The document provides an overview of financial systems and financial markets. It discusses key concepts such as what constitutes a financial system and its components. It describes the structural and functional approaches to understanding financial systems. It also defines financial markets and distinguishes between primary and secondary markets. It explains capital markets and money markets, and the various instruments that trade on each. Finally, it discusses the role of financial regulators in maintaining integrity and stability in the financial system.
The document provides an overview of the foreign exchange (forex) market. It discusses that forex involves simultaneously buying one currency while selling another. Currencies trade in pairs like EUR/USD. While historically dominated by banks, more individual traders now participate due to advances in internet technology and leveraging options. The forex market operates globally 24/7 and sees over $1.5 trillion traded daily, making it the largest financial market in the world.
Depositary receipts (DRs) like American depositary receipts (ADRs) and global depositary receipts (GDRs) allow foreign companies to list shares on an exchange outside their home country. ADRs trade on US exchanges and represent ownership of shares in a foreign company, while GDRs trade internationally. DRs offer benefits to both companies raising capital abroad and international investors, including exposure to foreign markets in familiar terms. Companies issuing DRs must comply with regulations of the foreign market and designate depositary banks and custodians to facilitate the issuance and trading of the receipts.
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.
A depository receipt (DR) represents shares of a foreign company that are held in trust by a local custodian bank and traded on a local stock exchange. There are several types of DRs including American Depository Receipts (ADRs), Global Depository Receipts (GDRs), and Indian Depository Receipts (IDRs). DRs allow foreign companies to raise capital and list their shares indirectly on foreign exchanges to avoid stringent listing requirements.
The document discusses various international financial markets. It begins by providing context that the US financial market historically dominated but its relative importance has declined with the rise of other countries from the 1970s onward. It then describes the international money market, with the eurocurrency market at its core. Eurocurrencies are deposits of money in international banks outside the currency's home country. London has traditionally been a major eurocurrency center. The document also discusses eurocurrency loans, international bond markets including eurobonds and foreign bonds, and international equity markets where companies can issue shares. It provides details on instruments like GDRs, ADRs, and lists some major Indian companies that have issued such instruments. Finally, it outlines other sources of foreign currency
The document provides an overview of the foreign exchange market and the Reserve Bank of India's (RBI) role in managing it. It discusses the basic concepts and participants in the FX market. It describes the historical evolution from a fixed exchange rate regime to a more liberalized and market-based system. It also outlines the RBI's tools for intervening in the interbank market to influence exchange rates and maintain stability, including through moral suasion, relaxing exposure limits, and direct buying and selling of currencies.
The document discusses the spot and forward foreign exchange markets. The spot market involves transactions that are settled within two business days at the spot exchange rate. The forward market involves contracts agreed upon today but settled at a predetermined future date at a fixed exchange rate. There are various types of participants and transactions in each market, including spot deals between currencies, outright forwards that lock in rates for future delivery, and swaps that involve simultaneous spot and forward currency trades.
This document defines derivatives and describes their key features and types. It explains that a derivative is a financial instrument whose value is based on an underlying asset. The main types of derivatives discussed are forwards, futures, swaps, and options. It provides examples of each type and outlines their key characteristics. It also discusses derivative markets in Pakistan and how derivatives can help reduce risk but also enable speculation.
The document provides an overview of the foreign exchange (forex) market. It discusses that forex involves simultaneously buying one currency while selling another. Currencies trade in pairs like EUR/USD. While historically dominated by banks, more individual traders now participate due to advances in internet technology and leveraging options. The forex market operates globally 24/7 and sees over $1.5 trillion traded daily, making it the largest financial market in the world.
Depositary receipts (DRs) like American depositary receipts (ADRs) and global depositary receipts (GDRs) allow foreign companies to list shares on an exchange outside their home country. ADRs trade on US exchanges and represent ownership of shares in a foreign company, while GDRs trade internationally. DRs offer benefits to both companies raising capital abroad and international investors, including exposure to foreign markets in familiar terms. Companies issuing DRs must comply with regulations of the foreign market and designate depositary banks and custodians to facilitate the issuance and trading of the receipts.
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.
A depository receipt (DR) represents shares of a foreign company that are held in trust by a local custodian bank and traded on a local stock exchange. There are several types of DRs including American Depository Receipts (ADRs), Global Depository Receipts (GDRs), and Indian Depository Receipts (IDRs). DRs allow foreign companies to raise capital and list their shares indirectly on foreign exchanges to avoid stringent listing requirements.
The document discusses various international financial markets. It begins by providing context that the US financial market historically dominated but its relative importance has declined with the rise of other countries from the 1970s onward. It then describes the international money market, with the eurocurrency market at its core. Eurocurrencies are deposits of money in international banks outside the currency's home country. London has traditionally been a major eurocurrency center. The document also discusses eurocurrency loans, international bond markets including eurobonds and foreign bonds, and international equity markets where companies can issue shares. It provides details on instruments like GDRs, ADRs, and lists some major Indian companies that have issued such instruments. Finally, it outlines other sources of foreign currency
The document provides an overview of the foreign exchange market and the Reserve Bank of India's (RBI) role in managing it. It discusses the basic concepts and participants in the FX market. It describes the historical evolution from a fixed exchange rate regime to a more liberalized and market-based system. It also outlines the RBI's tools for intervening in the interbank market to influence exchange rates and maintain stability, including through moral suasion, relaxing exposure limits, and direct buying and selling of currencies.
