A
financial market is a market in which people trade financial
securities, commomdities, and other fungible items of value at low
transation costs and at prices that reflect supply and demand.
Financial markets are typically defined by having transparent
pricing, basic regulations on trading, costs and fees and market
forces determining the prices of securities that trade.
Function of financial
market:
Intermediary
Functions:
The intermediary functions of a financial markets include the
following:
Transfer
of Resources:
Financial markets facilitate the transfer of real economic resources
from lenders to ultimate borrowers.
Enhancing
income:
Financial markets allow lenders to earn interest or dividend on their
surplus invisible funds, thus contributing to the enhancement of the
individual and the national income.
Productive
usage:
Financial markets allow for the productive use of the funds borrowed.
The enhancing the income and the gross national production.
Capital
Formation:
Financial markets provide a channel through which new savings flow to
aid capital formation of a country.
Price
determination:
Financial markets allow for the determination of price of the traded
financial assets through the interaction of buyers and sellers. They
provide a sign for the allocation of funds in the economy based on
the demand and to the supply through the mechanism called price
discovery process.
Sale
Mechanism:
Financial markets provide a mechanism for selling of a financial
asset by an investor so as to offer the benefit of marketability and
liquidity of such assets.
Information:
The activities of the participants in the financial market result in
the generation and the consequent dissemination of information to the
various segments of the market. So as to reduce the cost of
transaction of financial assets.
Financial Functions
Providing the borrower with funds
so as to enable them to carry out their investment plans.
Providing the lenders with earning
assets so as to enable them to earn wealth by deploying the assets in
production debentures.
Providing liquidity in the market
so as to facilitate trading of funds.
Providing liquidity to commercial
bank
Facilitating credit creation
Promoting savings
Promoting investment
Facilitating balanced economic
growth
Improving trading floors
