Essay about Financial Markets And The Financial Market

2530 Words May 16th, 2016 11 Pages
A financial market can be defined as a marketplace where assets such as equities, bonds, currencies and derivatives are traded between buyers and sellers. Financial markets are also known to have the following characteristics, transparent pricing, conditions and regulations on trading, fees and costs (Investopedia). Bonetti and Cobham (1992) state that financial markets can be seen as a system which allows ultimate lenders also referred to as the economic agents to lend money ultimate borrowers. Ultimate lenders are those who save out of their incomes whereas ultimate borrowers are the ones who invest and buy these assets. The UK financial market has three components which form the market, the stock (equity) market, bond (debt) market and the foreign exchange market. When a company needs to raise money it issues shares which allows you to buy a % of the company. This is done through an initial public offering (IPO) which is the act of issuing shares on the stock exchange for the first time. The prices of shares vary from company to company as it depends on the estimation of how much it is worth and the amount of shares available on the market. After the IPO, shares are continuously bought and sold between traders however the company receives no money from these transactions. (Patton, 2015). According to the Investment Association of Canada (2008) bonds are issued when companies need funds to expand their business. There are two types of bonds in the UK, government bonds and…

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