Financial Market — Flashcards

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A financial market is a transmission mechanism between investors (lenders) and borrowers (users) through which the transfer of funds is facilitated. It connects people who have surplus money with thos…

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The three main functions are: (1) Price Discovery – buyers and sellers interact to determine the price of financial assets; (2) Providing Liquidity – investors can sell their securities easily and con…

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Price discovery is the process by which the price of a financial asset is determined through the interaction of buyers and sellers in the market. For example, if more people want to buy a share than s…

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Liquidity refers to how quickly and easily a financial asset can be converted into cash without losing its value. For example, shares listed on the stock exchange are highly liquid because they can be…

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Financial markets reduce transaction costs by providing a centralized platform where investors and borrowers can easily find each other and access reliable information about financial products. This r…

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The two main types are: (1) Money Market – deals with short-term funds (up to one year), and (2) Capital Market – deals with medium and long-term funds (more than one year).

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The money market is a market for short-term funds where financial instruments with maturity up to one year are traded. It does not deal in physical money but in credit instruments like treasury bills,…

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The five important money market instruments are: (1) Call Money, (2) Treasury Bills, (3) Commercial Paper, (4) Certificate of Deposit, and (5) Trade Bill (or Commercial Bill).