The document provides an introduction to the international financial system, outlining how it facilitates the design, sale, and exchange of financial contracts. It discusses how individuals and firms obtain financial resources directly through markets or indirectly through financial institutions. It then surveys the major components of the financial system, including financial instruments, markets, and institutions. Financial instruments such as stocks, bonds, and loans are described in terms of their basic characteristics and uses. The roles and structures of financial markets and institutions are also outlined.
This document provides an overview of the Indian capital market. It defines capital markets as markets for trading long-term financial securities, where individuals and institutions can buy and sell debt and equity instruments. The capital market has a primary market for new security issuances and a secondary market for trading existing securities. It discusses the key participants in the market - issuers who raise capital, investors who provide capital, and intermediaries who facilitate transactions. The document also outlines the roles and functions of the capital market in facilitating capital formation, savings mobilization, and economic growth.
The document provides an introduction to financial systems, including definitions, key components, and functions. It discusses that a financial system consists of institutions, markets, instruments, and services that facilitate the transfer of funds. The main components are financial institutions like banks, markets where assets are traded, various financial services, and instruments/assets like stocks, bonds, and mutual funds. Financial systems play an important role in allocating resources and facilitating economic growth.
Capital markets are financial markets for long-term debt or equity-backed securities where money is provided for over a year. They channel wealth from savers to long-term investors like companies and governments. Capital markets have a primary market where new securities are sold and a secondary market where existing securities are traded. They mobilize savings, enable capital formation and economic growth, provide investment opportunities, and are regulated to protect investors. Money markets are for assets involved in borrowing and lending of up to one year. They include instruments like certificates of deposit, commercial paper, and repurchase agreements. Both capital and money markets are important for financing trade and industry while managing liquidity and risk.
This document discusses the key differences between investment and speculation. Investment involves committing money for long-term gains with low to moderate risk and returns based on fundamentals. Speculation involves short-term, high risk bets with potential for high returns based on market psychology. The document also outlines the traditional two-step investment decision process of security analysis and portfolio management to evaluate individual assets and construct a balanced portfolio.
The document discusses the macro economic environment and financial markets in India. It describes the money market and its components like call money, treasury bills, commercial bills, and commercial paper. It also discusses the organized and unorganized segments of the money market. The capital market is described along with the gilt-edged market and corporate securities market. Reforms to strengthen the capital market are also summarized.
The document provides an overview of the financial system and its key components. It discusses how financial markets and institutions help channel funds from savers to borrowers, allowing for investment and economic growth. It then covers the major types of financial markets and instruments, including debt vs equity markets, primary vs secondary markets, money markets, capital markets, and derivatives. It also discusses the internationalization of financial markets through foreign bonds, Eurobonds, and Eurocurrencies.
This document provides information about a student group project on capital market instruments. It includes the names and roll numbers of the group members, a table of contents for the project, and sections describing different capital market instruments like equity shares, preference shares, debentures, and bonds. It also discusses the differences between equity and debt securities and concludes that the capital market plays an important role in economic development.
Presentation on "Capital Market"
1.definition and characteristics
2.function and players
3.importance/role and types
4.factor and structure
5.reforms and development
This document provides an overview of the Indian capital market. It defines capital markets as markets for trading long-term financial securities, where individuals and institutions can buy and sell debt and equity instruments. The capital market has a primary market for new security issuances and a secondary market for trading existing securities. It discusses the key participants in the market - issuers who raise capital, investors who provide capital, and intermediaries who facilitate transactions. The document also outlines the roles and functions of the capital market in facilitating capital formation, savings mobilization, and economic growth.
The document provides an introduction to financial systems, including definitions, key components, and functions. It discusses that a financial system consists of institutions, markets, instruments, and services that facilitate the transfer of funds. The main components are financial institutions like banks, markets where assets are traded, various financial services, and instruments/assets like stocks, bonds, and mutual funds. Financial systems play an important role in allocating resources and facilitating economic growth.
Capital markets are financial markets for long-term debt or equity-backed securities where money is provided for over a year. They channel wealth from savers to long-term investors like companies and governments. Capital markets have a primary market where new securities are sold and a secondary market where existing securities are traded. They mobilize savings, enable capital formation and economic growth, provide investment opportunities, and are regulated to protect investors. Money markets are for assets involved in borrowing and lending of up to one year. They include instruments like certificates of deposit, commercial paper, and repurchase agreements. Both capital and money markets are important for financing trade and industry while managing liquidity and risk.
This document discusses the key differences between investment and speculation. Investment involves committing money for long-term gains with low to moderate risk and returns based on fundamentals. Speculation involves short-term, high risk bets with potential for high returns based on market psychology. The document also outlines the traditional two-step investment decision process of security analysis and portfolio management to evaluate individual assets and construct a balanced portfolio.
The document discusses the macro economic environment and financial markets in India. It describes the money market and its components like call money, treasury bills, commercial bills, and commercial paper. It also discusses the organized and unorganized segments of the money market. The capital market is described along with the gilt-edged market and corporate securities market. Reforms to strengthen the capital market are also summarized.
The document provides an overview of the financial system and its key components. It discusses how financial markets and institutions help channel funds from savers to borrowers, allowing for investment and economic growth. It then covers the major types of financial markets and instruments, including debt vs equity markets, primary vs secondary markets, money markets, capital markets, and derivatives. It also discusses the internationalization of financial markets through foreign bonds, Eurobonds, and Eurocurrencies.
This document provides information about a student group project on capital market instruments. It includes the names and roll numbers of the group members, a table of contents for the project, and sections describing different capital market instruments like equity shares, preference shares, debentures, and bonds. It also discusses the differences between equity and debt securities and concludes that the capital market plays an important role in economic development.
