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BYMOHAMED RAFZEEN RAFEEQUE

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What is Financial Market :What is Financial Market :

Mechanism that allows people to buy andMechanism that allows people to buy and

sell financial securities (such as stocks andsell financial securities (such as stocks and

bonds) and items of values at lowbonds) and items of values at lowtransaction cost.transaction cost.

Markets work by placing many interestedMarkets work by placing many interested

buyers and sellers in one place, thusbuyers and sellers in one place, thusmaking easier for them to find each othermaking easier for them to find each other

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PURPOSEOF FINANCIALPURPOSEOF FINANCIAL

MARKETS:MARKETS:

Financial Market facilitate:Financial Market facilitate:

--The raising of capital.The raising of capital.

--The transfer of risk.The transfer of risk.--International trade.International trade.

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HOW FINANCIAL MARKETHOW FINANCIAL MARKET

WORKS:WORKS:

BORROWERBORROWER-- Issues a receipt to LenderIssues a receipt to Lenderpromising to pay back the capital.promising to pay back the capital.

RECEIPTSRECEIPTS--Securities which may be freelySecurities which may be freelybought or sold.bought or sold.

LENDERLENDER--Will expect some compensation inWill expect some compensation inform of interest or dividends, in return.form of interest or dividends, in return.

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TYPESOF FINANCIAL MARKETS:TYPESOF FINANCIAL MARKETS:

1.1. Capital MarketsCapital Markets

-- Stock MarketsStock Markets Which provideWhich provide

Financing through the issuance of sharesFinancing through the issuance of sharesor common stock , and enableor common stock , and enablesubsequent trading.subsequent trading.

-- Bond MarketsBond Markets Which provide FinancingWhich provide Financingthrough the issuance of bonds ,enablethrough the issuance of bonds ,enablesubsequent trading.subsequent trading.

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COMMODITY MARKETCOMMODITY MARKET Which facilitate the trading of commodities.Which facilitate the trading of commodities.

MONEY MARKETMONEY MARKET --Which provide short term debt financing andWhich provide short term debt financing andinvestment.investment.

DERIVATIVE MARKETDERIVATIVE MARKET Which provide instruments for theWhich provide instruments for themanagement of financial risk.management of financial risk.

INSURANCE MARKETINSURANCE MARKET Which facilitate redistribution of various risk.Which facilitate redistribution of various risk.

FOREIGN EXCHANGE MARKETSFOREIGN EXCHANGE MARKETS Which facilitate the trading ofWhich facilitate the trading offoreign exchange.foreign exchange.

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RAISING CAPITALRAISING CAPITAL

Without Financial Markets, borrowers wouldWithout Financial Markets, borrowers wouldhave difficulty finding buyers themselves.have difficulty finding buyers themselves.

Here the intermediaries such as BANKS come inHere the intermediaries such as BANKS come in

picture.picture.

Banks take money from those who have moneyBanks take money from those who have moneyto save.to save.

They can then lend this money to those whoThey can then lend this money to those whoseek to borrow.seek to borrow.

Banks popularly lend money in form of LOANS .Banks popularly lend money in form of LOANS .

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RELATIONSHIPRELATIONSHIP

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LENDERSLENDERS

INDIVIDUALSINDIVIDUALSMany individuals are not aware that they areMany individuals are not aware that they arelenders, but almost everyone lends money inlenders, but almost everyone lends money insome way.some way.A person lends money when he:A person lends money when he:

1.1. Puts money in a savings account at a bank.Puts money in a savings account at a bank.2.2. Contributes to a pension plan.Contributes to a pension plan.3.3.

Pays premiums to a insurance company.Pays premiums to a insurance company.4.4. Invests in government bonds.Invests in government bonds.5.5. Invests in company shares.Invests in company shares.

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LENDERSLENDERS

COMPANIESCOMPANIES

Companies usually tend to beCompanies usually tend to be

borrower of capital. But when they haveborrower of capital. But when they havesurplus cash that is not needed for a shortsurplus cash that is not needed for a shortperiod of time, they may seek to makeperiod of time, they may seek to makemoney from their cash surplus by lendingmoney from their cash surplus by lending

it, by investing in bonds and stocksit, by investing in bonds and stocks

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BORROWERSBORROWERS

INDIVIDUALSINDIVIDUALS e.g. bank loanse.g. bank loans

COMPANIESCOMPANIES for short term or long term cashfor short term or long term cashflows or future business expansion.flows or future business expansion.

GOVERNMENTSGOVERNMENTS for spending requirements, orfor spending requirements, oron behalf of nationalized industries,on behalf of nationalized industries,municipalities or other public sector bodies.municipalities or other public sector bodies.

PUBLIC CORPORATIONPUBLIC CORPORATION e.g. postal services,e.g. postal services,railway companies, and utility companies.railway companies, and utility companies.

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CONCLUSIONCONCLUSION

Thus Financial market :Thus Financial market :

-- Acts as a backbone of financial structureActs as a backbone of financial structureof any company.of any company.

-- Acts as an interface between prospectiveActs as an interface between prospectivebuyers and sellers.buyers and sellers.

-- Improves overall business liquidity.Improves overall business liquidity.

-- Helps in raising capital and improvingHelps in raising capital and improvinginternational trade.international trade.

--

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