Question

Explain how the existence of the financial market helps in raising funding. (500 words)

Answer 1

Financial market is a place where all types of financial assets are traded and their values are continuously changing from period to period. Financial markets provides with a platform for trading in stocks, Bonds,commodities.

Financial markets could furthur be seggregated into primary markets as well as secondary markets.

Funding through primary markets

1.Initial public offers - Company whioch are offering their security for the first time using primary markets and trying to get their securities listed often use IPO to generate money through equity markets.

2.Furthur public offer- Company which are alredsy listed and wants to Raise money from the primary markets uses furthur issue of equity to raise money from the markets

3.Qualified Institutional placements(QIP)- Company often issue QIPs to raise money at certain price from a targeted group of investors.

4. Private placement- If a company wants to raise a small amount of money , it can raise through private placements

Funding through secondary markets

1.Bonds - A company can raise debt money from the Issuance of the corporate bonds. Corporate bonds are often less volatile and considerd for long term and more risk averse.

2.Issuance of debenture - A company can also raise money from issuance of debentures as it is another type pf debt instrument which is coupled with payment of interests at regular intervals.

3.Issue of preference sgares- A comapny can also issue preference share which are a mix of equity and debt but they do bear a interest payments.

4. Commercial papers - These are short term debt instruments issued by the company for raising money for short term .