INTRODUCTION TO FINANCIAL MARKETS

FINANCIAL MARKETS : Financial markets are platforms or systems where

buyers and sellers come together to trade financial assets such as stocks,
bonds, currencies, commodities, and derivatives. These markets
facilitate the allocation of capital and the pricing of financial
instruments.

Types of Financial Markets -

1. Stock Market: A stock market is where shares of publicly traded

companies are bought and sold. Examples include the New York Stock
Exchange (NYSE) and NASDAQ.

2. Bond Market: The bond market is where debt securities, such as

government and corporate bonds, are traded. Investors lend money to
issuers in exchange for periodic interest payments and the return of the
principal at maturity. They serve as a means for these governments to
raise funds for various purposes, including infrastructure development,
budgetary needs, and financing public and private projects. Examples of
Govt Bonds are National Savings Certificates (NSC), Government
Securities (G-Secs),Sovereign Gold Bonds (SGBs)

3. Currency Market (Forex): The foreign exchange market, or Forex, is

where currencies are traded. It's the largest and most liquid market in
the world, facilitating international trade and investment.

4. Commodity Market: Commodity markets deal with the trading of

physical goods like oil, gold, agricultural products, and more. These
markets help set prices for essential raw materials.

5. Derivatives Market: Derivatives are financial instruments whose value

derives from an underlying asset. Futures and options are common
derivatives traded in this market, used for hedging and speculation.
Kinds of financial markets -

(A) Primary Market- The primary market, also known as the new issue
market or the IPO (Initial Public Offering) market, is a segment of the
financial market where newly issued securities, such as stocks, bonds, or
other financial instruments, are bought and sold for the first time by
companies or governments to raise capital. In the primary market,
securities are sold directly from the issuer to investors, and the proceeds
from these sales go to the issuer.

(B) Secondry Market -It is often referred to as the aftermarket, is the

financial market where previously issued securities, such as stocks,
bonds, and other financial instruments, are bought and sold among
investors after their initial issuance in the primary market. In the
secondary market, securities change hands between investors, and the
transactions do not involve the issuing company or government entity.
Instead, these transactions occur among buyers and sellers in the open
market.

Participants in Financial Markets:

1. Investors: Individuals, institutions, and funds that buy and hold

financial assets for various purposes, including long-term investment or
income generation. For eg. Foreign Institutional Investors, Domestic
Institutional Investors.

2. Traders: Individuals or entities that buy and sell financial assets for
short-term profits, often engaging in frequent trading activities.

3. Banks and Financial Institutions: These institutions provide services

such as lending, underwriting, and trading, facilitating the smooth
functioning of financial markets.

4. Regulators: Government agencies and organizations responsible for

overseeing and regulating financial markets to ensure fairness and
stability. For eg. Regulator of financial markets in India is Securities
Exchange Board Of India (SEBI).
5. Arbitrageurs : Arbitrageurs are individuals or entities that engage in a
financial strategy known as arbitrage. Arbitrageurs seek to profit from
price differences or discrepancies for the same asset or security in
different markets or at different times. Their goal is to exploit these price
disparities by buying low and selling high (or vice versa) to make a risk-
free profit.