FINANCIAL MARKETS
and INSTITUTIONS
CAPITAL FLOW PROCESS
In a well-functioning economy, capital flows efficiently
from those who supply capital to those who demand it.
Suppliers of capital – individuals and institutions with
“excess funds.” These groups are saving money and
looking for a rate of return on their investment.
Demanders or users of capital – individuals and
institutions who need to raise funds to finance
their investment opportunities. These groups are
willing to pay a rate of return(interest) on the
capital they borrow
THREE WAYS CAPITAL FLOW FROM SAVERS
TO BORROWERS
•
Direct transfer
•
Investment Bank
- securities pass through the
investment bank
•
Financial intermediary
- intermediary create new
securities for savers.
FINANCIAL
MARKETS
WHAT IS A MARKET?
•
Market
- place/venue where goods and services
are exchanged
•
Financial Market
- place where funds/financial assets are
traded.
lender: those with surplus of funds
borrower: those need funds
TYPES OF FINANCIAL MARKETS
•
•
•
•
Money vs. Capital
Primary vs. Secondary
Spot vs. Futures
Public vs. Private
TYPES OF FINANCIAL MARKETS
i. Money vs. Capital
Money Market : borrowed for less than 1Y
Capital Market : borrowed for 1Y or longer
i. Money vs. Capital
ii. Primary vs. Secondary
Primary Market : new issues are sold to
the public
Secondary Market : outstanding issues
traded among investors
TYPES OF FINANCIAL MARKETS
iii. Spot vs Futures
Spot Market : transaction “on-the-spot”
Future Market : contract specifying terms of
future trading
iv. Public vs. Private
Private: transactions between two
parties
Public: standardized contracts traded on
exchanges.
FINANCIAL
INSTITUTIONS
FINANCIAL INSTITUTIONS
• is a company engaged in the business of
dealing with financial and monetary
transactions such as deposits, loans,
investments and currency exchange ;
• Virtually everyone living in a developed
economy has an ongoing or at least periodic
need for the services of financial institutions ;
• can operate at several scales from
local community credit unions to
international investment banks.
TYPES OF FINANCIAL INSTITUTIONS
• Commercial banks : middleman between
savers and borrowers
• Investment banks : an organization that
helps to sell new investment
securities (bonds, stocks).
•
Financial services corporations : a firm
that offers a wide range of financial
services, including investment
banking, commercial banking,
brokerage and insurances.
TYPES OF FINANCIAL INSTITUTIONS
•
•
Mutual funds - collect money from savers
and invest such funds in stocks,
bonds, and other financial instruments.
- registered entities and are regulated
by the Securities and Exchange
Commission (SEC)
Pension funds-retirement plans; established
by corporations and government for the
purpose of funding retirement plans for
employees.
TYPES OF FINANCIAL INSTITUTIONS
•
•
Hedge funds – unregulated fund
- special type of mutual fund which
typically require large minimum
investments from high net worth
individuals and institutions.
Life Insurance companies – collect
premiums from insured parties,
invest them in different kinds of
financial instruments and make
payments to the beneficiaries of
the insured.
THANK YOU!
Presented by:
CASTILLO, KYRACRISTA P.
MBAN - 1206