types of financial markets within the financial system

1. the money uersus capital markets

the flow of funds through the financial markets may be divided into different segments depending on the charactersitice of financial clains beingf traded and the needs of different investors one of the most improtant divisions in the finanacial system is between the money markets and the capital market.

the money markets is designed for the making of short-term loans. it is the institution through which individuals and institutions with temporary surplus of funds meet the needs of borrowers who have temporary fund shortages. thus, the money markets enables economic units to manage their liquidity positions.by convention a security or loan maturity within one year or less is considered to be a money market instruments. one of the proncipal functions of the money markets governments with short term function view of fulfilling budget deficit and regulate monetary policy. the money market also supplies funds for speculative buying of securities and commodities. capital markets is desined to finance long term investments by business, government and households. teading of funds in the capital market makes possible the construction of fare highways, schools and homes, investment made in plant and machine etc. financial instruments in the capital market have a original maturities of more than one year and range in size from small loans to multimillion rupees credits.

2. open versus negotiated markets

another distraction between markets in the financail system that is often useful focuses in open market versus negotiated markets. for example,some corporate bonds are sold in the open market to the highest bidder and bought and sold any number of time before they matures and a repaid off. in contrast in the negotiated market for corporate bonds securities generally are sold to one or a few buyers under private contract.

an individual who goes to his or her local banker to secure a loan for a new car enters the negotiated market for auto loans. in the market for corporate stocks operataing the same time, however is the negotiated market for stock in which a corporation may sell its entire stock issur to one or a handful of buyers.

3. primary versus secondary markets

the financial markets mat also be divided into primary markets and secondary markets. the primary market is for the trading of new securities which are never being issued before. its principal function is raising financial capital to support new investment in building, equipment inventories and to meet capital adequacy.

the secondary market deals in securities previously issued. its chief function is to provide liquidity to security investors-that provide an avenue for convertion financial instruments into ready cash. the volume of trading in the secondary market is for larger than trading in the primary market. however, the secondary market does not support new investment.

4. spot versus future funcion and option markets

a sopt market is one in which securities or financial services are traded for immediate delivery. if you pick up the telephone and instruct your broker to purchase share at today's price this is spot market transaction. you expect to acquire ownership of shares with in a matter of minutes or hours.

a future or forwards market is designed to bid contracts calling for the future delivery of financial instruments. for example , you may call your broker and ask to purchase a contract from another investors calling for delivery to you of Rs. 1million in treasury bonds six months from today. the purpose of such contract would be to reduce risk by agreeing on a price today rather than waiting six months, when treasury bond price might have risen.

options markets also offer investors in the money and capital markets an opportunity to reduce risk. these markets make possible the trading of option on selected stocks and bonds, which are agreement's that provide an investor's the right to either buy from or sell designated securities to the writer of the option at a guaranteed price at any time during the life of the contract.