Financial Market

and Institutions
Financial markets
• Meeting place for people, corporations and institutions that either
need money or have money to lend or invest
• Lenders, borrowers or owners of public companies
– Public financial markets
– National, state, and local governments
– Corporate financial markets
– Large corporations
– 1) Either borrowing money through debt offering of corporate bonds or
short-term notes
– 2) selling ownership in the company through an issue of common stock
– Sale to individuals or institutions: Primary market
– After sale: Secondary market, trading between investors
Types of Markets
1. Physical asset markets vs Financial assets market
– Pure financial asset and derivative financial asset (options and subprime
bonds)

2. Spot market vs future markets

– “on-the-spot” vs buy or sell an asset at some future date

3. Money market vs capital market

– Both are financial markets
– Money: funds are loaned or borrowed for short periods
– Capital: for stocks and for intermediate and long-term debt
Types of Markets…
4. Primary vs secondary markets
– Primary: Issue new capital
– Secondary: securities and other financial assets are traded among
investors after primary market

5. Private vs public markets

– Private: directly between two parties
– Public: standardized contracts are traded on organized exchanges
Financial institutions
• a company engaged in the business of dealing with monetary
transactions, such as deposits, loans, investments and currency
exchange.
• Types:
1. Investment banks
– Underwrites and distributes new investment securities and helps businesses
obtain financing
2. Commercial banks
– Traditional
3. Financial services corporation
– Includes investment banking brokerage operations, insurance and commercial
banking
Financial institutions
4. Credit unions
– Cooperative associations whose members are supposed to have a common
fund
5. Pension funds
– Administered primarily by the trust departments of commercial banks or by life
insurance companies
6. Life insurance companies
7. Mutual funds
– Pools investors funds, short-term, low-risk securities and allow investors to write
checks against their accounts
8. Exchange trade funds
Financial institutions
4. Credit unions
– Cooperative associations whose members are supposed to have a common fund
5. Pension funds
– Administered primarily by the trust departments of commercial banks or by life insurance companies
6. Life insurance companies
7. Mutual funds
– Pools investors funds, short-term, low-risk securities and allow investors to write checks against their
accounts
8. Exchange trade funds
– Portfolio for public sale
9. Hedge funds
– Riskier
10. Private equity companies
– Hedge fund but buy and manage entire firms
Kinds of Stock Market
1. The organized stock exchange- there is physical location
2. The Over-the-Counter OTC) Exchange- digital
Reasons for transactions in the stock
market
1. Information Motivated Reasons
2. Liquidity Motivated Reasons
– Excess or insufficient liquidity
What is the stock exchange?
• an organized secondary market where securities like share,
debentures of public companies, government securities and
bonds issued by municipalities, public corporations, utility
undertakings, port trusts and such other local authorities are
purchased and sold.
• Facilitate the exchange of securities between buyers and sellers
Corporation Listing
• Listing- admission of securities to dealings on a recognized stock
exchange of any incorporated company, central and state
governments, quasi-governmental and other financial
institutions/ corporations, municipalities, electricity boards,
housing boards and so on.
– Provides liquidity and marketability to listed securities and ensure effective
monitoring of trading for the benefit of all participants in the market. All in
accordance with the listing agreement.

– Recognized stock exchange

– Brokers
– Official quotation
International Trade
Some important dates
• 1947
– General Agreement on Tariffs and Trade
– 23 countries

• 1995
– World Trade Organization
– 150 countries

• 2001
– China joine WTO
Benefits of International Trade
1. Lower Prices of Goods and Service
2. Access to Natural Resources
3. Access to Global Markets
4. Access to New Ideas
Obstacles to free trade
• Import tariff and import quota
– To protect domestic labor against inexpensive foreign labor
– To reduce domestic unemployment
– To protect young or infant industries
– To protect industries important to the nation’s defense
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