Answer to Question #229474 in Economics for poggo

Question

What are the primary financial markets? Why is it critically important for the effective operation of the primary markets to have well-developed secondary markets where investors can trade with confidence?

Answer 1

The main function of the financial market is the collection and redistribution between industries, countries, regions, sectors of the economy, and institutional units of the world's financial resources. Currently, the development of the financial market is proceeding at a high rate, since the level of integration of local markets and economies into the world economy is quite high. The main object of purchase and sale transactions in the financial market is various finances, therefore, depending on the form of financial assets, the financial market is divided into the following sectors:

Currency market;

Credit market;

Investment market;

Stock market (securities market);

Insurance market.

Financial market activity

The activity of the financial market consists of the redistribution of financial assets on a paid basis. Also, the financial market is an accurate indicator reflecting the overall state of the economy (global or local). The efficiency of the financial market is determined by a set of economic indicators, which include the exchange rate, government debt, inflation, money supply, budget surplus/deficit, and balance of payments. The most important aspects of the activity of the financial market are intertemporal trade, capital outflow, saving circulation costs and promoting the process of continuous production within economic cycles.

Financial market instruments

The main function of a financial instrument is to guarantee the receipt of money as a result of its transfer or sale. Financial instruments imply the occurrence of financial liabilities for one party and financial assets for the other party. Monetary liabilities are used as financial market instruments. Economic entities have such obligations and are enshrined at the level of legislation. Financial instruments can be impersonal (bearer) and registered. These include:

insurance policies;

certificates;

checks;

stock;

bonds;

promissory notes;

futures;

options;

IOUs;

mortgages;

credit cards.

Regulation of financial markets

Stable functioning and successful development of the economy is ensured by competent regulation of financial markets. In world economic practice, there are two main models for regulating financial markets:

The main control functions were transferred to SROs (self-regulatory organizations);

The main control functions are assigned to state institutions.

The Russian Federation has a state regulation model, in which the Federal Financial Markets Service (FFMS), the Federal Antimonopoly Service (FAS), the Ministry of Finance, and the Central Bank carry out regulatory activities.

Organization of the financial market

The main participants in the financial market are stock and currency exchanges, investment funds, manufacturing, and trading companies. By functions, all participants are divided into investors, issuers, entrepreneurs, players, speculators, hedgers, and arbitrageurs. A significant role in servicing and organizing the financial market is played by the so-called financial intermediaries, which save money and ensure stable financing of needs. Intermediaries include banks and credit institutions (cooperatives, unions and associations), as well as investment companies, pension funds and insurance organizations. The functions of financial intermediaries are reduced to the acceptance and accumulation of funds at a certain percentage.