Financial Markets a market where financial instruments are traded; a place where people buy and sell financial instruments;
Financial Institutions very many different definitions but the simplest one is: a business that specializes in transferring funds from savers (those with surplus of funds) to those with deficit of funds;
Financial Instrument = Financial Asset = Paper Asset = Security = Financial Claim = Investment; major types of financial instruments are: 1. Stocks (representing equity); 2. Bonds (representing debt) they have a special name FI Securities; 3. Currencies financial instrument issued by the central bank and circulating as money.
Financial Markets Functions Facilitate the flow of capital from savers to the users of capital.
Well-functioning markets promote economic growth. How does the Financial System work? Surplus of Funds Households Businesses Government Foreign Investors Deficit of Funds Households Businesses Government Foreign Investors
Financial Markets Financial Intermediaries Direct Financing Indirect Financing Capital Flow Capital Flow Capital Flow Capital Flow Capital Flow Direct vs. Indirect Financing Direct financing direct transfer of money and securities = direct transfer of funds from those with surplus to those who have deficiency;
Indirect financing more important than the first category; transfer of funds with the help of a financial intermediary which is a financial institution. Financial Intermediaries (Indirect Financing) Financial Markets (Direct Financing) Investors (Borrowers) Savers (Creditors) Types of Markets Spot markets and futures markets Money markets and capital markets Primary markets and secondary markets Private markets and public markets Physical assets markets and financial assets market Debt markets and equity markets Exchange traded markets and OTC markets
A publicly traded company is considering to offer to the public a new bond issue. On which type of market is it going to trade these instruments? Types of Financial Institutions Investment banks Commercial banks Financial services corporations Credit unions Pension funds Insurance companies Mutual funds Exchange traded funds Hedge funds Private equity companies Venture funds Brokerages
Money Market Instruments Treasury bill Fed Funds REPO Negotiable CD Commercial papers Bankers acceptance Eurodollars
Capital Market Instruments Debt Instruments o Treasury notes and bonds o Mortgages o Municipal bonds o Corporate bonds o Lease
Equity instruments o Common stock
Hybrid instruments o Preferred stock o Convertible bonds