Types Financial Marke

The word Market concerns with the place where people buy and sell the goods & services. Just as Financial market (FM) is concern with the creation & exchange of financial assets. The financial assets are Shares, Equities, and Bonds etc.

Types of Financial Market

Various scholars describe FM in various ways. But for the sake of simplicity we can divide FM in 5 major parts. They are as follows:

1st on the basis of “type of financial claim”

1.1 Debt Market:         

The Debt concerns with the safe investment where the investors provide loans to the business in term of Debt instruments like Debentures. A company has to pay interest on such type of loans. Here a fixed amount of money pays to investor that is why it is called the financial market for fixed claims.

1.2 Equity market:

When Debt investors take their claims, then the Equity holders are the owners of claims are bigger than the Debt holders. The example of Equity instrument is Equity share holders.

2^nd On the basis of “Maturity of claims”

2.1 Money market:

Money market is a short-term debt transaction. In India the money market consists of informal money market & formal money market.

 Informal money market includes the traditional money lenders, their operations are not governed by government regulation. Usually their operations are restricted in particular geographical area only.

Formal money market is basically operates under the presence of the Reserve Bank of India (RBI), Discount & Finance House of India ltd., Non-Banking Financial Companies, Commercial Banks & financial institutions.

2.2 Capital market:

It is a market for long-term financial assets such as shares, Bonds, Debentures & mutual funds.

3^rd on the basis of “New issues or outstanding issues”

3.1 Primary market:

When the financial securities sell the 1^st time in the financial market. It is called Primary market. In another words we can say Primary market is the market for fresh securities.

3.2 Secondary market:

It is concerning with the buying & selling of outstanding or all ready existing securities in the market. In other words we can say that Re-sale of buying securities.

4^th on the basis of “timing of delivery”

4.1 cash or spot market;

When we buy a financial security and its delivery occurs immediately then it is call cash or spot market.

4.2 Forward or Future market:

It is just opposite to the cash or spot market. It means when we buy a financial security and its delivery will be occur in predetermined time in future.

5^th on the basis of “Organizational structure”

5.1 Exchange-traded market:

It is characterized by a centralized market with standardized procedures.

5.2 Over the counter market:

It is characterized by a decentralized market with customized procedures.