It helps to define financial markets along a variety of dimensions (not necessarily mutually exclusive).
Short-Term (maturity < 1 year)
Long-Term (maturity > 10 year)
Intermediate term (maturity in-between)
Represented $41 trillion at the end of 2007.
Pay dividends, in theory forever
Represents an ownership claim in the firm
Total value of all U.S. equity was $18 trillion at the end of 2005.
New security issues sold to initial buyers
Typically involves an investment bank who underwrites the offering
Securities previously issued are bought
Examples include the NYSE and Nasdaq
Involves both brokers and dealers.
Even though firms don’t get any money, per se, from the secondary market, it serves two important functions:
- Provide liquidity, making it easy to buy and sell the securities of the companies
- Establish a price for the securities.
Secondary markets are further classified as follows:
Trades conducted in central locations.
(e.g., New York Stock Exchange, CBT).
Dealers at different locations buy and sell.
Best example is the market for Treasury securities.
Classifications of Financial Markets:
We can also further classify markets by the maturity of the securities:
Short-Term (maturity < 1 year).
Long-Term (maturity > 1 year) plus equities.