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Finman Report Chapter 8

The document discusses different types of financial markets and institutions. It outlines money markets versus capital markets, primary versus secondary markets, and private versus public markets. It also describes various categories of financial institutions like investment banks, commercial banks, and pension funds.

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Markbenson Maranan
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78 views

Finman Report Chapter 8

The document discusses different types of financial markets and institutions. It outlines money markets versus capital markets, primary versus secondary markets, and private versus public markets. It also describes various categories of financial institutions like investment banks, commercial banks, and pension funds.

Uploaded by

Markbenson Maranan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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UNDERSTANDING THE ROLE OF THE FINANCIAL

MARKETS AND INSTITUTION


CHAPTER 8
FINANCIAL MARKETS

Are the meeting place for people, corporation and institutions


that either need money or have money to lend or invest.
It exist as a vast global network of individual and financial
institutions that may be lenders, borrowers or owners of public
companies worldwide.
STRUCTURE AND FUNCTION OF FINANCIAL MARKETS

Different markets serves different types of costumers or


different parts of the country. Financial markets also vary
depending on the maturity of the securities being traded and
the types of asset used to back the securities.
TYPES OF MARKETS

PHYSICAL ASSET MARKET VERSUS FINANCIAL ASSET


MARKETS
 Physical asset market- Also called tangible or real asset markets
 Financial asset market- Deal with stocks, bonds, notes and mortgages.
Financial markets also deal with derivative securities whose values are
derived from changes in the price of other asset.
TYPES OF MARKET

 SPOT MARKETS VERSUS FUTURE MARKETS

 Spot markets- are markets in which asset are bought or sold for “on the
spot” delivery.
 Future markets- are markets in which participants agree today to buy or
sell at some future date.
TYPES OF MARKET

MONEY MARKETS VERSUS CAPITAL MARKETS


 Money market- are financial markets in which funds are borrowed or
loaned for short periods (less than 1 year).
 Capital markets- are financial markets for stocks and for intermediate or
long- term debt (one year or longer).
TYPES OF MARKET

PRIMARY MARKETS VERSUS SECONDARY MARKETS


 Primary markets- are markets in which corporation raise capital by
issuing new securities.
 Secondary markets – are markets in which securities and other financial
assets are traded among investors after they have been issued by the
corporations.
TYPES OF MARKET

PRIVATE MARKETS VERSUS PUBLIC MARKETS


 Private markets- are markets in which transaction are worked out
directly between two parties.
 Public markets- are markets in which standardized contracts are traded
on organized exchanges.
FINANCIAL INSTITUTION

Direct funds transfer are common among individuals and


a small business and in economics where financial markets
and institution are less develop. But LARGE BUSINESSES in
develop economics generally find it more efficient to enlist the
services of a financial institution when it comes times to raise
capital.
CATEGORIES OF FINANCIAL INSTITUTION

1. Investment banks- an organization that underwrites and distributes new


investment securities and helps business obtain financing.
2. Commercial banks- the traditional department store of finance serving a
variety of savers and borrowers.
3. Financial service corporations- firm that offers a wide range of financial
service.
4. Credits unions – the cheapest source of funds available to individual
borrowers.
CATEGORIES OF FINANCIAL INSTITUTION

5. Pension funds- retirement plan funded by corporation or government


agencies for their workers and administered primarily by the trust
department of commercial banks or by life insurance companies.
6. Life insurance companies- saving in a form of annual premium invest
these funds in stock , bonds, real state and mortgages and make payment
to the beneficiaries of the insured parties.
CATEGORIES OF FINANCIAL INSTITUTION

7. Mutual funds- organization that pool investor funds to purchase financial instrument
and thus reduce risks through diversification.
8. Exchange trade funds- similar to regular mutual funds and are often operated by
mutual fund companies.
9. Hedge funds- similar to mutual fund because they accept money and use the funds to buy
various securities but there are some important differences.
10. Private equity exchange-organization that operates much like hedge funds but rather
than purchasing some of the stock of firm, private equity players buy and then manage
entire firms.
STOCK MARKETS
 It is the security that are outstanding and owned by the investors are usually bought and
sold through the secondary market.
KINDS OF STOCK MARKET
1) The organized stock exchange- the stock exchanges will have a physical location
where stocks buying and selling transaction takes place in the stock exchange floor.
2) The over-the-counter exchange- where share , bonds and money market instrument
are traded using a system of computer screen and telephones.
REASON FOR TRANSACTION IN STOCK MARKET

1. Information motivated 2. Liquidity motivated reasons –


reason- information motivated liquidity motivated investors on
investors believe that they have the other hand, transact in the
superior information about a secondary market because they
particular security than other are the currently position of either
market participants. This excess or insufficient liquidity.
information leads them to believe Investors w/ cash holding will buy
that the security is not being securities, where an investor with
correctly priced by the market. insufficient cash will sell securities.
STOCK EXCHANGE

Is an organized secondary market where securities like shares, debentures of


public companies, government securities and bonds issued by municipalities,
public corporations, utility undertakings, port trusts and such other local
authorities are purchased and sold. In order to bring liquidity , the stocks are
traded systematically in a stock exchange.
Is an entity which is in the business of bringing buyer and seller of stocks and
securities together.
LISTING OF SECURITIES ON STOCK EXCHAGE

LISTING- means admission of securities to dealing on a recognized stock


exchange of any incorporated company, central and state government, quasi
governmental and other financial institution/corporation, municipalities,
electricity boards, housing boards and so forth.
Principal main objective of listing
“is to provide liquidity and marketability to listed securities and
ensure effective monitoring of trading for the benefit of all
participants in the market”
The securities of an entity may be listed in the ff. Stages
 at the time of public issue of shares or debentures
 at the time of rights issue of share or debentures
 at the time of bonus issue of shares
 shares issued on amalgamation or merger

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