The International Financial

Markets
Carlos Fernndez Rivera
This document is a SAMPLE that only includes some
slides of each lesson.

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Agenda
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Introduction

The Financial Markets

1.1. What are the financial markets
1.2. The main financial markets
1.3. Risk, liquidity and profitability
1.4. Current International landscape

Derivatives Market
5.1. The main markets
5.2. Futures Market
5.3. Options Market

Foreign Currency Market

6.1. The exchange rate
6.2. FOREX
6.3. Common products

Money Market
2.1. The Central Bank and the price of the money
2.2. Common products

Company Valuation Tools

7.1. Static Methods
7.2. Comparable Multiples Methods
7.3. Dynamic Methods

IT tools

Fixed Income Market

3.1. Bonds as a financial tool
3.2. The secondary market of the bonds
3.3. The risk and the risk premium

8.1. Financial sources of information

8.2. Investment tools

Stock exchange Market

4.1. Some analysis tools
4.2. Seasoned equity offering (capital increase)

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Introduction

The financial markets have a key role in our lives. In this course, we will study the most
important markets and how they work.
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Introduction
The financial assets are traded in the financial markets. But who/what controls the
financial markets?

No. The Financial markets are as any other market, and are under the Law of Supply
and Demand.

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Lesson 1:
The International
Financial Markets
Carlos Fernndez Rivera

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Interna7onal Financial Markets

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What are the financial markets?

The financial markets are the places where the financial assets (FA) are bought
and sold.
Physical or virtual places.

FA: Intangible assets whose value is based in the right to obtain benefits in
the future.
FA

The issuer is
who sell the FA

Intermediaries

The investor is
who buy the FA

, $, ,

The issuer has needs for capital, and the investor has excess of capital.

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What are the financial markets?

The functions of the financial markets are:
Create prices
Generate liquidity
Decrease transactions costs
The key intermediaries in the financial markets are:
Banks
Contractual saving institutions
Investment intermediates:
Investment funds
Finance companies
Market intermediates:
Agencies and securities firms: Brokers and Dealers*
Investment banks
*Brokers operate for others; Dealers operate on their own and are the market makers.
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Lesson 2:
Money Market
Carlos Fernndez Rivera

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The Central Bank and the price of the money

The European Central Bank (ECB) is the only Institution that
can emit euros. Literally, the ECB has the printer of euros.
The ECB is an independent entity.
The ECB has two tools to perform their main functions:
Determines the
monetary policies in the
Eurozone
Sets the Interest Rate
(IR) of the euro

Price stability in the Eurozone

Mario Draghi, current
President of the ECB

Control of the inflation

In addition, the ECB also has responsibility over the exchange rate
(currencies), manage the foreign reserves of the Central Banks, monitoring the
financial system and participate in international cooperation programs.
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Lesson 3:
Fixed Income Market
Carlos Fernndez Rivera

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Bonds as a financial tool

When an entity, public or private, borrows money to the savers during a fixed
period of time and with an interest fixed at the beginning of the period, the
entity is issuing debt in the format of a bond.
Bond is a generic word to refer to notes, mortgage bonds, debentures,
liabilities always long-term products.
The investor that owns a bond is the bondholder: the interest of the bond
always is paid to the bondholder, regardless of whoever. Each payment of
interests is called coupon.
EUROPE
Maturity

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USA

Common nomenclature

Maturity

Common nomenclature

3, 6, 9, 12 or 18
months.

Treasury Bill

1, 3, 6 or 12
months

Treasury Bill

2, 3 or 5 years

Treasure Bonds (coupon each

year)

1, 3, 5, 7 or 10
years

Treasure Notes (coupon each 6

months)

10, 15 or 30
years

Treasure Long Bonds

(Obligaciones del Estado)

20 or 30 years

Treasure Bonds (coupon each 6

months)

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Bonds as a financial tool

Bonds can be bought in:

Primary
Market

The entity issues the bonds at a rate of interest to major investors. Its the
subscription/underwriting market. The major investors can be banks or investment
funds.

Secondary
Market

Its the second hand market of the bonds, or aftermarket. The investors buy and
sell the bonds between them.
The price of the bonds in this market fluctuates according to the supply and
demand of bonds.

The secondary market is decisive to set the interest rate of the bonds in the
primary market.

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Lesson 4:
Stock Exchange Market
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Stock Exchange Market

The Stock Exchange market is the secondary market where the stocks of the
companies are bought and sold, between the shareholders at a market price.
Stocks/shares are participations in the equity of a company (shareholders
equity).

Banks
Contractual Saving Institutions
Investment funds

Primary Market

Secondary Market

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Stock Exchange Market

Stocks issued from a company to the shareholders are not refundable to them: the
equity is not payable because equity is own funding.
Stocks are liquid assets, so they can be sold and bought in the secondary market
between shareholders at market price.

Stocks give the shareholders rights and benefits, but also share the risk of the
company with them.
Poli;cal rights

Economic
rights

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Right to vote at shareholders meeting, exclusive promotions and

privileges, etc.

Dividends: are the retribution of the stocks. Its a % over the Net
Profit, then its paid IF the company has benefits.
Capital gain: if the shareholder sells his shares at a higher price than
bought, there is a benefit with the trade.

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Lesson 5:
The Derivatives Market
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The main markets

Spot
Market

The asset is delivered and paid inmediately. Short-term transactions, until 1

month to deliver the financial asset.
Deposits, Bonds, Stocks, Commodities, Currencies.

Deriva;-
ves
Market

The asset is delivered and paid in the future. Forward transactions.

Non-organized markets: Over the counter (OTC). Forward contract
Organized markets: standardized contracts. Futures and options.

The derivatives products consist in the exchange of an asset (underlying asset)

in a determinate date in the future (maturity) at a price established previously
(strike price) agreed in a contract.
The underlying asset can be any financial asset: bonds, stocks, stock index,
commodities
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Lesson 6:
Foreign Currency Market
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Foreign Currency Market

This market comes from the need of the Countries to have foreign currencies
to pay the imports. For example, USA needs euros to pay the importations
from Europe (and vice versa).
Products

$$$

EUR ()
EUR ()

Exchange rate

USD ($)

But the commercial function of the currency market only represents 2.1% of
the total transactions (2013). The remaining transactions (97.9%) were for
speculative purposes: there is no intention of getting the underlying asset.
The overall volume of transactions in the foreign exchange market was 5.3
trillion (1012) dollars daily.
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Lesson 7:
Company Valuation
Tools
Carlos Fernndez Rivera

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Company valuation

There are several ways to determine the value of a company. However, it

doesnt exist a single approach and the valuation becomes subjective.
The valuation depends on many factors: growth prospects, branding,
political and economic environment
The result is a range of possible values within which is the price of the
company.
Dynamic Methods

Comparable Multiples
Methods

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Static Methods

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