This document defines and describes various financial markets, including spot markets, futures markets, foreign exchange markets, and interbank lending markets. It provides the following key details: Spot markets involve the immediate delivery of assets traded at the current market price. In futures markets, participants agree today to buy or sell an asset at a specified future date. The foreign exchange market allows participants to buy, sell, and speculate on currencies. The interbank market involves banks exchanging currencies with each other, excluding retail investors. Interbank lending markets involve banks extending short-term loans to one another, usually overnight, at an interest rate known as the interbank rate.

1. Presented by:
A. Santos
FINANCIAL
MARKETS

2.  Future Markets
 Spot Markets
 Foreign Exchange Markets
 Interbank Lending Markets
Financial
Markets

3. Spot Markets are markets in which assets
are bought or sold for “on-the-spot”
delivery or immediate delivery (literally,
within a few days).
In spot markets, spot trades are made
with spot prices.

4. • Spot market is also referred to as the
“physical market” or the “cash market
• The purchases are settled in cash at the
current prices fixed by the market as
opposed to the price at the time of
distribution

5. • Spot Trade is the purchase of financial
instruments done on the spot or
immediately.
• These trades are settled instantly and
do not follow a set date in the future.

6. • Spot Price is current price of a
financial instrument.
• The price which a particular instrument
can be sold or bought during a
particular time and specified place.

7. Spot markets
• An example of a spot market commodity that is
often sold is crude oil. It is sold at the existing
prices, and physically supplied later.
• A commodity is basic goods, which is
substitutable with other similar commodities
such as grains, gold, oil, electricity and natural
gas.
• The foreign exchange (FOREX) market is one
of the largest spot markets in the world.

8.  Types of Spot Markets:
1. Organized Markets or Exchanges
2. Over the counter (OTC)

9. Organized Markets or Exchanges
• It is where the security or commodity is traded
on an exchange using and changing the current
market price
• Exchanges are highly organized markets that bri
ng together dealers and brokers who buy and s
ell commodities, securities, currencies, futures, o
ptions and other financial instruments

10. Over-the-counter markets
• provide trades that happen directly between a
buyer and a seller.
• In OTC, the trades are based on contracts
which are done openly between two parties,
and not subject to the guidelines of an
exchange. The contract terms are approved
between the parties and might be non-standard
.

11. Futures Markets are markets in
which participants agree today to buy
or sell an asset at some future date.

12. Futures Market is a central financial
exchange where people can trade standard
ized futures contracts that is, a contract to
buy specific quantities of a commodity
or financial instrument at a specified price
with delivery set at a specified time in the
future.

13. Futures contract is a financial contract giving the
buyer an obligation to purchase an asset (and the
seller an obligation to sell an asset) at a set price
at a future point in time.
• Futures contracts are made in attempt by
producers and suppliers of commodities to avoid
market volatility. These producers and suppliers
negotiate contracts with an investor who agrees
to take on both the risk and reward of a
volatile market.

14. For example:
a farmer may enter into a futures contract in
which he agrees today to sell 5,000 bushels of
soybeans six months from now at a price of $5 a
bushel. On the other side, an international food
producer looking to buy soybeans in the future
may enter into a futures contract in which it
agrees to buy soybeans six months from now.

15. Two kinds of participants in futures
markets:
1. Hedgers
2. Speculators.

16. Hedgers do not usually seek a profit by trading
commodities futures but rather seek to stabilize
the revenues or costs of their business
operations.
Speculators are usually not interested in taking
possession of the underlying assets. They
essentially place bets on the future prices of
certain commodities.

17. Foreign exchange market is the market
in which participants are able to buy, sell,
exchange and speculate on currencies.

18. Foreign exchange market – also called forex,
FX, or currency market – trades currencies.
Aside from buying, selling, exchanging and
speculation of currencies, the forex
market also enables currency conversion for
international trade and investments.

19. Foreign Exchange Market- is not a financial
market for borrowing and lending but for
buying and selling.
Forex are:
• Foreign notes and coins
• Foreign deposits and investments

20. • Foreign notes and coins are bought for the
purpose of spending in foreign country
• Foreign deposit is a deposit made at, or
money put in to, domestic banks outside of
the country.

21. The interbank market is the financial system of
trading currencies among banks and financial
institutions, excluding retail investors and
smaller trading parties.
Interbank Market is where the biggest banks
exchange currencies with each other.
-a network of banks that trade currencies with
each other.

22. • Participants in Foreign Exchange Markets
1. Wholesale Level -major banks
2. Retail Level- business customers

23. Two Types of Transactions in Foreign Exchange
Markets
1. Spot Market:- immediate transaction
- recorded by 2nd business day
2. Forward Market:- transactions take place at a
specified future date

24. Interbank lending market is a market in which
banks extend loans to one another for a specifi
ed term.
Most interbank loans are for maturities of one
week or less, the majority being overnight. Such
loans are made at the interbank rate (also calle
d the overnight rate if the term of the loan is
overnight).

25. • Banks are required to hold an adequate amount
of liquid assets, such as cash, to manage any
potential bank runs by clients.
• If a bank cannot meet these liquidity requirement
s, it will need to borrow money in the interbank
market to cover the shortfall.
• Some banks, on the other hand, have excess
liquid assets above and beyond the liquidity
requirements. These banks will lend money in the
interbank market, receiving interest on the assets.

26. The interbank rate is the rate of interest
charged on short-term loans made between
banks.
• Banks borrow and lend money between each
other in the interbank market in order to
manage liquidity and meet the reserve
requirements placed on them by regulators;
• the rate depends on maturity, market
conditions and credit ratings

27. Interbank rates, includes the
• federal funds rate (USA),
• LIBOR (UK)
• Euribor (Eurozone).

28. Role of interbank lending in the financial system
• To support the fractional reserve banking
model
• A source of funds for banks
• Funding liquidity risk

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