Presentation on "Capital Market"
1.definition and characteristics
2.function and players
3.importance/role and types
4.factor and structure
5.reforms and development
The document provides an overview of the money market. It defines the money market as the market for short-term, highly liquid debt instruments with maturities of one year or less, such as treasury bills, commercial paper, and certificates of deposit. These instruments are traded by phone between financial institutions, corporations, brokers, and dealers. The money market helps facilitate short-term borrowing and lending for participants. It consists of various sub-markets that collectively make up this important segment of the financial system.
The document discusses key aspects of secondary markets. It defines secondary markets as markets where securities are traded after being initially offered to the public in primary markets. The majority of trading occurs in secondary markets, which comprise equity and debt markets. Secondary markets offer both sellers and buyers advantages, such as sellers recouping a portion of the original purchase price, though they can also reduce sales for original sellers. Key products traded in secondary markets include equity shares, government securities, debentures, and bonds.
This document discusses capital structure and financial markets, specifically the primary market. It defines the primary market as the market for new issuers, where companies can directly issue shares, bonds, or other securities to raise capital. The document outlines the key participants and processes in the primary market in Nepal, including requirements for disclosure, underwriting, and issue procedures that must follow the Company Act and SEBON guidelines. Overall, the primary market provides an important channel for companies and governments to raise funds for investment and growth.
The document provides an overview of money markets, including key definitions and concepts. Money markets are a segment of the financial market where short-term, highly liquid financial instruments are traded. They allow participants to borrow and lend for short periods ranging from a few days to under a year. Common money market instruments include treasury bills, commercial paper, certificates of deposit, and banker's acceptances, which are all very short-term, safe investments. Money markets serve important functions like financing trade and industry while also providing investment opportunities.
The document provides an overview of the Indian financial system. It discusses that the financial system includes financial intermediaries like banks, mutual funds, and insurance companies; financial markets like money markets, capital markets, and derivatives markets; and financial assets/instruments like equity, debt, and indirect securities. The financial system mobilizes savings from households and channels them to corporations and governments through these various institutions and markets, in order to facilitate capital formation and meet short and long-term financing needs.
This document defines and categorizes different types of financial intermediaries. It discusses insurance companies, mutual funds, non-banking finance companies, investment brokers, investment bankers, escrow companies, pension funds, and collective investment schemes. The main advantages of using financial intermediaries are that they help reduce costs compared to direct lending/borrowing, and help reconcile the conflicting needs of lenders and borrowers to prevent market failure. Financial intermediaries play a vital role in bringing together those with surplus funds to lend and those with shortage of funds to borrow.
Financial Markets - Money market-Organized and Unorganized-Sub markets
Capital market- Primary market-IPO-FPO- NFO, Book Building-Right Issue-Private placement- Bonus issue-Buyback
Secondary Market-Stock exchanges- Role and functions of Stock Exchanges- BSE-NSE.
Regulatory authorities and their functions – RBI, SEBI
Chapter 3 Financial Instruments Financial Markets and Financial InstitutionsDr. John V. Padua
This document discusses financial instruments, markets, and institutions. It begins by asking key questions about what financial instruments are, how markets work, and why institutions are important. It then defines different types of finance and assets/liabilities. The main sections cover financial instruments, markets, and institutions. For instruments, it defines them, discusses their uses and characteristics, and provides examples. For markets, it defines them and discusses their roles in providing liquidity, information, and risk sharing. It outlines market structure and types. For institutions, it discusses their roles in reducing costs and issuing securities.
The document discusses commercial paper, which are short-term unsecured promissory notes issued by financially strong companies to raise funds for a period of up to one year. It explains what commercial paper is, who issues and invests in it, how it works, and provides an example of a company issuing commercial paper worth 50 crores. Commercial paper provides short-term funding to companies at lower interest rates than bank loans.
The document discusses financial intermediation and the role of financial systems. It notes that financial intermediation bridges the gap between surplus savers and deficit borrowers. Financial intermediaries include banks, exchanges, brokers, and agents that connect net borrowers like corporations and governments with net savers like households. The functions of intermediaries include maturity transformation, risk transformation, payment and settlement mechanisms, liquidity provision, and reducing transaction costs. Financial intermediation contributes significantly to GDP by facilitating capital transfers through institutions and markets.
For Videos use the links below
0 Course Introduction:: https://www.youtube.com/watch?v=9km4aXTus5c
1 Financial system and Environment : https://www.youtube.com/watch?v=BC2bAftm43c
2 Participants in a Financial System: https://www.youtube.com/watch?v=IEv_y7_aR7o
3 Functions of a Financial System: https://www.youtube.com/watch?v=T73-Dd8RM4I
4 Financial System and its components: https://www.youtube.com/watch?v=ovkAjEO8YAw
5 Efficiency of a financial system: https://www.youtube.com/watch?v=8xEUtvKYvPc
Financial instruments are financial contracts between institutional units that include a range of financial assets and liabilities. Some key types of financial instruments are deposits, special drawing rights (SDRs) issued by the IMF, borrowings, loans, shares and other equity, debentures or bonds, other accounts receivable and payable, financial derivatives like options and swaps, letters of guarantee, letters of credit, and financial commitments. Derivatives allow parties to exchange risks and can include options, forwards/futures, and swaps. Loans are evidenced by non-negotiable documents and can be short, medium, or long term. Shares represent ownership rights in enterprises and equity, while debentures or bonds are a form of
This document provides an overview of financial markets and institutions. It discusses the key functions of financial markets in channeling funds from surplus to deficit units. It describes the structure of financial markets, including the distinction between debt and equity markets, primary vs secondary markets, and money vs capital markets. The main instruments traded in these markets are also outlined. The document then discusses the role of financial institutions in providing indirect finance and transforming financial assets. It identifies the main types of financial institutions like depository institutions, contractual savings institutions, and investment intermediaries. Finally, it covers the rationale for regulating financial markets and institutions to increase information and ensure overall financial system stability.
