Financial market is a place where lenders and borrowers of money or credit come together for the purpose of exchange for example, financial assets or paper assets. It provides a return for those who have excess funds or savings also known as surplus income. In the other hand it makes loan funds available to those need additional credit or money. Financial market also covers all business activities relating to borrowings and savings of household and institution. They also make funds available for investment purposes such as the purchase of new capital equipment or goods by business firms; which is vital for future economic growth and development. And lastly it perform very important role in a market for the relocation of unused resources. .
Types of assets that can be bought and sold in financial market.
• Consumer credit (eg. Credit cards).
• Housing loans .
• Business loans.
• Short term money market.
• Bond markets.
• Share markets.
• Financial futures.
• The foreign exchange or FOREX market.
• Life policies.
• Superannuation deposits.
The locations of the market.
• Finance companies - obtain most of the funds by borrowing from the general public .
• Merchant banks.
• Credit unions.
• Permanent building societies.
• Mortgage originators.
• Life insurance companies.
• Superannuation funds.
• Unit trusts.
2. The consumers, government and business firms will make a decision whether to spend or save their income, tax or profit. Spending is when consumers, government and business use part of their income (for the consumers), tax (for the government) or profits (for the business firms) to obtain or provide goods and services. Saving is when the part of income of consumers is not consumed, the spending of the government is lesser than the tax they received and they have surplus budget, and when a business firms have retained profit.