Finance: Financial Exchange & Markets
Money as we know it is used for people to meet both short term and long term financial goals. However, people have the option to earn money or borrow the money from people in which they negotiate with to meet particular needs. In fact, people who already have money or save their money can produce more of their financial assets. This is done through investments or loans to meet financial needs and could potentially receive financial returns. However, although these options are quite possible; individuals must come up with terms of agreements on their exchanges. This causes the negotiation process to become quite difficult and time consuming. Luckily, financial markets and institutions have been created to ease this process, making it convenient for both parties. A financial market is simply an organized process for the cause of exchanging capital and credit. There are multiple types of financial markets, but some common financial markets consist of stock, bond, commodity, and currency markets. Having a basic understanding of all these markets can be beneficial for anyone wanting to invest and raise their financial assets. However, to understand the process of exchange in a clear manner, knowing the principles of financial exchange can help for activities in the markets that one might invest in.
Principles of Financial Exchange
Any person who borrows money from others must comply to pay the money back in order to do so. In addition, people who loan or invest money with others are able to obtain a financial return. A financial return is a profit earned from an investment. However, as pleasant as financial returns sound, investments come with financial risks. A financial risk is the possibility that a profit will not be achieved, meaning that an investment was not beneficial and therefore considered a loss of money. But investments are not always completely random. Investments are often evaluated to determine their level of financial risk. Investments with higher financial risks have a greater potential for a financial return whereas lower financial risks offer lower financial returns. Expected returns are found commonly in lower risk investments. In higher financial risk investments, there is a high probability that the expected return will not be obtained. Investments are done in either a long or short term manner. The term of an investment is just referring to the length of time that the invested money is controlled by other individuals. Long term investments can have terms of up to multiple years while short term investments may have a term of days or months. Investors, and businesses participate in financial exchange. Businesses use the money from investments to pay for the resources needed to run their business. Business open to investments by offering ownership within the business or through long and short-term financing of others. Ownership financing comes directly from the resources of the business owners. These investments can make up the life of a business depending if a company is open to investments or not. Ownership financing to corporations comes in the sale of stocks. Publicly-offering stock corporations sell stocks in which they are bought and sold regularly. Some stock owners within their cooperation open to public stocks in a rather short time. Other companies offer stocks after years or perhaps may never offer stocks. Companies can also decide to remain a private corporation and may never offer stocks to the public.
Non-owners can also offer short and long term financial for business. Businesses usually obtain financing without offering ownership through loans in financial institutions. Short terms and long term goals to purchase raw materials, supplies, inventory, supplies and equipment is usually obtained through banks or suppliers where goods are manufactured. As for expensive purchases such as land, and building; these investments are financed with mortgages. Bonds may be issued through companies and other organizations with a specified interest rate for a negotiated period of time.
Principles of Financial Exchange
Financial markets assist exchanges between both buyers and sellers. When large groups of people have similar interest in the same products and financial resources, a common location to exchange assets is created. In the specified location, financial resources can be sold and bought. Sellers want to offer their resources for the highest price possible; buyers want to purchase those exact same resources at the lowest price offered. The creation of financial markets helps identify the supply and demand of certain financial resources to determine a proper market price. Additionally, financial markets also manage the exchanges between buyer and seller within certain policies and procedures to payment, procedures, orders, and onwerip. Financial markets can be a physical place such as the popular Wall Street Stock Exchange or NASDAQ the world’s electronic stock market. However, those are only some examples of financial markets there are many more, each offering particular resources.
Commodity Markets
Commodity markets are financial markets that trade raw materials and production resources. These resources can be oil, electricity, agriculture, lifestok, chemical, metals and gems. Some popular commodity markets include the Chicago Board of Trade, the New York Mercantile Exchange, The London Metal Exchange, and the International Oil Exchange of London. Commodity markets can also specialize in very particular resources An example of these markets are the New Orleans Cotton Exchange and the Coffee, Sugar, Copa Exchange in New York.
Stock Markets
To put it simply, a stock market is the organized exchange of ownership within public corporations. The buying and selling of stocks are done through stock exchanges. These stock exchanges can be in physical locations where negotionar meet with buyers to purchase and sell stocks. However, as technology has advanced the negotiation of stocks has been shifting to virtual exchanges.
Other Financial Markets
Capital markets are used to finance different debts in business with each having different terms. Stock markets are an example of a capital market, however there are also bond markets. A bond is a financial deal obligating the issuer to pay the bondholder the principal payment and agreed interest at the end of the period. Bond markets offer newly issued bonds of different companies and government agencies to sell. Our last financial market is a money market. Money markets buy and sell financial statements for a short period of a year or months. The federal government issues short term securities called Treasury bills. Cities are known to offer municipal notes to obtain money for their operations. These government securities are paid from taxes or other local revenues. However, a familiar type of money market offered to individuals are certificates of deposits. Certificates of deposits (CDs) are offered by banks and or other financial institutions. Businesses often raise money to handle short term operations and offer to raise money through commercial papers. These commercial papers are traded amongst banks, government officers, and security deadlers.
Conclusion
There are many different types of financial markets each available for anyone looking to raise their financial assets. Although investing comes at a risk, negotiation is important to receive the best offer. The different types of financial markets such as capital markets, commodity markets, and money markets offered to the public. There are so many financial markets, and every country is home to at least one, although they might vary in size. One should consider their needs and if they are willing to invest. Otherwise, it can be very beneficial to invest in different financial markets while still following the principles of financial exchange.