Financial Services - Essay Example

The parties involved in the financial markets include investors, financial institutions (intermediary) and other parties that are brought together by formal trading rules and communication networks for business different financial instruments (assets and credits)(Brigham&Ehrhardt2010). Difference types of financial markets Financial market are classified depending on the types of securities that is traded, time to maturity, types of participants and types of transaction(Besley 2011, p.83). Different types of financial markets are as follows: Capital markets This market deals with medium and long- term funds.

This is made up by all the long-term borrowings from banks and financial institutions, borrowings from foreign markets and rising of capital through capital market, through issuance of securities. This market is classified into two; primary market and secondary markets. Primary market comprises of obligations that comprises of long-term funds by companies by making issuance of shares and debentures for the first time. This is normally during the first stage when the companies are rolling into business for the first time.

A secondary market is also referred to a stock exchange. It represent the day today dealing in the stock exchange. It is a channel where long –term funds are mobilized through organized markets where shares and debentures are traded on daily basis through openness and secure platform (Module 4 Business finance n.d.) Money markets The market deals with short-term funds, which include financial instruments that have a shorter maturity of up to one year. This financial credit instrument includes bills of exchange, promissory notes, commercial papers, treasury bills.

These instruments help governments and other companies to meet with short-term financial obligations through borrowing of funds. Commodity markets This is a market that deals with commodities like minerals, grains, oil and gases. Traders engaged in future contract for their supply and these insulate them from price fluctuations and guarantee them the continuity of operation without much think on the supply of these items(Alexander 2007,p.2) Derivatives markets In this market large financial instruments are traded which include options, and futures.

Derivatives agreements are assets that take upon themselves the right or responsibilities as the case may be(Parameswaran2006, p.1).This trade is not on any organized conversations; these include forwards contracts, foreign-exchange swaps, forwards rate agreements and barrier options(Levinson 2010) Futures markets This market allows traders to agree with a financial institution to lock in a conversation rate at certain future dates by procuring or selling a future agreement. For example if a company is expecting to receive a certain payment in the future and are not sure of the exchange rate they can come to an agreement with a financial institution by buying a future contract .

this guarantees them to receive their cash at agreed conversation rates(Levinson 2010). Foreign exchange markets This market enables exchange of currencies between two different traders in to different geographical locations or boundaries. The trader is largely over- the- counter market, which means that there is no particular market place (Bradstreet& Dan 2007, p.2). This market exists both as retail market (small dealers like tourist or