Financial Markets:

Financial market are a mechanism enabling participants to deal in financial claims. The market also provide a facility in which their demands and requirements interact to set a price for such claims. The participants on the demand and supply sides of these markets are financial institutions, agents, brokers, dealers, borrowers, lenders, savers, and others who are inter-linked by the laws, contracts, covenants and communications networks.

Financial markets have been variously classified. Two important classifications are:

a)    Primary market and secondary market; and

b)     Money market and capital market.

a)    Primary market and Secondary market

The primary markets deal in the new financial claims or new securities, and, therefore, they are also known as 'new issue markets'.

Secondary markets deal in securities already issued or existing or outstanding.

Primary markets mobilise savings and they supply fresh or additional capital to business units.  Secondary markets do not contribute directly to the supply of additional capital, they do so indirectly by rendering securities issued on the primary markets liquid.  

b) Money market and Capital market

Money market is a market for short-term securities with a maturity of one year or less capital market is a market for long-term securities, that is, securities having a maturity period of one year or more. Keeping in view different purposes, financial markets have also been classified into the following categories: (i) organised and unorganised; (ii) formal and informal; (iii) official and parallels; and (iv) domestic and foreign.