Scenario 1: Red Bull owns a grocery shop; He needed a loan of $100,000 to set up another new shop to expand his business. Which he will repay the loan for 10 years.
Scenario 2: “X” company in manufacturing business for long; presently they need to build a new factory to increase their production; Company “X” needs $10,000,000 to purchase factory buildings and machinery. “X” company’s management decided to raise through issue of shares.
Scenario 3: Company “Y” needs a loan of $400,000 for 6 months to purchase raw materials.
Scenario 4: Government decides to raise $5 billion for 6 months by issuing treasury bills.
Scenario 5: John Smith work in a private company; He plans to buy a house. He has $150,000 savings. To buy a house John Smith needs another $50,000; Which will take him 2 years to save. If John Smith keeps the savings in his, then he will not get any return from that savings. John Smith can deposit his savings in a bank for short term (1 year or less) or invest in financial assets (share market).
From above scenarios 1 and 2’s Red Bull and “X” Company require funds for the long term and from scenarios 3 and 4 “Y” Company and the Government require funds for the short term. They are all money seekers. On the other hand, scenario 5’s John Smith is the provider of money. Those who have money quoted for investment.
In Economics: Financial market networks develop as, demanders of funds (deficit units) look for sources and suppliers of funds (savers) look for investment opportunities. A financial market is therefore a place or network where demanders (collectors) and suppliers of funds buy and sell money and financial assets (short and long term).
“Products of a financial market are money and financial assets (shares, bonds, debentures).”
Characteristics of financial markets
1. A financial market is a network of money and financial asset transactions
2. Short- and long-term funds can be raised through financial markets
3. Treasury bills, shares, bonds are bought and sold in the financial market
4. Financial markets create opportunities for the flow of funds between the deficit (borrowers) and the lender (savers) classes.
A financial market is a place or network where or through which fund raisers and investors buy and sell money and financial assets.
More Resources
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