Before discussing about the types of financial market, I want to discuss about what actually the financial market is. So, lets be clear about the meaning and concept of financial market.
What is financial market?
Financial market refers to the market where the financial securities (both short-term and long-term), derivative securities and foreign currencies are traded. Financial market is one of the component of financial system which facilities the trading of financial securities like equity, bonds, debentures etc, derivative securities like option, warrants etc. and the foreign currencies.
Types of Financial Market
Here we have briefly explain about the four type of financial market.
1. Money Market
2. Capital Market
3. Derivative Market
4. Forex Market
Money Market
Money market is that type of financial market where short-term securities are traded. It is the market of highly liquid securities which maturity period is equal to or less than one year. Treasury bills, short term notes, certificate of deposit, promissory note etc are the securities traded in money market.
Capital Market
Capital market is that market where long term securities are traded. Long term securities are those securities which maturity period is more than one year. Equity, preferred stocks, bonds, debentures, long-term Notes etc. are the financial securities which are traded in this type of market.
Derivative Market
Derivative market is that type of market where derivative securities are traded. Derivative securities are those securities which value is depends upon the market value of underlying assets. Options, warrants, future contracts etc are some of the example of derivative securities. Hedgers, speculators, arbitrators,margin traders etc are the main participants of derivative market.
Forex Market
Forex, i.e. foreign exchange, market is that type of financial market where foreign currencies are traded. Forex market plays vital role in the development and growth of international trading. It facilitate both importer and exporter to make and receive payments in foreign currencies.