Hello Friends, In This Post, We will know “What is Financial Market and How Financial Works?”, So Let’s begin…..
Whenever we talk about the market, it comes to your mind that there is a place where there are Buyers and Sellers. If the Buyer wants to buy a particular product, then he pays Seller to buy that product.
Definition of Financial Market.
A financial market is a place where Financial Securities are created and exchanged.
Create: – When a company issues its new Shares or Debentures, it is called Create of Financial Assets.
Exchange: – Exchange means that a company issues their Shares, they are listed on the Stock Exchange where Buyer and Seller trade Shares.
What is Financial Market?
The financial market helps the household to use its savings most productively. This allows the household to get a good return on its money and on the other hand, the company gets the funds to run its business.
Suppose that Tata Motors needs funds, then it has two ways to raise funds, first, it will take a loan from a bank and secondly, it will issue its shares in the financial market so that the fund requirement can be fulfilled.
How Financial Works?
Your money goes to the financial market in two ways….
Direct Method: – In this method, you invest yourself in a company or Mutual Fund, etc.
Indirect Method: – In this method, you do not invest in any company or Mutual Fund, etc. but still your money goes to the financial market because if you deposit your money in a bank or make some kind of FD, money goes into the financial market. Have you ever thought that how the bank gives you interest on the money you deposit in the bank, the bank gives your money to others or companies as a loan and invests your money in the financial market so that it will get a good return? Could and give some part of it in the form of interest.
Suppose that Tata Motors needs funds and it has two ways to raise funds, first of all, it takes a loan from a bank and secondly to issues in the financial market of its shares so that the fund requirement of Tata Motors can be fulfilled.
First Scenario: – If Tata Motors decides to take a loan from the bank but where does the money come from the bank to give a loan, it comes from the public, we deposit in our savings bank on which we get some interest and Banks give loans to the business for the same money.
Second Scenario: – If Tata Motors wants to raise funds by its share issue in the financial market instead of taking a loan from the bank, then what do you do that instead of depositing your savings in the bank, you purchase shares of Tata Motors in the financial market So that you can get a good return.
Read More : What is Stock Market : A Beginner’s Guide
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From both of these scenarios, One thing becomes clear a business raises the fund requirement of the public. Whether it is through banks and insurance or you invest in a company through the financial market itself.
Functions of Financial Market
# 1 Mobilization of Savings: – Mobilization is meant to move funds from one place to another. Financial Market provides such an opportunity to the householder to use his Savings in the Most Productive Way.
# 2 Providing Liquidity to Financial Assets: – Provides Liquidity to Financial Market Financial Assets. , So that you can easily convert your Financial Assets like Shares, etc. into Cash.
# 3 Reducing the Cost of Transaction: – Provides information to Financial Market Investors, so that you can view data related to any company like Profit & Loss Statement, Balance Sheet and Cash Flow, etc. on the Internet. It is possible to see all this only with the help of the financial market. If you want to invest in a company, then you do not have to go to that company to know about that company.
# 4 Facilitated Price Discovery: – After the company is listed on the Shares Stock Exchange in the Financial Market, the Price Decide is based on Share Demand and Supply.
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