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LMS_FM_Chap1_Overview (2)

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Nhungg Tuyett
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You are on page 1/ 11

8/31/2024

FINANCIAL MARKETS
CHAPTER 1. INTRODUCTION

Phan Quynh Trang

OUTLINE

• Primary and Secondary markets; Money and


Capital markets
• Derivative & Foreign exchange markets
• Financial system
• Financial institutions
• Financial instruments
• Regulations for financial institutions

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8/31/2024

FINANCIAL SYSTEM

 Money
 Financial markets
 Financial instruments
 Financial institutions
 Regulatory agencies
 Central banks (State banks)

 Central banks determine, implement, and control the


monetary policy in their home countries.
 Open market operations: the purchase and sale of
government bonds/securities
 The discount rate is the rate of interest Central banks charge
on loans to financial institutions.
 The rate of interest on these interbank transactions is a
benchmark interest rate, which is used to guide monetary policy

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Financial markets are structures through


which funds flow

Dimension 1 Dimension 2 Dimension 3


(Purpose) (Maturity) (Organization)
Primary markets Money markets Over-the-Counter
Secondary markets Capital markets (OTC)
Exchanged markets

Primary markets Secondary markets

 Raise funds by issuing (selling)  Trade financial instruments


equity/bond/other instruments  Create the liquidity of assets
 Role of Investment banking by trading (sell/buy)
 Role of brokers and traders

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8/31/2024

Source: Deloitte .(2023). Southeast Asia IPO Capital Market.


https://www2.deloitte.com/vn/en/pages/audit/articles/sea-ipo-
report-2023.html

4
8/31/2024

Primary markets

Secondary markets

Leading banks worldwide in 2023, by revenue from IB

Source: Statista
https://www.sta
tista.com/statis
tics/371143/lea
ding-global-
investment-
banks-by-
revenue/

5
8/31/2024

Money markets Capital markets

 Less than or equal one year  Above one year


 Mainly in OTC  Stock, Mortgages, Treasury
 Fed funds, Repurchase bonds, Corporate bonds
Agreements, Treasury bills,
negotiable CDs, commercial
papers

Derivative markets Foreign exchange markets

 Forwards, Futures, Swaps,  Exchange rate


Options  Foreign currency exposure
 OTC and exchanges
 Underlying assets

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8/31/2024

FINANCIAL INSTRUMENTS

Store of value Risk transferring


 Bank loans  Insurance
 Bonds contracts
 Home mortgages  Futures contracts
 Stocks  Options
 Asset-backed  Swaps
securities

Financial Institutions perform the essential function of


channeling funds from those with surplus funds

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8/31/2024

Direct transfer

Indirect transfer

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8/31/2024

FINANCIAL INSTRUMENTS

Money market Capital market


instruments instruments
 Treasury bills  Stock
 Repurchase agreements  Mortgages
 Commercial paper  Corporate bonds
 Negotiable certificates of  Treasury bonds
deposit  Bank and consumer
 Bankers’ acceptances loans

FINANCIAL INSTITUTIONS & SERVICES

For suppliers of funds For economy


 Monitoring costs  Money supply transmission
 Liquidity and price risk  Credit allocation
 Transaction cost services  Intergenerational wealth
 Maturity intermediation transfers
 Denomination  Payment services
intermediation

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FINANCIAL INSTITUTIONS & RISKS

 Country risk
 Market risks (Interest rate risk, Foreign
exchange risk, commodity price risk,
option price risk, stock price risk)
 Credit risk
 Off-balance-sheet risk
 Liquidity risk
 Operational risk

FINANCIAL INSTITUTIONS &


REGULATIONS

 Prevent FIs from market failures


 Enhance the social welfare benefits
 Mitigate the costs of the provision of FI
services

10
8/31/2024

GLOBAL TRENDS & GLOBALIZATION

 https://data.bis.org/topics/DSS/tables-and-dashboards
 https://www.statista.com/statistics/710680/global-
stock-markets-by-country/
 https://www.spglobal.com/marketintelligence/en/new
s-insights/research/the-worlds-largest-banks-by-
assets-2024

11

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