What are the functions of the financial market?

Financial market: essence, models

The specificity of the financial market is that the main commodity here is money. They circulate in key sectors of the financial sector - credit, investment (securities market), foreign exchange (Forex), stock, insurance, etc. The more efficiently the financial market functions, the higher the liquidity provided to them.
The global financial market is formed by the aggregate demand and supply of lenders and borrowers. It has a wide range of participants. These are government agencies, individual countries, private and institutional investors.
There are two key models of financial markets - a system focused on bank financing (continental) and on the securities market and institutional investors (the Anglo-American model). The latter model is focused on public offering and a developed secondary market.In the continental model, there is a rather high level of concentration of share capital in a narrow circle of investors.

The function of redistributing funds and facilitating access to assets

One of the key tasks of the financial market is the redistribution of funds from those who have a surplus to those who need investments. As a result, cash is redistributed among various economic sectors. In most cases, the money goes to the group of people who can manage them more effectively.
As a result of redistribution, free money is transformed into borrowed capital. As a result, the financial market makes cash available to all of its participants who are aiming for capital gains.
The financial market also facilitates the process of bringing money to consumers. This is achieved through the creation of intermediary institutions - banks, investment funds, stock exchanges, etc.

Pricing function

Financial markets set prices for resources under the influence of supply and demand. The price of financial resources in this case means the income that the buyer pays the seller.This may be a bank interest rate, stock price, rate on bonds, dividends, etc.
In the most general case, the equilibrium price formation scheme is as follows. Investors (those who form the demand) have their own ideas about the acceptable level of profitability for a certain level of risk. And issuers (those who form the proposal) have the goal to provide the required amount of profit on investments. Based on this ratio, the equilibrium price is formed.

Cost saving function

Financial markets reduce transaction costs. Due to the fact that a significant volume of transactions is made on the market every day, it is possible to reduce risks and transaction costs. They are reduced due to economies of scale, improved valuation procedures for securities, as well as their issuers.

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