In the complicated maze of numbers and mathematical operations evolved the complex yet intricate world of finance. Pre-modernization and industrial era, money was simply used as a means of exchange where more important things were being sought by simply parting away with money which symbolized lifeless and moron metallic or currency paper which in itself did not have any attraction for people. It was only with the rapid transience of our economies with constant reshaping of our society with a revolutionary change in demographics that money, currency or any medium of exchange, which denoted power became the supreme governess for mankind.
With money taking new dimensions, emerged a very volatile concept of money markets where for the first time money was traded for money. The haves preferred to play money by tossing it to each other laps, and the have-nots as usual were always flabbergasted as to how these so called rich-nouveau, could multiply their wealth sitting at one place when they toiled in heat shedding sweat and skin to just manage only two meals a day? Well it was beyond their comprehension as money belongs to intellects. Mind it, literacy, education or academics are not the sole determinants of money, it is the intellect, the sharp mind and an uncanny knowledge of making money out of money that separates these two classes.
Financial markets are the markets where financial instruments are traded for making money. Over the years, this market has gained significant importance as various financial products have been introduced. These financial products are developed for various kinds of investors to meet their short and long-term demand for money. The markets revolve around the concept of debt and equity, which is characterized with low and high risk corresponding to low and high returns.
Let us now discuss certain financial products.
Shares
A share certificate represents the ownership in a company. These shares are primarily issued to raise external finance by the large companies, which are subsequently traded by the individuals in the share market. By trading, it is meant that individuals sell or buy these shares to gain economic benefit. Returns on this financial instrument are in the form of dividends that company offers to its shareholders on reaping profits.
Bonds
This financial instrument is issued by organizations to have sufficient finances for smooth operations for their company. Moreover, bonds are also issued by government to raise funds for infrastructure and community projects. In contrast to shares, bonds have a fixed rate of return in terms of interest.
Treasury bills
A treasury bill is a financial instrument issued by the government to finance its short-term needs. The main attraction of these bills is that they are issued at a discount to the face value. The profit arises on the varying amount of face value and market value at the time of maturity.
Options
Recently introduced options, are the right to buy or sell shares. It involves two options, call option or put option. The first option is used to buy shares and the second one for selling shares.
Mutual funds
If an investor desire to diversify its investment across a well-managed portfolio, mutual funds are the most appropriate financial instruments. Mutual funds are professionally managed portfolio where every possible effort is undertaken to safeguard the investor’s interest.