Financial Markets

The financial market is an exchange of financial assets between investors (business firms) and Savers (households). Financial assets are shares, debentures, treasury bills etc.

The financial market creates two outcomes:

1. Rate of return to households(savers)
2. With the household savings, the business firms (investors) can reach maximum profit from these funds by productivity.

Functioning of Financial markets:

• Mobilization of savings and channelizing them into productive use
• Facilitates price discovery
• Provides liquidity to financial assets
• Reduces the cost of transaction

Financial markets are divided into two types

1. Money Market
2. Capital Market