The document discusses different types of investments, including traditional and alternative investments. Traditional investments include bonds, stocks, small saving schemes, mutual funds, fixed deposits, and real estate. Bonds are loans to entities that pay interest. Stocks represent ownership in companies. Small saving schemes are meant for small amounts. Mutual funds invest in different securities. Fixed deposits earn interest. Real estate can appreciate. Alternative investments include hedge funds, private equity, venture capital, structured products, and collectibles. These have complex structures and are less liquid than traditional investments.
The document provides an overview of derivatives markets, including the key terms and participants. It discusses how derivatives help transfer and hedge risks, facilitate price discovery, and catalyze economic activity. The main types of derivatives are forwards, futures, swaps, and options. Forwards and swaps are over-the-counter derivatives privately negotiated between parties, while futures and options are exchange-traded standardized contracts. Hedgers use derivatives to offset price risks, while speculators and arbitrageurs take positions to profit from price movements.
Financial markets facilitate the buying and selling of financial instruments between savers and investors. They act as intermediaries that allow households to deposit surplus funds with banks or purchase securities from businesses, and allow businesses to access funds from households. Financial markets have several key functions, including mobilizing savings, facilitating price discovery, providing liquidity to financial assets, and reducing transaction costs. The major financial markets in India are the money market, stock market, and bond market. The money market deals in short-term debt instruments with maturities of up to one year and includes sub-markets for call money, treasury bills, commercial paper, and certificates of deposit.
Financial system and markets:
objectives of financial system-
Concepts of financial system-
Financial concepts-
Development of financial systems in India-
Weakness of Indian financial system
The document discusses various aspects of securities markets and financial markets. It describes the key components and participants in primary and secondary markets. The primary market, also called the new issue market, deals with the initial sale of new securities to investors. Major functions of the primary market include origination, underwriting, and distribution of new securities issues. Common methods to float new issues include public issues, rights issues, and private placements. The secondary market provides for the trading of previously-issued securities among investors.
International banking and money marketArpita Gupta
This document discusses international banking and money markets. It defines international banking services and the types of international banking offices, including correspondent banks, representative offices, foreign branches, subsidiaries, affiliates, and offshore banking centers. It also covers capital adequacy standards under the Basel Accords, the international money market including eurocurrency and eurocredits, and international debt crises involving sovereign loans to less developed countries.
This document discusses the key elements of organizational structure, including work specialization, departmentalization, centralization/decentralization, formalization, span of control, and chain of command. It describes common types of each element and how they affect the structure. For example, it explains how narrow spans of control encourage close supervision while wider spans allow more autonomy. The document also discusses factors that determine organizational structure, such as strategy, size, technology, and environmental conditions. Finally, it provides an overview of how structure design influences organizational performance and employee satisfaction.
The document provides an overview of the money market. It defines the money market as the market for short-term, highly liquid debt instruments with maturities of one year or less, such as treasury bills, commercial paper, and certificates of deposit. These instruments are traded by phone between financial institutions, corporations, brokers, and dealers. The money market helps facilitate short-term borrowing and lending for participants. It consists of various sub-markets that collectively make up this important segment of the financial system.
The document discusses key aspects of secondary markets. It defines secondary markets as markets where securities are traded after being initially offered to the public in primary markets. The majority of trading occurs in secondary markets, which comprise equity and debt markets. Secondary markets offer both sellers and buyers advantages, such as sellers recouping a portion of the original purchase price, though they can also reduce sales for original sellers. Key products traded in secondary markets include equity shares, government securities, debentures, and bonds.
This document discusses capital structure and financial markets, specifically the primary market. It defines the primary market as the market for new issuers, where companies can directly issue shares, bonds, or other securities to raise capital. The document outlines the key participants and processes in the primary market in Nepal, including requirements for disclosure, underwriting, and issue procedures that must follow the Company Act and SEBON guidelines. Overall, the primary market provides an important channel for companies and governments to raise funds for investment and growth.
The document provides an overview of money markets, including key definitions and concepts. Money markets are a segment of the financial market where short-term, highly liquid financial instruments are traded. They allow participants to borrow and lend for short periods ranging from a few days to under a year. Common money market instruments include treasury bills, commercial paper, certificates of deposit, and banker's acceptances, which are all very short-term, safe investments. Money markets serve important functions like financing trade and industry while also providing investment opportunities.
The document provides an overview of the Indian financial system. It discusses that the financial system includes financial intermediaries like banks, mutual funds, and insurance companies; financial markets like money markets, capital markets, and derivatives markets; and financial assets/instruments like equity, debt, and indirect securities. The financial system mobilizes savings from households and channels them to corporations and governments through these various institutions and markets, in order to facilitate capital formation and meet short and long-term financing needs.
This document defines and categorizes different types of financial intermediaries. It discusses insurance companies, mutual funds, non-banking finance companies, investment brokers, investment bankers, escrow companies, pension funds, and collective investment schemes. The main advantages of using financial intermediaries are that they help reduce costs compared to direct lending/borrowing, and help reconcile the conflicting needs of lenders and borrowers to prevent market failure. Financial intermediaries play a vital role in bringing together those with surplus funds to lend and those with shortage of funds to borrow.
Financial Markets - Money market-Organized and Unorganized-Sub markets
Capital market- Primary market-IPO-FPO- NFO, Book Building-Right Issue-Private placement- Bonus issue-Buyback
Secondary Market-Stock exchanges- Role and functions of Stock Exchanges- BSE-NSE.
Regulatory authorities and their functions – RBI, SEBI
Chapter 3 Financial Instruments Financial Markets and Financial InstitutionsDr. John V. Padua
This document discusses financial instruments, markets, and institutions. It begins by asking key questions about what financial instruments are, how markets work, and why institutions are important. It then defines different types of finance and assets/liabilities. The main sections cover financial instruments, markets, and institutions. For instruments, it defines them, discusses their uses and characteristics, and provides examples. For markets, it defines them and discusses their roles in providing liquidity, information, and risk sharing. It outlines market structure and types. For institutions, it discusses their roles in reducing costs and issuing securities.
