Finance

Commercial banks Commercial banks act as the most fundamental source of funding for individuals and companies. Millions of individuals deposit money into their savings accounts and fixed deposits, which are lent to organizations or individuals in need of funds.

Stock Markets Either through the primary markets or secondary markets, savings are infused into companies in the form of debt or equity. This is a huge avenue for channelizing savings all over the world.

Mutual Funds Fund management organizations collect funds from several individuals or organizations, and invest the same on behalf of them into several companies. Mutual funds act wonderfully for people who are unaware of the risks involved in investing into the equity market and yield excellent results.

What is a market, distinction between various markets
A Market is a system or an institution that augments the transfer of goods and services for a mutually beneficial purpose, where one or both the participants receive an economic benefit out of the same. It is an arrangement for both buyers and sellers to exchange goods or services, or buy the same with cash.

Physical Asset market Vs Financial Asset market
A physical asset market facilitates the buying and selling of physically tangible goods or service. The asset has to be physically tangible even if the market is physical or intangible like the internet. The purpose of trading in such a market is the exchange of goods or services as a method or barter or for cash. A financial asset market facilitates the purchase and sale of liquid assets or financial assets. The equity market, commodities market, bullion market and currency market, are all examples of financial asset markets. The purpose of trading on these markets are either for investment or to accumulate wealth through the process of buying and selling of liquid assets.

Spot market Vs Future market
A spot market is a market where the transaction happens today and the delivery of the equity, contract or commodity is delivered immediately. A future market is more risky as the delivery of the equity contract or commodity contract is on a stipulated future date.

Money market Vs Capital market
The money market is a part of the financial markets, where assets involved in short-term borrowing are lent with original maturity dates, which are generally lesser than one year, or with shorter periods. Some of the instruments traded on money markets in clued Treasury bills, bankers acceptance, commercial paper, federal funds, asset-backed securities etc. The global money market provides tremendous liquidity for the global financial system.

Capital markets are avenues for lending money, in the form of equity or debt either for a long term i.e., more than one year. Capital markets include bond market and equity market.

Primary market Vs Secondary market
The primary market is a part of the capital markets where public or private organizations raise funds for the first time. New issues of shares or sold to shareholders that is known as underwriting. It is a long-term equity capital market and an IPO Is a perfect example for primary markets.
The secondary market is a place where already company issued equity, derivates and bonds are bought or sold for investments or for making money. Stock exchanges are perfect examples of secondary market.

Public market Vs private market
A public market is a market open to everyone to trade on the same. One might need to be registered as a buyer in the market and then he could gain access on how to trade. A private market on the other hand is a systematically manipulated market, where very few people get to know information about the transactions.

Why are financial markets essential for healthy economy and economic growth
Financial markets are helpful for the growth and sustenance of a healthy economy in the following ways
Creation of liquidity for cash struck organizations.
Highly liquid stock markets cause high growth in GDP for the country.
An economy with strong financial markets would help in the growth of the banking and financial services industry.

A strong and well-developed financial system would improve financial decision efficiency, which in return would be better for the better allocation of resources.

Limitations of bank based funding or government make it mandatory for organizations to be dependent on financial markets. The success of these companies would propel economic growth of the nation.

What are derivatives and how can they be used to reduce risk
A derivative in simple terms is a contract that is based not on real monetary terms. In the financial markets, derivatives are instruments that are not bought today, but agreed to be bought on a future date. As a commitment for the same, the buyer enters a contract to bear any losses arising out of such a contract or enjoy profit. In the financial market, there are three kinds of derivatives futures, contracts and swaps.

Derivatives can be greatly used to reduce risk. As an example, an individual can enter into a call option and a put option at the same time, and based on the results of the market reduce his risk in turbulent times. However, not all derivative transactions are risk free, as there is high leverage on derivatives, as a result of which, the investor might pay 20 of the contract value of advance and trade on 100 of the risk. Hence, volatility of 20 might reduce the value of money owned by the investor to zero.

Types of Financial institutions
Commercial banks  A commercial bank is a financial intermediary that primarily focuses on providing day-to-day banking solutions to individuals and corporations. The primary role of such banks is in mobilizing funds from individuals in the form of fixed deposits, and lending money to individuals and organizations in return.

Investment banks An investment bank is an organization that underwrites securities being issued by private companies or by government organizations. Unlike traditional banks, investment banks do not offer day on day banking operations.

Mutual funds A mutual fund is a pool of funds gathered by a fund management company, which are collectively invested on behalf of several customers based on the knowledge and insights of the fund manager, so as to provide maximum returns.

Hedge funds A hedge fund is a highly leveraged pool of funds acquired from high net-worth individuals, so as to maximize returns on investment, by the application of sophisticated technologies.
Private equity companies Companies that invest into other companies not through the stock exchange, but through a private transfer of equity are known as private equity companies. Even high net worth individuals are also into private equity investment.

What are the two leading stock markets And what are the two types of stock markets
The leading stock exchange in the world is the New York Stock Exchange, which has over 2700 stocks listed on it and has more than 21 trillion dollar share trades. The second largest stock market in the world is the NASDAQ, which has more than 3000 companies on its list of companies and trades shares worth 11 trillion  dollars.

The two types of stock markets are trading floor stock exchanges like the New York Stock Exchange and over the counter stock exchanges like the NASDAQ.

The purchase of stock from underwriters by Varga would be a primary market transaction, as Apple Company issued its shares for underwriting to Smyth Barry .  Varga can purchase the same stock in the dealer market or in the assigned stock exchange. However, most of the times, a public offer via underwriters is always cheaper than buying stock in the dealer market.

An Initial Public Offer (IPO)
An Initial Public Offer (IPO) is a stock issue by a company directly to the public, which meets certain regulations with its registered dealer or stock exchange. Not all companies are eligible for an IPO and would have to meet minimum stipulations of the regulating body and the registered stock exchange.

An efficient market
An efficient market is one where there is perfect information available among all the stakeholders of the stock market. As a result, stocks would not be able to over perform over its competitors as everyone has the same information.

Some stocks are more efficient than others are, as there is considerably more information to all stakeholders about the stock than other stocks. These stocks almost deliver identical returns, as the index of the stock market and do are less risky, due to the information available to everyone.

If the stock market were highly efficient, it would not be advisable to buy many shares of that medical research company. This is due to the fact that all the stakeholders in the stock market would have the same information, giving no reason for a decision. In an efficient market, hot news would not be effective at all.

The technology boom is long gone. There were times when people would make a hundred percent return on investment within a few weeks on technology stocks. Things are different nowadays, and the returns are not so significant on technology stock after the global recession. Hence, it would be a good idea to invest into technology stocks, but buying them in too large a quantity would not be appreciated.