Financial Markets

• The derivatives market is a type of financial market where contracts are traded that derive their value from an underlying asset, such as commodities, currencies, or stocks.
• Financial markets can be classified by type of claim, either as Debt markets or Equity markets.
• The most common method that funds can be obtained by a firm in the financial market is to issue a debt instrument such as a bond or a mortgage.
• The maturity of a debt instrument is the number of years (or the term) until the instrument’s expiration date.
• Secondary financial instruments such as stocks are issued in primary markets, they are subsequently traded that is, rebought and resold.
• Issuing corporations are companies that issue financial instruments, such as stocks and bonds.
• Financial markets are markets where financial instruments, such as stocks and bonds, are bought and sold.
• Primary markets are markets in which fund users (or borrowers) such as corporations, raise funds through new issues of financial instruments, such as stocks and bonds.
• Investors are people who buy and sell financial instruments, such as stocks and bonds.
• The second method of raising funds is by issuing equity instruments, such as common or ordinary stocks, which are claims to share in the net income (income after deducting expenses and taxes) and the assets of a business.
• The main disadvantage of owning a corporation’s equities, rather than its debt is that an equity holder is a residual claimant; that is, the corporation must pay all its debt holders first, before it pays its equity holders.
• The advantage of holding equities is that equity holders benefit directly from any increase in the corporation’s profitability or asset value, because equities confer ownership rights on the equity holders.
• In the debt market, investors and traders buy and sell bonds.
• Debt instruments are essentially loans that yield payments of interest to their owners.
• In the equity market, investors and traders buy and sell shares of stock.
• Stocks are stakes in a company, purchased to profit from company dividends or the resale of the stock.
• Money markets are financial markets that trade debt securities or instruments with maturities of one year or less (which could be from overnight to one year).
• The short-term nature of these instruments means that fluctuations in the prices of these instruments in the secondary markets in which they trade are usually quite small.
• Money markets do not operate in a specific location – rather, transactions occur via telephones, wire transfers, and computer trading.
• Examples of money markets include Treasury bills, Repurchase agreements, Commercial paper, Negotiable certificates of deposit, Bills of exchange, and Banker’s acceptances.
• Capital markets are markets that trade equity (stocks) and debt (bonds) instruments with maturities of more than one year.
• Given their longer maturity, these instruments experience wider or more price fluctuations in the secondary markets.
• Financial markets can be categorized as those dealing with financial claims that are newly issued, called the primary market, and those for exchanging financial claims previously issued, called the secondary market or the market for seasoned instruments.
• A primary market is a market in which fund users (or borrowers) such as corporations, raise funds through new issues of financial instruments, such as stocks and bonds.
• New issues of financial instruments are sold to the initial suppliers of funds (or investors) in exchange for funds (money) that the issuer (or borrower/fund users) need.
• Give one example each of Debt Market and Equity Market.
• Differentiate Debt Market and Equity Market.
• For investors: Secondary markets provide the quick opportunity to trade securities at their market values as well as to purchase securities with varying risk-return characteristics.
• Primary market: For these public offerings, the investment bank provides the securities issuer (or the fund user) with advice on the securities issue (such as the offer price and number of securities to issue) and attracts the initial public purchasers (or investors) of the securities for the funds user.
• Markets that do not operate in a specific location.
• By issuing primary market securities (or new securities) with the help of an investment bank, the funds user saves the risk and cost of creating a market for its securities on its own.
• These financial markets save economic agents (both investors and borrowers) the search and other costs of seeking buyers or sellers of financial instruments on their own.
• The short-term nature of these instruments means that fluctuations in the prices of these instruments in the secondary markets.
• Trading volume in secondary markets can be large.
• For the issuing corporations: Information about the current market value of its financial instruments can be obtained by the issuing corporation.
• When an investor buys a financial instrument in a secondary market, it results in exchange of funds.
• The exchange is usually done with the help of a securities broker such as BPI Securities Corporation acting as intermediary between the buyer and the seller of the instrument.
• This is the Information about the current market value of its financial instruments can be obtained by the issuing corporation.
• With a private placement, the securities issuer (fund user or borrower) seeks to find an institutional buyer – such as a pension fund – or group of buyers (fund suppliers or investors) to purchase the whole issue.
• This is a secondary markets provide the quick opportunity to trade securities at their market values as well as to purchase securities with varying risk-return characteristics.