This document discusses the financial environment, including financial markets and institutions. It describes financial markets as places where individuals and organizations looking to borrow funds are brought together with those having surplus funds. The markets are divided into money markets, which exchange short-term instruments under one year, and capital markets, which exchange long-term securities over one year. Primary markets are where new securities are issued, while secondary markets allow existing securities to be traded. The document also outlines various financial institutions that transfer funds between lenders and borrowers, such as commercial banks, credit unions, and mutual funds.
4. WHAT IS A FINANCIAL
MARKET?
A market is a venue where goods and services
are exchanged.
A financial market is a place where individuals
and organizations wanting to borrow funds are
brought together with those having a surplus of
funds.
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7. THE FINANCIAL
MARKETS:
The Money Market:
Exchange of short-term instruments—less than one
year
Highly liquid, minimal risk
Commercial paper—short-term liabilities of prime business firms and
finance companies
Bank Certificates of Deposits—liabilities of issuing bank, interest
bearing to corporations that hold them
Treasury bills—short-term debts of government
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8. THE FINANCIAL
MARKETS:
The Capital Market:
Exchange of long-term securities—in excess of one
year
Generally used to secure long-term financing for capital
investment.
Stock market—Largest part of capital market and held by private and
institutional investors
Residential and commercial mortgages—Held by commercial banks
and life insurance companies
Corporate bond market—Held by insurance companies, pension and
retirement funds
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9. THE FINANCIAL
MARKETS:
Primary Markets:
Market for issuing a new security and distributing to saver-
lenders.
Initial Public Offering Market (IPO).
Investment Banks—Information and marketing specialists for
newly issued securities.
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10. THE FINANCIAL
MARKETS:
Secondary Markets:
Market where existing securities can be exchanged
Bombay Stock Exchange
American Stock Exchange
Bombay Stock Exchange
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11. FINANCIAL
INSTITUTIONS:
Funds are transferred between those who have funds and those
who need funds by three processes:
Direct transfers,
Investment banking houses, or
Financial intermediaries.
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