Financial market refers to the market which creates and exchanges financial assets.When companies issues shares, debentures,etc it is called creation of financial assets while their sale-purchase in the financial market is what we call an exchange.The financial market plays an important role in transferring finance from one sector to the other sector and provides liquidity.

Money Market

The market that deals in short-term securities is called money market. The maturity period of securities under this market is one year or even less.

The money market is very liquid, trades in short-term financial assets,has low transaction cost and the transactions are fast.

Capital Market

The market that deals in long-term securities is called capital market. Transaction of securities in this market includes shares and debentures. It deals in securities whose maturity period is more than one year. The capital market helps in capital formation and satisfies long-term financial needs.

There are two types of capital market, namely-

a) Primary Market

This market is concerned with the new issues of securities. Hence, it is also called New Issue Market (NIM). The newly existing as well as existing companies collect capital. Whenever a company issues new shares or debentures for the first time, it is known as Initial Public Offer (IPO).

b) Secondary Market

The existing securities are bought and sold in the secondary market. A security can be traded 'n' number of times in the secondary market, which is generally done through a stock exchange. The main purpose of the secondary market is to create more liquidity