Sunday, April 26, 2015

Financial Market - Meaning, Types and Role

Meaning of Financial Market
A financial market is an institution that facilitates exchange of financial instruments including deposits, loans, corporate stocks, government bonds, etc.

According to Brigham Eugene F. "The place where people and organizations wanting to borrow money, are brought together, with those having surplus funds is called a financial market". This definition makes it clear that a financial market is a place where those who need money and those who have surplus money are brought together. They may come together directly or indirectly. 

Financial market in India performs an important function of mobilization of savings and channelizing them into most productive uses.

Role and Functions of Financial Market
A financial market is of great use for a country as it helps its economy in the following ways

1.       Saving mobilization : Obtaining funds from surplus units such as households, individuals, public sector units, central government, etc and channelizing these funds for productive purposes.

2.       Investments : The financial market plays an important role in arranging to invest funds thus collected in those units which are in need of funds.

3.       National growth : The financial market contributes to the national growth by ensuring continuous flow of surplus funds to deficit units.

4.       Entrepreneurship growth : Financial markets contribute to the, development of the entrepreneurial class by making available the necessary financial resources.

5.       Industrial development : The components of financial markets help towards accelerated growth of industrial and economic development of a country, thus contributing to raising the standard of living and the society's well being.

Types of Financial Markets
The financial market consists of two major segments