The document discusses commercial paper, which are short-term unsecured promissory notes issued by financially strong companies to raise funds for a period of up to one year. It explains what commercial paper is, who issues and invests in it, how it works, and provides an example of a company issuing commercial paper worth 50 crores. Commercial paper provides short-term funding to companies at lower interest rates than bank loans.
The document discusses financial intermediation and the role of financial systems. It notes that financial intermediation bridges the gap between surplus savers and deficit borrowers. Financial intermediaries include banks, exchanges, brokers, and agents that connect net borrowers like corporations and governments with net savers like households. The functions of intermediaries include maturity transformation, risk transformation, payment and settlement mechanisms, liquidity provision, and reducing transaction costs. Financial intermediation contributes significantly to GDP by facilitating capital transfers through institutions and markets.
For Videos use the links below
0 Course Introduction:: https://www.youtube.com/watch?v=9km4aXTus5c
1 Financial system and Environment : https://www.youtube.com/watch?v=BC2bAftm43c
2 Participants in a Financial System: https://www.youtube.com/watch?v=IEv_y7_aR7o
3 Functions of a Financial System: https://www.youtube.com/watch?v=T73-Dd8RM4I
4 Financial System and its components: https://www.youtube.com/watch?v=ovkAjEO8YAw
5 Efficiency of a financial system: https://www.youtube.com/watch?v=8xEUtvKYvPc
Financial instruments are financial contracts between institutional units that include a range of financial assets and liabilities. Some key types of financial instruments are deposits, special drawing rights (SDRs) issued by the IMF, borrowings, loans, shares and other equity, debentures or bonds, other accounts receivable and payable, financial derivatives like options and swaps, letters of guarantee, letters of credit, and financial commitments. Derivatives allow parties to exchange risks and can include options, forwards/futures, and swaps. Loans are evidenced by non-negotiable documents and can be short, medium, or long term. Shares represent ownership rights in enterprises and equity, while debentures or bonds are a form of
This document provides an overview of financial markets and institutions. It discusses the key functions of financial markets in channeling funds from surplus to deficit units. It describes the structure of financial markets, including the distinction between debt and equity markets, primary vs secondary markets, and money vs capital markets. The main instruments traded in these markets are also outlined. The document then discusses the role of financial institutions in providing indirect finance and transforming financial assets. It identifies the main types of financial institutions like depository institutions, contractual savings institutions, and investment intermediaries. Finally, it covers the rationale for regulating financial markets and institutions to increase information and ensure overall financial system stability.
The document discusses different types of investments, including traditional and alternative investments. Traditional investments include bonds, stocks, small saving schemes, mutual funds, fixed deposits, and real estate. Bonds are loans to entities that pay interest. Stocks represent ownership in companies. Small saving schemes are meant for small amounts. Mutual funds invest in different securities. Fixed deposits earn interest. Real estate can appreciate. Alternative investments include hedge funds, private equity, venture capital, structured products, and collectibles. These have complex structures and are less liquid than traditional investments.
The document provides an overview of derivatives markets, including the key terms and participants. It discusses how derivatives help transfer and hedge risks, facilitate price discovery, and catalyze economic activity. The main types of derivatives are forwards, futures, swaps, and options. Forwards and swaps are over-the-counter derivatives privately negotiated between parties, while futures and options are exchange-traded standardized contracts. Hedgers use derivatives to offset price risks, while speculators and arbitrageurs take positions to profit from price movements.
Financial markets facilitate the buying and selling of financial instruments between savers and investors. They act as intermediaries that allow households to deposit surplus funds with banks or purchase securities from businesses, and allow businesses to access funds from households. Financial markets have several key functions, including mobilizing savings, facilitating price discovery, providing liquidity to financial assets, and reducing transaction costs. The major financial markets in India are the money market, stock market, and bond market. The money market deals in short-term debt instruments with maturities of up to one year and includes sub-markets for call money, treasury bills, commercial paper, and certificates of deposit.
Financial system and markets:
objectives of financial system-
Concepts of financial system-
Financial concepts-
Development of financial systems in India-
Weakness of Indian financial system
The document discusses various aspects of securities markets and financial markets. It describes the key components and participants in primary and secondary markets. The primary market, also called the new issue market, deals with the initial sale of new securities to investors. Major functions of the primary market include origination, underwriting, and distribution of new securities issues. Common methods to float new issues include public issues, rights issues, and private placements. The secondary market provides for the trading of previously-issued securities among investors.
International banking and money marketArpita Gupta
This document discusses international banking and money markets. It defines international banking services and the types of international banking offices, including correspondent banks, representative offices, foreign branches, subsidiaries, affiliates, and offshore banking centers. It also covers capital adequacy standards under the Basel Accords, the international money market including eurocurrency and eurocredits, and international debt crises involving sovereign loans to less developed countries.
This document discusses the key elements of organizational structure, including work specialization, departmentalization, centralization/decentralization, formalization, span of control, and chain of command. It describes common types of each element and how they affect the structure. For example, it explains how narrow spans of control encourage close supervision while wider spans allow more autonomy. The document also discusses factors that determine organizational structure, such as strategy, size, technology, and environmental conditions. Finally, it provides an overview of how structure design influences organizational performance and employee satisfaction.
Departmentalization involves grouping jobs and activities into departments to achieve organizational objectives. There are three main types of departmentalization: functional, territorial, and customer-based. Functional departmentalization groups employees based on their specialized function, such as marketing, finance, or production. Territorial departmentalization groups employees based on geographic region. Customer-based departmentalization creates departments oriented around different customer markets or channels. The document discusses the advantages and disadvantages of each type and when each would be most suitable depending on factors like company size and activities.
