Lecture # 1
1
Superior College
University Campus
Chapter 1
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To
To
To
To
To
To
develop concepts of financial markets
understand some important facts market
know components of financial market
learn six parts of financial system
seek out five parts of money
be familiar with history and elements of money
Financial market is the place where lenders
and borrowers are allow to buy and sell
financial securities
In general financial markets deals in
1. Securities
2. Commodities
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Stock exchange
◦ Three stock exchanges (KSE, LSE, ISE, 1948, 1974,
1997, 84%, 14%, 1% 167 companies listed)
◦ 2006-7 GDP of Pak US $ 143 billion, 49%
capitalization from stock markets.
◦ 1997 dropped due to nuclear issue
◦ 2002 declared best market in world.
◦ Small market but attractive
◦ Central Depository company (CDC)
Source: Iqbal, J (2008). “Stock Market in Pakistan: An Overview”
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Money market
Capital market
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Money market is the market where short term
credit instruments are traded.
Money market in Pakistan
 Call loans
 Trading in credit ceiling
 Treasury bills (TBs)
 REPOs (Repurchase Agreements)
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Central bank
Commercial banks
Government
Non bank financial intermediaries (NBFI).
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Insurance
Micro financial institutes
Pension funds
Thrift institutions
Discount house etc.
Other participants
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Capital market is the market for long term
debts .when funds are lent for a period of
more than one year.
The capital markets funds are used to finance
long term investments.
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Security market (stocks & bonds)
Further divided into two categories
◦ Primary market
◦ Secondary market
Non security market (Development Finance
Institutes)
E.g. PICIC IDBP, ICP, SBFC, ADBP, HBFC,NIT
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Debt instrument
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Bonds
Government securities
Mortgages
Mutual funds
Issue of shares
Primary
Secondary
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Money
Financial instruments
Financial markets
Financial institutions
Government regulatory agencies
Central bank
1.
2.
3.
4.
5.
Time (has value)
Risk (requires compensation)
Information (basis for decision)
Markets (Markets Determine Prices and
Allocate Resources)
Stability (improves welfare)
MONEY
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The word money is derived form the Latin
word MONETA which was the surname of the
Roman Goddess of Juno in whose temple
money was coined
Money
Latin Word
Moneta
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“Anything that is generally acceptable as a
medium of exchange & at the same time
acts as a measure and store of value is
called money”.
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Medium of Exchange
Measures Value
MONEY
Standard of deferred
payments
Govt Approval
FUNCTIONS OF MONEY
Primary
Function
Secondary
Function
Contingent
Function
Superior College
University Campus
Resource Person :
Muhammad Rafiq
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Functions Of Money
Primary
Function
Medium of
exchange
Standard of
Value
Store of
wealth
Standard of deferred
payments
Secondary
Function
Money as
liquid assets
Money as
guarantee of
solvency
Medium of Govt
payments
Transfer of
wealth
Contingent
Function
Basis of bank
credit
Distribution of
national Income
Distribution of
joint product
Maintenance of
accounting
record
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Why Study Financial Markets?:
◦ the three primary markets (bond, stock, and
foreign exchange) were briefly introduced.
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Why Study Financial Institutions?:
◦ the market, institutions, and key changes affecting
these were outlined.
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What is money and its characteristics.
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What are element of money.
◦ Medium of exchange
◦ Measures value
◦ Standard of deferred payment
◦ Government approval
◦ Money definitions and elements
◦ Functions of money