What is the Financial market? A financial market is a platform or system that facilitates the exchange of financial assets and instruments, such as stocks, bonds, currencies, and derivatives. It serves as a meeting place for buyers and sellers, allowing them to trade financial instruments based on supply and demand. These markets play a critical role in the functioning of the global economy by providing capital to businesses, liquidity to investors, and avenues for risk management.

Functions of Financial Markets 1. Capital Allocation: Financial markets allocate resources efficiently by channeling funds from savers to borrowers. 2. Price Discovery: They establish the prices of financial instruments based on market dynamics. 3. Liquidity Provision: Investors can quickly and easily convert their assets into cash. 4. Risk Management: Investors can hedge against risks through instruments like derivatives. 5. Economic Indicator: Market trends often reflect the health of the economy.

Types of Financial Markets 1. Capital Markets: o Stock Market: Trades shares of publicly listed companies. o Bond Market: Trades debt securities, such as government and corporate bonds. 2. Money Market: Focuses on short-term debt instruments like treasury bills and commercial paper. 3. Forex Market: Facilitates currency trading, enabling international trade and investment. 4. Derivatives Market: Involves contracts like options, futures, and swaps that derive their value from underlying assets. 5. Commodity Market: Trades physical goods such as gold, oil, and agricultural products. 6. Cryptocurrency Market: A digital asset market trading cryptocurrencies like Bitcoin and Ethereum.

Participants in Financial Markets • Investors and Savers: Individuals and institutions that provide capital. • Borrowers: Companies and governments seeking funding. • Financial Intermediaries: Banks, brokers, and mutual funds facilitating transactions. • Regulators: Bodies like the SEC (in the U.S.) ensuring market integrity and fairness.

Importance of Financial Markets • Drives economic growth by funding businesses and government projects. • Enhances financial security for individuals through investment opportunities. • Promotes global trade by enabling cross-border investments.

Examples of Major Financial Markets • New York Stock Exchange (NYSE): A leading stock market in the U.S. • London Stock Exchange (LSE): A prominent European exchange. • NASDAQ: Known for trading technology companies. • Chicago Mercantile Exchange (CME): A major derivatives market. • Forex Market: The largest financial market globally, with daily trades exceeding $6 trillion.