GROUP MEMBERS

AGENDA

FINANCIAL MARKET

FUNCTIONS OF FINANCIAL

MARKETS

FLOW OF FUNDS

1. Direct Transfer

• Business sells its assets directly to investors

FLOW OF FUNDS

2. Indirect Transfer through Investment Bankers

Investment banker acts as middleman and facilitates

issuance of securities by reselling the securities to savers

CONT’D

3. Indirect Transfer through financial intermediary

Bank or mutual fund obtains funds from savers and uses the

money to lend or purchase securities

CONT’D

FINANCIAL ASSETS

CLASSIFICATION OF FINANCIAL

ASSETS

Equity

Debt

hybrid

EQUITY

Represents the portion of ownership in the assets of company.

Equity is the residual(at last) interest (dividend) in the assets of the

entity after deducting all the liabilities.

Examples: Ordinary Share Capital, Retained Earnings

DEBT

When a firm raises money for working capital or capital

expenditures by selling bonds, bills, or notes to individual

and/or institutional investors.

For example : Bonds

DEBT CONT.…

oTypes of Bonds

1. Corporate Bonds

2. Municipal Bonds

3. Treasury Bonds

HYBRID

An investment product that combines the attributes of an

equity security with a debt security.

Examples of hybrid instruments are preferred stocks.

Also called Hybrid Financing Instruments

HYBRID CONT.…

oPreferred Shares have two types;

1) Redeemable Preferred Shares

• No voting rights, have maturity (just like bonds),fix

dividends

2) Irredeemable Preferred Shares

• Have voting rights, no maturity, fixed dividends

CLASSIFICATION OF FINANCIAL

MARKETS

Maturity

Claim

Issue

Structure

Money Market:

Financial assets with maturity one or less then one year.

Capital Market:

Financial assets with maturity more then one year.

MATURITY

Debt Market

Financial assets with fixed claim

Equity Market

Financial assets having residual claim

CLAIM

Primary Market

Financial markets in which financial assets first time offer for

sale.

Secondary Market

Financial markets in which share are offer for sale ones they

are issued.

ISSUE

Exchange Market:

Financial markets that operates from a central location.

Over The Counter Market:

Financial markets which does not operates from a specific

central locations, transactions are made via

telephones, computers etc.

STRUCTURE

FINANCIAL INTERMEDIARIES

Depositary Institutions:

Accepts deposits from individuals and institution and make loans.

Contractual Savings Institutions:

Acquire funds at periodic intervals on a contractual basis.

Investment Intermediaries:

Raise funds by issuing shares, bonds and others financial

instruments.

TYPES OF FINANCIAL

INTERMEDIARIES

Commercial Banks:

Raise funds by issuing checkable deposits, saving deposits and time deposits then make commercial, consumer and mortgage loans.

Savings And Loan Associations

Obtain funds from deposits and make mortgage loans for residential housings.

Credit Unions:

Created for and by its members who are depositors, borrowers, & shareholders.

DEPOSITARY INSTITUTIONS

Life Insurance Companies:

Share financial risk of untimely death of policyholder against

premiums and invest funds in bonds, shares and mortgage.

Fire And Casualty Insurance Companies:

Insure against loss by fire, theft and accidents, risk of loss

funds, liquid investment.

Pension And Government Retirement Funds:

Funds acquired by contribution of employers and

employees, invest in stocks & bonds.

CONTRACTUAL SAVINGS INSTITUTIONS

Finance Companies:

Raise funds by selling commercial papers, shares, bonds and lend funds to consumers.

Mutual Funds:

Acquire funds from selling shares and use to purchase diversified portfolios of stocks and bonds.

Money Market Mutual Funds:

Acquire funds by issuing shares and invest in money market.

Investment Banks:

Helps corporation to issue securities, advices, underwrites.

INVESTMENT INTERMEDIARIES