STRUCTURE OF FINANCIAL MARKETS
Financial markets can be categorized in four different ways:1.
Debt and Equity Markets2.
Primary and Secondary market3.
Exchanges and Over–the-Counter Market4.
Money and Capital Markets
First: Debt and Equity Markets
A firm or an individual can obtain funds in a financial market in two ways.
The first method of raising fund, which is practiced in
, is to issuethe debt instrument.
is a contractual agreement that oblige the issuer of the instrument(the borrower) to pay the holder of the instrument (the lender) fixed amounts(interest and principal payments) at regular intervals until a specified date(maturity date) when a final payment is made.
of a debt instrument is the date on which a loan or bond, or otherfinancial instrument becomes due and is to be paid off.
Debt holders do not share the benefit of increased profitability because their dollarpayment is fixed
A debt instrument is1.
short-term if its maturity is less than one year,2.
long-term debt if its maturity is ten years or longer, and3.
intermediate-term if its maturity is between one and ten years.
Examples of debt instruments include government and corporate bonds.
The second method of raising fund, which is practiced in
, is byissuing
is a contractual agreement representing claims on the issuer's income(income after expenses and taxes) and the asset of the business.
Equities often make periodic payments (dividends) to their holders