The document discusses the spot and forward foreign exchange markets. The spot market involves transactions that are settled within two business days at the spot exchange rate. The forward market involves contracts agreed upon today but settled at a predetermined future date at a fixed exchange rate. There are various types of participants and transactions in each market, including spot deals between currencies, outright forwards that lock in rates for future delivery, and swaps that involve simultaneous spot and forward currency trades.
This document defines derivatives and describes their key features and types. It explains that a derivative is a financial instrument whose value is based on an underlying asset. The main types of derivatives discussed are forwards, futures, swaps, and options. It provides examples of each type and outlines their key characteristics. It also discusses derivative markets in Pakistan and how derivatives can help reduce risk but also enable speculation.
This document provides an overview of international financial markets, including:
- The foreign exchange, Eurocurrency, Eurocredit, Eurobond, and international stock markets. It describes the background and corporate use of each.
- The motives for companies and investors to use international financial markets, such as taking advantage of interest rate differences or currency fluctuations between countries.
- Key concepts related to each market, including how foreign exchange rates are established, the roles of major banks, types of bonds and loans offered, and considerations for companies issuing stock internationally.
- A chart illustrating the typical foreign cash flows of a multinational corporation and how the various international financial markets facilitate trade, investment, and financing activities.
A Eurobond is a bond issued and traded outside the country whose currency it is denominated in, and outside the regulations of a single country. Eurobonds are usually issued by non-European entities for sale in Europe. They have standardized rules regarding trading, payments, listing, and taxation. Eurobonds provide advantages like considerable market capacity, diversifying borrowing sources, and access to broad investor bases for issuers. Pakistan has issued several Eurobonds since 2004 to raise capital from international markets.
Money market instruments are traded in a market where short-term borrowing and lending occurs between financial institutions and dealers. Common money market securities include Treasury bills, commercial paper, negotiable certificates of deposit, repurchase agreements, and federal funds. Treasury bills are government-backed securities issued in maturities of up to one year through weekly auctions. They provide a safe investment for liquidity purposes.
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.
The document discusses international money markets and instruments. It describes that the international monetary system involves managing balance of payments, financing payments imbalances, and providing international money reserves. It then defines various money market instruments like Treasury bills, commercial paper, banker's acceptances, certificates of deposits, and repurchase agreements. It provides details on their issuers, investors, trading processes, and methods of calculating yields.
The document provides an overview of money markets, including characteristics, participants, purposes, risks, and securities. Money markets are used by participants to borrow and lend in the short term, from days to under a year. They facilitate the transfer of short-term funds between entities with excess and deficient funds. Key money market securities include treasury bills, commercial paper, certificates of deposit, and repurchase agreements.
Commercial paper (CP) is an unsecured, short-term debt instrument issued by corporations to meet short-term liabilities. CP was introduced in India in 1990 to provide highly rated corporations an alternative to bank borrowing. Only reputable corporations with good credit ratings can issue CPs to borrow at lower interest rates than banks and save on financing costs. CPs can be issued for periods between 15 days to one year, making them suitable for meeting working capital or current asset needs.
American Depositary Receipts (ADRs) were introduced in 1927 as a way for US investors to easily invest in foreign companies without having to deal with cross-border transactions. An ADR represents ownership of shares in a non-US company that are held in custody by a US bank. The bank bundles the foreign company's shares and reissues them as ADRs that trade on US stock exchanges. ADRs make foreign stocks liquid and allow investors to trade them similarly to US stocks. They provide exposure to foreign markets in a familiar way for US investors.
The document discusses how multinational corporations determine their cost of capital and establish optimal capital structures. It explains that an MNC's cost of capital may differ from domestic firms due to their size, access to international markets, diversification across countries, and exposure to exchange rate and country risks. The cost of capital also varies by country based on interest rates, risk premiums, and tax laws. An MNC considers these corporate and country characteristics when deciding how much debt and equity to use in different subsidiaries to minimize its overall cost of capital.
The call money market deals in short-term loans between banks with maturities ranging from 1 day to 2 weeks. It provides banks a source of highly liquid funds to meet temporary shortfalls or surplus. Key participants include commercial banks. Call rates fluctuate daily and even hourly based on demand and supply in the market. Rates also vary across cities due to differences in liquidity. Volatility is driven by factors like banks borrowing to meet reserve requirements, occasional disruptions, and interventions in foreign exchange markets that impact liquidity.
The document discusses the differences between stock markets and share markets, which essentially mean the same thing. It describes stocks as units of ownership in a company that can be traded, while shares are certificates of ownership issued by companies to raise funds. The stock market is an organized market for trading stocks and shares of government bodies and corporations. It also defines primary and secondary markets, as well as different types of stocks and indexes used in Indian stock markets like the BSE and NSE.
This chapter discusses the major international financial markets known as the Euromarkets. It covers the Eurocurrency markets, Eurobonds, Note Issuance Facilities, and Euro-commercial paper. The Eurocurrency market is composed of eurobanks that accept deposits in foreign currencies, dominated by US dollars. Eurobonds are bonds sold outside the country of the currency's denomination, often US dollars, and have grown substantially due to interest rate swaps. Note Issuance Facilities allow borrowers to issue their own notes placed by banks as a low-cost substitute for loans. Euro-commercial paper are unsecured short-term debt securities denominated in US dollars and issued by corporations and governments.
The document provides an overview of the foreign exchange market, including:
- The foreign exchange market allows buyers and sellers to exchange currencies from different countries through an over-the-counter network. Major currencies like the US dollar are highly liquid and traded globally.
- Key participants include central banks, commercial banks, companies, traders, and brokers. The market operates 24/7 through electronic networks and transactions include spots, futures, forwards, options and swaps.
