Functions of the Financial Markets

Raising of capital

The amount of supply and demand in a financial market is what makes it liquid. These markets are an important tool for many entities to raise capital through the issuing of shares and bonds. For example, when a company has its initial public offering (IPO), it sells a portion of the ownership to the open market in exchange of capital. Going public is a common way for many companies to raise capital needed to grow and expand.

Risk transfer

In financial markets the risk transfer is a very important and effective tool. Investors are able to purchase assets and avoid the risk that owning them entitles by transferring this risk to a specialized entity. These entities are financial intermediaries, such as banks or insurance companies, who are paid periodically for taking responsibility of managing these assets. These tools allow buyers to have confidence in investing, which keeps the market in continuous movement

International Trade

International trade consists in the exchange of capital, goods, and services across foreign
borders. An important part of this market is the foreign exchange market, which allows
currencies to be traded in an easier and more efficient ways. International trade also allows
resources from all around the world to be traded thanks to supply and demand.

The price competition within markets becomes stronger thanks to the international trade throughout the world, this way consumers are allowed to find better prices in the market.

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