Fin1: Topic 5

• Financial market


  Any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market, among others
• Financial markets


  • Provide a permanent venue for savers and borrowers, and which render financial services whenever required by their customers
• Liquidity


  A measure of the ability of a debtor to pay their debts as and when they fall due
• Classification of financial markets


  • Primary market
  • Secondary market
  • Money market
  • Capital market
  • Bond market
  • Stock market
  • Mortgage market
  • Consumer market
  • Auction market
  • Negotiation market
  • Organized market
  • Over-the-counter market
  • Spot market
  • Futures market
  • Options market
  • Foreign exchange market
• Primary market


  Where companies issue a new security, not previously traded on any exchange. A company offers securities to the general public to raise funds to finance its long-term goals
• Secondary market


  Where investors buy and sell securities from other investors (think of stock exchanges)
• Money market


  An organized exchange market where participants can lend and borrow short-term, high-quality debt securities with average maturities of one year or less
• Capital market


  The exchange system platform that transfers capital from investors who want to employ their excess capital to businesses that require the capital to finance various projects or investments
• Components of the capital market

  • Bond market
  • Mortgage market
  • Stock market
• Bond market


  Where investors go to buy and sell debt securities issued by corporations or governments
• Stock market


  A place where investors go to trade equity securities (e.g., shares) issued by corporations
• Organized exchange


  A securities marketplace where purchasers and sellers regularly gather to trade securities according to the formal rules adopted by the exchange
• Over the counter markets (OTC)


  A decentralized market in which market participants trade stocks, commodities, currencies, or other instruments directly between two parties and without a central exchange or broker
• Mortgage market


  That portion of the financial market which deals with loans on residential, commercial, and industrial estate, and on farmland
• Consumer credit market


  The market involved in loans on autos, appliances, education, travel, etc.
• Auction market


  One where buyers and sellers enter competitive bids simultaneously. The price at which a stock trades represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to accept
• Negotiation market


  A type of secondary market exchange in which the prices of each security are bargained out between buyers and sellers. There are no market-makers or order matching
• Organized market


  A financial market with fixed trading rules, situated at a central location in the financial district in which trading is generally conducted by auction
• Over-the-counter market


  A market consisting of a large collection of brokers and dealers, connected electronically by telephones and computers, that provides for trading in listed securities
• Components of the over-the-counter market

  • Dealers who hold inventories of over the counter securities and act as a securities market
  • Brokers who act as agents in bringing these dealers together with investors
  • Computers, terminals, and electronic networks that provide a communications link between dealers and brokers
• Spot market


  When securities are traded for immediate delivery and payment
• Futures market


  The market where contracts are originated and traded that give the holder the right to buy something in the future at a price specified by the contract
• Option market


  Where stock options are traded. A stock option is a contract giving the owner the right to either buy or sell a fixed number of shares of a stock (usually 100) at any time before an expiration date at a price specified in the option
• Foreign exchange market


  The global marketplace for the trading of one nation's currency for another
• Primary Market is also known as New Issue Market
• Money Market (Short-term)

  • Treasury Bills
  • Certificate of Deposits
  • Commercial Paper
  • Federal Funds
  • Bills of exchange
  • Short-term mortgage-backed securities
  • Assets-backed securities
• Organized Market is also known as the Philippine Stock Exchange