- Factors like inflation, interest rates, monetary policies, and economic performance impact exchange rates. The market facilitates international trade and investment while also providing hedging against currency risk. However, leverage and counterparty risks are disadvantages.
The system of organized lending can never run out of risks. Be market, liquidity, credit, interest or operational, risk is inevitable for banks and other financial firms.
Hence, a primary importance is given to risk profiling in all financial institutions.
One of the omnipresent risks that have taken a toll on banks regularly is credit risk. In simplest terms, this risk can be defined as non repayment of a loan as per agreed conditions, to the lender, thus ruining the lender’s investment.
The non repayment can be intentional (willful default), due to failure of an industry (systemic risk), failure of cross currency settlement (settlement risk) etc.
In this article, we are going to explore credit risk. We will discuss its basic meaning, types, causes, effects and how banks all over the world have made attempts to monitor, mitigate, transfer and at times, accept the risk.
An interest rate swap is an agreement between two parties to exchange interest rate cash flows, usually involving the exchange of a fixed interest rate for a floating rate. The main types of interest rate swaps are fixed-to-floating swaps, where one party pays a fixed rate and receives a floating rate, and basis swaps, where both rates are floating. Interest rate swaps are commonly used for portfolio management, speculation on interest rate movements, corporate financing, and hedging interest rate risk. Risks of interest rate swaps include opportunity costs, mark-to-market costs if unwound early, and counterparty credit and settlement risks.
The document discusses various types of orders that can be placed for trading stocks, including:
1) Market orders that are executed immediately at the current market price;
2) Price-contingent orders like limit orders that are executed only if a stock reaches a specified price, and stop orders that are executed if a stock falls below or rises above a price limit.
It provides examples of limit buy and sell orders, as well as stop-loss and stop-buy orders, and explains how these conditional orders work. A matrix is also included that organizes the different types of trades based on the price condition and trading action.
The OTCEI (Over-The-Counter Exchange of India) provides an alternative market for trading securities of small and medium sized companies. It assists these companies in raising capital in a cost-effective manner and provides investors with a convenient and transparent platform. Companies list on the OTCEI because they are unable to meet requirements of main exchanges. Trading occurs through broker-dealers negotiating via computer networks and phones. The OTCEI aims to create a decentralized market and allows trading from any location in the country.
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.
This document discusses various international financial instruments, including:
1. Equity instruments such as American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) which allow foreign companies to issue shares in domestic markets.
2. Debt instruments including foreign bonds issued domestically, external bonds denominated in foreign currency, Euro bonds issued internationally, and European bonds issued collectively by Euro nations.
3. Key details are provided on ADRs, GDRs, foreign bonds such as Yankee bonds, and Euro bonds which were first issued in 1963 to fund Italy's motorway network.
A financial system is a system that allows the exchange of funds between lenders, investors, and borrowers. Financial systems operate at national, global, and firm-specific levels.They consist of complex, closely related services, markets, and institutions intended to provide an efficient and regular linkage between investors and depositors.
- SEBI introduced trends like online trading, rolling settlement, and dematerialization of shares to reduce uncertainty in the Indian capital market and boost investor confidence.
- The document discusses the structure of the Indian financial system and key components of the capital market like the primary market, secondary market, stock exchanges, and the roles of SEBI and major Indian stock exchanges like NSE and BSE.
- It provides definitions and overview of the functions and regulatory frameworks of stock exchanges, primary and secondary markets, and highlights some of the major stock exchanges in India.
This document provides an overview of international financial markets, including:
- The foreign exchange, Eurocurrency, Eurocredit, Eurobond, and international stock markets. It describes the background and corporate use of each.
- The motives for companies and investors to use international financial markets, such as taking advantage of interest rate differences or currency fluctuations between countries.
- Key concepts related to each market, including how foreign exchange rates are established, the roles of major banks, types of bonds and loans offered, and considerations for companies issuing stock internationally.
- A chart illustrating the typical foreign cash flows of a multinational corporation and how the various international financial markets facilitate trade, investment, and financing activities.
A Eurobond is a bond issued and traded outside the country whose currency it is denominated in, and outside the regulations of a single country. Eurobonds are usually issued by non-European entities for sale in Europe. They have standardized rules regarding trading, payments, listing, and taxation. Eurobonds provide advantages like considerable market capacity, diversifying borrowing sources, and access to broad investor bases for issuers. Pakistan has issued several Eurobonds since 2004 to raise capital from international markets.
Money market instruments are traded in a market where short-term borrowing and lending occurs between financial institutions and dealers. Common money market securities include Treasury bills, commercial paper, negotiable certificates of deposit, repurchase agreements, and federal funds. Treasury bills are government-backed securities issued in maturities of up to one year through weekly auctions. They provide a safe investment for liquidity purposes.
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.
The document discusses international money markets and instruments. It describes that the international monetary system involves managing balance of payments, financing payments imbalances, and providing international money reserves. It then defines various money market instruments like Treasury bills, commercial paper, banker's acceptances, certificates of deposits, and repurchase agreements. It provides details on their issuers, investors, trading processes, and methods of calculating yields.
The document provides an overview of money markets, including characteristics, participants, purposes, risks, and securities. Money markets are used by participants to borrow and lend in the short term, from days to under a year. They facilitate the transfer of short-term funds between entities with excess and deficient funds. Key money market securities include treasury bills, commercial paper, certificates of deposit, and repurchase agreements.
