By Kristina Zucchi, CFA
A financial market is a market that brings buyers and sellers
together to trade in financial assets such as stocks, bonds, commodities,
derivatives and currencies. The purpose of a financial market is to set prices
for global trade, raise capital and transfer liquidity and risk. Although there
are many components to a financial market, two of the most commonly used are money
markets and capital markets.
Money markets are used for a short-term basis,
usually for assets up to one year. Conversely, capital markets are
used for long-term assets, which are any asset with maturity greater than one
year. Capital markets include the equity (stock) market and debt
(bond) market. Together the money and capital markets comprise a large portion
of the financial market and are often used together to manage liquidity and
risks for companies, governments and individuals.