Financial Markets: Functions, Assets, and Indexes Explained
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Functions of Financial Markets
Price Determination
- When a company has assets listed in a financial market, it can determine their worth.
- Investors can ascertain the value of their investments.
- Markets offer liquidity for investors' assets.
Financial Assets Characteristics
Liquidity
Ease with which an asset can be converted into cash.
Return and Liquidity Relationship
- If an asset is very liquid, the return asked by investors is very low.
- When assets are less liquid, investors demand higher returns.
Risk
The probability of not recovering the principal or the coupons.
Rating agencies analyze the risk associated with issuers.
Types of Financial Markets
Primary Markets
These markets facilitate the issuance of new securities. Investors pay for the assets to the... Continue reading "Financial Markets: Functions, Assets, and Indexes Explained" »