FINANCIAL MARKET OVERVIEWRuben Fuentes

B.S, M.S,MBA.

What is Financial Market :

• Mechanism that allows people to buy and sell financial securities (such as stocks and bonds) and items of value at low transaction cost.

• Markets work by placing many interested buyers and sellers in one “place”, thus making easier for them to find each other.

PURPOSE OF FINANCIAL MARKETS:

Financial Markets facilitate :

• The raising of capital.

• The transfer of risk.

• International trade.

HOW FINANCIAL MARKET WORKS :

BORROWER- Issues a receipt to Lender promising to payback the capital.

RECEIPTS- Securities which may be freely bought or sold.

LENDER- Will expect some compensation in form of interest or dividends, in return.

TYPES OF FINANCIAL MARKETS :

1.Capital Markets• Stock Markets - Which provide

financing through the issuance of shares or common stock ,and enable subsequent trading.

• Bond Markets – Which provide Financing through the issuance of bonds , enable subsequent trading.

TYPES OF FM CONTD….• COMMODITY MARKETS – which

facilitate the trading of commodities.• MONEY MARKETS – which provide

short term debt financing and investment.

• DERIVATIVE MARKETS – which provide instruments for the management of financial risk

• INSURANCE MARKETS – which facilitate redistribution of various risks.

• FOREIGN EXCHANGE MARKETS - which facilitate the trading of foreign exchange.

RAISING CAPITAL

• Without financial Markets, borrowers would have difficulty finding buyers themselves.

• Here the intermediaries such as BANKS come in picture.

• Banks take money from those who have money to save.

• They can then lend this money to those who seek to borrow.

• Banks popularly lend money in form of LOANS and MORTGAGES.

RELATIONSHIP Relationship between lenders and borrowers

LENDERS INTERMED. FINANCIALMARKETS

BORROWER

• Individuals

• Companies

• Banks• Insurance companies• Pension funds• Mutual funds

• Stock Exchange• Money Market• Bond Market• Foreign Market

• Individuals• Companies• Central Govt.•Municipalitis• Public corporations

LENDERS

• INDIVIDUALS

Many individuals are not aware that they are lenders, but almost everyone lends money in some way.

A person lends money when he :

1. Puts money in a savings account at a bank.

2. Contributes to a pension plan.

3. Pays premiums to an insurance company.

4. Invests in government bonds.

5. Invests in company shares.

LENDERS

• COMPANIES

Companies usually tend to be borrowers of capital . But when they have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it, by

Investing in bonds and stocks

BORROWERS

• Individuals – e.g. bank loans, mortgages.

• Companies – for short term or long term cash flows or future business expansion.

• Governments – for spending requirements, or on behalf of nationalized industries, municipalities or other public sector bodies.

• Public Corporations – e.g. postal services, railway companies and utility companies.

FINANCIAL MARKET EFFICIENCY :

• Allocative Efficiency:

A market is allocatively efficient if channels fund to those firms and organisations with most promising real investment opportunities.

• Operational Efficiency:

Carries its operations as low a cost as possible.

• Information Processing Efficiency:

Any new relevant information is quickly and accurately impounded in prices.

CONCLUSION

Thus Financial market :• Acts as a backbone of financial

structure of any country.• Acts as an interface between

prospective buyers and sellers.• Improves overall business

liquidity.• Helps in raising capital and

improving international trade.

THANK YOU…….