INSTITUTION OF ARTS AND SCIENCES

SUBMITTED TO:
MAM KINZA BUTT
SUBMITTED BY:
TANIA AFZAL R02
SUMBAL
FOZIA SO1
AYESHA RANA R06
MARIA RAIZ R15
KHANSA BUTT R50
PROGRAMME:
BBA HONS 4TH SEMESTER
SUBJECT:
PAKISTAN ECONOMY
Contents:

 Definition of Capital Market

 Types of Capital Market
 Functions
 Stock Exchange of Pakistan
 Stock index
 Foreign portfolio investment

Definition:
“Capital market is the part of financial system which is concerned with raising
capital funds by dealing in Shares, Bonds, and other long-term investments. The market
where investments instruments like bonds, equities and mortgages are traded is known as
the capital market"

 Types of Capital Market:

There are two types of capital market
 Primary market
 Secondary market
Primary Market:
It is that market in which shares, debentures and securities are sold for the first time for
collecting long-term loans.
This market is concerned with new issues. Therefore the primary market is also called New
issue market.
The money collected from this market is generally used by the companies to modernise the
plants, machineries, buildings for extending business and for setting up new business unit.

Secondary Market:
The secondary market is that market in which the buying and selling of the previously issued
securities is done.
The transactions of the secondary market are generally done through the medium of stock
exchange.
The chief purpose of the secondary market is to create liquidity in securities.
  Role OF CAPITAL MARKET:

The primary role of the capital market is to raise long-term funds for governments,
banks and corporations while providing a platform for the trading of securities
For companies, there are many reasons why they would want to raise capital. It is
typically to finance:

 Startup businesses – investing in new and innovative ideas

 Ongoing operations - one reason a company may have to do this is because
of an unexpected decline in revenues
 Expansions – at home or abroad , with existing or new products/ services,
companies often need to borrow in order to grow

The reason why a person or organisation would want to provide capital is more
straightforward. Those who provide capital to borrowers expect to make a profit from their
financing efforts.

STOCK EXCHANGE

 According to Marshall:

“Stock exchange are not merely the chief theatres of business transaction, they are
barometers which indicate the general conditions of the atmosphere of business”

Pakistan stock exchange is merger of all three merger of (ISE, LSE, KSE) of Pakistan.
Entities which provide “trading” for stock brokers and traders, to trade stock and
other securities.

Functions of stock exchange:

The function of stock exchange of Pakistan are as follow:

1. Liquidity:
The main function of stock exchange is to provide ready market for
sales and purchase of securities. The presence of stock exchange market gives
assurance to investors that their investment can be converted into cash
whenever they want. The investors can invest in long term investment project
without any hesitation, as because of stock exchange they can convert long term
investment into short term and medium term.
 2. Economic Barometer:
A stock exchange is reliable barometer to measure the
economic condition of the country. Every major change in country and economy
is reflected in the prices of the shares. The rise or fall in the share prices indicates
the boom or recession cycle of the economy. Stock exchange is also known as a
pulse of economy or economic mirror which reflects the economic condition of a
country.

3. Increasing Govt. Funds:

The government can undertake projects of national
importance and social value by raising funds through sale of its securities on
stock exchange.

4. Stock exchange protect investors:

As only genuine companies listed and the activities of the
stock exchange are controlled, the funds of the investors are very much
protected.

5. Facilities public borrowing:

Stock exchange serves as a platform for making marketing
Government securities. It enables government to raise public debt easily and
quickly.

6. Promotion of the habit of saving:

Stock exchange provides a place for saving to general public.
Thus it creates the habit of thrift and investment among the public. This habit
leads to investment of funds incorporate or government securities. The funds
placed at the disposal of companies are used by them for productive purposes.

 Stock exchange in Pakistan

o Karachi stock exchange

KSE was established on September 18, 1947 and incorporated on March 10,
1949.
Only five companies were initially listed with the total paid-up capital of 37
million rupees.
The first index introduce in KSE was based om fifty companies and was called
KSE 50 index.
Computerised trading systems called Karachi Automated Trading System
(KATS) was introduce in 2002.
 o Lahore stock exchange

In 1970, established under the Exchange Ordinance of 1969 by the

Government of Pakistan.
In response to the needs of the provincial metropolis of the province of the
Punjab.
It initially had 83 members.
The LSE was the first stock exchange in Pakistan to use the internet.

o Islamabad stock exchange

Established in Islamabad, the capital of Pakistan on October 25, 1989.
To cater to the needs of less developed areas of the northern part Pakistan.
It was licensed as a stock exchange on January 7, 1992.

Note:
These three stock exchange (ISE, LSE, KSE) are now merge in one stock
exchange named as Pakistan stock exchange PSX 2016 – of Pakistan, aimed
to help reduce market fragmentation and create a strong case for attracting
strategic partnerships necessary for providing technology expertise and
assistance.

 Security and Exchange Commission Of Pakistan (SECP)

“ The Security and Exchange Commission Of Pakistan (SECP) is the financial
regulatory agency in Pakistan whose objective is to develop a modern and efficient
corporate sector and a capital market based on sound regulatory principles in order
to encourage investment and faster economic growth and prosperity in Pakistan”.

Its VISION is the development of modern and efficient corporate sector and capital
market, based on sound regulatory principles.

MISSION is to develop a fair , efficient and transparent regulatory framework, based

on international legal standards and best practice.

STRATEGY is to develop an efficient and dynamic regulatory body, ensures proper

risk management procedures in the capital market, and protects investors through
responsive policy measures and efficient enforcement practices
 Listed companies in Stock exchange:
K Electric (Industry) Power Generation
Silk bank (Industry) Commercial banks
BYCO Petroleum (Industry) Refinery
OGDCL (Industry) Oil &Gas Exploration Companies
PTCL (Industry) Technology and Communication
PIA (Industry) Transport

Functions of security and exchange commission of Pakistan :

There are the some following functions:

 Regulating the issue of securities.

 Regulating the business in Stock Exchange and other securities markets
 Prohibiting fraudulent and unfair trade practices relating to securities
markets.
 Supervising and monitoring the activities of any central depository and Stock
Exchange clearing house.
 Encouraging the organized development of the capital market and the
corporate sector in Pakistan.

OBJECTIVES:
 It was initially concerned with the regulation of corporate sector and capital
market.
 Now it also concern with the supervision and regulation of insurance
companies, non-banking finance companies and private pensions.
 The SECP has also been entrusted with oversight of various external service
providers to the corporate and financial sector.

 Stock Index
 A stock index or stock market is a measurement of the value of a section of
the stock market.
 The movements of the prices in the market or section of a market are
captured in price indices called stock market indices.
 It is a tool used by investors and financial managers to describe the market
and to compare the return on specific investments.

 Foreign Portfolio Investment (FPI)

Foreign portfolio investment (FPI) consists of securities and other financial assets
passively held by foreign investors. It does not provide the investor with direct
ownership of financial assets and is relatively liquid depending on the volatility of the
market.
This is the investment that investors make in our country, and that gives them only
ownership right and not management right.
Now a days, market risk is very high due to political instability in such conditions
foreign investors are avoiding investment in Pakistan.
Government of Pakistan should focus on the FPI for the attraction of the investors.
Although, FPI nature is short terms but it the best way to attract the foreign
investors.
A well performing domestic stock market, an appreciating exchange rate and strong
domestic economic growth attracts portfolio flows. Greater volatility in the exchange
rate discourages these flows.