A place where individuals are involved in any kind of financial transaction refers to financial market. Financial market is a platform where buyers and sellers are involved in sale and purchase of financial products like shares, mutual funds, bond etc. 

TYPES OF FINANCIAL MARKETS 

Money Market:  The money market is a market for short-term funds, which deals in financial assets whose period of maturity is upto one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc.

Capital Market: Capital Market may be defined as a market dealing in medium and long-term funds. It is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issue various securities such as shares debentures, bonds, etc.
 

Money Market Instruments

The money market can be defined as a market for short-term money and financial assets that are near substitutes for money.The term short-term means generally a period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost.

Some of the important money market instruments are briefly discussed below:

Call /Notice-Money Market

• Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. 
• Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is "Call Money". 
• Notice- When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions.

Treasury Bills.

• Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue(91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.

Certificate of Deposits

• Certificates of Deposit (CDs) is a negotiable money market instrument . Under this instrument borrower is bank and lenders are individuals, corporations, companies, trusts, funds, associations etc.
• Minimum amount = 1 lakh and in multiple of Rs 1 lakh thereafter.
• Minimum Period is 7 days.

?Commercial Paper

• Commercial paper, or CP, is a short-term debt instrument issued by companies to raise funds generally for a time period up to one year. 
• It is an unsecured money market instrument issued in the form of a promissory note and was introduced in India in 1990. 
• RCPs have a minimum maturity of seven days and a maximum of up to one year from the date of issue. 
• They can be issued in denominations of ? 5 lakh or multiples thereof. 

?Capital Market

• It is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital.
• This market is concerned with new issues. Therefore, the primary market is also called NEW ISSUE MARKET. 
• In this market, the flow of funds is from savers to borrowers (industries), hence, it helps directly in the capital formation of the country. 
• The money collected from this market is generally used by the companies to modernize the plant, machinery and buildings, for extending business, and for setting up new business unit.

• The secondary market is that market in which the buying and selling of the previously issued securities is done. 
• The transactions of the secondary market are generally done through the medium of stock exchange.
• The chief purpose of the secondary market is to create liquidity in securities. 
• If an individual has bought some security and he now wants to sell it, he can do so through the medium of stock exchange to sell or purchase through the medium of stock exchange requires the services of the broker presently. 

Derivatives:

• Derivatives are financial instruments whose value is derived from other underlying assets. There are mainly four types of derivative contracts such as futures, forwards, options & swaps. However, Swaps are complex instruments that are not traded in the Indian stock market.

Types:

• Forward: In this type of contract, one party commits to buy and the other commits to sell an underlying asset at a certain price on a certain future date.
• Future: A future contract is another version of a forward contract, which is exchange-traded and standardized. Unlike forward contracts, future contracts are actively traded in the secondary market, have the backing of the clearinghouse, follow regulations and involve a daily settlement cycle of gains and losses.
• Option: In finance, an option is a contract which gives the buyer (the owner or holder of the option) the right, but not the obligation, to buy or sell an underlying asset or instrument at a specified strike price prior to or on a specified date, depending on the form of the option.

Important stock markets of India:

1.  Bombay Stock Exchange (BSE)

• Hq: Mumbai
• Establishd in: 1875
• Index: SENSEX
• Chairman: Ashish kumar Chauhan 

2.  National Stock Exchange of India (NSE)

• Hq: Mumbai
• Established in: 1992
• Index: NIFTY 
• MD and CEP: Vikram Limaye
• NSE is formed after the recommendation of pherwani committee. 

3.  MCX Stock Exchange

• Hq: Mumbai
• Established in:  2003
• Chairman: Saurabh Chandra  (Chairman)
• MD and CEO: Mrugank Paranjape 

International Stock Market

1. New York Stock Exchange

• Established in: 1885.
• Index: Dow Jones Industrial Average(30 companies).

2.  NASDAQ(National Association of Securities Dealers Automated Quotations)

• Established in: 1971
• Index: NASDAQ Composite 

3. Tokyo Stock Exchange

• Extablished in: 1878
• Index: Nikkei 225 index 

4. London Stock Exchange

• Established in: 1571.
• Index: FTSE(Financial Times Stock Exchange)100

4. Shanghai Stock Exchange

• Established in: 1990
• Index: SSE Composite (Shanghai Composite) Index

Financial Glossary:

• Balance sheet - a snapshot of a business as of a particular date. It lists all of a business' assets and liabilities and works out the net assets.
• Bootstrapping - where a business funds growth purely through personal finances and revenue from the business.
• Break-even point - the exact point when a business' income equals a business' expenses.
• Initial public offering (IPO) - when a company first offers shares on the stock market to sell them to the general public. Also known as floating on the stock market.
• FPO(Follow on public offering): All subsequent issuing of shares after IPO is Follow on public Offering(FPO).
• DEMAT(Dematerlised) account: It is a type of an account where shares and securities are held electronically to enable trading transaction & settlements in stock exchange.
• ASBA(Application supported by bloked amount): Applications Supported by Blocked Amount (ASBA) Process, is the alternative payment method (optional) for IPO application where the IPO bidding amount remains in investors account, but blocked by the bank until allotment is done.
• Arbitrage: Market arbitrage refers to purchasing and selling the same security at the same time in different markets to take advantage of a price difference between the two separate markets.
• LIBOR( London Interbank Offered Rate):  LIBOR is a benchmark rate that represents the interest rate at which banks offer to lend funds to one another in the international interbank market for short-term loans. 
• Loan to value ratio (LVR) - your loan amount shown as a percentage of the market value of the property or asset that will be purchased. The ratio helps a lender work out if the loan amount can be recouped in the event a loan goes into default.
• National Securities Depository Limited(NSDL): National Securities Depository Limited is an Indian central securities depository based in Mumbai. It was established on 8 November 1996 as the first electronic securities depository in India with national coverage.
• Central Depository Services Ltd(CDSL), is the second Indian central securities depository based in Mumbai. Its main function is the holding securities either in certificated or uncertificated form, to enable book entry transfer of securities.