Using of monetary resources in an appropriate way is finance. It describes the study and management of money, banking, investments, assets and liabilities that make up Financial systems. We cannot imagine the world without finance as it became the soul of economic activities. Finance is not restricted only in exchange of money, as a barter trading system is also a type of finance.

Financial Management:

Financial management is a managerial activity which is concerned with planning and controlling of firms financial resources. Scope of Financial management include the study of Real and Financial assets, Equity and burrowed funds, Finance and other functions. Real assets are divided into tangible which are seen and touch like furniture, land and buildings, cash and intangible which cannot be seen like Goodwill, patent rights and copy rights. Whereas Financial assets talk about securities such as shares and bonds. Equity are shareholders’ funds and burrowed funds are outside funds. Other functions in Finance include investment, Dividend, Financing decisions in order to meet the investment needs. Besides they also include the other functions such as marketing, Human resources and production.

Financial Markets:

A market place where people are allowed to trade financial securities, commodities is a financial market. It can be defined as a broad term as buyers and sellers participate in the trading of assets such as derivatives, bonds, currencies. Trading of financial securities include both selling and buying of stocks, bonds or future contracts. It is a place where companies reduce risks and investors make money. They can be found in every nation of the world. Some are small with only very few participants and others trade trillions. Investors have access to a large number of financial markets.

Financial Markets are divided into:

Capital markets

Money markets

Capital markets:

A long term market where individuals and institutions trade financial securities is a capital market. Capital markets mainly allow us to raise funds as organizations and institutions in the public and private sectors often sell securities. Capital market is an organized mechanism for effective transfer of money capital. Any corporation or government sector requires capital to finance for its operation in long term. For this companies raise money through the sale of securities such as stocks and bonds. Capital markets can be categorized into:

  • New issues market\IPO:

Also referred simply as public offering, is the first offering of the sale of stock by a private company to the public. Investors buy stocks directly from the company. Initial public offering is mostly and generally issued by the small companies which are seeking for capital in order to expand their business. Public offering is also issued by major or large scale private companies to become pubic traded. New Issues market can also be referred as Primary market. The process of selling of new shares to investors is called underwriting.

  • Secondary Market:

Any company issuing (buying and selling) shares through stock exchanges is a secondary market.

  • Financial Institutions:

Financial institutions provide medium and long term loans on easy installments for big businesses.

Money Markets:

Trading of short term loans between banks and other financial institutions is a money market. It became a component of financial markets for assets involved in short term burrowing, lending, buying and selling of maturities that are of one year or less. As a short term financial market, money market includes treasury bills, commercial papers, mutual funds, short term loans and promissory notes.

  • Treasury bill:

Bills issued by the government in need of money for a shorter period is a treasury bill in order raise money in the financial market. The main purpose of the treasury bill is to sell at discount price and to redeem at par value. Return of investors is the contrast between the discount price and par value.

  • Commercial paper:

An unsecured short term debt issued by a corporation for meeting short term liabilities is a commercial paper. It is generally issued by large firms to acquire funds in order to meet short term debts.

  • Mutual funds:

Mutual funds have been successful in filling the gaps between demand and supply capital in market. A financial service organization which receives money from shareholders in a promise to invest it, gain a return on it and agree to pay share holder cash on demand.

The main advantages of mutual funds include:

It reduces risk

Higher returns

The main disadvantage of mutual fund is their financial ability in repaying the invested capital beside with the promised rate of return.

Forex:

Forex market or a foreign exchange market is a global market for trading of currencies. This include buying and selling of currencies at current price or the determined prices. A

Currency trading broker or a forex broker handles a small portion of the volume of the overall foreign exchange market. Foreign exchange market by nature is a multinational in scope.

Financial instruments to trade in forex market include spot trading, forward trading, future trading, swap trading and option trading. Protecting our self from stop loss order when trading due to the risks involved is advised.

Trading:

Trading involves the transfer of goods or services from one person or entity to another. A network\place that allows us to trade is called as a market. In the financial markets trading is an active style of participating in buying and holding of investments. Traders look for short term price moves to profit in rising and falling of markets.

Licensed Broker:

Licencirani broker not only exist in financial market, but also in real estate market, commodity markets. A person who is licensed to trade stocks through the exchange is a licensed broker. A broker\ trader can make trades through many sources either by staying on the trade floor or electronically or by phone. A broker can be an individual or firm charges a fee or commission in order to buy and sell. Broker acts a middle man between the securities trade on the market and the investors who buy them.

Whereas brokerage firm is a financial institution that facilitates the buying and selling of securitiesthat are related to finance between a buyer and a seller. In return of buying and selling orders, the broker will charge a commission per trade or a spread. This is how the make the money.

We find many types of Licencirani broker in the financial world. Example a floor broker handle orders on the floor, whereas a commodity broker specialized in trading commodities.

Hence brokers play a pivotal role as they are the most important people in any market who bring buyers and sellers together to create liquidity and efficiency in the market. However, it is important for Investors also to consider the brokerage commissions while entering the market.

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