Selasa, 16 April 2013

Financial markets-an overview

FINANCIAL MARKETS-AN OVERVIEW:

In common parlance, a market is a place where trading takes place. Whenever we think of the markets, an image that flashes through our minds is a place which is very busy, with buyers and sellers, some sellers, shouting at the top of their voices, trying to persuade customers to buy their products. A place teeming with vitality and energy.

In the early stages of civilization, people were self-sufficient. They grew everything they needed. The food was the main product, which could be easily grown in the yard, and for non-vegetarians, jungles were open without restrictions on hunting. However, with the development of civilization, the demands of every being has grown; they needed clothes, objects, tools, weapons and many other things which could not be easily made or produced by a person or family. Therefore, the need for a cliché has been heard, which could collect people who had a good offer and people who needed that product, meet their mutual needs.

Over time, the way the markets have worked changed and developed. Markets became increasingly sophisticated and specialised in their transaction to save time and space. Different types of markets are that specialize in a particular type of product or transaction. In today’s world, there are markets that meet the needs of manufacturers, vendors, consumers, children, women, men, students and what not. For discussion of the topic at hand, the different types of markets that exist nowadays can be classified as goods markets, markets and service markets. This article tries to give an overview of the financial markets.

WHAT IS A FINANCIAL MARKET?

According to encyclopedia II, «Financial Markets» means:

“1. the organizations that facilitate the trade in financial products. i.e. stock exchanges facilitate trade in stocks, bonds and warrants.
2. the coming together of sellers and buyers to trade financial products namely stocks and shares are exchanged between buyers and sellers in a variety of ways including: the use of bags; directly between buyers and sellers, etc. ”

Financial markets, as the name suggests, is a market where securities are traded. The instruments that are traded in these markets vary in nature. They are actually tailored to meet the needs of different people. Macro-level, people with excess money offer them money for people in need of investments in various types of projects.

To simplify the discussion, let’s take an example. Mr.x has 10 rupees lacs as his savings that lie down with him. He wants to invest this money so that over a period of time he can multiply this amount. Mr. Y is the promoter of ABC Ltd. Has a business model, but does not have sufficient financial means to start a company. So in this scenario, Mr. Y can use the money that lies idle with people like Mr. X and start a company. However, Mr. X can be a person in Kolkata and Mr. Y may be in Mumbai. So the problem in the current scenario is that as Mr. Y learns that some Mr.x has the money he is willing to invest in a company that is similar to what Mr. Y wants to start?

The above problem can be solved by providing a common place where people with liquidity can mobilise their savings to those who need to invest. This is precisely the function of financial markets. They, through various tools, solve only one problem, the problem of mobilizing the savings from people who are willing to invest, who can invest in reality. So from the above discussion, we can apply as financial markets are no different in spirit from any other market.

The next issue that must deal with is the distinction between the different financial instruments that are launched on the market? The answer to this question is the nature or the needs of investors. Investors are of various types and therefore have different needs. Various factors that motivate investors owned controlling interest in a company, security, trade, economy, etc. Some investors might want to invest time and earn an interest on their investment; others can make a short-term investment. There are investors who want a different kind of investment so that their investment is safe in the event of an investment. Therefore, the needs of investors who have brought many financial instruments on the market.

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