UNIT-IV (FMS) Finantial MArkets Flashcards
What is a financial market?
Financial markets are centers or arrangements that provide facilities for buying and selling financial claims or services. Participants include financial institutions, agents, brokers, dealers, borrowers, lenders, and savers.
Who are the participants in financial markets?
Participants include corporations, financial institutions, individuals, governments, agents, brokers, dealers, borrowers, lenders, and savers.
What are primary markets?
Primary markets deal with new financial claims or securities, also called New Issue Markets. They mobilize savings and supply fresh capital to businesses.
What are secondary markets?
Secondary markets deal in securities that are already issued or outstanding. They provide liquidity to securities issued in the primary market.
What is the difference between money and capital markets?
Money Market: Deals in short-term claims with maturity of one year or less.
Capital Market: Deals in long-term claims with maturity of more than one year.
What is a debt market?
A financial market where lenders provide funds to borrowers for a certain period of time, to be repaid with interest. Examples include bonds issued by companies and governments.
What is an equity market?
A financial market where shares of corporates are bought and sold. New shares are traded in the primary market, while existing shares are traded in the secondary market.
What is the main function of financial markets?
To mobilize savings from surplus units (lenders) and channel them to deficit units (borrowers) for productive investment.
How do financial institutions act in financial markets?
They act as intermediaries, transferring funds from ultimate lenders to borrowers and purchasing primary securities to transfer them to lenders.
What would happen in the absence of financial markets?
Surplus units would hoard excess funds, and deficit units would have to borrow internally, limiting economic growth.
How do financial markets help in economic development?
They help in capital formation.
Support non-financial business sectors.
Assist governments by buying and selling securities.
Provide liquidity to the economy.
Help central banks execute monetary and credit policies.
What are the types of securities traded in financial markets?
Bonds (central, state, local), corporate bonds, equities, and mortgage bills.
What role does liquidity play in financial markets?
Liquidity ensures that assets can be easily converted into cash, making the economy more dynamic and efficient.
What is the role of financial markets in creating new assets and liabilities?
They create financial instruments that provide financial assistance to businesses, trade, and industry, raising economic development levels.