Commercial paper (CP) is an unsecured, short-term debt instrument issued by corporations to meet short-term liabilities. CP was introduced in India in 1990 to provide highly rated corporations an alternative to bank borrowing. Only reputable corporations with good credit ratings can issue CPs to borrow at lower interest rates than banks and save on financing costs. CPs can be issued for periods between 15 days to one year, making them suitable for meeting working capital or current asset needs.
American Depositary Receipts (ADRs) were introduced in 1927 as a way for US investors to easily invest in foreign companies without having to deal with cross-border transactions. An ADR represents ownership of shares in a non-US company that are held in custody by a US bank. The bank bundles the foreign company's shares and reissues them as ADRs that trade on US stock exchanges. ADRs make foreign stocks liquid and allow investors to trade them similarly to US stocks. They provide exposure to foreign markets in a familiar way for US investors.
The document discusses how multinational corporations determine their cost of capital and establish optimal capital structures. It explains that an MNC's cost of capital may differ from domestic firms due to their size, access to international markets, diversification across countries, and exposure to exchange rate and country risks. The cost of capital also varies by country based on interest rates, risk premiums, and tax laws. An MNC considers these corporate and country characteristics when deciding how much debt and equity to use in different subsidiaries to minimize its overall cost of capital.
The call money market deals in short-term loans between banks with maturities ranging from 1 day to 2 weeks. It provides banks a source of highly liquid funds to meet temporary shortfalls or surplus. Key participants include commercial banks. Call rates fluctuate daily and even hourly based on demand and supply in the market. Rates also vary across cities due to differences in liquidity. Volatility is driven by factors like banks borrowing to meet reserve requirements, occasional disruptions, and interventions in foreign exchange markets that impact liquidity.
The document discusses the differences between stock markets and share markets, which essentially mean the same thing. It describes stocks as units of ownership in a company that can be traded, while shares are certificates of ownership issued by companies to raise funds. The stock market is an organized market for trading stocks and shares of government bodies and corporations. It also defines primary and secondary markets, as well as different types of stocks and indexes used in Indian stock markets like the BSE and NSE.
This chapter discusses the major international financial markets known as the Euromarkets. It covers the Eurocurrency markets, Eurobonds, Note Issuance Facilities, and Euro-commercial paper. The Eurocurrency market is composed of eurobanks that accept deposits in foreign currencies, dominated by US dollars. Eurobonds are bonds sold outside the country of the currency's denomination, often US dollars, and have grown substantially due to interest rate swaps. Note Issuance Facilities allow borrowers to issue their own notes placed by banks as a low-cost substitute for loans. Euro-commercial paper are unsecured short-term debt securities denominated in US dollars and issued by corporations and governments.
The document provides an overview of the foreign exchange market, including:
- The foreign exchange market allows buyers and sellers to exchange currencies from different countries through an over-the-counter network. Major currencies like the US dollar are highly liquid and traded globally.
- Key participants include central banks, commercial banks, companies, traders, and brokers. The market operates 24/7 through electronic networks and transactions include spots, futures, forwards, options and swaps.
- Factors like inflation, interest rates, monetary policies, and economic performance impact exchange rates. The market facilitates international trade and investment while also providing hedging against currency risk. However, leverage and counterparty risks are disadvantages.
The system of organized lending can never run out of risks. Be market, liquidity, credit, interest or operational, risk is inevitable for banks and other financial firms.
Hence, a primary importance is given to risk profiling in all financial institutions.
One of the omnipresent risks that have taken a toll on banks regularly is credit risk. In simplest terms, this risk can be defined as non repayment of a loan as per agreed conditions, to the lender, thus ruining the lender’s investment.
The non repayment can be intentional (willful default), due to failure of an industry (systemic risk), failure of cross currency settlement (settlement risk) etc.
In this article, we are going to explore credit risk. We will discuss its basic meaning, types, causes, effects and how banks all over the world have made attempts to monitor, mitigate, transfer and at times, accept the risk.
An interest rate swap is an agreement between two parties to exchange interest rate cash flows, usually involving the exchange of a fixed interest rate for a floating rate. The main types of interest rate swaps are fixed-to-floating swaps, where one party pays a fixed rate and receives a floating rate, and basis swaps, where both rates are floating. Interest rate swaps are commonly used for portfolio management, speculation on interest rate movements, corporate financing, and hedging interest rate risk. Risks of interest rate swaps include opportunity costs, mark-to-market costs if unwound early, and counterparty credit and settlement risks.
The document discusses various types of orders that can be placed for trading stocks, including:
1) Market orders that are executed immediately at the current market price;
2) Price-contingent orders like limit orders that are executed only if a stock reaches a specified price, and stop orders that are executed if a stock falls below or rises above a price limit.
It provides examples of limit buy and sell orders, as well as stop-loss and stop-buy orders, and explains how these conditional orders work. A matrix is also included that organizes the different types of trades based on the price condition and trading action.
The OTCEI (Over-The-Counter Exchange of India) provides an alternative market for trading securities of small and medium sized companies. It assists these companies in raising capital in a cost-effective manner and provides investors with a convenient and transparent platform. Companies list on the OTCEI because they are unable to meet requirements of main exchanges. Trading occurs through broker-dealers negotiating via computer networks and phones. The OTCEI aims to create a decentralized market and allows trading from any location in the country.
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.
This document discusses various international financial instruments, including:
1. Equity instruments such as American Depository Receipts (ADRs) and Global Depository Receipts (GDRs) which allow foreign companies to issue shares in domestic markets.
2. Debt instruments including foreign bonds issued domestically, external bonds denominated in foreign currency, Euro bonds issued internationally, and European bonds issued collectively by Euro nations.