Basic costing/ Types of cost/Overheads Sameer Hule
This document discusses the collection, classification, allocation, and codification of overhead costs in cost accounting. It defines overhead as indirect materials, labor, and expenses that cannot be directly charged to a specific cost unit. The key steps in accounting for overhead are collecting data on overhead costs, classifying costs by function, behavior, element, or controllability, allocating overhead costs to cost centers or cost units, and codifying overhead codes to simplify tracking and analyzing large numbers of overhead accounts.
The document discusses various approaches to organizational structure including functional, divisional, matrix, team-based, network, and virtual structures. It provides details on each approach's key characteristics and advantages and disadvantages. The learning objectives are to understand fundamental concepts of organizing like work specialization and chain of command, and to explain when different structural approaches should be used.
The document provides an introduction to financial markets, instruments, and institutions. It discusses how individuals and firms obtain financial resources either directly through markets or indirectly through institutions. It then surveys the major types of financial instruments (such as stocks, bonds, loans, insurance), their characteristics and uses. It also describes the primary roles and structures of financial markets and institutions in facilitating the flow of funds.
financial instruments, financial markets, and financial institutions is a fin...MengsongNguon
This document provides an overview of financial instruments, markets, and institutions. It defines key terms like assets, liabilities, and different types of financial markets. It explains that financial instruments are used for means of payment, storing value, and transferring risk. Financial markets allow for buying and selling of instruments and provide liquidity, communicate information, and enable risk sharing. Financial institutions specialize in issuing securities, screening borrowers, and transforming short term liabilities into long term loans to reduce costs. They play an important role in the financial system by facilitating the flow of funds.
This document provides an overview of financial instruments. It defines a financial instrument as a real or virtual document representing a legal agreement involving monetary value. Financial instruments can be divided into cash instruments, which are directly influenced by markets, and derivative instruments, which derive their value from underlying assets. The main types are debt-based instruments like bonds and equity-based instruments like stocks. Financial markets allow these instruments to be traded, providing liquidity, sharing risk, and communicating information to promote economic efficiency. Financial institutions help resources flow through the financial system by specializing in issuing standardized securities and screening borrowers.
The document provides an overview of the financial system including why it is studied, key components like financial markets and institutions, and economic analysis of its structure and regulation. It describes financial markets and the functions of intermediaries like banks. It also analyzes how adverse selection, moral hazard, and government safety nets influence financial structure and regulation. Capital requirements, supervision, and both micro and macroprudential regulation help address these issues.
The document provides an overview of the financial system, covering characteristics of financial instruments, functions of financial markets and intermediaries, and the classification of intermediaries. It describes liquidity, risk, and yield as key characteristics of instruments. Financial markets channel funds from savers to borrowers through direct and indirect finance. Intermediaries help reduce information problems like adverse selection and moral hazard.
The chapter discusses the fundamentals of financial markets, including the primary functions of capital and money markets. It defines key terms like underwriters, brokers, dealers, and clearing and settlement. It also describes the different types of markets that exist for various financial claims, including primary and secondary markets, organized exchanges and over-the-counter markets, spot and futures markets, and options markets. The roles of different participants in the markets are discussed along with how the markets promote efficiency through allocating resources, disseminating information, and keeping transaction costs low.
The document discusses primary and secondary markets. The primary market involves the initial sale of securities to raise capital, such as initial public offerings. Companies work with investment bankers to facilitate primary market activity. The secondary market involves the subsequent trading of existing securities on stock exchanges. It provides liquidity for investors and encourages new investment. Some key differences between primary and secondary markets are that the primary market deals with new issues, has no set location, and occurs before the secondary market.
This document is a student paper on investment markets consisting of an introduction and three chapters. Chapter 1 discusses the history and development of investment markets from the early 20th century to present. Chapter 2 covers the main operations in investment markets, including the roles of investment banks and key participants. Chapter 3 examines various sources of financing and ways to reduce risk in investment markets. The conclusion reflects on lessons from recent financial crises and risks going forward. Suggestions are made to improve competition, clients/products, government regulation, financial management, organizational effectiveness, and technology.
The financial system comprises financial markets, intermediaries, and institutions that facilitate the flow of funds between lenders and borrowers. It performs the essential function of channeling savings from those with surplus funds to those who need to borrow. Financial intermediaries such as banks, insurers, and investment funds accept deposits or payments from lenders and invest or lend those funds to borrowers. A variety of financial instruments representing obligations to pay are used to transfer funds and allocate resources efficiently within the system.
This document provides an overview of global financial institutions and markets. It discusses key concepts like financial intermediaries that facilitate the flow of funds from savers to investors, and financial markets where financial assets are traded. Specifically, it examines the roles of capital markets, which deal in long-term securities, and money markets, which deal in short-term securities. It also describes the functions of the financial system like provision of liquidity, mobilizing savings, and transforming the size and maturity of financial assets. Overall, the document outlines the major components of the financial system and their importance in promoting investment and economic development.
The financial system comprises financial markets, intermediaries, and institutions that facilitate the flow of funds between lenders and borrowers. It performs the essential function of channeling savings from surplus units to deficit units. The main components are financial markets for instruments like equities, bonds, and currencies; intermediaries like banks, insurers, and funds; and various participants including issuers, investors, brokers, and dealers. Financial claims take various forms as marketable and non-marketable, primary and secondary securities to meet the needs of participants. Markets can be exchanges, over-the-counter, spot or forward, and cash or derivatives based.
1. The financial system provides seven key functions: saving, wealth, liquidity, credit, payments, risk management, and implementing economic policy.
2. Financial markets allow for the exchange of financial assets and include money markets for short-term loans and capital markets for long-term investments.
3. Financial markets play important roles in price discovery, providing liquidity, and reducing transaction costs. They can be classified based on the type, maturity, and seasoning of financial claims, as well as whether transactions involve immediate or future delivery.
Overview of financial system and structure slides pptOsama Yousaf
This document provides an overview of the financial system, including:
1. Financial markets exist to channel funds from savers to borrowers like firms and governments through direct or indirect finance.
