Types of Financial Markets – Money Market, Capital Market, Currency Markets

Types of Financial Markets – Money Market, Capital Market, Currency Markets. A video covering Types of Financial Markets – Money Market, Capital Market, Currency Markets

Hi everybody let’s in this video break down financial markets and look at three types of financial markets that exist in the economy we’ve got money markets capital markets and currency markets you need to know a bit about all three remember what a financial market is it’s any place where buyers and sellers meet to trade financial assets what kind of assets are we

Talking about in money markets well the buying and selling of financial assets here are financial assets which have a maturity or a payback date of a year or less so for example government bonds or corporate bonds that have a maturity date of a year or less that are paid back in a year or less will be traded bought and sold in the money market any interbank lending

That’s taking place so if commercial banks are lending to another commercial bank or a commercial bank is borrowing from another commercial bank those transactions are often daily and therefore take place in the money market so any ius any assets with a payback date of a year or less will take place in money markets capital markets is the buying and selling of

Financial assets which have a payback date of greater than a year so not quite as liquid as money market transactions and money market assets at this stage guys i want to introduce the difference between debt capital and equity capital debt capital is any financial asset which pays back an interest rate i it’s a form of borrowing for the issuer all right because

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An interest rate has to be paid back whereas equity capital is different to that if anybody has equity capital they have a stake in the business they have a share of the business and the return is not an interest rate the return is a dividend is a share of the profit so debt capital is a form of borrowing for the issuer equity capital is not borrowing for the

Issuer for the issuer for debt capital they pay interest for equity capital they pay back a dividend a share of the profit all right so in the capital markets what kind of debt capital are we talking about here well the buying and selling of government bonds which has got a maturity date of greater than a year whereas for equity capital we’re talking about shares

All right so these kinds of transactions will take place in capital markets the buying and selling of longer term government bonds maybe three year five year 10-year government bonds and they’re buying and selling the shares for example right there are two different types of capital markets you’ve got the primary market the new issue market where brand new bonds

Will be issued for example through the debt management office in the uk for example through an investment bank for example through an investment bank for shares as well or a stock exchange for shares if there are brand new shares of brand new bonds being issued then those transactions will take place in the primary capital markets but these bonds and shares can

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Also be bought and sold in that sense they are also highly liquid easy to convert to catch not as liquid as money markets because these are short-term assets but still highly liquid here because of the important secondary markets where new bonds and new shares can then be bought and sold again that will take place in the secondary market for example again through

An investment bank or through a stock exchange for example so in that sense all these assets are also quite highly liquid but crucially i’ve all got ious of greater than a year we’ve also got currency markets there are two different types of currency markets you’ve got spot markets where you can buy currency at the current exchange rate and get it delivered to

You right now and you’ve also got futures markets where you can buy currency at the given exchange rate but that currency is delivered to you at some time in the future why on earth would anybody want to engage in futures market transactions well for example if you’re an importer and you’re worried about a weak exchange rate in six months time if you’re importing

Raw materials when the exchange rate is weaker that’s a higher cost to you so maybe you you’re predicting that the exchange rate is going to get weaker in six months time what you might do is buy your currency now at the current exchange rate let it get delivered to you in six months time when the currency on the exchange rate weakens and you’re protected against

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That maybe you’re a speculator you’re a gambler and you think you can make money from exchange rate changes you think that in six months time the exchange rate is going to get stronger so what you might do is buy your currency now at the current exchange rate let that get delivered to you in six months time when the exchange rate has got stronger and sell it and

You’ve made a big profit in doing so so the futures market really is there to encourage speculation for speculators to make a big big big amount of money gamblers essentially thinking that they know what’s going to happen with the exchange rate which swings in the exchange rate trying to make money from it but also you know importers exporters that are trying to

Hedge against changes in the changes in the exchange rate and protect themselves in that sense so that covers the three different types of financial markets and different kinds of transactions that take place within them thank you so much for watching guys i’ll see you all in the next video

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Types of Financial Markets – Money Market, Capital Market, Currency Markets By EconplusDal