3. Key details are provided on ADRs, GDRs, foreign bonds such as Yankee bonds, and Euro bonds which were first issued in 1963 to fund Italy's motorway network.
A financial system is a system that allows the exchange of funds between lenders, investors, and borrowers. Financial systems operate at national, global, and firm-specific levels.They consist of complex, closely related services, markets, and institutions intended to provide an efficient and regular linkage between investors and depositors.
- SEBI introduced trends like online trading, rolling settlement, and dematerialization of shares to reduce uncertainty in the Indian capital market and boost investor confidence.
- The document discusses the structure of the Indian financial system and key components of the capital market like the primary market, secondary market, stock exchanges, and the roles of SEBI and major Indian stock exchanges like NSE and BSE.
- It provides definitions and overview of the functions and regulatory frameworks of stock exchanges, primary and secondary markets, and highlights some of the major stock exchanges in India.
The document discusses various topics related to financial markets in India including what a financial market is, the key components of India's financial market structure such as money markets, capital markets, stock exchanges, and the trading of different financial instruments like stocks, debentures, and preference shares. It provides details on the primary and secondary markets, types of equity and preference shares, features and types of debentures, and the key functions of stock exchanges.
Financial markets and institutions notes as per BPUT syllabus for MBA 4th Venkat Kothakota
The document provides an overview of financial markets and their components. It can be summarized as follows:
1. Financial markets facilitate the buying and selling of financial assets and instruments. They consist of agents, brokers, institutions and intermediaries that transact purchases and sales.
2. Financial markets are classified as money markets, which deal in short-term assets up to 1 year, and capital markets, which deal in long-term assets over 1 year. Money markets include markets for treasury bills, commercial paper, certificates of deposit and call loans.
3. Capital markets include stock markets, government securities markets, and bond markets. Stock markets have primary markets for new stock issues and secondary markets for existing stocks.
The document provides an overview of the capital market in India. It defines the capital market as the market for medium to long term financial instruments, including shares and bonds. The capital market has three main elements - financial assets/instruments, financial intermediaries, and financial markets. It then discusses the stock market and bond market in India, as well as the size and growth of the Indian economy and capital markets. Finally, it provides reasons for investing in the Indian capital markets, such as their regulation and integration with international standards.
The document provides an overview of the financial system in India. It discusses the key components and structure of the financial system including financial markets, institutions, and their various roles. The capital market facilitates long-term funding and is divided into the primary market for new share issuances and the secondary market for existing shares. Money markets provide short-term funding. Regulatory bodies oversee the financial system and intermediaries such as banks, insurance companies, and mutual funds channel funds between savers and borrowers. Cooperative banks specifically serve agriculture and rural sectors.
Indian financial system consists of financial institutions and financial markets. Financial institutions are intermediaries that collect money from individuals and invest it in financial assets. There are two types of financial institutions: banking institutions like banks that collect deposits and make loans, and non-banking institutions like brokerages that sell financial products but do not take deposits. Financial markets are where buyers and sellers trade financial assets. The capital market deals in long-term securities and the money market deals in short-term debt instruments. Financial assets include cash, loans, and other instruments that provide a claim to receive payment. Financial services involve providing financial products and advisory services to individuals and businesses in areas like banking, investments, and insurance.
This document provides an overview of the capital market sector in India. It discusses the role and functions of the primary and secondary capital markets. The primary market involves the initial sale of securities to raise capital, while the secondary market allows subsequent trading of existing securities. Various participants in the capital market are described, including issuers, investors, regulators like SEBI, and intermediaries such as stock brokers, investment bankers, and depository participants. Common stock market indices used in India like the BSE Sensex and NSE Nifty are also outlined.
The document discusses capital markets, which allow companies and governments to raise long-term funds by selling securities. It describes the primary market, where new securities are first sold, and the secondary market, where existing securities are traded. In the primary market, merchant bankers provide investigative, advisory, and underwriting services to facilitate the origination, distribution, and sale of new issues. The secondary market provides liquidity and allows investors to resell securities on a stock exchange. Well-functioning capital markets are important for economic growth by allocating funds efficiently.
Presentation on Brief introduction to Indian financial markets (Indian Financial System). This presentation broad classification of the financial system into financial institutions, financial markets, financial instruments and financial services.
The document summarizes key elements of financial markets and systems, including:
1) Financial markets bring together suppliers and demanders of funds and facilitate the exchange of various financial instruments. They include money markets for short-term funds and capital markets for long-term funds.
2) Money markets trade instruments like treasury bills, commercial paper, repurchase agreements and certificates of deposit. Capital markets trade stocks and long-term bonds.
3) Financial intermediaries like banks act as a link between savers and borrowers, converting direct claims into indirect securities. Financial markets allow for direct transactions.
This document summarizes a seminar presentation on the Indian financial system. It discusses the structure of the Indian financial system, including formal and informal sectors. It also describes key components of the formal financial system such as financial institutions, markets, and instruments. Specifically, it outlines different types of financial institutions like regulatory bodies, banks, and non-banking institutions. It also explains different financial markets in terms of money markets, capital markets, primary and secondary markets.
The document provides information about capital markets, including definitions, key terms, and reforms. It can be summarized as follows:
1) A capital market is a financial market where buyers and sellers trade long-term debt instruments (bonds) and equity-backed securities (stocks). It links those who have capital (surplus units) with those who need capital (deficit units).
2) Key segments of the Indian capital market include the government securities market, industrial securities market, development financial institutions, and financial intermediaries. SEBI regulates the capital market and its various functions include mobilizing savings, facilitating investment, and enabling capital formation.
