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Chapter 12

The role of financial markets

Financial markets are mechanisms where those requiring finance
(deficit units) can get in touch with those able to supply it (surplus units),
i.e. allowing the buyers and sellers of finance to get together.

There are two main types of financial market:

 capital markets – stock markets for shares and bond markets

 money markets – short-term (< 1 year) debt financing and investment

Within each of these are:

 primary markets – focal point for borrowers and lenders to meet. Market for
issue of new finance.

 secondary markets – second-hand trading in securities after having been issued
on the primary market.

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