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.

1. AZERBAIJAN STATE UNIVERSITY of ECONOMICS
Student: Shahlar Bayramov
Managing teacher: Ruslan Talibov
Faculty: STF Finance
Group: M6
Topic: Investment Markets
Baku 2014

2. Content
• Chapter 1
• The history and essence of investment markets
• The stages of investment markets development
• Chapter 2
• The main operations in investment markets
• The role of investment banks in economy
• Chapter 3
• Sources of financing
• Risk reducing ways in investment markets

3. Introduction and essence of
investment markets
• Financial markets and institutions are at the
heart of the financial system…
• Sine-qua-non-efficient flow of funds in
economic system
• Prices must accurately convey the value of a
good or a service
• Minimum intervention of government

4. Chapter 1
The history and essence of investment markets
• The role of Globalization, and main
international events in the process of Investment
markets development
• The period between 1915-1942(1915-1945)
• Formal abandonment of the gold standard
• Bretton woods financial order (1945)
• General Agreement On Tariffs And
Trade(GATT)
» (1947)

5. Chapter 1
The stages of investment markets development
• The Next Step of Financial Globalization.
• Financial integration and systemic crises
(1980-present)
• 1990s economic crisis
• 1997-Asian crisis unproductive real estate investment*
• 2001 dot.com crisis

6. Chapter 1
The stages of investment markets development
• The Next Step of Financial Globalization.
• 2007 financial crisis
• 2009 Greek financial crisis
• 2012–13 Cypriot financial crisis.

8. Chapter 2
The main operations in investment markets
• Channeling funds from surplus – to
shortage
• direct finance- from lenders in financial markets to
borrowers by selling them securities
• Indirect finance – involves third parties in
channeling operations
• Primary market vs. secondary market

9. Chapter 2
The main operations in investment markets
• Brokers vs. dealers
• money market
They are usually sold in large denominations.
They have low default risk.
They mature in one year or less from their original issue date.

10. Chapter 2
The role of investment banks in economy
• Investment banks make their money
primarily:
• By advising corporate clients on the creation of stocks, bonds and
other securities
• By underwriting securities
• By facilitating mergers and acquisitions, along with any due
diligence and securities exchanges that may go along with them.
• And by brokering (or selling) securities to investors.

11. Chapter 2
The role of investment banks in economy
• Underwriting helps in 2 ways
• 1. it reduces the risk for issuer
• 2. it sends positive signal to investors
about the quality of appropriate assets

12. Chapter 2
Main participants of investment markets
• U.S. Treasury Department –
• T-Bills and other securities
• Federal Reserve System – regulator of money
supply - most influential participant in the U.S. money market.
• Commercial Banks - hold a percentage of U.S. government
securities second only to pension funds.
• Businesses - Many businesses buy and sell securities
in the money markets

13. Chapter 2
Main participants of investment markets
• Investment Companies – (Bank of America, Merrill Lynch,
Barclays Capital, Credit Suisse, and Goldman Sachs)
• Individuals – people owning funds or cash from
their career activities and

14. Chapter 3
Sources of financing
• Treasure bills - U.S. Treasury Department issues a variety
of debt securities. The most widely held and most liquid security is
the Treasury bill. Treasury bills are sold with 28, 91, and 182-day
maturities
• Federal funds-are short-term funds transferred
(loaned or borrowed) between financial institutions,
usually for a period of one day
• Repurchase agreements-(repos) work much the
same as fed funds except that nonbanks can participate

15. Chapter 3
Sources of financing
• Negotiable Certificates of Deposit - is a bank-issued
security that documents a deposit and specifies the interest rate and
the maturity date.
• Commercial Paper - are unsecured promissory notes,
issued by corporations that mature in no more than 270 days(only
the largest and most creditworthy corporations issue commercial
paper.)
• Asset-backed commercial paper - backed (secured) by some
bundle of assets
• Banker’s Acceptances - A banker’s acceptance is an order
to pay a specified amount of money to the bearer on a given date

16. Chapter 3
Sources of financing
• Eurodollars: Many contracts around the world call for payment
in U.S. dollars due to the dollar’s stability
• Bonds - are securities that represent a debt owed by the issuer to
the investor.
• Separate Trading of Registered Interest and Principal
Securities - to be sold in book entry form means that no physical
document exists; instead, the security is issued and accounted for
electronically.
• Mortgage bonds - used to finance a specific project

17. • Equipment trust certificates - are bonds secured
by tangible non-real-estate property, such as heavy equipment or
airplanes
• Debentures - are long-term unsecured bonds that are backed
only by the general creditworthiness of the issuer
• Variable-rate bonds - financial innovation spurred by
increased interest-rate variability in the 1980s and 1990s
Chapter 3
Sources of financing

18. • Common vs. preferred stocks
• Common Stock in a firm represents an ownership interest in firm.
• Preferred Stock in a firm represents no ownership interest in firm
• *(Less than 25% of new equity issues are preferred stock)
• **only about 5% of all capital is raised using preferred stock
Chapter 3
Sources of financing

19. Chapter 3
Risk reducing ways in investment markets
• Types of risk
• 1) Credit risk
• 2) Price risk
• 3) Reinvestment risk
• 4) Inflation risk
• 5) Liquidity risk
• 6) Foreign-exchange risk.
• 7) Sovereign risk

20. Chapter 3
Risk reducing ways in investment markets
• Pooling risk
Financial markets and institutions allow firms and
individuals to pool their risks
mutual fund that invests in a diversified portfolio of common
stocks or other securities

21. • Systematic vs. unsystematic risk

22. Chapter 3
Risk reducing ways in investment markets
• A Simple Forward Contract
• Futures Exchange
• Swaps – fixed floating- floating floating
• (*fixed fixed is not possible)

23. Conclusion
• Disastrous financial crisis which had a
great impact on economies throughout the
world
• Financial institutions focus on short time
cash increase rather than long term.
• Governments intervention into economy
can increase or decrease efficiency

24. Conclusion
• Governments, or governmental authorities
keep declaring changes in legislations on behalf of big
companies…
• The gap between small to big size companies will
increase constantly
• Information asymmetry problem remains the
same- re-regulations are inefficient

25. Conclusion
• Recent finance crisis seems to produce
many long-term return anomalies
• The long-term return anomalies are
fragile.

26. Suggestions to possible
outcomes of conclusion

27. Suggestions to possible
outcomes of conclusion
• Competition and markets
• Specialization a major trend
• Exchange and diversification of staff
• More long-term investment in future possible
trends

28. Suggestions to possible
outcomes of conclusion
• Clients and products
• An improving domestic economy
• Central bank support
• Derivatives market importance
• Improve flexibility of firms

29. Suggestions to possible
outcomes of conclusion
• Government risk and compliance
• Political problems (land occupancies)
• FTZ- improvement
• Fresh wave of rules and regulatory
proposals concerning capital markets
activities

30. Suggestions to possible
outcomes of conclusion
• Financial management
• Long term perspectives rather than short
term
• Balance investors desire for better returns
with countervailing cost
• Regulatory, and risk factors

31. Suggestions to possible
outcomes of conclusion
• Organizational effectiveness
• Many firms have pushed tactical efficiency and
cost reduction measures
• Capital markets firms should pursue
fundamental changes to their cost base and
operating models. Standardized processes,
streamlined product offerings, shared
processing capabilities, and technology
automation

32. Suggestions to possible
outcomes of conclusion
• Technology dynamics

33. • Thank you for attention !