Types of Financial Markets

Money related markets can be recognized by the development structure and exchanging structure of its securities.

Money vs capital Markets

Currency markets are the spot where fleeting assets are encouraged while the stream of long haul assets is encouraged by capital markets.

Primary Vs Secondary Markets

Additionally Primary markets are to encourage the issuance of new securities while Secondary markets encourage the exchanging of existing securities. The offer of new corporate stock or new Treasury securities are case of essential markets while the offer of existing stock Securities are case of auxiliary business sector.

Organized vs Over the counter Markets

A noticeable commercial center for optional business sector exchanges is a composed trade a few exchanges happen in the over-the-counter (OTC) market. The over the counter market is a virtual one where the purchasing and offering is done essentially through web.

Securities Traded in Money Market

Here are the securities traded in money market. All the securities having maturity less than one year.

  • Treasury Bills.
  • Certificate of Deposit (CDs).
  • Commercial Papers.
  • Eurodollar Deposits.
  • Banker’s Acceptance.
  • Federal Funds.
  • Repurchase Agreements.

Securities Traded in Capital Market

Capital market securities are those with a maturity of more than one year

  • Bonds and mortgages
  • Stocks
  • Treasury Notes and Bonds.
  • Municipal Bonds.
  • Corporate Bonds.
  • Commons Stocks.
  • Preferred Stocks.

Bonds and Mortgages

Bonds are long haul obligation commitments issued by companies and government organizations Mortgages are long haul obligation commitments made to back the buy of land Bonds and home loans determine the sum and timing of interest and primary installments.

Stocks

Stocks (value) are testaments speaking to halfway possession in organizations Investors may acquire an arrival by accepting profits and capital additions Stocks have a higher expected return and higher danger than long haul obligation securities

Derivative Securities:

Subsidiary securities are money related contracts whose qualities are gotten from the benefits of hidden resources. Hypothesizing with subordinates permit financial specialists to profit by expansions or reductions in the hidden resource.

Hazard administration with subsidiaries creates picks up if the estimation of the hidden security decreases. At the point when security costs completely mirror all accessible data, the business sectors for those securities are said to be productive.

At the point when Markets are wasteful, financial specialists can utilize accessible data overlooked by the business sector to acquire strangely exceptional yields on their speculations.

Aside from all discourse, the part of monetary organizations in budgetary business sector is likewise imperative and can’t be disregarded.

Role of depository institutions

Commercial Banks:

  • Are the most dominant depository institution
  • Offer a wide variety of deposit accounts
  • Transfer deposited funds by providing direct loans or purchasing debt securities
  • Serve both the public and the private sector

Credit Unions:

  • Are nonprofit organizations
  • Restrict their business to credit union members
  • Tend to be much smaller than other depository institutions

Mutual Funds:

  • Sell shares to surplus units
  • Use funds to purchase a portfolio of securities
  • Some focus on capital market securities (e.g., stocks or bonds)
  • Money market mutual funds concentrate on money market securities

Securities firms:

  • Broker function
  • Execute securities transactions between two parties
  • Charge a fee in the form of a bid-ask spread
  • Investment banking function
  • Underwrite newly issued securities
  • Dealer function
  • Securities firms make a market in specific securities by adjusting their inventory

Insurance Companies

  • Provide insurance policies to individuals and firms for death, illness, and damage to property
  • Charge premiums
  • Invest in stocks or bonds issued by corporations

Pension Funds:

  • Offered by most corporations and government agencies
  • Manage funds until they are withdrawn from the retirement account
  • Invest in stocks or bonds issued by corporations or in bonds issued by the government.

Sometimes these firms cross the line and enter a territory of non performing or even illegal activities. It is inevatible that such a bank has to close. An example of such can be found in cases FinCEN vs FBME Bank Ltd. and Central Bank of Cyprus vs FBME Bank Ltd. It is therefore recommended that you do your research properly before investing or even choosing a financial partner.

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