What is Financial Market?

Functions of Financial Markets

A market that serves as a link between the savers and borrowers, by transferring the capital or money from those who have a surplus amount of money to those who are in need of money or investment, is known as Financial Market. Simply put, Financial Market is a market that creates and exchanges financial assets. In general, the investors are known as the surplus units and business enterprises are known as the deficit units. Hence, a financial market acts as a link between surplus units and deficit units and brings the borrowers and lenders together. One can allocate funds with the help of the following two main ways:

Through Banks
Through Financial Markets

The households (who are the surplus units) may keep their savings in banks or they may use that amount for buying securities from the capital market. The financial market and banks then lend the funds to the business firms (who are the deficit units). The banks and financial market compete with each other. Financial Markets are classified into two broad categories; namely, Capital Market(Primary Market and Secondary Market) and Money Market.