financial markets and its types and intermediaters

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FINANCIAL MARKET
Presented by
shah Abdul Azeem
Amarah ashfaq
Shenam ashfaq
Ahmad

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marketsFinancial
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Financial Market
Any marketplace where buyers and sellers participate in the trade of
financial securities, commodities, and other tungible items of value
at low transaction costs and at prices that reflect supply and
demand. Securities include stocks and bonds, and commodities
include precious metals or agricultural goods.
There are both general markets (where many commodities are
traded) and specialized markets (where only one commodity is
traded).

4. COMPANY
LOGOFacilitate
In finance, financial markets facilitate:
The raising of capital (in the capital
markets)
The transfer of risk (in the derivatives
markets)
Price discovery
Global transactions with integration of
financial markets
The transfer of liquidity (in the money
markets)
International trade (in the currency
markets)
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Financial Market Chart

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The Role of Financial Intermediaries
and Financial Markets

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LOGOThe Function of Financial Institutions
• Financial intermediaries channel funds between
borrowers and lenders.
Intermediation ⇒ transforming assets
– the function of transforming assets or liabilities
into other assets or liabilities
• Liabilities – deposits
• Assets – loans
– this is the principal activity of most financial
institutions.
– intermediation improves social welfare by
channeling resources to their most effective use.

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LOGOThe Function of Financial Institutions
• Brokerage⇒ an “agency”
function
– Brokers are agents who bring would-be
buyers and sellers together so transactions
can be made.
Intermediation provides value-added but
there are potential “externalities”. One
intermediary’s actions can have
consequences for the entire system.

9. COMPANY
LOGOThe Functions of Intermediation
• Facilitate the acquisition/payment of goods
&services via lower transactions costs
– Chequing services provided by banks improve
economic efficiency.
• Facilitate the creation of a “portfolio”
– A portfolio is a collection of financial assets
– The financial system provides economies of scale &
scope
• Economies of Scope: cost savings that stem from
engaging in complementary activities.
• Economies of Scale: obtained when the unit cost of an
operation decreases as more of it is done.

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LOGOBanks
 Banks are particularly adept at
intermediation because they can perform
the necessary functions more cheaply than
most institutions.
 Technological change and deregulation have
narrowed the comparative advantage of
banks.

11. COMPANY
LOGOFunction of Financial Markets
Source: Mishkin, Frederic S. and Apostolos Serletis, The Economics of Money, Banking and Financial Markets, 2nd
Canadian
Edition, Pearson Addison Wesley, 2004

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Relationship Between Lenders and Borrowers
Lenders
Financial
Intermediary
Financial
Markets
Borrowers
•Individual
•Companies
•Banks
•Insurance
Companies
•Pension
Funds
•Mutual
Funds
•Interbank
•Stock
Exchange
•Money Market
•Bond Market
•Foreign
Exchange
•Individuals
•Companies
•Central
Government
•Municipalities
•Public
Corporations

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LOGOCAPITAL MARKET
 The market where investment
instruments like bonds, equities and
mortgages are traded is known as the
capital market.
 The primal role of this market is to
make investment from investors who
have surplus funds to the ones who
are running a deficit.

15. COMPANY
LOGONature of capital market
The nature of capital market is
brought out by the following facts:
 It Has Two Segments
 It Deals In Long-Term Securities
 It Performs Trade-off Function
 It Creates Dispersion In Business
Ownership
 It Helps In Capital Formation
 It Helps In Creating Liquidity

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LOGOThere are two types of capital market
 Primary market,
 Secondary market

17. COMPANY
LOGOPrimary Market
 It is that market in which shares,
debentures and other securities are
sold for the first time for collecting
long-term capital.
 This market is concerned with new
issues. Therefore, the primary market
is also called NEW ISSUE MARKET.

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LOGOSecondary Market
 The secondary market is that market
in which the buying and selling of the
previously issued securities is done.
 The transactions of the secondary
market are generally done through the
medium of stock exchange.
 The chief purpose of the secondary
market is to create liquidity in
securities.

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Instrument of Capital Market
1
STOCKS
The market in
which shares are
issued and traded
either through
exchanges or over-
the-counter markets.
Also known as the
equity market.
2
BONDS
The environment in
which the issuance
and trading of debt
securities occurs. The
bond market primarily
includes government-
issued securities and
corporate debt
securities.
3
DEBENTURES
A certificate issued by
a corporation with the
purpose of creating a
debt. Debentures are
generally unsecured
by assets and are
interest bearing
securities.
4
TREASURY
BILLS
A short-term
obligation that is not
interest-bearing (it is
purchased at a
discount); can be
traded on a discount
basis for 91 days
5
FOREIGN
EXCHANGE
The market in which
participants are able
to buy, sell,
exchange and
speculate on
currencies.
6
FIXED
DEPOSITS
FDs are the
deposits that are
repayable on fixed
maturity date along
with the principal
and agreed interest
rate for the period.

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Money Market
 As money became a commodity, the money
market became a component of the financial
markets for assets involved in short-term
borrowing, lending, buying and selling with
original maturities of one year or less. Trading in
the money markets is done over the counter, is
wholesale.

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Organized Money Market
Main components of Organised Money Market:Main components of Organised Money Market:
1. The Call Money: Here, lending and borrowing transactions are
carried out for one day.
2. The Treasury Bill Market: It deals in Treasury Bills of short
term duration: 14 days, 91 days, 182 days and 364
days. They are issued by Government and largely held by
RBI.
3. The Commercial Bill Market: It deals in bills of exchange. A
seller draws a bill of exchange on the buyer to make payment
within a certain period of time.
4. The Certificate of Deposit Market:The main purpose of CD
is to enable the commercial banks to raise funds from the
market. The CDs maturity period ranges from 7 days to 1 year
(in case of FIs minimum 1 year and maximum 3 years). The CDs
are issued at a discount to its face value. The CDs are issued in
denomination of Rs. 1 lakh and thereafter, multiples of Rs. 1
lakh.
5. Money Market Mutual Funds (MMMFs): The MMMFs were
introduced in 1992. The objective of MMMFs is to provide an
additional short term avenue to the individual investors.

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Unorganized Money Market
Main components of Unorganised Money Market:Main components of Unorganised Money Market:
1. Indigenous Bankers (IBs): The IBs are individuals or private
firms who receive deposits and give loans and thereby they
operate as banks. Unlike moneylenders who only lend money,
IBs accept deposits as well as lend money.
2. Money Lenders (MLs):They lend money in rural areas as well
as urban areas. They normally charge an invariably high rate of
interest ranging between 15% p.a. to 50% p.a. and even
more.
3. Chit Fund: They collect funds from the members for the
purpose of lending to members (who are in need of funds) for
personal or other purposes.
4. Finance Companies: They operate throughout the country.
They borrow or accept deposits and lend them to others. They
provide funds to small traders and others. They operate like
indigenous bankers.
5. Finance Brokers: They act as middlemen between lenders and
borrowers. They charge commission for their services.

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Money Market Instruments
Certificates of DepositBill rediscounting
Commercial Pape
Inter-bank participation certifica
Treasury Bills
Inter-bank term money
Instru
ments

25. COMPANY
LOGOsummary
1. Financial markets
• How they facilitate
• Financial market chart
2. The Role of Financial Intermediaries and Financial Markets
• The Function of Financial Institutions
• The Functions of Intermediation
• Relationship Between Lenders and Borrowers
• Function of Financial Markets
3. Capital Market
• Nature of capital market
• Primary market,
• Secondary market
• Instrument of Capital Market
4. Money market
• Organized Money Market
• Unorganized Money Market
• Money Market Instruments
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