Finance

A financial market is one that allows sellers and buyers to buy and sell financial instruments such as stocks and bonds, and commodities which help businesses grow and make money. A corporation is a form of an organization which is separate from its owners and has limited liability and the shares of the corporation can be easily transferred and the status of the business does not change with the death of any shareholder.

The purpose of financial markets is to allocate resources in the most efficient manner so that the economy can grow. It helps to lenders to lend money to borrowers who need the funds to buy goods or for investing purposes. Therefore, the financial market helps to facilitate the flow of funds from lenders to borrowers.
The corporation uses the financial market for raising funds. For example, if a corporation wants to undertake a project and it does not have enough funds then it can use the financial market to raise funds by either borrowing money from financial institutions such as a bank or it can sell its shares in the market and generate equity depending on its preference.

Corporations need funds to operate and these funds can be raised in two ways. The corporation can either decide to borrow the money or it can sell ownership in the business. If the corporation decides to borrow money then it has to pay interest to the lender on a periodic basis and if the corporation sells its ownership then it can either get listed on the stock exchange and have free trading of its shares or it can sell part of its ownership to the big private investors.

The financial markets are of two types namely the money market and the capital market and both help to raise funds via different manner and for different time period.

A capital market is a market for debt and equity which helps businesses to raise long-term funds. In this market, the money provided by the lender to the borrower if for long term. The two types of capital markets are the stock market where shares are traded and the other is the debt market where bonds are traded.
A primary market is used to raise funds by selling new shares directly to investors. Here, the funds are generated by selling new stock of bonds to the investors through investment banks.

The money market, on the other hand, is one where funds are provided for short-term and here, treasury bills, commercial papers, mortgage backed securities, certificate of deposits, etc are traded.

The money market provides short term debt instruments such as treasury bills which help corporations to raise funds. For example, the government needs money and it does not want to issue long term bonds therefore, it can issue treasury bills which have a maturity of less than one year therefore, the government can get funds and it does not have to pay interest for a long time. The money market instruments that are traded in secondary market include bankers acceptances, certificate of deposits, and commercial papers, etc.
A primary market is a capital market that deals with the issuance of new securities and here, the funding is generated by selling new stock or bonds. A secondary market, on the other hand, is one where previously issued stocks and bonds are bought and sold.

A dealer market is one where trading happens between dealers who trade for their own accounts rather than between agents who buy and sell for others. An auction market, on the other hand, is one where buyers and sellers competitively bid. The price of the instrument depends on the highest price a buyer is willing to pay and the lowest price for which the seller is willing to sell. The bids and offers are then matched and a trade occurs.