Financial Markets
&
Credit institutions
Practice
Course assessment?
Had you get handbook on time?
Course objective explained?
Study material covers course objective
Variety for teaching like video & case
study?
Availability of teacher?
Thinking skills improvement?
Lecture objectives
To define financial markets.
What are types of financial markets?
What are segments of money markets?
What are segments of capital market?
How national and international financial
institutes help economy to grow?
Financial Markets
 Financial markets in which funds are
transferred from people who have surplus
funds to people who have a shortage of funds.
Financial markets thus allow movement of
surplus funds from savers to investors. By
facilitating transfer of funds, the financial
markets contributes to higher production &
efficiency in overall economy.
Commercial banks, development financial institutions,
micro finance, such as leasing companies, investment
banks etc. are the examples of financial market in
Pakistan
Segments of Financial Markets
Direct Financing
Funds are transferred directly from ultimate
savers to ultimate borrowers.
Indirect Financing
A financial “ intermediary” transforms financial
claims with one set of characteristics into
financial claims with other characteristics e.g.
deposits are used to make loans.
Transfer of funds on Financial Markets
Direct Financing
Surplus Spending
Units
House Holds
Business Firms
Governments
Funds
Finance Markets
Financial Intermediaries
Indirect Financing
Funds
Deficit Spending
Units
House Holds
Business Firms
Governments
Classifications of Financial markets
Money Markets
Capital Markets
Money Markets
The flow of short term is
facilitated by Money Markets.
It basically meets the short
term requirements of the
borrowers for money and
provides liquidity of cash to
the lenders.
Features of Money Markets
Constituent of Money Market
Borrowers & Lenders
Short term funds like Treasury Bills & Commercial
Bills
Price in the form of rate of interest
Dealers of Money Markets
Heterogeneous Market
Near Money assets
Instruments of Money Market
Call Loans
Treasury Bills
Bankers Acceptance
Commercial Bills
Collateral Loans
Sale / Purchase operations
Importance of Money Markets
 Financing Industry
 Financing Trade
 Profitable Investment
 Self sufficiency of Banks
 Effective implementation of
monetary policy
 Encourage economic growth
 Help to the Government
 Proper allocation of
Resources
Capital Markets
The capital markets deals with
the grant of medium term &
long term loans. The capital
markets thus refers to the
institutional
arrangements
which facilitate the lending
and borrowing of medium &
long term loans.
Categories of Capital Markets
 Primary Markets
 Issue of Debt instruments such as a bonds or a Mortgage
having a maturity more than one year. Primary markets
facilitate the issuance of new securities.
 E.g. The sale of new corporate stock or new treasury
securities.
 Secondary Markets
 Raising funds by issuing of equities (shares) by public
limited companies. Secondary Markets facilitate the trading
of existing securities
 Equity markets in Pakistan are Karachi Stock exchange,
Lahore Stock exchange, Islamabad Stock Exchange.
 E.g. Sale of existing stock.
Securities Traded in Capital Markets
Bonds
Mortgage
Government Securities
Mutual Funds
Stocks / Shares
Functions of Capital Markets
Mobilization of equity Capital
Savers & Borrowers
Saving Incentives
Balanced Economic Growth
Attraction of Foreign investors
Stability in Security prices
Difference Between Money Market
&
Capital Market
 Types of Loans
 Instruments of Markets
 Liquidity Rate
 Institutions of Markets
 Commercial Banks
Specialized Credit institutions - National
Pakistan Industrial Credit
&
Investment Corporation(1957)
PICIC
Small & Medium Enterprise
Development Authority
SMEDA(1998)
Investment Corporation
Of
Pakistan (1966)
Industrial Development Bank
Of
Pakistan(1961)
ICP
IDBP
House Building Finance
Corporation(1952)
Agricultural Development Bank
of
Pakistan(1951)
HBFC
ADBP/ZTBL (2002)
Specialized Credit institutions - International
International Monetary Funds
International Finance Corporation
IMF (1944)
IFC
International Bank of
Reconstruction & Development
International Development
Association (1960)
IBRD(1944)
IDA
Multilateral investment
Guarantee Agency (1988)
Islamic Development Bank (1973)
IDB
MIGA
Asian Development Bank
ADB
Important terms
Money market
Capital market
Difference b/w bills and securities
KIBOR and its brief function
Mortgage, pledge, lien, hypothecation
Difference b/w share, debenture.