3) Reforms to the Indian capital market established SEBI as the
WEEK 2 LECTURE_ Introduction to Financial Management CONT.pptxLyrisSimbulan2
This document provides an introduction to key concepts in financial management. It defines a financial system as the flow of cash and financial instruments between parties. It then explains various components of the financial system including private placements, financial markets, institutions, and instruments. It distinguishes between debt instruments like bonds and equity instruments like stock. It also defines primary and secondary financial markets as well as money and capital markets. Finally, it lists some common financial institutions.
This document discusses primary and secondary markets. The primary market involves the initial sale of securities to raise capital, such as through initial public offerings. It occurs before the secondary market and has no single location. The secondary market allows existing securities to be traded, creating liquidity. It occurs through stock exchanges and enables prices to be established and investors to buy and sell securities they already hold. Both markets play important roles in capital formation and resource allocation.
The financial system of India allows for the exchange of funds between lenders, investors, and borrowers. It helps promote economic development by connecting savings with investment. Financial institutions such as banks serve as intermediaries between savers and borrowers. The financial system includes financial markets that facilitate trading of instruments, as well as a variety of financial services that manage money and provide credit. Overall, India's financial system plays a crucial role in accelerating savings, funding business expansion, and supporting economic growth.
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 securities markets and the types of securities traded within those markets. It defines what a security is and outlines the main types: equity securities (stocks), debt securities (bonds), and derivatives. It then discusses primary and secondary markets, how new securities are issued in the primary market and previously issued securities are traded in the secondary market. The roles of security markets are also summarized as providing liquidity, facilitating capital formation and business ownership, and price discovery. Reforms to India's security markets are highlighted such as the establishment of regulatory bodies and growth of electronic trading.
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3. WHAT IS A FINANCIAL
SYSTEM?
The financial system plays the key
role in the economy by
• stimulating economic growth,
• influencing economic performance of the
actors, &
• affecting economic welfare.
This is achieved by financial
infrastructure, in which entities with
funds allocate those funds to those who
have potentially more productive ways
to invest those funds.
A financial system makes it possible a
more efficient transfer of funds.
FINANCIAL
SYSTEM
It is the system that allows the transfer of money
between savers (and investors) and borrowers. A
financial system can operate on a global, regional or
firm specific level.
Savers
Borrower
s
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
4. STRUCTURAL
APPROACH TO
FINANCIAL SYSTEMS
According to the structural approach, the financial
system of an economy consists of three main
components:
Each of the components plays a specific role in the
economy.
Financial
Markets
Financial
Intermediaries
Financial
Regulators
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
5. FUNCTIONAL APPROACH
TO FINANCIAL SYSTEMS
According to the functional approach, financial markets facilitate
the flow of funds in order to finance investments by corporations,
governments and individuals.
Firms
Stock Market
Bond Market
Short term fixed securities market
Banking Sector
Government
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
6. CONCEPT OF AN ‘ASSET’
IN FINANCIAL SYSTEMS
Financial assets, often called financial instruments, are intangible
assets, which are expected to provide future benefits in the form of a claim
to future cash.
Any transaction related to financial instrument includes at least two
parties:
ASSET
An asset is any resource that is expected to provide
future benefits, and thus possesses economic value.
Assets are divided into two categories:
• tangible asset (physical form)
• intangible asset (legal claim to some future
economic gain)
ISSUER INVESTOR
The party that has
agreed to make future
cash payment
The party that owns the financial
instrument, and therefore the right to
receive the payments made by the
issuer.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
8. WHAT ARE FINANCIAL
MARKETS?
A financial market is a market in
which people and entities can
trade
financial securities, commoditi
es, and other fungible items of
value at low transaction
costs and at prices that
reflect supply and demand.
MARKET
In economics, typically, the term market means the
aggregate of possible buyers and sellers of a
certain good or service and the transactions
between them.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
9. WHAT ARE FINANCIAL
MARKETS?
SECURITIES
A security or financial instrument is a tradable asset
of any kind. Securities are broadly categorized into:
• debt securities (such as banknotes, bonds and
debentures)
• equity securities, e.g., common stocks; and,
• derivative contracts, such as forwards, futures,
options and swaps.
COMMODITIES
In economics, a commodity is a marketable item
produced to satisfy wants or needs. Economic
commodities comprise goods and services.
•It is used to describe a class of goods for which
there is demand, but which is supplied without
qualitative differentiation across a market.
A country's regulatory structure determines what qualifies as a security.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
10. ECONOMIC FUNCTIONS
OF FINANCIAL MARKETS
• Transactions between buyers and sellers of financial
instruments in a financial market determine the price of the
traded asset.
Price discovery
• Provides an opportunity for investors to sell a financial
instrument since it is referred to as a measure of the ability to
sell an asset at its fair market value at any time.
Liquidity
• The function of reduction of transaction costs is performed,
when financial market participants are charged and/or bear the
costs of trading a financial instrument.
Reduction of transaction costs
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
13. TYPES OF FINANCIAL
MARKETS
PRIMARY
MARKET
The market in which new, as opposed to existing,
securities are sold. Investors who purchase shares in
a new security issue are purchasing them in the
primary market.
Source: Wall Street Words: An A to Z Guide to Investment Terms for
Today's Investor by David L. Scott
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
SECONDARY
MARKET
A market in which investors purchase securities or
assets from other investors rather than directly from
the issuing companies; exchanges such as the New
York Stock Exchange and the NASDAQ are secondary
markets.
Source: Campbell R. Harvey
14. PRIMARY MARKETS
• The primary market is the market where the securities are sold
for the first time. Therefore it is also called the New Issue
Market (NIM).
