Explain and give an example of the following financial marke

Explain and give an example of the following financial markets, make sure to include who participates in each market:

Money Market

Capital Market

Bond Market

Mortgage Market

Stock Market

Foreign Exchange Market

Derivative Security Market

Solution

Money Market:

The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year.

Examples: eurodollar deposits, U.S. Treasury bills, commercial paper

nstitutions that participate in the money market include banks that lend to one another and to large companies in the eurocurrency and time deposit markets; companies that raise money by selling commercial paper into the market, which can be bought by other companies or funds; and investors who purchase bank CDs as a safe place to park money in the short term.

Capital Market:

Capital Markets\" refers to activities that gather funds from some entities and make them available to other entities needing funds. The core function of such a market is to improve the efficiency of transactions so that each individual entity doesn\'t need to do search and analysis, create legal agreements, and complete funds transfer

Examples: Markets include primary markets, where new equity stock and bond issues are sold to investors, and secondary markets, which trade existing securities.

Capital markets consist of suppliers and users of funds. Suppliers of funds include households and institutions serving them, such as pension funds; life insurance companies; charitable foundations such as colleges, hospitals, and religious institutions; and nonfinancial companies generating cash beyond their needs for investment. Users of funds include home and motor vehicle purchasers; nonfinancial companies; and governments financing infrastructure investment and operating expenses.

Bond Market;

The bond market – also called the debt market or credit market – is a financial market in which the participants are provided with the issuance and trading of debt securities. The bond market primarily includes government-issued securities and corporate debt securities, facilitating the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations.

Examples: In the bond market, participants can issue new debt in the market called the primary market or trade debt securities in the market called the secondary market. These products are typically in the form of bonds, but they may also come in the form of bills and notes

The participants of the bond market are nearly the same as the participants in other financial markets. In bond markets, the participants are either buyers of funds (that is, debt issuers) or sellers of funds (institutions). Participants include institutional investors, traders, governments and individuals who purchase products provided by large institutions.

Mortgage Market:

The primary mortgage market is the market where borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transaction. Mortgage brokers, mortgage bankers, credit unions and banks are all part of the primary mortgage market.

Example: mortgage-backed security (MBS), asset-backed security (ABS) or collateralized debt obligation (CDO).

Loans are originated in the primary mortgage; originators can include mortgage brokers, mortgage bankers, commercial banks and credit unions

Stock Market:

The stock market refers to the collection of markets and exchanges where the issuing and trading of equities or stocks of publicly held companies, bonds, and other classes of securities take place. This trade is either through formal exchanges or over-the-counter (OTC) marketplaces.

Example: Stocks and bonds

Corporates, instituional investors, retail investors

Foreign Exchange Market:

The foreign exchange market is the market in which participants are able to buy, sell, exchange and speculate on currencies. Foreign exchange markets are made up of banks, commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

Example: buying, selling, exchanging and speculation of currencies

commercial companies, central banks, investment management firms, hedge funds, and retail forex brokers and investors.

Derivative Security Market:

he derivatives market is the financial market for derivatives, financial instruments like futures contracts or options, which are derived from other forms of assets.

The market can be divided into two, that for exchange-traded derivatives and that for over-the-counter derivatives. The legal nature of these products is very different, as well as the way they are traded, though many market participants are active in both.

Examples: Futures and options

Instituional investors, Retail investors