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Introduction to Functions of Financial Market: An Overview for Beginners

Narendra Kumar

| Updated: Dec 20, 2019 | Category: Finance & Accounting, Financial Reporting

Functions of Financial Market

The financial market is referred to as a dedicated marketplace for the trading of securities in the form of stocks, equities, bonds, currencies, bills, cheques, etc. as well as, derivatives. Financial markets are functional at creating a free and regulated system for selling and acquiring large capital. The financial market also allows businesses to countervail the risks attributed to various reasons. Also, financial markets are open to the public, owing to this reason it provides a transparent way of putting up the prices for assets in the financial market for trade.

A financial market, however, is not a single body, and in fact subsumes numerous types of financial markets, each with its own indispensability and distinct operations. They play an important role in the development of the economy and financial inclusion of people along with entities opting NBFC Registration and MFI Registration in India.

Significance of Financial Market

  • Aspirants looking to try their hands at investing, financial markets give them an enormous amount of opportunities to realize it. The reason being its friendly concept that does not discriminate against small investors and let reap all the advantages offered. 
  • Whether you are an organization, the government, or a separate individual, financial markets render every single interested entity to gain access to capital.
  • Since the financial market is an entire sector in itself, it significantly arrests the growth of unemployment.

Having all the ins and outs covered, let move further. But, before diving into decryption of the functions of the financial market, let us first understand in the following part that exactly how many types of such markets are there?

Types of Financial Markets

Bond markets

These financial markets deliver financing via the raising of bonds. The bond market extends opportunities for businesses to gain capital for financing investment, a venture or a project. The basic mathematics here is that individuals looking for investment purchases bonds issued by a company; and upon the completion of the period, the bond issuing company pays out the capital inclusive of the applicable interest in the return of the bonds.

Commodity markets

As the term suggests, Commodity markets ease up the trading of goods and commodities. Hence, it is the marketplace where trading companies or investors acquire and sell raw material, or commodities like rice, oil, billions, coal, so on and so forth.

Stock markets

One of the most prominent and renowned forms of financial markets is the stock market that extends capital financing via the issuance of shares. Stock markets enable the trading of shares of public companies. Although these shares come at overwhelming prices, however, it performs good, investors incur a significant amount of profits out of it.

Money markets

These types of financial markets offer debt financing for brief periods, as well as investments.

Derivatives markets

Derivatives markets in the financial markets provide the means of financial risk management.

Foreign exchange markets

 Yet another type of a financial market that revolves around the trading of foreign exchange.

Digital currency market

It enables an effortless trade of digital financial assets and financial technologies.

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Decoding the Functions of the Financial Market: Beginners Special

Liquidity: The financial market brings liquidity on tradable assets by means of enabling the procurement and selling of securities. Investors of which can at any point of time deem necessary can further sell the asset for regaining the capital.

Cost Determination: Financial Markets help determine the capital worth of securities since it lets the market forces to operate on its own and establish the cost of a tradable asset.

The Platform: Financial markets also work as a platform for prospective sellers and procurers to meet, interact, agree and transact. This trait of the financial market does not only save a lot of time and money of the interested parties, but it also makes their trade effortless.

Mobilization of Savings: Another equation suggests that financial markets are the elements in the world economy that put the capital back into the cycle of the economy through its utilization in buying and selling of securities.

The Time Factor: To be honest, there is a hell lot of effort and time put in to function in the regular market indulged in trade. While on the other hand, a financial market makes available all the information for trading in financial assets. In the course of which, not much cost, effort or time is utilized to yield profiting results.

Conclusion

With the wide-ranging economic importance of financial markets, it has become quite evident why these markets drive the economies of the world. As mentioned earlier, the financial market does not discriminate over the size of an individual or business entity to start trading. Due to this factor, a financial market does not only hold significance in establishing a strong business opportunity for everyone, but it also broadens the scope of inclusiveness in terms of integration of the economy. Hence, to safely conclude a suggestion, if you are looking to invest in any form of the financial market, please go ahead. A bigger opportunity is awaiting you!

Also, Read: What is the Future of Capital Market in India

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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