UNIVERSITY

Studies

MONEY AND CAPITAL

MARKET
Advance
OPEN

Lecture 2
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August 04th, 2015

Chenab College

Faisal Abbas
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faisalsialkml@yahoo.com

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Studies

Today’s Class
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• What is on today’s class Menu?

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A. Recap
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B. More about Financial Assets and Fianacial

Markets.
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C. Group formation and 1st Assignment

1
 Chenab College
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• Introduction

• Capital Maket
• Money Market
Recap

2
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• Introduction

• Capital Maket
• Money Market
Recap

3
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C
4
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Studies

Financial Asset
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• A financial asset is an asset whose value comes from a

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contractual claim. These assets are frequently traded.

Financial assets include the following items:
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• Cash
• Equity of another entity
• A contractual right to receive cash or similar from
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another entity or a potentially favorable exchange of

financial assets or liabilities with another entity
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Studies

EXAMPLE
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• Examples of financial assets are cash,

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investments in the bonds and equity issued

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by other entities, receivables, and derivative

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financial assets.
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Studies

Financial Market
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• A financial market is a market in which

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people trade financial securities, commodities and

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other fungible items of value at low transaction

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costs and at prices that reflect supply and demand.

Securities include stocks and bonds, and
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commodities include precious metals or

agricultural goods.
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Studies Lenders
Who have enough money to lend or to give someone
money from own pocket at the condition of getting
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back the principal amount or with some interest or

charge, is the Lender.
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Individuals & Doubles

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Many individuals are not aware that they are lenders,

but almost everybody does lend money in many ways.
1. A person lends money when he or she:
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2. Puts money in a savings account at a bank;

3. Contributes to a pension plan;
4. Pays premiums to an insurance company;
5. Invests in government bonds;
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Companies
Studies

Companies tend to be borrowers of capital. When

companies have surplus cash that is not needed for a
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short period of time, they may seek to make money

from their cash surplus by lending it via short term
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markets called money markets.

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There are a few companies that have very strong cash

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These companies tend to be lenders rather than

borrowers. Such companies may decide to return cash
to surplus (e.g. via a share repurchase.) Alternatively,
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they may seek to make more money on their cash by

lending it (e.g. investing in bonds and stocks).
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Borrowers
Studies

Individuals borrow money via bankers' loans for short

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term needs or longer term mortgages to help finance a

house purchase.
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Companies borrow money to aid short term or long

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term cash flows. They also borrow to fund

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modernization or future business expansion.

Governments often find their spending requirements
exceed their tax revenues. To make up this difference,
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they need to borrow.

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Borrowers
Studies

Individuals borrow money via bankers' loans for short

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term needs or longer term mortgages to help finance a

house purchase.
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Companies borrow money to aid short term or long

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term cash flows. They also borrow to fund

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modernization or future business expansion.

Governments often find their spending requirements
exceed their tax revenues. To make up this difference,
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they need to borrow.

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Studies Functions of Financial Markets
Intermediary Functions:
Transfer of Resources: Financial markets facilitate the
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transfer of real economic resources from lenders to

ultimate borrowers.
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Enhancing income: Financial markets allow lenders to

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earn interest or dividend on their surplus invisible funds,

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thus contributing to the enhancement of the individual and

the national income.
Productive usage: Financial markets allow for the
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productive use of the funds borrowed. The enhancing the

income and the gross national production.
Capital Formation: Financial markets provide a channel
through which new savings flow to aid capital formation of
a country.
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Studies Functions of Financial Markets

Price determination: Financial markets allow for the

determination of price of the traded financial assets
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through the interaction of buyers and sellers. They provide

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a sign for the allocation of funds in the economy based on

the demand and to the supply through the mechanism
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called price discovery process.

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Sale Mechanism: Financial markets provide a mechanism

for selling of a financial asset by an investor so as to offer
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the benefit of marketability and liquidity of such assets.

Information: The activities of the participants in the
financial market result in the generation and the
consequent dissemination of information to the various
segments of the market. So as to reduce the cost of
transaction of financial assets.
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Studies Constituents of Financial Market
Equity markets: A market where ownership of
securities are issued and subscribed is known as equity
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market. An example of a secondary equity market for

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shares is the Bombay stock exchange.

Debt market: The market where funds are borrowed
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and lent is known as debt market. Arrangements are

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made in such a way that the borrowers agree to pay the

lender the original amount of the loan plus some
specified amount of interest.
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Derivative markets: A market where financial

instruments are derived and traded based on an
underlying asset such as commodities or stocks.
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Studies Constituents of Financial Market

Foreign Exchange Market

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The foreign exchange market provides the physical

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and institutional structure through which the money of

one country is exchanged for that of another country,
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the rate of exchange between currencies is determined,

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and foreign exchange transactions are physically

completed.
A foreign exchange transaction is an agreement
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between a buyer and a seller that a given amount of one

currency is to be delivered at a specified rate for some
other currency.
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Studies Investors

Private investors without a valid trader's license are not

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authorized to trade directly on the floor. Access to the floor

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is granted to authorized trading participants only. They buy

and sell securities on behalf of their clients.
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There are private and institutional investors and within

each of these two groups, different types of investors and
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investment strategies can be found.

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Studies Investors

A legal entity that develops, registers and sells securities for

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the purpose of financing its operations. Issuers may be

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domestic or foreign governments, corporations or investment

trusts. Issuers are legally responsible for the obligations of
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the issue and for reporting financial conditions, material

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developments and any other operational activities as required

by the regulations of their jurisdictions. The most common
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types of securities issued are common and preferred stocks,

bonds, notes, debentures, bills and derivatives.
 UNIVERSITY
Studies Investors

A legal entity that develops, registers and sells securities for

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the purpose of financing its operations. Issuers may be

OPEN

domestic or foreign governments, corporations or investment

trusts. Issuers are legally responsible for the obligations of
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the issue and for reporting financial conditions, material

Chenab College

developments and any other operational activities as required

by the regulations of their jurisdictions. The most common
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types of securities issued are common and preferred stocks,

bonds, notes, debentures, bills and derivatives.
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Studies
Financial Intermediary

An entity that acts as the middleman between two parties in a

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financial transaction. While a commercial bank is a typical

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financial intermediary, this category also includes other

financial institutions such as investment banks, insurance
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companies, broker-dealers, mutual funds and pension funds.

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Financial intermediaries offer a number of benefits to the

average consumer including safety, liquidity and economies
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of scale.
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Studies
Role of Financial Intermediary

Financial intermediation can improve economic efficiency in

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at least five ways, by:

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1) facilitating transactions;
2) facilitating portfolio creation;
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3) easing household liquidity constraints;

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4) spreading risks over time;

5) reducing the problem of asymmetric information.
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CLASS ASSIGNMENT

REGULATIONS OF FINANCIAL MARKET