5.

Physical asset Markets VS Financial asset Markets • Spot Markets VS Futures Markets •
Money Markets VS Capital Markets • Primary Markets VS Secondary Markets • Private
Markets VS Public Markets
6. Physical Asset Markets VS Financial Asset Markets • Physical asset Markets are for
products that has physical substance (size, shape). For example: wheat, cars, real estate,
computers, machineries etc. Thus it is also called “tangible” or “real” assets market • Financial
asset Markets deal with financial securities like stocks, bonds, notes, mortgage, derivative.
7. Spot Markets VS Future Markets • Spot Markets are markets in which assets are bought or
sold for “on-the-spot” delivery. Spot market prices are the current prices of the asset. • Futures
Markets are markets in which participants agree today to buy or sell an asset at some future
date at a particular price. Prices at the futures market are estimated. • Transactions in the
futures market can reduce risk. This is called hedging.
8. Money Markets VS Capital Markets • Money Markets are the markets for short-term, highly
liquid debt securities. NY, London and Tokyo money markets are the largest in the world. •
Capital Markets are the markets for intermediate or long-term debt and equity securities. All
the stock exchanges in the world are examples of Capital Market.
10. Primary Markets VS Secondary Markets • Primary Markets are the markets in which
corporations raise new capital. When securities are sold for the first time directly from the
issuer it is a transaction in the primary market. • Secondary Markets are markets in which
existing, already outstanding, securities are traded among investors. It is the place where
securities are sold “second-hand”
11. Private Markets VS Public Markets • Private Markets are markets where transactions are
negotiated directly between buyer and seller. These deals are very customized. Example:
bank loans, insurance etc. • Public Market are markets in which standardized contracts are
traded on organized exchanges. Large number of buyers and sellers hold similar securities in
public markets
12. Recent Trends • Some recent trends in financial markets are: • Use of technology •
Globalization of banking and commerce • Deregulation • Increased Competition • Increased
use of derivative securities
13. Financial Institutions • These are companies who act as an intermediary in between the
investors and borrowers. • Not involved in direct fund transfers. • Most of them earns through
either commissions or underwriting
14. Financial Institutions • Commercial banks • Investment banks • Financial services
corporations • Mutual Funds • Credit Unions • Pension Funds • Insurance Companies •
Exchange Traded Funds • Hedge Funds • Private Equity Companies
15. Investment Banks • Investment banks are an organization that underwrites and distributes
new investment securities and helps business obtain funds. Sometimes they also participate
in investment with their own share of funds along with their client investors. • They sometimes
help the corporations to design the securities with features that are currently attractive to
investors.
16. Commercial Banks • Commercial banks are the traditional “departmental store” of finance
serving a variety of savers (deposits) and borrowers (loans). • In every country there is a
central bank who monitors and guides all the other commercial banks. Example: Bangladesh
Bank, Federal Reserve of USA.
17. Financial Services Corporation • Financial Services Corporation are large conglomerates
that combine many different financial institutions within a single corporation. • For example
Citigroup owns Citibank (commercial bank), Smith Barney (investment bank & brokerage
house), insurance companies, and leasing companies.
18. Mutual Funds • Mutual Funds are organizations that pool investor funds to purchase financial
securities and thus divides the risk and achieve economies of scale in security analysis and
trading costs. • Money market funds are mutual funds invested only in instruments traded in
money market.
19. Insurance Companies • Insurance Companies take savings in the form of annual premiums
against a particular asset. They invest these funds in stocks, bonds, real estate, mortgages
etc and make payments to the insured parties in case of the asset being stolen or broken.
20. Stock Market • The most active secondary market and most important to financial managers
is the stock market. • There are two basic types of Stock Markets: • Physical Location Stock
Exchange • Over-the-counter (OTC) Market/Dealer Market
21. Physical Location Exchange • Physical Location Exchange: Formal Organizations having
tangible physical locations that conduct trades of designated (listed) securities. Example: New
York Stock Exchange (NYSE), Dhaka Stock Exchange (DSE). • Sells trading license or
“seats” to brokers which gives them the right to trade for the investors.
22. Over-the-Counter Markets • Over-the-counter (OTC) markets are a large collection of
brokers and dealers, connected electronically by telephones and computers, that provides for
trading in unlisted securities. Example: National Association of Securities Dealers Automated
Quotations (NASDAQ), Central Depository Bangladesh Limited (CDBL). • Dealers state the
bid price (buying price) of the stocks and the ask price (selling price). The difference between
the two is the dealer’s profit, known as bid-ask spread.
23. Types of Transactions • Outstanding shares of established publicly owned companies that
are traded in the secondary market (second-hand stocks trading). • Additional new shares
issued and sold by established publicly owned companies in the primary market. • Initial
Public Offerings made by companies who are selling shares for the first time in the stock
exchange. This is called “going public”.
24. Stock Market Efficiency • When the prices of all the stocks are at equilibrium most of the
time then that market is said to be efficient. • A market in which prices are close to the intrinsic
values is efficient. • Intrinsic Values are calculated using information related to the security. •
The more information available in a market about all the securities the more efficient that
market is