The financial markets have much to do with international trade and the movement of funds internationally. A financial market is simply a marketplace where individuals trade financial derivatives and securities at low trade rates. Some of these securities are bonds and stocks, and natural resources and precious metals, that are calling commodities in the financial markets. The commodities in this market include such common items as agricultural produce, livestock, fish, crude oil and gold.
The financial markets provide timely and reliable information on stock prices and fluctuations. Financial markets allow traders and investors to buy and sell funds that they own that can then be traded in securities exchange markets or exchanged directly on the commodity exchanges. It also provides timely information on global financial situations. Some of the financial markets provide a wide range of information such as interest rates, index rates, GDP growth and inflation to name a few.
Another function of the financial markets is to facilitate economic development. The financial markets facilitate trade by providing investment finance to businesses. By facilitating economic development, the financial markets to ensure long-term sustainable growth in countries with advanced economies. This helps the countries achieve economic growth and provides employment for its people. Economic growth facilitates political stability and facilitates the process of transformation and globalization.
The financial markets were primarily designed to provide trading opportunities for financial institutions and other large investors. Now, people all around the world use these financial markets to purchase securities such as equities, derivatives, futures and options. For example, if someone wishes to purchase stock from a mutual fund company, the financial firm will purchase the whole lot as security. The mutual fund company holds the stock for a period of time, either temporarily or indefinitely. The investor can therefore make money by either purchasing shares or by cashing in his option.
A major function of the financial markets is facilitating financial institutions such as banks, savings accounts, and mortgage banking. Money is lent to banks by financial institutions such as banks. Savings accounts are used to lend money. If an individual wishes to invest in bonds, he can do so via a bank savings account. If he wants to invest in commodities, he can buy them from any financial investment company.
One other important financial market is foreign exchange (forex). Foreign exchange involves trading of currencies between various countries. Money is traded in the forex market and is the largest financial markets. Money is traded in pairs such as USD/GBP, USD/JPY, GBP/USD etc. The role of financial markets includes facilitating economic development, financial markets, and the transfer of information across international boundaries.