• Securities are issued by the company directly to investors.
• Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing the
existing business.
• The primary market performs the crucial function of
facilitating capital formation in the economy.
• Borrowers in the new issue market may be raising capital for
converting private capital into public capital; this is known as
"going public."
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
15. METHODS OF ISSUING
SECURITIES IN A
PRIMARY MARKET
Initial Public
Offering
A type of public offering where shares of stock in a company are
sold to the general public, on a securities exchange, for the first
time. Through this process, a private company transforms into
a public company.
Rights
Issuance
A rights issue is an issue of rights to buy additional securities in
a company made to the company's existing security holders to buy
a specified number of new securities from the firm at a specified
price within a specified time.
Preferential
Issue
A preferential issue is an issue of shares or of convertible securities
by listed companies to a select group of persons under Section 81
of the Companies Act, 1956 which is neither a rights issue nor a
public issue.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
16. SECONDARY MARKETS
Secondary markets trade existing securities (previously owned
shares of stocks, bonds, and other financial assets). Secondary
markets consist of both organized exchanges, such as the Bombay
Stock Exchange, and over-the-counter or electronic markets, such
as NASDAQ.
Organized
Stock
Exchanges
Organized stock exchanges are markets that are
used to facilitate the trading of financial instruments
between investors. The main organized stock
exchange is the Bombay Stock Exchange (BSE) in
India.
Over-the-
counter
(OTC)
market
It is an electronic network that allows investors to
execute trades without going through specialists or
intermediaries. These trades are executed through
the NASDAQ which links various dealers and
brokers through a computer or telephone based
system.
Secondary markets trade existing securities (previously owned
shares of stocks, bonds, and other financial assets).
Secondary markets consist of both organized exchanges, such
as the Bombay Stock Exchange, and over-the-counter or
electronic markets, such as NASDAQ.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
19. CAPITAL MARKET
Primary Market Secondary Market
CAPITAL
MARKET
A market in which individuals and institutions trade
long-term financial securities.
• Organizations/institutions in the public and private
sectors also often sell securities on the capital
markets in order to raise funds.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
20. CAPITAL MARKET
Primary Market Secondary Market
• New stock or bond issues are
sold to investors.
• The main entities seeking to
raise long-term funds on the
primary capital markets are
governments (via bonds) and
business enterprises (via
equity and bonds).
• The main entities purchasing
the bonds or stock
include pension funds, hedge
funds, and less commonly
• Existing securities are sold and
bought among investors or
traders, usually on a securities
exchange, over-the-counter, or
elsewhere.
• The existence of secondary
markets increases the
willingness of investors in
primary markets, as they know
they are likely to be able to
swiftly cash out their
investments if the need arises.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
22. CAPITAL MARKET -
FUNCTIONS
Mobilization of Savings
Capital Formation
Provision of Investment Avenue
Proper Regulation of Funds
Service Provision
Speed up Economic Growth and Development
Continuous Availability of Funds
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
23. CAPITAL MARKET –
EXAMPLES OF
TRANSACTIONS
A government raising money on the primary markets
• When a government wants to raise long term finance it will often sell
bonds to the capital markets.
• It has been increasingly common for governments of the larger nations
to bypass investment banks by making their bonds directly available for
purchase over the Internet.
A company raising money on the primary markets
• When a company wants to raise money for long term investment, it can
do so by issuing bonds or shares in the capital market.
Trading on the secondary markets
• On the secondary markets, there is no limit on the number of times a
security can be traded, and the process is usually very quick.
• It indirectly helps in raising finance on the primary market.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
25. MONEY MARKET
• Money market means market where money or its equivalent can
be traded.
• Money is synonym of liquidity. Money market consists of financial
institutions and dealers in money or credit who wish to generate
liquidity.
• It is better known as a place where large institutions and
government manage their short term cash needs.
• For generation of liquidity, short term borrowing and lending is
done by these financial institutions and dealers.
MONEY
MARKET
Money market is a market where short-term
obligations such as treasury bills, commercial papers
and banker’s acceptances are bought and sold.
Source: www.CAalley.com
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
26. MONEY MARKET –
INSTRUMENTS
Certificate
of deposit
Repurchase
agreement
Commercial
paper
Treasury
bills
Money
funds
Foreign
Exchange
Swaps
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
27. MONEY MARKET -
FUNCTIONS
Maintenance of monetary equilibrium.
Promotion of economic growth.
Providing help to Trade and Industry
Helping in implementing Monetary Policy
Helping in Capital Formation
Providing non-inflationary sources of finance to government
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
28. MONEY MARKET IN
INDIA
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
30. MONEY MARKET VS.
CAPITAL MARKET
MONEY MARKET CAPITAL MARKET
Trading is through recognized stock
exchanges
Associated with high risk and high
return
Anybody can make investments
through a broker.
Often the purpose is to invest in
additional physical capital goods.
Raising of long term finance, such as
loans not to be fully paid back for at
least a year.
Deals are transacted on phone or
through electronic systems
Relatively secure
Individual players cannot invest in
money market as the value of
investments is large.
Often used for general operating
expenses.
Short term lending and borrowing,
typically a year.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
32. FINANCIAL REGULATION
BENEFITS:
• Market confidence
• Financial stability
• Consumer protection
• Reduction of financial crime
FINANCIAL
REGULATION
Financial regulation is a form of regulation or
supervision, which subjects financial institutions to certain
requirements, restrictions and guidelines, aiming to
maintain the integrity of the financial system. This may be
handled by either a government or non-government
organization.
