By: Kristy Annely
A financial transaction occurs when a financial asset is created or transferred. Examples of financial transactions are loan granted by a bank to a company, equity stock issued by a company, the purchase of debentures in the secondary market and the sale of goods on credit. While this list can be easily extended, the point is financial transactions are very pervasive throughout the economic system. Hence, financial markets that exist wherever financial transactions occur are equally pervasive.
Financial markets are generally divided into two classes: money market and capital market. Money market deals in short-term debt, in contrast to the capital market that deals in long-term debt and stock (equity and preference). A well-developed money market uses a broad range of financial instruments (treasury bills, bills of exchange etc). This channels savings into productive investments like working capital and promotes financial mobility in the form of inter-sectoral flow of funds.
Business to business finance is a term that implies a financial transaction from one business to another. For example, if someone wants to open a hardware store, that person as a business might have to take advantage of a loan from another business - a bank, for example. There are many other examples. Any entity can loan another entity money. Also, if a business needs to purchase a product or service from another company, the purchasing business can get financing for the express purpose of making that necessary purchase. Different rates and systems apply to individuals and businesses, so therein lies the distinction.