FINC20019: Money and Capital Market Analysis - Secondary Markets

This report provides an analysis of money and capital markets, with a specific focus on secondary markets and the application of futures contracts within the financial landscape. The discussion begins with an overview of financial markets and their crucial role in ensuring fund availability and facilitating investor returns. It differentiates between capital and money markets. The report then delves into the types of secondary markets, including direct search, broker, dealer, and auction markets, explaining how each functions. The report subsequently explores the utilization of futures contracts by financial market participants, highlighting their role in price risk management and hedging strategies. The conclusion underscores the importance of secondary markets in providing real-time securities valuation and liquidity. The report also emphasizes the role of futures in price discovery and risk mitigation for investors. The report uses the provided assignment brief to provide a good understanding of the topic.

Running Head: MONEY AND CAPITAL MARKET ANALYSIS
MONEY AND CAPITAL MARKET ANALYSIS
Name of the Student
Name of the University
Author Note

1MONEY AND CAPITAL MARKET ANALYSIS
Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Types of Secondary Market...................................................................................................2
Uses of Futures by Financial-Market Participants.................................................................2
Conclusion..................................................................................................................................3
Reference....................................................................................................................................4

2MONEY AND CAPITAL MARKET ANALYSIS
Introduction
Financial markets are the primary factor that determines success of the country. It has
the main objective to ensure funds availability and helping investors for generating returns.
Financial markets stabilize supply of money by ensuring that surplus funds in economy
reaches those who requires it. Capital market and money market are the two types of financial
markets (Albuquerque et al. 2018). Hence, this report aims to discuss types of secondary
markets and the way futures are used by financial market participants.
Discussion
Types of Secondary Market
Stock market is the platform, where shares of the entities are traded among the
investors. The investor can freely purchase and sell the shares with the help of this platform
and that too without issuing company’s intervention. There include four types of the
secondary market that is consisting of direct search, broker, dealer and auction (Pilehvar,
Elmaghraby & Gopal, 2017). The direct search market involves buyer and the sellers, who
interacts with each other directly. The broker market includes broker, who brings out sellers
and buyers for free and charge fee for this. In dealer market, trading is done with the help of
dealer, who purchase the securities and sells it at the price higher than purchase price
(Sanford & Scott, 2016). However, they may face risk because the share price may decline,
while they own those shares. Lastly, auction market is at fixed place, where sellers and
buyers directly confront each other and bargain over the price of transactions (Aggarwal,
2017).
Uses of Futures by Financial-Market Participants
Futures are the derivative financial contracts, which obligate the parties for
transacting asset at the predetermined future time as well as date. In this, buyer should

3MONEY AND CAPITAL MARKET ANALYSIS
purchase or seller should sell underlying assert at price that is already set, irrespective of the
current market price at the date of expiration. The participants involved in derivative market
are hedgers and speculators (Kirilenko et al. 2017). The hedgers or investors uses futures
mainly for price risk management of the portfolios and assets. They can speculate on
direction in price of the underlying asset. The raw materials or product’s price can be hedged
by the companies for protecting from the adverse movements of price. Futures allows the
investors for altering systematic risk associated with their portfolios (Büyükşahin & Robe,
2014).
Conclusion
Therefore, this report concludes that the secondary market helps in providing real
time securities valuation based on demand and supply. This market provides efficient
platform for securities trading or providing liquidity. The types of secondary market include
direct search market, broker market, dealer market and auction market. Further, future
contracts help the financial market participants for lock in the price of underlying commodity
or asset. It not only allows investors for speculating on direction of commodity, security or
financial instrument but also are used for hedging price movement of underlying assets in
order to prevent losses from the unfavorable change in price.

4MONEY AND CAPITAL MARKET ANALYSIS
Reference
Aggarwal, R. (2017). Different avenues of capital market (secondary market) available for
investing in market of yamuna nagar. International research journal of management,
IT and social sciences, 4(3), 34-50.
Albuquerque, R. A., Cassel, J., Phalippou, L., & Schroth, E. J. (2018). Liquidity provision in
the secondary market for private equity fund stakes. Available at SSRN 3182481.
Büyükşahin, B., & Robe, M. A. (2014). Speculators, commodities and cross-market
linkages. Journal of International Money and Finance, 42, 38-70.
Kirilenko, A., Kyle, A. S., Samadi, M., & Tuzun, T. (2017). The flash crash: High‐frequency
trading in an electronic market. The Journal of Finance, 72(3), 967-998.
Pilehvar, A., Elmaghraby, W. J., & Gopal, A. (2017). Market information and bidder
heterogeneity in secondary market online B2B auctions. Management Science, 63(5),
1493-1518.
Sanford, K., & Scott, F. (2016). Assessing the intensity of sports rivalries using data from
secondary market transactions. Journal of Sports Economics, 17(2), 159-174.