Which of the following is correct in respect of financial markets?

Financial markets are classified on the basis of the maturity of financial instruments traded in them.

The correct answer is option 1- Financial markets are classified on the basis of the maturity of financial instruments traded in them.

A financial market is a market for the creation and exchange of financial assets. Financial markets are classified on the basis of the maturity of financial instruments traded in them. Instruments with a maturity of less than one year are traded in the money market. Instruments with longer maturity are traded in the capital market.

The money market is a market for short term funds which deals in monetary assets whose period of maturity is upto one year. These assets are close substitutes for money. It is a market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded everyday.

The term capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested. It consists of a series of channels through which savings of the community are made available for industrial and commercial enterprises and for the public in general. It directs these savings into their most productive use leading to growth and development of the economy.