Financial market
This is a type of financial market where different individuals from different places come to trade commodities, value and financial securities at a low cost of transaction at a low price that would show the demand and supply. Commodities can be any agricultural products while the financial securities are the bonds, stocks, shares and options.
Market in finance is mostly referred to as the place where there is exchange which means the term exchange is placed with market. Commodity exchange and stock exchange are examples of markets or organization that are involved in the financial securities trade.
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Financial securities trading can take place in physical market location which can be either BSE, JSE, LSE or NYSE and can also take place on any electronic system like the NASDAQ. Much of the trading on stocks are carried out on exchange but spinoff and merger which are corporate actions takes place outside the exchange market while it is also possible for exchange should not be involved in the sale of stock from an individual to another individual.
Bonds and currencies trading is mostly on the basis of bilateral but there are some bonds that trade on the basis of exchange and they are usually referred to as the convertible bonds and steps are being taken by people to build electronic system for the bonds and currencies to act like stock exchange electronic system.
Types
There are different types of financial markets but over the year’s market under the financial sectors have always being referred to as the finance raising market. Some of the types of financial market are listed below;
- Money markets. This is for the provision of investment and debt financing for a short term
- The commodity market. This type of market facilitates, aids and enhance the commodities trading
- Capital markets. Under this type of financial market, there are two forms of it that is two forms of capital market which are the bond and the stock markets.
- Bond markets. This type of capital markets makes the provision of finance to corporations or individuals under the debt financing by issuing bonds to people.
- Stock market. Using the equity financing, the stock market makes it possible for the use of shares and common stocks by the corporations for the financing of its activities.
- Foreign exchange markets. This enhances the foreign exchange trading between two or more countries.
- Derivatives markets. This is for the provision of risk instruments for the purpose of managing the financial risk.
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Debt financing in financial market
Debt financing is a scope under economics and a study under business finance which involves the act of lending money out to an individual for starting a business and running a business or corporation with the hope of repaying back with interest. Debt financing works side by side with equity financing in the capital and business financing. The individual who lent money out is referred to as the creditor while the individual whom money was lent to is referred to as the debtor.
The debtor collect money for the purpose of sourcing for funds or raising capital to keep the running of the business or organisation going. The creditor gives the money out to the debtor with the debtor promising to return both the principal and interest. The creditor decides the interest rate base on the amount lent out and the level at which the organization increases in value.
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Equity financing in financial market
Equity financing is a type of business financing that involves the distribution of shares in a corporation or enterprise in other to raise funds or capital for the running and starting of new business in a corporation or organization. Equity financing basically refers to the sale of ownership interest of an organization for the purpose of raising capital to run the business efficiently.
Equity financing is different from debt financing in that s lender in debt financing does not have say or any profit in the business his money was used to run and also the borrower always have to return the money borrowed unlike equity financing in which the investors have say in the running of the business and also gets profits according to the rate of shares bought. This rate is calculated in percentage while the reward for the investment is profit but should be noted that the reward for shares is dividends. The risk involved in this is that when the business fail, the investors lose their money in equity financing, the investors get their profit as the company values increases.