2. Financial intermediaries help reduce transaction and information costs that make direct lending difficult.
3. Financial markets can be categorized as debt/equity, primary/secondary, exchange-traded/over-the-counter, and money/capital markets based on key features.
Fiduciary or paper money is issued by the Central Bank on the basis of
computation of estimated demand for cash. Monetary policy guides the Central
Bank’s supply of money in order to achieve the objectives of price stability (or low
inflation rate), full employment, and growth in aggregate income.
Investment management chapter 1 introduction to investmentHeng Leangpheng
This document provides an introduction to investment terminology and concepts. It defines key terms like finance, investment, and different types of financial assets. It also summarizes the major participants in the financial system including households, financial intermediaries like banks and mutual funds, and the markets they interact in such as primary and secondary markets. Different types of financial securities are also outlined including debt instruments and equity instruments.
Econ315 Money and Banking: Learning Unit #04: Direct Financesakanor
Direct finance involves borrowers borrowing funds directly from lenders through financial markets by selling securities. Financial markets transfer funds from lenders to borrowers through primary and secondary markets. Primary markets involve the initial sale of new securities, while secondary markets allow existing securities to be traded. Financial markets provide risk sharing, liquidity, and information services. They are classified by maturity, type of claim, and trading place.
This document defines key finance terms and provides an overview of financial institutions, markets, instruments, and services. It discusses the classification of public and private finance as well as external and internal finance sources. Financial institutions are categorized as banking and non-banking, and financial markets are classified as primary/secondary and money/capital markets. The roles of financial intermediaries in managing assets and liabilities are also summarized, in addition to defining financial innovation.
Zodiac Signs and Food Preferences_ What Your Sign Says About Your Tastemy Pandit
Know what your zodiac sign says about your taste in food! Explore how the 12 zodiac signs influence your culinary preferences with insights from MyPandit. Dive into astrology and flavors!
The 10 Most Influential Leaders Guiding Corporate Evolution, 2024.pdfthesiliconleaders
In the recent edition, The 10 Most Influential Leaders Guiding Corporate Evolution, 2024, The Silicon Leaders magazine gladly features Dejan Štancer, President of the Global Chamber of Business Leaders (GCBL), along with other leaders.
Best practices for project execution and deliveryCLIVE MINCHIN
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2. 3-2
Introduction
• The international financial system exists to
facilitate the design, sale, and exchange of a
broad set of contracts with a very specific set
of characteristics.
• We obtain financial resources through this
system:
• Directly from markets, and
• Indirectly through institutions.
3. 3-3
Introduction
• Indirect Finance: An institution stands between
lender and borrower.
• We get a loan from a bank or finance company to buy a car.
• Direct Finance: Borrowers sell securities directly to
lenders in the financial markets.
• Direct finance provides financing for governments and
corporations.
• Asset: Something of value that you own.
• Liability: Something you owe.
5. 3-5
Introduction
• Financial development is linked to economic
growth.
• The role of the financial system is to facilitate
production, employment, and consumption.
• Resources are funneled through the system so
resources flow to their most efficient uses.
6. 3-6
Introduction
We will survey the financial system in three
steps:
1. Financial instruments or securities
• Stocks, bonds, loans and insurance.
• What is their role in our economy?
1. Financial Markets
• New York Stock Exchange, Nasdaq.
• Where investors trade financial instruments.
1. Financial institutions
• What they are and what they do.
7. 3-7
Financial Instruments
Financial Instruments: The written legal
obligation of one party to transfer something of
value, usually money, to another party at some
future date, under certain conditions.
• The enforceability of the obligation is important.
• Financial instruments obligate one party (person,
company, or government) to transfer something to
another party.
• Financial instruments specify payment will be made
at some future date.
• Financial instruments specify certain conditions
under which a payment will be made.
8. 3-8
Uses of Financial Instruments
• Three functions:
• Financial instruments act as a means of payment (like money).
• Employees take stock options as payment for working.
• Financial instruments act as stores of value (like money).
• Financial instruments generate increases in wealth that are larger
than from holding money.
• Financial instruments can be used to transfer purchasing power
into the future.
• Financial instruments allow for the transfer of risk (unlike money).
• Futures and insurance contracts allows one person to transfer
risk to another.
9. 3-9
• The use of borrowing to finance part of an
investment is called leverage.
• Leverage played a key role in the financial crisis of
2007-2009.
• How did this happen?
• The more leverage, the greater the risk that an
adverse surprise will lead to bankruptcy.
• The more highly leveraged, the less net worth.
10. 3-10
• How did this happen? (cont.)
• Some important financial institutions, during the
crisis, were leveraged at more than 30 times their
net worth.
• When losses are experienced, firms try to
deleverage to raise net worth.
• When too many institutions deleverage, prices
fall, losses increase, net worth falls more.
• This is called the “paradox of leverage”.
11. 3-11
• The “paradox of leverage” reinforces the
destabilizing liquidity spiral from Chapter 2.
• Both spirals feed the cycle of falling prices and
widespread deleveraging that was the hallmark
of the financial crisis of 2007-2009.
12. 3-12
Characteristics of Financial
Instruments
• These contracts are very complex.
• This complexity is costly, and people do not
want to bear these costs.
• Standardization of financial instruments
overcomes potential costs of complexity.
• Most mortgages feature a standard application with
standardized terms.
13. 3-13
Characteristics of Financial
Instruments
• Financial instruments also communicate
information, summarizing certain details about
the issuer.
• Continuous monitoring of an issuer is costly and
difficult.
• Mechanisms exist to reduce the cost of
monitoring the behavior of counterparties.
• A counterparty is the person or institution on the
other side of the contract.
14. 3-14
• The solution to high cost of obtaining
information is to standardize both the
instrument and the information about the
issuer.
• Financial instruments are designed to handle
the problem of asymmetric information.
Characteristics of Financial
Instruments
15. 3-15
Underlying Versus Derivative
Instruments
• Two fundamental classes of financial
instruments.
