FINANCIAL MARKETS

Investors or lenders referred to as surplus units and those

borrowers or issuers of securities referred to as deficit units. Savings
from households and businesses are channeled to those individuals
and businesses which need the funds. The needs of deficit units and
surplus units gave rise to financial markets. Financial markets are the
heart of financial system determining the volume of credit available,
attracting savings, and setting interest rates and security prices.
FINANCIAL MARKETS – are structures through which funds flow.
They are the institutions and systems that facilitate transactions in all
types of financial claim.
FINANCIAL CLAIM – entitles a creditor to receive payment
from a debtor in circumstances specified in a contract between
them, oral or written.

Depositors have financial claims on banks where they hold

their deposits; bondholders have financial claims on companies
issuing the bonds they hold. Financial markets are the meeting
place for those with excess funds and those who needs funds.
BASIC CLASSIFICATIONS OF FINANCIAL MARKETS
PRIMARY MARKETS
Primary Markets – are markets in which users of funds raise funds,
through new issues of financial instruments such as stocks and bonds.
The Primary Market, also known as a New Issue Market, is where new
securities are issued – it is part of the capital market. Corporations, national
and local governments, and other public sector institutions can get financing
through the sale of new stock or bond issues through the primary market. The
primary market creates new securities and offers them for sale to the public.
All companies require capital for their operations. This capital (money)
can be in the form of equity or debt. Equity is the stock capital (share capital)
of a company. Debt consists of all the loans taken by the business.
SECONDARY MARKETS
Secondary Markets – are markets for securities that were previously
bought and owned and now being resold or traded.
Secondary markets do not increase the capital stock of the original
issuing company or its outstanding liabilities. They only transfer
ownership, but do not affect the total outstanding shares or securities in
the market. Only when the issuing corporation redeem bonds or retire
stocks will reduced total outstanding shares or debt securities.
Transfer of ownership does not affect the volume of these securities
in the market.
MONEY MARKET
Money Market – covers markets for short-term debt instruments,
generally for a period of a year or less, usually issued by companies
with high credit standing.
At the wholesale level, it involves large-volume trades between
institutions and traders. At the retail level, it includes money
market mutual funds bought by individual investors and money
market accounts opened by bank customers. Money market funds are
managed with the goal of maintaining a highly stable asset value
through liquid investments, while paying income to investors in the
form of dividends.
CAPITAL MARKET
Capital Market - is a financial market in which long-term debt (over
a year) or equity-backed securities are bought and sold.
Capital markets channel the wealth of savers to those who can put it
to long-term productive use, such as companies or governments
making long-term investments. 
Capital markets are financial markets that bring buyers and sellers
together to trade stocks, bonds, currencies, and other financial
assets. Capital markets include the stock market and the bond market.
They help people with ideas become entrepreneurs and help small
businesses grow into big companies.