BY:

• Osama tariq.
• Sajawal.
• Adnan Shahzad.
• Shaikh Ahmed Ali.
FINANCIAL MARKETS
• A financial market is a market in which people and entities can trade financial
securities, commodities, and other fungible items of value at low transaction costs
and at prices that reflect supply and demand. Securities include stocks and bonds,
and commodities include precious metals or agricultural goods.
FINANCIAL MARKETS FACILITATE

• The raising of capital (in the capital markets)

• The transfer of risk (in the derivatives markets)
• Global transactions with integration of financial markets
• The transfer of liquidity (in the money markets)
• International trade (in the currency markets)
SUB TYPE DIVISION OF FINANCIAL MARKETS
• Capital markets which consist of:
• Stock markets, which provide financing through the issuance of shares or common stock,
and enable the subsequent trading thereof.
• Bond markets, which provide financing through the issuance of bonds, and enable the
subsequent trading thereof.
• Commodity markets, which facilitate the trading of commodities.
• Money markets, which provide short term debt financing and investment.
• Derivatives markets, which provide instruments for the management of financial risk.
• Foreign exchange markets, which facilitate the trading of foreign exchange.
FINANCIAL MARKETS
• RAISING OF CAPITAL: Financial markets attract funds from investors and channel them
to corporations—they thus allow corporations to finance their operations and achieve
growth. Money markets allow firms to borrow funds on a short term basis, while capital
markets allow corporations to gain long-term funding to support expansion.

• TRANSFER OF RISK: In the financial markets, stock prices, bond prices, currency rates,
interest rates and dividends go up and down, creating risk. Derivative products are
financial products which are used to control risk or paradoxically exploit risk.
FINANCIAL MARKETS
• CAPITAL MARKETS:
• A Capital Market is a market for securities (debt or equity), where business enterprises
(companies) and governments can raise long-term funds.
• The capital market includes the stock market (equity securities) and the bond market
(debt). Money markets and capital markets are parts of financial markets.
• Capital markets may be classified as primary markets and secondary markets. In primary
markets, new stock or bond issues are sold to investors via a mechanism known as
underwriting. In the secondary markets, existing securities are sold and bought among
investors or traders, usually on a securities exchange, over-the-counter, or elsewhere
FINANCIAL MARKETS
• CURRENCY MARKETS:.
• The foreign exchange market is unique because of
• its huge trading volume representing the largest asset class in the world leading to high
liquidity;
• its geographical dispersion;
• its continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT
on Sunday until 22:00 GMT Friday;
• the variety of factors that affect exchange rates;
• the low margins of relative profit compared with other markets of fixed income.
FINANCIAL MARKETS
• MONEY MARKETS:
• As money became a commodity, the money market became a component of the financial
markets for assets involved in short-term borrowing, lending, buying and selling with
original maturities of one year or less.
• Trading in the money markets is done over the counter, is wholesale. Various instruments
like Treasury bills, commercial paper, bankers' acceptances, deposits, certificates of
deposit, bills of exchange, repurchase agreements, federal funds, and short-lived
mortgage- and asset-backed securities do exist. It provides liquidity funding for the global
financial system.
• The instruments bear differing maturities, currencies, credit risks, and structure.
FINANCIAL MARKETS
• Functions of the Money Market:
• transfer of large sums of money
• transfer from parties with surplus funds to parties with a deficit
• allow governments to raise funds
• help to implement monetary policy
• determine short-term interest rates
CAPITAL MARKET
 CAPITAL MARKET
 The market where investment instruments like bonds,
equities and mortgages are traded is known as the
capital market.
 The primal role of this market is to make investment
from investors who have surplus funds to the ones
who are running a deficit.
 The capital market offers both long term and overnight
funds.