• Underlying instruments are used by savers/lenders
to transfer resources directly to investors/borrowers.
• This improves the efficient allocation of
resources.
• Examples: stocks and bonds.
16. 3-16
Underlying Versus Derivative
Instruments
• Derivative instruments are those where their
value and payoffs are “derived” from the
behavior of the underlying instruments.
• Examples are futures and options.
• The primary use is to shift risk among investors.
17. 3-17
A Primer for Valuing Financial
Instruments
Four fundamental characteristics influence the value of a
financial instrument:
1. Size of the payment:
• Larger payment - more valuable.
1. Timing of payment:
• Payment is sooner - more valuable.
1. Likelihood payment is made:
• More likely to be made - more valuable.
1. Conditions under with payment is made:
• Made when we need them - more valuable.
18. 3-18
A Primer for Valuing Financial
Instruments
We organize financial instruments by how they
are used:
• Primarily used as stores of value
1. Bank loans
• Borrower obtains resources from a lender to be
repaid in the future.
1. Bonds
• A form of a loan issued by a corporation or
government.
• Can be bought and sold in financial markets.
19. 3-19
A Primer for Valuing Financial
Instruments
3. Home mortgages
• Home buyers usually need to borrow using the
home as collateral for the loan.
• A specific asset the borrower pledges to protect the
lender’s interests.
4. Stocks
• The holder owns a small piece of the firm and
entitled to part of its profits.
• Firms sell stocks to raise money.
• Primarily used as a stores of wealth.
20. 3-20
A Primer for Valuing Financial
Instruments
5. Asset-backed securities
• Shares in the returns or payments arising from
specific assets, such as home mortgages and
student loans.
• Mortgage backed securities bundle a large
number of mortgages together into a pool in
which shares are sold.
• Securities backed by sub-prime mortgages played
an important role in the financial crisis of 2007-
2009.
21. 3-21
A Primer for Valuing Financial
Instruments
Primarily used to Transfer Risk
1. Insurance contracts.
• Primary purpose is to assure that payments
will be made under particular, and often rare,
circumstances.
1. Futures contracts.
• An agreement between two parties to
exchange a fixed quantity of a commodity or
an asset at a fixed price on a set future date.
• A price is always specified.
• This is a type of derivative instrument.
22. 3-22
A Primer for Valuing Financial
Instruments
3. Options
• Derivative instruments whose prices are based
on the value of an underlying asset.
• Give the holder the right, not obligation, to
buy or sell a fixed quantity of the asset at a
pre-determined price on either a specific date
or at any time during a specified period.
• These offer an opportunity to store value and
trade risk in almost any way one would like.
23. 3-23
• The biggest risk we all face is becoming
disabled and losing our earning capacity.
• Insuring against this should be one of our highest
priorities.
• More likely than our house burning down.
• It is important to assess to make sure you have
enough insurance.
• One risk better transferred to someone else.
24. 3-24
Financial Markets
• Financial markets are places where financial
instruments are bought and sold.
• These markets are the economy’s central
nervous system.
• These markets enable both firms and
individuals to find financing for their activities.
• These markets promote economic efficiency:
• They ensure resources are available to those who
put them to their best use.
• They keep transactions costs low.
25. 3-25
The Role of Financial Markets
1. Liquidity:
• Ensure owners can buy and sell financial
instruments cheaply.
• Keeps transactions costs low.
1. Information:
• Pool and communication information about
issuers of financial instruments.
1. Risk sharing:
• Provide individuals a place to buy and sell risk.
26. 3-26
The Structure of Financial Markets
1. Distinguish between markets where new
financial instruments are sold and where they
are resold or traded: primary or secondary
markets.
2. Categorize by the way they trade: centralized
exchange or not.
3. Group based on the type of instrument they
trade: as a store of value or to transfer risk.
27. 3-27
Primary versus Secondary Markets
• A primary market is one in which a borrower
obtains funds from a lender by selling newly
issued securities.
• Occurs out of the public views.
• An investment bank determines the price, purchases
the securities, and resells to clients.
• This is called underwriting and is usually very
profitable.
28. 3-28
Primary versus Secondary Markets
• Secondary financial markets are those where
people can buy and sell existing securities.
• Buying a share of IBM stock is not purchased from
the company, but from another investor in a
secondary market.
• These are the prices we hear about in the news.
29. 3-29
Centralized Exchanges, OTC’s, and
ECN’s
• Centralized exchanges - buyers and sellers
meet in a central, physical location.
• Over-the-counter markets (OTS’s) -
decentralized markets where dealers stand
ready to buy and sell securities electronically.
• Electronic communication networks (ECN’s) -
electronic system bringing buyers and sellers
together without the use of a broker or dealer.
30. 3-30
Centralized Exchanges, OTC’s, and
ECN’s
• History
• The New York Stock Exchange (NYSE) is a place
with an address where trading takes place in person
on the floor of the exchange.
• A firm purchases a license issued by the
Exchange.
• Others were acquired by specialists who
oversaw the trading.
31. 3-31
Centralized Exchanges, OTC’s, and
ECN’s
• History (cont.)
• In the past, the only alternative was an OTC market.
• Networks of physically dispersed dealers, who
buy and sell electronically.
• The largest is the Nasdaq.
• In 2005, the NYSE merged with Archipelago (now
NYSE Arca), and Nasdaq merged with Instinet.
32. 3-32
Centralized Exchanges, OTC’s, and
ECN’s
• History (cont.)
• Market continues to globalize.
• In 2007, the NYSE merged with Paris-based
Euronext becoming the first international operator
of major exchanges.
• Nasdaq attempted to acquire the London Stock
Exchange but dropped its bid in 2007 right before
the financial crisis.
33. 3-33
• Trading is what makes financial markets work.
• Placing an order in a stock market has the
following characteristics:
• The stock you wish to trade.
• Whether you wish to buy or sell.
• The size of the order - number of shares.
• The price you would like to trade.
