Explain what is meant by Financial Markets Discuss the different Essay

Explain what is meant by Financial Markets Discuss the different categories of financial markets and their rationale. Discuss the effect of the recent financial crisis on financial products and markets - Essay Example They enhance the determination of prices for the financial assets that are newly issued, and the existing stocks of the financial assets. The markets enhance the coordination and the aggregation of information on the financial assets and the money flow from the lenders to the borrowers. They allow for the transfer of risk from the investors to those who provide the funds. They enhance the liquidity by providing the financial asset holders with the chance of reselling or liquidating the assets. The financial markets are critical in enhancing the efficiency through reduction of the information and transaction costs (Richard 2005, p.43-48). The characterization of the financial markets entails consideration of the financial institution types participating in the markets and the different structures of the markets. Three sample types of financial institutions include; first, the depository institutions like banks and credit unions, which advance deposits and loans and accept deposits. The second is the contractual institutions are like the insurance companies and the pension funds while the third type is the investment institutes like the brokerage firms and investment banks (Richard 2005, p.43-48). There are different categories of the financial markets each dealing with a different instrument based on maturity and the assets backing it up. The different categories of financial markets have different customers and operations (Richard 2005, p.43-48). Below are the different categories of the financial markets. Capital markets trade in stocks, bonds and securities. Companies in capital markets raise funds for expanding businesses or establishing new ones through issuing of the securities. Capital markets mobilize the domestic saving and the reallocation of the financial resources. They provide the avenue for divestiture of the state owned enterprises, and shares are sold