Financial market is one of the components of financial system. Financial market facilitates the efficient allocation of financial resources of the economy so as to achieve socially desirable and economically productive purposes. Existence of an efficient financial market is a pre requisite for promoting savings, investments and consequent economic growth. Financial markets are extremely important to the general health of an economy. The main function of financial system, viz. capital formation takes place practically in financial markets. Financial institutions work as financial intermediaries and establish link between suppliers and users of funds in financial market. Financial products, including the supply of credit, mortgages, company shares and insurance, are bought and sold in primary and secondary financial markets. Financial products and securities are first issued into primary financial markets, which is where all financial products originate and where contracts are first drawn up. Secondary markets exist to enable buyers and sellers Continue reading
Financial System
Difference Between Money Market and Capital Market
In order to understand what the differences between things are you first need to understand what each of the items is. In this case before you can understand the difference between money market and capital market you are going to need to understand what money market is and what capital markets is. Once you understand the two items are it will be easier to see what the difference or differences are between the two markets. What is Money Market? Basically the money market is the global financial market for short-term borrowing and lending and provides short term liquid funding for the global financial system. The average amount of time that companies borrow money in a money market is about thirteen months or lower. Some of the more common types of things used in the money market are certificates of deposits, bankers’ acceptance, repurchase agreements and commercial paper to name a Continue reading
How Interest Rates Can Influence Financial Decisions?
Interest rates exert the following economic influences. Interest rates in a country influence the foreign exchange value of the country’s currency. Interest rates act as a guide to the return that a company’s shareholders might want, and changes in market interest rates will affect share prices. A positive real rate of interest enhances an investor’s real wealth to the income he earns from his investments. However, when interest rates go up or down, perhaps due to a rise or fall in the rate of inflation, there will also be a potential capital loss or gain for the investor. In other words, the market value of interest-bearing securities will alter. Market values will fall when interest rates go up and vice versa. Interest Rates are Important for Financial Decisions by Companies Interest rate is important for financial decisions by companies. The incidence of the interest rates can have the following effects. Continue reading
Initial Public Offering (IPO)
A good capital market is an essential prerequisite for the industrial and commercial development of a country. Capital market is a central coordinating and directing mechanism for free and balanced flow of financial resources into the economic system operating in a country. It helps the companies who require capital to expand, modernize or diversify their business. To get the capital that is required by the company it usually goes for the issue of shares and the process of issuing of shares is done in the primary market. The primary market in the simplest terms can be defined as a market where the securities are sold in order to raise the funds or the capital required by the company. It is a market for new issues i.e. a market for fresh capital. It provides the channel for sale of new securities. The securities can be in many forms such as equity Continue reading
The Future of Bitcoin
Bitcoin is a type of digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer. P2P network-based virtual currency that is traded online and exchanged into currencies. When paired with third-party services, allows users to mine, buy, sell, or accept bitcoins from anywhere in the world. The offer of transactions with relative anonymity is a significant financial power and brings changes to the future payment systems. Transactions are made with no banks interfering, so there are no transaction fees. More merchants are beginning to accept them. Every-one can buy services, goods but also criminals have a way to transfer very their in-come from illicit activities completely anonymously. While Bitcoin developers maintain Web sites providing guidance to the Bitcoin community, they do not have a centralized database or authority. The Future of Bitcoin Bitcoin will never be successful as a currency, Continue reading
Asset and Liability Management (ALM)
In banking, asset and liability management (ALM) is used to manage the risks that arise due to mismatches between the assets and liabilities (debts and assets) of the bank. Banks face several risks like liquidity risk, market risk, interest rate risk, credit risk, and operational risk. Asset Liability Management (ALM) is a strategic management tool to manage interest rate risk and liquidity risk faced by banks, other financial services companies, and corporations. Banks manage the risks of Asset liability mismatch by matching the assets and liabilities according to the maturity pattern or matching the duration, by hedging and by securitization. Asset and liability management remain high-priority areas for bank regulators, with an emphasis on the management of market risk, liquidity risk, and credit risk. Asset/liability managers face the challenge of keeping pace with industry changes as new areas of risk are identified and new tools and models are developed to Continue reading