34. 3-34
• You can place a market order.
• Your order is executed at the most favorable price
currently available.
• Values speed over price.
• You can place a limit order:
• Places a maximum on the price to buy or a
minimum price to sell.
35. 3-35
• Executing a trade requires someone on the
other side.
• Broker
• Direct access to electronic trading network through
an ECN like Acra or Instinet.
• Customer orders interact automatically without
an intermediary.
• Liquidity is provided by customers.
36. 3-36
• For a well known stock, the NYSE is another
place from which to order.
• Liquidity is supplemented by designated market
makers (DMMs).
• The person on the floor charged with making a
market.
• To make the market work, they often buy and
sell on their own account.
37. 3-37
Debt and Equity versus Derivative
Markets
• Used to distinguish between markets where
debt and equity are traded and those where
derivative instruments are traded.
• Equity markets are the markets for stocks.
• Derivative markets are the markets where
investors trade instruments like futures and
options.
38. 3-38
Debt and Equity versus Derivative
Markets
• In debt and equity markets, actual claims are
bought and sold for immediate cash payments.
• In derivative markets, investors make
agreements that are settled later.
• Debt instruments categorized by the loan’s
maturity
• Repaid in less than a year - traded in money
markets.
• Maturity of more than a year - traded in bond
markets.
39. 3-39
• This article highlights large swings in financial
markets during the financial crisis from 2007-
2009.
• Before the crisis, professional investors made
their own institutions and the overall financial
system vulnerable by taking on too much risk.
• When the crisis hit, they faced a shortfall of
liquidity.
• Liquidity swings caused many financial
markets to plunge and rebound together.
41. 3-41
Characteristics of a Well-Run
Financial Market
• Essential characteristics of a well-run financial
market:
• Must be designed to keep transaction costs low.
• Information the market pools and communicates
must be accurate and widely available.
• Borrowers promises to pay lenders much be
credible.
42. 3-42
Characteristics of a Well-Run
Financial Market
• Because of these criteria, the governments are
an essential part of financial markets as they
enforce the rules of the game.
• Countries with better investor protections have
bigger and deeper financial markets.
43. 3-43
• Liquid, interbank loans are the marginal source
of funds for many banks, with their cost
guiding other lending rates.
• The financial crisis of 2007-2009 strained
interbank lending.
• Anxious banks preferred to hold their liquid assets
in case their own needs arose.
• They also were concerned about the safety of their
trading partners.
44. 3-44
• The rising cost and reduced availability of
interbank loans created a vicious circle of:
• increased caution,
• greater demand for liquid assets,
• reduced willingness to lend, and
• higher loan rates.
46. 3-46
Financial Institutions
• Firms that provide access to the financial markets, both
• to savers who wish to purchase financial instruments directly
and
• to borrowers who want to issue them.
• Also known as financial intermediaries.
• Examples: banks, insurance companies, securities firms, and
pension funds.
• Healthy financial institutions open the flow of
resources, increasing the system’s efficiency.
47. 3-47
The Role of Financial Institutions
• To reduce transaction costs by specializing in
the issuance of standardized securities.
• To reduce the information costs of screening
and monitoring borrowers.
• They curb asymmetries, helping resources flow to
most productive uses.
• To give savers ready access to their funds.
48. 3-48
• Financial intermediation and leverage in the
US have shifted away from traditional banks
and toward other financial institutions less
subject to government regulations.
• Brokerages, insurers, hedge funds, etc.
• These have become known as shadow banks.
• Provide services that compete with banks but do not
accept deposits.
• Take on more risk than traditional banks and are
less transparent.
49. 3-49
• The rise of highly leveraged shadow banks,
combined with government relaxation of rules
for traditional banks, permitted a rise of
leverage in the financial system as a whole.
• This made the financial system more vulnerable to
shocks.
• Rapid growth in some financial instruments
made it easier to conceal leverage and risk-
taking.
50. 3-50
• The financial crisis transformed shadow
banking.
• The largest US brokerages failed, merged, or
converted themselves into traditional banks to gain
access to funding.
• The crisis has encouraged the government to
scrutinize any financial institution that could,
by risk taking, pose a threat to the financial
system.
51. 3-51
The Structure of the Financial
Industry
• We can divide intermediaries into two broad
categories:
• Depository institutions,
• Take deposits and make loans
• What most people think of as banks
• Non-depository institutions.
• Include insurance companies, securities firms,
mutual fund companies, etc.
52. 3-52
The Structure of the Financial
Industry
1. Depository institutions take deposits and
make loans.
2. Insurance companies accept premiums, which
they invest, in return for promising
compensation to policy holders under certain
events.
3. Pension funds invest individual and company
contributions in stocks, bonds, and real estate
in order to provide payments to retired
workers.
53. 3-53
The Structure of the Financial
Industry
4. Securities firms include brokers, investment
banks, underwriters, and mutual fund
companies.
• Brokers and investment banks issue stocks and
bonds to corporate customers, trade them, and
advise customers.
• Mutual-fund companies pool the resources of
individuals and companies and invest them in
portfolios.
• Hedge funds do the same for small groups of
wealthy investors.
54. 3-54
The Structure of the Financial
Industry
5. Finance companies raise funds directly in the
financial markets in order to make loans to
individuals and firms.
• Finance companies tend to specialize in particular
types of loans, such as mortgage, automobile, or
business equipment.
55. 3-55
The Structure of the Financial
Industry
6. Government-sponsored enterprises are
federal credit agencies that provide loans
directly for farmers and home mortgagors.
• Guarantee programs that insure loans made by
private lenders.
• Provides retirement income and medical care
through Social Security and Medicare.
57. 3-57
• Most people need to borrow to buy a house.
• Mortgage payment will be your biggest
monthly expense so shop around.
• Many offers are from mortgage brokers - firms
that have access to pools of funds earmarked
for use as mortgages.
• Who offers your mortgage is not important -
get the best rate you can.