Finance is the study of funds.
This study deals with the buying and selling of securities and all other financial assets. In the United States, financial markets are referred to as the Stock Exchange and the futures and option exchanges also known as the Forex. A financial market is an interrelated market in which individuals trade derivative securities and financial derivatives at very low transaction prices. Some of these securities include treasury bills, bonds and common stocks, commodities and precious metals, that are called in the financial markets as financial assets.
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There are different types of financial assets.
Common equity is the most basic form of equity and a company’s equity is expressed numerically. The total value of stock is expressed as the market value of all shares. Other types of equity include retained earnings, capital stock, common stock dividends, retained earnings shares, mortgage interest and property and business assets.
The main activities in financial markets include:
creating and issuing financial instruments such as debt and equity securities, creating and trading derivative instruments, borrowing money and issuing bank loans. There is also financial trading.
Financial market participants include:
banks, brokers, dealers, investment companies, corporate organizations, registered dealers, individual investors and financial institutions. Money is traded on the exchange.
The major components of the Futures and Options markets are:
The equity markets. Equity markets refer to stocks, bonds and mutual funds. The commodity markets refer to agricultural products like wheat, corn, pork bellies and currencies. The equity and commodity markets together comprise Futures and Options. The futures market acts as a platform for trading transactions between buyers and sellers. Options are financial instruments that are traded in derivative forms.
The Foreign exchange (Forex) markets deal with the purchase and sale of foreign currencies. It is one of the largest financial markets in the world. It is also known as the stock exchange.
Stock markets comprise companies listed on the exchanges.
These include small companies, mid-sized companies and large international companies. It also includes a number of financial sectors, including energy, infrastructure, fixed income, mutual funds, insurance, financial sector funds, private equity, growth companies, and venture capital. Financial markets include equity markets, bond markets, commodity markets and foreign exchange markets.
Various techniques are applied in finance markets.
They include pricing, cost of capitalization, and valuation of financial instruments. Pricing is an economic measurement used to determine value. Valuing is done by dividing an asset by its liabilities. Finance markets are affected by macroeconomic factors such as interest rates, fiscal policy, balance of payments, balance of trade, and inflation. Changes in these factors may affect the value of the markets.
The financial markets provide investors with financial resources.
These are the means of availing loans from the banks and issuing securities in exchange for the loans. The markets are also a source of information about the various companies in terms of their financial performance, trading volume and stock market valuation. Finance markets are important for any country since it directly or indirectly contributes to the overall economic development.
There are four major markets in the world.
These are equity markets, bond markets, commodity markets, and foreign exchange markets. The two dominant sectors are finance and banking. The other two are the manufacturing and energy sectors. A number of financial markets are interrelated with each other. Some of these are the investment markets, business markets, and government markets.
The major areas of financial markets are equity and credit markets, commodity markets, bond and foreign exchange markets, and manufacturing and energy markets.
The size and expansion of each sector influence the overall performance of the financial markets. Credit markets allow businesses to obtain credit to meet their capital needs. Equity and credit markets are important in determining the value of a company.
Finance markets are not static.
Trends in the economy affect these sectors and cause fluctuations. Economic recessions, for example, can cause stock prices to fall. Companies’ income or assets can fall because of poor management or bad debts. Interest rates can drop because of the increasing demand for loans from banks and other lending companies.
The stock market can be complicated.
Many of the factors that affect finance markets are affected by stock prices. Stocks can be volatile. Changes in the economy can cause changes in stock prices. If you want to buy or sell stocks, you can do so through an online broker.