Functions of Financial Markets are discussed here.Financial markets are made up of all the people who exchange financial assets, since when we think of a market, an empty place comes to mind. So we could also say that financial markets are made up of all investors who buy and sell those financial assets. And who are these people.Markets are the physical or virtual space or both where financial instrument exchanges are carried out and transaction volumes and their prices are defined.

10 Functions of Financial Markets You Must Know

• Establish the mechanisms that enable contact between the participants in the negotiation.
• Set the prices of financial products based on their supply and demand.
• Reduce intermediation costs, which allows a greater circulation of products.
• Manage the liquidity flows of products or market given to another.

The most relevant markets are the debt markets, the equity markets and the foreign exchange market.

Debt Market;Functions of Financial Markets

The debt or bond market is where debt securities are issued and traded, when participants are not in conditions or do not wish to request loans or credits from the bank.

The Federal Government, state or local governments and private companies that need financing, either to carry out an investment project or to maintain their own activities, participate in it. A part of this market is known as the money market, which is where bonds are exchanged. Due to their short term, liquidity and high security, they can be considered substitutes for money.

The debt market is also known by other names depending on the type of debt instruments traded. For example, if debt instruments that pay a fixed rate are mainly traded in the market, then it is called a fixed income market, an equity market, international debt markets, public debt markets, etc. In general terms, for a person to be able to buy or sell debt securities, it is necessary for them to go to a bank or a brokerage house so that said institutions can carry out the necessary transactions on behalf of this person.

Stock market (stock);Functions of Financial Markets

When a company needs money, it basically has two ways of obtaining it, one is through loans in the form of credits or debt securities, and the other through the issuance of new capital (shares).

The securities (financial instruments) that represent the capital invested in a company are known as shares and can have different characteristics depending on the voting power that the holder of the shares has in the company, the profits to which they have access or the percentage of the company it represents.

With the issuance of shares, companies only make payments to investors if the company generates a profit. This difference makes the issue less risky for companies but more risky for investors.

The exchange of shares is carried out in organized markets that operate with transparent rules and are open to the investing public, that is, any person or entity that complies with the requirements established by said markets can participate in them.

The most important stock markets for their size are located in New York (New York Stock Exchange NYSE and National Securities Dealers Automated Quotations, NASDAQ), London (London Stock Exchange), and Japan (Tokyo Stock Exchange). In Mexico, the stock market is part of the Mexican Stock Exchange (BMV).

Foreign exchange or currency market;Functions of Financial Markets

The foreign exchange market is where currencies from different countries are bought and sold.

It involves a large number of people (investors, operators, etc.) around the world. The main users are financial institutions such as commercial banks, exchange houses and organized trade or stock exchanges. A central bank can also participate as a wholesale buyer and seller of foreign exchange.Exchange markets facilitate international trade as they allow the transfer of purchasing power from one currency to another. Thus, investors from one country can purchase / sell goods, services and assets in other nations.

Asset managers, exporters, importers, national tourists abroad, foreign tourists in Mexico, investors, and Mexican workers abroad, among others, resort to the exchange market.