There are three markets within the financial market: capital market, money market and the exchange market
The purpose of financial markets is the channel funds from people who have a surplus (spend less then their income) to those who have a shortage of funds (wish to spend more then their income).
Money markets provide short term finance to individuals, firms and governments
What markets are short term?
Money markets
A short term debt have a maturity ranging from 24 hours to 12 months.
Treasury bills are money market transactions
Capital markets provide medium and long term finance to firms and governments
What markets provide medium to long term finance?
capital markets
What are the two sections of capital markets?
Primary and Secondary
The primary market is where newly issued shares are sold by firms and governments, so they can raise extra funds
What does selling new shares do to the current price of shares?
The price of shares decrease because the supply of shares increases
Liquidity Ratio: the ratio of liquid assets held by a bank on their balance sheet to their overall assets
Capital Ratio: a measurements of funds the bank has in reserves against the risker assets its holds that could be vunerable in the event of a crisis
Functions of the capital market:
sell newly issued securities
sell previously issued or second hand securties
The principle function of the secondary market is to increase the liquidity of second hand securities, making it easier for buyer to manage their investments and sell their securities.
The foreign exchange market is where different currencies are bought and sold
Foreign exchange can be traded on either the spot (current) or forward (future) markets.
