The term financial market refers to the place where financial transactions take
place through the network of borrowers and lenders of funds. In other words,
the financial market within the economy brings borrowers and lenders together to
place buying and selling orders with the help of brokerage and other financial

However, there is a need for infrastructure to encourage better
arrangements for trading in securities. The financial market is the mechanism
created to facilitate the exchange of financial assets. This market may or may not
have a precise physical location. For instance, the Nepal Stock Exchange
(NEPSE) is physically located on Singh Durbar Plaza in Katmandu City and all
the secondary transactions conducted in this stock exchange through the channel of
the brokers.

A financial market is the most important factor that influences the financial
activities of the companies whose shares are traded in the financial market. So
financial markets are mechanisms for channeling savings for investment in real

The role of financial markets and financial institutions lie in moving
funds from the savings sector to the investment sectors. Financial institutions
channel the flow of funds in the economy. Commercial banks, insurance
companies, finance companies, and other financial institutions like Employee
Provident Fund and Citizen Investment Trust work as intermediaries in the
financial market.

The concept of the financial market can be explained with the help of thought-provoking ideas generated from the leading contributors and writers well
renowned in an international perspective. As such, in the words of Charles N.
Henning and William Pigott and Robert Hanney Scott (1975), “Financial
the market is defined as a place where fund suppliers and fund borrowers are
brought together with the help of financial intermediaries directly or indirectly.
These intermediaries channel nation’s savings into the most productive uses.
Lenders or suppliers of funds exchange money for other financial assets that
tend to provide a better future return. The net effect of such a transaction is that
they buy a claim against someone’s money holding at some future date. In fact,
they create loanable funds in the financial market.”

According to Peter E Rose (1997), “Financial system is synonymous with
a financial market that implies a collection of market, institutions, laws, regulation
and techniques through which bonds, stocks, and other securities are traded
through the proper determination of interest rate and efficient delivery of the
financial services around the world.”

Likewise, in the words of David S. Kidwell and Richard L. Peterson (1981), “Financial market in functional perspective is a rational system of collecting savings and allocating them efficiently to the ultimate users for investment in productive assets or current consumption.”

According to Hazel J Jobson (1993), “Financial market and institutions are the financial intermediaries that provide the process of facilitating the flow of funds from surplus savings units to deficit savings units into productive uses by providing investors with a variety of outlets for their savings.”

Frederic S. Mishkin (1992) has defined the financial markets as the ones in which funds are transferred from those who have excess funds available funds to those who have a shortage in encouraging higher economic efficiency.

In the words of Michael R. Baye and Dennis w. Jansen (1996), the statement goes as: “Economics defines the market as an institution or arrangement that facilitates the purchase and sale of goods, services and other utilities generating activities. But, a financial market is an institution or arrangement that facilitates the exchange of financial assets, including deposit and loans, corporate stocks and bonds, government bonds, and more exotic instruments such as options and futures contract.”

Jeff Madura (2001), According to him, “Financial market is a place that facilitates financing and investment of financial assets.

According to Frank J. Fabozzi, Franco Modigliani, Frank J. Jones, and Michael G. Ferri (2002), “A Financial Market is a market where financial assets are traded to generate sufficient liquidity and the profit through efficient allocation of financial assets with supporting conditions to encourage transaction among the participants with minimum costs”

Herbert B. Mayo (2004), “A leading financial expert and Professor has defined financial market the process of creating financial assets in the transferring of saving from individuals with funds to invest to firms that need funds so that financial assets provide income to both savers and users. ”

Anthony Saunders and Marcia Milton Cornett (2005), define that financial markets are arenas through which funds flow.

All the above definitions agree in the common viewpoint that the financial market is a rational process of transferring the funds from savers to users to facilitate the efficient allocation and growth of financing and investment in financial assets transformation to generate income to savers and users.


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