Question

identify and explain the main four types of financial market. (20 marks)

Answer 1

The four types of financial markets are as follows :-

1) Stock markets - this is related to the ownership of shares in public companies. Various public companies allows retail investors to invest in them through the ownership of shares. The stock owners are also called the owers of the business

2.) Bond markets - This is related to to the issuance of debt by the companies. Corporates issue different kinds of fixed income securities like bonds, debentures etc which are primarily instruments to raise debt. Bond owners are to be paid first in the event of bankruptcy.

3. Commodity Markets - commodity markets are markets where investors and traders buy in natural resources like oil, corn, sugar, cotton etc. If they are traded on future exchanges, the commodities are to be delivered at a specific price and a specific date.

4. Derivative markets - Derivatives markets consists of two products - Futures and options. Derivatives are products to lock in the price of underlying today for a date in future and are particularly used for hedging as well as speculation.

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