FINANCIAL MARKETS AND INSTITUTIONS.

Financial markets refers to any market place where the trading of securities occurs,
including the stock market, bond market, forex market and derivatives market among
others. Financial markets are vital to the smooth operation of capitalist economies.
These markets may include assets or securities that are either listed on regulated
exchanges or else trade over the counter(OTC)
Classification of financial markets;
Financial markets are classified into two categories;
1. Money market.
The money market is where short term funds are raised through the buying and
selling of short term debt securities such as commercial papers.
2. Capital market.
The capital market is where long term funds are raised through the bond market,
which deals with long term debt securities such as bonds, the stock market which
deals with equity securities or stocks.
Primary and secondary markets.
Primary markets.
In the primary market, new shares are issued and sold to the investing public for the
first time. It is where capital is actually raised by the company selling stock directly to
investors typically through the initial public offering. For instance, if San Miguel
corporation decides to sell a new stock to raise equity funds, it will be a primary
market transaction. Since it is the first time the company has sold stock to the public,
it is called an initial public offering.(IPO). The proceeds of the sale go to San Miguel
Corporation the issuing company. Investors who have subscribed to the IPO have
provided the company with the necessary funds to continue its operation and
expansion, and become part owners of the company.
Secondary market
The secondary market is where securities can be bought and sold after they have
been issued to the public in the primary market. Thus if you decide to buy existing
shares of San Miguel Corporation, you cannot buy them directly from the issuing
company anymore since they have all been sold to the investing public during the
IPO.
Secondary markets include the stock exchange and over the counter(OTC) market.