Business and Finance | rassid.com

To analyze the facts and financial situations we need to understand the mechanisms and important concepts on this issue, as financial markets in order to understand what is happening and accordingly make better decisions for our investments and businesses. financial markets are markets where exchange or sell financial assets.

The important thing is to understand the functions of these markets and how they affect economies. We will discuss the 3 basic functions are very important:

1. The interaction of buyers and sellers in a financial market determines the price of assets sold. Similarly, equivalently, also determines the required returns on financial assets. As the incentive for firms to acquire funds needed depends only on the performance demanded by investors, this (prices and yields) is the characteristic of financial markets points the way in which funds should be allocated between financial assets.

2. Financial markets proportional a mechanism for the investor to sell a financial asset, so it is said that a financial market provides liquidity, which is an important feature when circumstances compel or motivate an investor to sell a financial asset. Although financial markets all provide some form of liquidity, the degree of it differs and is one of the factors that characterized (and we must take into account) to different markets.

3. A financial market reduces transaction costs. There are two special costs that are associated with transactions: the costs of search and information costs.
Search costs represent explicit costs, such as the cost to advertise the intention of selling or buying a financial asset, and implicit costs as the value of time spent to find counterpart. The presence of an organized financial market reduces these search costs.

Information costs are associated with the appreciation of the benefits of investing in a financial asset, i.e. the amount and probability of cash flow is expected to be generated from an investment. In a financial market fluctuations in prices and they reflect the information we need as investors.
In parallel there are different classifications for financial markets according to certain characteristics of financial assets traded or sold, but not to make extensive this article we will leave this topic for another time.

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