Management of Financial
Institution
Financial Environment
Financial Markets
Financial markets could mean:
1.Organizations that facilitate the trade in
financial products. i.e. Stock exchanges
facilitate the trade in stocks, bonds and
warrants.
• Bonds
• Stocks
2.Stocks and shares are traded between
buyers and sellers in two ways including:
• use of stock exchanges;
• directly between buyers and sellers
etc.
The coming together of buyers and sellers
to trade financial products
3.In academia, students of finance will use
both meanings but students of economics
will only use the second meaning.
Functions
of
Financial markets
Financial markets facilitate:
• The raising of capital (in the capital
markets);
• The transfer of risk (in the derivatives
markets);
• International trade (in the currency
markets).
• They are used to match those who want
capital to those who have it.
• Typically a borrower issues a receipt to the
lender promising to pay back the capital.
These receipts are securities which may
be freely bought or sold. In return for
lending money to the borrower, the lender
will expect some compensation in the form
of interest or dividends.
Financial Environment Structure
Lenders
Financial
Intermediaries
1.
1. Individuals 2.
2. Companies 3.
4.
1.
Banks
2.
Insurance Co
3.
Pension Funds
4.
Mutual Funds
5.
Financial
Markets
Inter bank
Stock Ex
Money Market
Bond Market
Foreign Ex
Borrowers
1.
2.
3.
4.
5.
Individuals
Companies
Central Govt
Municipalities
Public Co
Types
of
Financial Markets
Types of Financial Markets
1.Capital Markets
The capital markets consist of primary
markets and secondary markets. Newly
formed (issued) securities are bought or
sold in primary markets. Secondary
markets allow investors to sell
securities that they hold or buy existing
securities.
1. Capital Markets Contd..
The capital market (securities market)
is the market for securities, where
companies and the government can
raise long-term funds. The capital
market includes the stock market and
the bond market.
1. Capital Markets Contd..
• Financial regulators, such as the.
Securities and Exchange Commission of
Pakistan, oversee the capital markets in
their respective countries to ensure that
investors are protected against fraud. The
capital markets consist of the primary
market, where new issues are distributed
to investors, and the secondary market,
where existing securities are traded.
2. Stock Market
The term 'the stock market' is a concept for
the mechanism that enables the trading of
company stocks (collective shares), other
securities, and derivatives. Bonds are still
traditionally traded in an informal, overthe-counter market known as the bond
market.
2. Stock Market Contd..
• Commodities are traded in commodities
markets, and derivatives are traded in a
variety of markets (but, like bonds, mostly
'over-the-counter').
• The stocks are listed and traded on stock
exchanges
which
are
entities
(a
corporation or mutual organization)
specialized in the business of bringing
buyers and sellers of stocks and securities
together.
2. Stock Market Contd..
• The stock market in Pakistan includes the
trading of all securities listed on the
»KSE 100,
»the LSE 30
»ISE 10,
2. Stock Market Contd..
• European examples of stock exchanges
include the Paris Bourse (now part of
Euronext), the London Stock Exchange
and the Deutsche Börse.
3. Bond Market
The bond market, also known as the debt,
credit, or fixed income market, is a
financial market where participants buy
and sell debt securities usually in the form
of bonds. The size of the international
bond market is an estimated $45 trillion of
which the size of outstanding U.S. bond
market debt is $25.2 trillion
3. Bond Market Contd..
• References to the "bond market" usually
refer to the government bond market
because of its size, liquidity, lack of credit
risk and therefore, sensitivity to interest
rates.
• Because of the inverse relationship
between bond valuation and interest rates,
the bond market is often used to indicate
changes in interest rates or the shape of
the yield curve.
4. Commodity Markets
• Commodity markets are markets where
raw or primary products are exchanged.
These raw commodities are traded on
regulated commodities exchanges, in
which they are bought and sold in
standardized Contracts.
5. Money Market
• The money market is the global financial
market for short-term borrowing and
lending. It provides short-term liquid
funding for the global financial system.
The money market is a sector of the
capital
market
where
short-term
obligations such as Treasury bills,
commercial
paper
and
bankers'
acceptances are bought and sold.
5. Money Market Contd..
• Money market consists of financial
institutions and dealers in money or credit
who wish to either borrow or lend.
Participants borrow and lend for short
periods of time, typically up to thirteen
months.
5. Money Market Contd..
• Money market trades in short term
financial instrument commonly called
"paper". This contrasts with the capital
market for longer-term funding, which is
supplied by bonds and equity.
6. Derivatives Market
• The derivatives markets are the financial
markets for derivatives. The market can be
divided into two, that for exchange traded
derivatives and that for over-the-counter
derivatives. The legal nature of these
products is very different as well as the
way they are traded, though many market
participants are active in both.
7. Futures exchange “Market”
• A futures exchange is an exchange
which provides a marketplace where one
can buy and sell futures; that is a contract
to buy specific quantities of a commodity
or financial instrument at a specified price
with delivery set at a specified time in the
future.
8. Insurance market
• Insurance, in law and economics, is a
form of risk management primarily used to
hedge against the risk of a contingent loss.
Insurance is defined as the equitable
transfer of the risk of a loss, from one
entity to another, in exchange for a
premium. Insurer, in economics, is the
company that sells the insurance.
8. Insurance market Contd..
• Insurance rate is a factor used to
determine the amount, called the
premium, to be charged for a certain
amount of insurance coverage. Risk
management, the practice of appraising
and controlling risk, has evolved as a
discrete field of study and practice.
9. Foreign exchange market
• The foreign exchange (currency or
forex or FX) market exists wherever one
currency is traded for another. It is by far
the largest financial market in the world,
and includes trading between large banks,
central banks, currency speculators,
multinational corporations, governments,
and
other
financial
markets
and
institutions.
Analysis of financial markets
• The claims of the technical analysts are
disputed by many academics, who claim
that the evidence points rather to the
random walk hypothesis, which states that
the next change is not correlated to the
last change.
Culture of The Markets
Only negative stories about financial
markets tend to make the news.
1. Enron
2. Barings Scandal
3. Black Wednesday
4. The Story of Tulip Mania
Baring Scandal
• The traders, Mr. Nick Leeson, was
employed by Barings to profit from low risk
arbitrage opportunities between
derivatives contracts on the Singapore
Mercantile Exchange and Japan’s Osaka
Exchange.
Conclusion
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Betterment of economy
Uplifting of economy
Economic growth
Very useful to us.