Financial markets and institutions perform several key functions: 1) They channel funds from economic units with surplus funds to units with deficits through borrowing and lending. 2) They determine the prices of financial assets through trading in primary and secondary markets. 3) They facilitate the exchange of funds by providing information to market participants and helping manage risks.

1. Financial markets andFinancial markets and
institutionsinstitutions
Lecturer: Aras A. MihoLecturer: Aras A. Miho
Email:Email: arassport@yahoo.comarassport@yahoo.com
Academic Year:Academic Year:
2017-20182017-2018Duhok
Polytechnic
University
Duhok Polytechnic University
Duhok Administrative Collage
ITM Department

2. CONTENTS
• FINANCIAL MARKETS
• FINANCIAL INSTITUTIONS
• FINANCIAL REGULATIONS

3. Flows of funds through Financial System

4. What is Financial system?
• Financial system (FS) – a framework for describing
set of markets, organizations, and individuals that
engage in the transaction of financial instruments
(securities), as well as regulatory institutions.
• the basic role of FS is essentially channeling of funds
within the different units of the economy from surplus
units to deficit units for productive purposes.

5. What is Financial Markets?
• Financial markets perform the essential function of
channeling funds from economic players that have
saved surplus funds to those that have a shortage of
funds.
• Exchange between these two groups of agents is settled
in financial markets.
• The first group is commonly referred to as lenders, the
second group is commonly referred to as the borrowers
of funds.

6. We will start our discussion on financial
markets with some basic definitions:
There exist two different forms of exchange in financial
markets.
•The first one is direct finance, in which lenders and
borrowers meet directly to exchange securities.
•Securities are claims on the borrower’s future income or
assets. Common examples are stock, bonds or foreign
exchange
•The second type of financial trade occurs with the help of
financial intermediaries and is known as indirect finance. In
this scenario borrowers and lenders never meet directly, but
lenders provide funds to a financial intermediary such as a
bank and those intermediaries independently pass these funds
on to borrowers.

7. Structure of Financial Markets
Financial markets can be categorized as follows:
 Debt vs Equity markets.
 Primary vs Secondary markets.
 Exchange vs Over the Counter (OTC).
 Money vs Capital Markets.

8. Debt vs Equity
The debt market is the market where debt instruments are
traded. Debt instruments are assets that require a fixed payment
to the holder, usually with interest. Examples of debt
instruments include bonds (government or corporate) and
mortgages.
•The holder of a debt title does not achieve ownership of the
borrower’s enterprise.
•Common debt titles are bonds or mortgages.
Equity market are somewhat different from bonds. The most
common equity title is (common) stock.
•Equity titles do not expire and their maturity is, thus, infinite.
Hence they are considered long term securities.

9. • Equity titles are somewhat different from bonds. The
most common equity title is (common) stock.
• Equity titles do not expire and their maturity is, thus,
infinite. Hence they are considered long term
securities.

10. Primary Markets Vs Secondary Markets
Primary markets are markets in which financial
instruments are newly issued by borrowers.
Secondary markets are markets in which financial
instruments already in existence are traded among
lenders.
Secondary markets can be organized as exchanges,
in which titles are traded in a central location, such
as a stock exchange, or alternatively as over-the-
counter markets in which titles are sold in several
locations.

11. Money Markets Vs Capital Markets
Finally, we make a distinction between money and
capital markets.
•Money markets are markets in which only short term
debt titles are traded.
•Capital markets are markets in which longer term
debt and equity instruments are traded.

12. Instruments Traded
In The Financial Markets
Most commonly you will encounter:
•Corporate stocks.
•Corporate bonds.
•The short-run equivalent to corporate bonds are commercial
papers which are issued to satisfy short-run cash needs of private
enterprises.
•On the government side, the most commonly used long-run debt
instruments are Treasury Bonds or T-Bonds. Their maturity
exceeds ten years.
•Short-run liquidity needs are satisfied by the issuance of Treasury
Bills or T-Bills, which are short-run debt titles with a maturity of
less than one year.

13. Functions of Financial markets
1. Borrowing and Lending:
Financial markets channel funds from households, firms,
governments and foreigners that have saved surplus funds to
those who encounter a shortage of funds (for purposes of
consumption and investment).
2. Price Determination:
Financial markets determine the prices of financial assets. The
secondary market herein plays an important role in determining
the prices for newly issued assets.
3. Coordination and Provision of Information:
The exchange of funds is characterized by a high amount of
incomplete and asymmetric information. Financial markets
collect and provide much information to facilitate this exchange.

14. 4. Risk Sharing:
Trade in financial markets is partly motivated by the transfer of
risk from borrowers to lenders who use the obtained funds to
invest.
5. Liquidity:
The existence of financial markets enables the owners of assets to
buy and resell these assets. Generally this leads to an increase in
the liquidity of these financial instruments.
6. Efficiency:
The facilitation of financial transactions through financial markets
lead to a decrease in informational cost and transaction costs,
which from an economic point of view leads to an increase in
efficiency.