Financial Markets include any place or system that provides buyers and sellers the means to

trade financial instruments, including bonds, equities, the various international currencies, and
derivatives.
The financial markets can be broadly categorized into the following:

 Capital markets

 Money markets

 Commodities markets

 Foreign exchange markets

 Insurance markets

 Derivatives market

The money market and the capital market are not single institutions but two broad components
of the global financial system.

 The money market is the trade in short-term debt. It is a constant flow of cash between
governments, corporations, banks, and financial institutions, borrowing and lending for a
term as short as overnight and no longer than a year.
 The capital market encompasses the trade in both stocks and bonds. These are long-term
assets bought by financial institutions, professional brokers, and individual investors.

Together, the money market and the capital market comprise a large portion of what is known
as the financial market.

The Money Market

The money market is a good place for individuals, banks, other companies, and governments to
park cash for a short period of time, usually one year or less. It exists so that businesses and
governments that need cash to operate can get it quickly at a reasonable cost, and so that
businesses that have more cash than they need can put it to use.

The money market is a short-term lending system. Borrowers tap it for the cash they need to
operate from day to day. Lenders use it to put spare cash to work

Examples of money market instruments include certificates of deposit (CDs), commercial

paper, Treasury bills (T-bills), and banker's acceptances

The overriding goal of the companies institutions that enter into the capital markets is to raise
money for their long-term purposes, which usually come down to expanding their businesses
and increasing their revenues. They do this by issuing stock shares and by selling corporate
bonds. certificates of deposit (CDs), commercial paper, Treasury bills (T-bills), and banker's
acceptances

The money market is less risky than the capital market while the capital market is potentially
more rewarding.

The Capital Market

The capital market is where stocks and bonds are traded. Its movements from hour to hour are
constantly monitored and analyzed for clues as to the health of the economy at large, the status
of every industry in it, and the consensus for the short

Capital markets are markets to invest or raise medium to long-term funds via financial securities namely
equities and debt securities. Among the various types of securities under the two categories are:

 Equity securities – ordinary shares and to a lesser extent, preference shares;

 Debt securities – government bonds, corporate bonds, medium term notes (MTNs), unsecured loan
stock, convertible bonds, commercial papers.

The overriding goal of the institutions that enter into the capital markets is to raise money for
their long-term purposes, which usually come down to expanding their businesses and
increasing their revenues. They do this by issuing stock shares and by selling corporate bonds.
certificates of deposit (CDs), commercial paper, Treasury bills (T-bills), and banker's
acceptances

Capital markets can include the stock market, the bond market, and the forex market

The capital markets serve two main functions:

 as primary markets, where organizations raise new finance via the issuance of new equities or debt
securities to financial institutions or private investors;

 as secondary markets, where investors are allowed to trade in existing listed securities, that is, sell
their existing securities or buy new ones to manage their portfolios. The low transaction costs and
enhanced liquidity facilitates the proper pricing of securities at fair value.

The secondary markets in turn serve as a source of pricing information for the primary market, and
assist the efficient allocation of new funds at the right price. Today, the largest participants of the capital
markets are the institutional investors comprising of sovereign wealth funds, pension funds, insurance
companies, investment trusts, hedge and mutual funds, and venture capital organisations.
The capital market is by nature riskier than the money market and has greater potential gains
and losses.

The key distinguishing factors are time and rewards. Money markets are made up of short-term
investments carrying less risk, whereas capital markets are more geared toward the longer term
and offer greater potential gains and losses.

The role of financial markets

1.Providing short-term liquidity to Industry and the Public Sector
 Money markets provide those with funds (banks, money managers, and retail investors) a
means for safe, liquid, short-term investments, and they offer borrowers (banks, broker/dealers,
hedge funds, and large corporations) access to low-cost funds.
 The term “money market” is an umbrella that covers several market types, which vary
according to the needs of the lenders and borrowers.
 Allows users of funds to access short term money to meet their short-term requirements at a
realistic price.
 It also offers a focal point for central bank intervention for influencing liquidity in the
economy.
 A well-developed money market is very efficient in that it enables large sums of money to be
transferred quickly and at a low cost from one economic unit (business, government, bank, etc.)
to another for relatively short periods of time.
 Businesses and government use these markets because the timing of cash inflows and outflows
are not well-synchronized.
 Money markets provide a low-cost source of temporary funds to solve these cash-timing
problems.

Financial instruments are assets that can be traded, or they can also be seen as packages of
capital that may be traded. Most types of financial instruments provide efficient flow and
transfer of capital throughout the world’s investors. These assets can be in the form of cash, a
contractual right to deliver or receive cash or another type of financial instrument, or evidence
of one’s ownership in some entity. Examples of financial instruments include stocks, exchange-
traded funds (ETFs), bonds, certificates of deposit (CDs), mutual funds, loans, and derivatives
contracts, among others.
 Financial institutions

The role of Financial Institutions

 Regulating the Financial System

Financial institutions in India are involved in regulating the financial system.

They are also charged with supervising and enforcing regulations, drafting and implementing
monetary policy, as well as ensuring the stability and soundness of the financial system. It is the
responsibility of the regulators of the financial system to ensure that the financial sector operates
with optimum transparency, stability, and efficient manner to ultimately support overall economic
growth and development

Zimbabwe stock exchange

  The Zimbabwe Stock Exchange (ZSE) is a financial institution that plays a significant
role in the Zimbabwean economy. Its primary functions include
 Facilitating Stock Trading: The ZSE provides a platform for the buying and selling of
shares or stocks in publicly-listed companies. This helps companies raise capital by
selling shares to investors.
 Price Discovery: It serves as a marketplace where the prices of stocks are determined by
supply and demand. This price discovery mechanism reflects the perceived value of a
company's shares.
 Capital Formation: The ZSE helps companies access long-term funding by issuing shares
to the public. This capital can be used for expansion, investment in new projects,
 All securities on the ZSE can be bought or sold through a registered stockbroker. A
stockbroker acts as your agent in buying or selling securities. They also provide
professional financial advice

Efficient capital markets

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