Finmar

• Financial markets are structures through which funds flow and where people trade financial securities
• People and organizations wanting to borrow money are brought together with those having surplus funds in the financial markets
• There are many different financial markets, each consisting of many institutions in a developed economy
• Each financial market deals with a somewhat different type of security, serves a different set of customers, or operates in a different part of the country
• Financial markets can be distinguished along two major dimensions:

  • Primary vs. Secondary Markets
  • Money vs. Capital Markets
• Financial markets can also be distinguished along other dimensions such as:

  • Physical asset markets vs. Financial asset markets
  • Spot markets vs. Future markets
  • Private markets vs. Public markets
• Physical asset markets deal with tangible or real assets like wheat, autos, real estate, computers, and machinery
• Financial asset markets deal with stocks, bonds, notes, derivatives, and mortgages
• Primary markets involve corporations raising capital by issuing new securities through an initial public offering (IPO)
• Secondary markets involve trading securities and other financial assets among investors after they have been issued by corporations
• Money markets are for short-term, highly liquid debt securities, while capital markets are for stocks and long-term debt
• Spot markets involve assets being bought or sold for "on-the-spot" delivery, while futures markets involve participants agreeing today to buy or sell an asset at a future date
• Private markets involve transactions worked out directly between two parties, while public markets involve standardized contracts traded on organized exchanges like PSE, NYSE, and NASDAQ
• Capital market transactions do not only involve the purchase and sale of equity securities, such as common stocks
• Money markets are markets for short-term debt securities, not for foreign stocks, consumer automobile loans, local stocks, or long-term bonds
• An example of a primary market transaction is when a corporation sells newly issued shares of its stock to an investment banker, who then sells it to individual and institutional investors
• An example of a secondary market transaction is when your uncle transfers 100 shares of stock to you as a birthday gift
• If your uncle sells shares of Microsoft through his broker to an investor, it is a secondary market transaction, not a primary market transaction