Definition: Financial Market Structure

nnFinancial Market StructurenIn economics, a financial market is a mechanism that allows people to easily buy and sell financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect the efficient market hypothesis.nnFinancial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.nnBoth general markets and specialized markets exist. Markets work by placing many interested sellers in one "place", thus making them easier to find for prospective buyers. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy that is based, such as a gift economy.nnFinancial markets facilitate:nn * The raising of capitaln * The transfer of risk n * International trade nnThey are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends.nnFinancial markets could mean:nn1. organizations that facilitate the trade in financial products. i.e. Stock exchanges facilitate the trade in stocks, bonds and warrants.nn2. the coming together of buyers and sellers to trade financial products. i.e. stocks and shares are traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly between buyers and sellers etc.nnIn academia, students of finance will use both meanings but students of economics will only use the second meaning. Financial markets can be domestic or they can be international.nnTypes of financial marketsnnThe financial markets can be divided into different subtypes:nn 1.Capital markets which consist of:n * Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.n * Bond markets, which provide financing through the issuance of Bonds, and enable the subsequent trading thereof.n 2.Commodity markets, which facilitate the trading of commodities.n 3.Money markets, which provide short term debt financing and investment.n 4. Derivatives markets, which provide instruments for the management of financial risk.n *Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market.n 5.Insurance markets, which facilitate the redistribution of various risks.n 6.Foreign exchange markets, which facilitate the trading of foreign exchange.nnThe capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities.nnnWikipedia, the free enclyclopedia © 2001-2008 Wikipedia ContributorsnThis article is licensed under the GNU Free Documentation Licensenn