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
33. STRUCTURE OF
SUPERVISION
Supervision of stock exchanges
Supervision of listed companies
Supervision of anti-money laundering
Supervision of investment management
Supervision of banks and financial services providers
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
34. FINANCIAL
REGULATORS IN INDIA
FINANCIAL MARKETS | A Financial Management Presentation by Arushi Sharma [50240] and Hisham Ahmed Rizvi [50269]
Securities and
Exchange Board of
India
Reserve Bank of
India
Ministry of Finance
Ministry of
Corporate Affairs
Insurance
Regulatory
Authority of India
PFRDA
In market economies the economic rationale for the existence of institutions and instruments is related to transaction costs, thus the surviving institutions and instruments are those that have the lowest transaction costs.The key attributes determining transaction costs are asset specificity, uncertainty, frequency of occurrence.
National Association of Securities Dealer Automated Quotation System (NASDAQ)
Mobilization of Savings : Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. Capital Formation : Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. Provision of Investment Avenue : Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public. Speed up Economic Growth and Development : Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure. Proper Regulation of Funds : Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner. Service Provision : As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, underwriting services, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum. Continuous Availability of Funds : Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the stock exchanges. Thus marketability in the capital market becomes easy.
Certificate of deposit - Time deposit, commonly offered to consumers by banks, thrift institutions, and credit unions.Repurchase agreements - Short-term loans—normally for less than two weeks and frequently for one day—arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date.Commercial paper - short term usanse promissory notes issued by company at discount to face value and redeemed at face valueEurodollar deposit - Deposits made in U.S. dollars at a bank or bank branch located outside the United States.Federal agency short-term securities - (in the U.S.). Short-term securities issued by government sponsored enterprises such as the Farm Credit System, the Federal Home Loan Banks and the Federal National Mortgage Association.Federal funds - (in the U.S.). Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve; these are immediately available funds that institutions borrow or lend, usually on an overnight basis. They are lent for the federal funds rate.Municipal notes - (in the U.S.). Short-term notes issued by municipalities in anticipation of tax receipts or other revenues.Treasury bills - Short-term debt obligations of a national government that are issued to mature in three to twelve months.Money funds - Pooled short maturity, high quality investments which buy money market securities on behalf of retail or institutional investors.Foreign Exchange Swaps - Exchanging a set of currencies in spot date and the reversal of the exchange of currencies at a predetermined time in the future.Short-lived mortgage- and asset-backed securities
To maintain monetary equilibrium. It means to keep a balance between the demand for and supply of money for short term monetary transactions.To promote economic growth. Money market can do this by making funds available to various units in the economy such as agriculture, small scale industries, etc.To provide help to Trade and Industry. Money market provides adequate finance to trade and industry. Similarly it also provides facility of discounting bills of exchange for trade and industry.To help in implementing Monetary Policy. It provides a mechanism for an effective implementation of the monetary policy.To help in Capital Formation. Money market makes available investment avenues for short term period. It helps in generating savings and investments in the economy.Money market provides non-inflationary sources of finance to government. It is possible by issuing treasury bills in order to raise short loans. However this dose not leads to increases in the prices.
Supervision of stock exchangesExchange acts ensure that trading on the exchanges is conducted in a proper manner. Most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring.[5][6][edit]Supervision of listed companiesFinancial regulators ensures that listed companies and market participants comply with various regulations under the trading acts. The trading acts demands that listed companies publish regular financial reports, ad hoc notifications or directors' dealings. Whereas market participants are required to publish major shareholder notifications. The objective of monitoring compliance by listed companies with their disclosure requirements is to ensure that investors have access to essential and adequate information for making an informed assessment of listed companies and their securities.[7][8][9][edit]Supervision of anti-money launderingThe anti-money laundering supervision ensures that criminal activities does not threaten the reputation and financial strength of an institution, or also endanger the integrity and stability of the whole financial market. All companies concerned need to have policies in place which prevents transactions with criminal background.[10][edit]Supervision of investment managementAsset management supervision or investment acts ensures the frictionless operation of those vehicles.[11][edit]Supervision of banks and financial services providersBanking acts lays down rules for banks which they have to observe when they are being established and when they are carrying on their business. These rules are designed to prevent unwelcome developments that might disrupt the smooth functioning of the banking system. Thus ensuring a strong and efficient banking system.[12][13]
Supervision of stock exchangesExchange acts ensure that trading on the exchanges is conducted in a proper manner. Most prominent the pricing process, execution and settlement of trades, direct and efficient trade monitoring.[5][6][edit]Supervision of listed companiesFinancial regulators ensures that listed companies and market participants comply with various regulations under the trading acts. The trading acts demands that listed companies publish regular financial reports, ad hoc notifications or directors' dealings. Whereas market participants are required to publish major shareholder notifications. The objective of monitoring compliance by listed companies with their disclosure requirements is to ensure that investors have access to essential and adequate information for making an informed assessment of listed companies and their securities.[7][8][9][edit]Supervision of anti-money launderingThe anti-money laundering supervision ensures that criminal activities does not threaten the reputation and financial strength of an institution, or also endanger the integrity and stability of the whole financial market. All companies concerned need to have policies in place which prevents transactions with criminal background.[10][edit]Supervision of investment managementAsset management supervision or investment acts ensures the frictionless operation of those vehicles.[11][edit]Supervision of banks and financial services providersBanking acts lays down rules for banks which they have to observe when they are being established and when they are carrying on their business. These rules are designed to prevent unwelcome developments that might disrupt the smooth functioning of the banking system. Thus ensuring a strong and efficient banking system.[12][13]