“An investment in financial knowledge pays the best interest”
Money making is an art and those who feed their brain well enough on financial literacy will make a fortune. The study of financial markets is a necessary part of financial education.
Financial markets are present to make Money flow towards the path where it is needed the most. However, for beginners, this definition might not provide clarity. They may have questions like, “what are the financial markets exactly?” how does this help in building money and creating efficient financial systems? Well, this article certainly provides answers to your queries. To start with it is important to know what a market is.
What is a Market?
A market is an avenue where the buyer and seller meet. here the goods and services are exchanged for money. A Financial Market is a type of Market where people are involved in making financial transactions.
What are the Financial Markets?
In precise, financial markets provide the buyers and sellers a platform to get involved in the sale and purchase of financial products. Financial products include shares, bonds, mutual funds, foreign exchange, and derivatives. Businesses and investors can this financial market to raise money, build a business and grow their money too!
Take the example of a bank. A bank is basically a financial market that uses your savings and lends them to other businesses at a certain rate of interest. This rate of interest makes the money of the depositors grow and also makes the business grow. Hence, using the financial markets you are competing with inflation by growing your money.
A capital market is where individuals raise money for a longer duration like for more than a year. A capital market further includes a primary market and a secondary market. A primary market is a kind of market where securities and stocks are issued for the first time.
TYPES OF FINANCIAL MARKETS:
1) Stock Market
The stock market involves issuance and the trading of stocks. The challenge is to buy the right stock so that we can enjoy the returns it has to offer later.
2) Bond Market
Bonds are provided to aid financial projects. Usually state, central governments, and municipal corporations issue bonds. A bond involves borrowing money from the lender for a particular period of time with a rate of interest. This helps in building business.
3) Commodities Market
A commodities market is a kind of market that involves the sale and purchase of natural resources or commodities like gold, corn, oil, and meat. A market is created for such commodities since their price is unpredictable.
4) Derivatives Market
Have you seen the farmers which sign a contract that they will sell their harvest in the future at a certain definite price? This is the best example of a derivative market. A derivative market is basically a market wherein two parties come into a contract that obtains its value from underlying assets.
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5) Money Market
A money market is a short-term debt investment. It basically involves the lending and borrowing of money for a very short period of time.
6) Insurance market
An insurance market is simply the buying and selling of insurance. It involves the spreading of the cost of the risk events across population and time. Further reducing the impact of the risk events.
7) Foreign Exchange Market
It is a global market. It involves the sale and purchase of foreign currencies. It is over a counter market for the trading of currencies.
8) Mortgage Market
it is a kind of market that involves financial organizations offering loans to individuals or groups on commercial or residential properties. It involves fulfilling certain documents and criteria.
9) Private Market
A private market refers to a type of market in which there is an investment in debt and equity of companies that are privately owned.
10) Future Market
It is a kind of an auction market in which people buy and sell commodities and futures contracts for their delivery at a particular future date.
How Will Financial Markets Help Us?
Financial markets basically provide capital for companies so that they hire, invest and grow.
For example, when Apple was started it had some great ideas, but unfortunately not enough capital to invent those ideas into reality. Through the financial market, it was able to use 100 million dollars to create the business.
- Access to capital by organizations, individuals and government.
- Reduced unemployment
- Put savings into better and productive use in order to grow money
- Compete with inflation
- Makes the financial assets liquid
It is important to talk to people who’re working in the financial markets in order to gain knowledge and invest in profitable ventures. We could also use the knowledge to build our own business and wealth. Hence, the financial market is an essential element of financial education that each must be aware of. Although investments can be risky as Warren Buffet says, “Risk comes from not knowing what you are doing”. Know money, make money.
Written By : Nehal Sharma