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What Is Financial Market? Discuss the Components of Financial Market?

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Submitted By raghuvrn
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A financial market is a market in which people and entities can trade financial securities, commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods.
The definition may be termed as:
"Financial Markets are generally known as a market where financial securities or/and assets are bought and sold by the buyers and sellers respectively."
Some of the salient features of financial market are:
• Transparent pricing
• Basic regulations on trading
• Low transaction costs
• Market determined prices of traded securities

Basic Functions of Financial Market:
Financial market has emerged as one of the biggest markets in the world. It is engaged in a wide range of activities that cater to a large group of people with diverse needs.
Six key functions of Financial Market are –

1. Borrowing & Lending: Financial market transfers fund from one economic agent (saver/lender) to another (borrower) for the purpose of either consumption or investment.
2. Determination of Prices: Prices of the new assets as well as the existing stocks of financial assets are set in financial markets.
3. Assimilation and Co-ordination of Information: It gathers and co-ordinates information regarding the value of financial assets and flow of funds in the economy.
4. Liquidity: The asset holders can sell or liquidate their assets in financial market.
5. Risk Sharing: It distributes the risk associated in any transaction among several participants in an enterprise.
6. Efficiency: It reduces the cost of transaction and acquiring information.

Major Players in Financial Market:

The main participants in the financial market are as follows:

1. BANKS: Largest provider of funds to business houses and corporates through accepting

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