THE DIFFERENT TYPES OF FINANCIAL
MARKETS ARE:

 > equity instruments

 > credit market instruments,
 > insurance instruments,
 > foreign exchange instruments,
 > hybrid instruments and
 > derivative instruments.
Nature of capital market.
The nature of capital market is brought out by the following facts:
 It Has Two Segments

 It Deals In Long-Term Securities

 It Performs Trade-off Function
 It Creates Dispersion In Business Ownership
 It Helps In Capital Formation
 It Helps In Creating Liquidity
Types of capital market.

There are two types of capital market:

 Primary market,
 Secondary market
 Primary Market

 It is that market in which shares,debentures and other securities are sold for the first
time for collecting long-term capital.

 This market is concerned with new issues. Therefore, the primary market is also called
NEW ISSUE MARKET.

 In this market, the flow of funds is from savers to borrowers (industries), hence, it helps
directly in the capital formation of the country.

 The money collected from this market is generally used by the companies to
modernize the plant, machinery and buildings, for extending business, and for setting
up new business unit.
Features of Primary Market.
 It Is Related With New Issues
 It Has No Particular Place

 It Has Various Methods Of Float Capital: Following are the methods of raising
capital in the primary market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer
 It comes before Secondary Market
 Secondary Market
 The secondary market is that market in which the buying and selling of the
previously issued securities is done.

 The transactions of the secondary market are generally done through the
medium of stock exchange.
 The chief purpose of the secondary market is to create liquidity in securities.
 If an individual has bought some security and he now wants to sell it, he can
do so through the medium of stock exchan. ge to sell or purchase through the
medium of stock exchange requires the services of the broker presently, their
are 24 stock exchange in India .
 Features of Secondary Market

 It Creates Liquidity

 It Comes After Primary Market

 It Has A Particular Place

 It Encourages New Investments

 MONEY MARKET

1) Meaning of Money Market:

Money market refers to the market where money and highly liquid marketable
securities are bought and sold having a maturity period of one or less than one year. It is
not a place like the stock market but an activity conducted by telephone. The money
market constitutes a very important segment of the Indian financial system.
The highly liquid marketable securities are also called as ‘ money market
instruments’ like treasury bills, government securities, commercial paper, certificates of
deposit, call money, repurchase agreements etc.
According to the Geoffrey, “money market is the collective name
given to the various firms and institutions that deal in the various
grades of the near money.”
 CONTENTS

 What is Money Market?

 Features of Money Market?
 Objective of Money Market?
 Importance of Money Market?
 Composition of Money Market?
 Instrument of Money Market?
 Structure of Indian Money Market?
 Disadvantage of Money Market?
 Continued…….
 Characteristic features of a developed money Market?

 Recent development in Money Market?

 Summary
 1! What is Money Market?
As per RBI definitions “ A market for short terms financial assets that are
close substitute for
money, facilitates the exchange of money in
primary and secondary market”.

 The money market is a mechanism that deals with the lending and
borrowing of short term funds (less than one year).

 A segment of the financial market in which financial instruments with

high liquidity and very short maturities are traded.
 Continued…….
 It doesn’t actually deal in cash or money but deals with substitute of
cash like trade bills, promissory notes & govt papers which can
converted into cash without any loss at low transaction cost.

 It includes all individual, institution and intermediaries.

 2 ! Features of Money Market?
 It is a market purely for short-terms funds or financial assets called
near money.

 It deals with financial assets having a maturity period less than one
year only.

 In Money Market transaction can not take place formal like stock
exchange, only through oral communication, relevant document and
written communication transaction can be done.
 Continued……..
 Transaction have to be conducted without the help of brokers.

 It is not a single homogeneous market, it comprises of several

submarket like call money market, acceptance & bill market.

 The component of Money Market are the commercial banks,

acceptance houses & NBFC (Non-banking financial companies).
 3. Objective of Money Market?
 To provide a parking place to employ short term surplus funds.

 To provide room for overcoming short term deficits.

 To enable the central bank to influence and regulate liquidity in the

economy through its intervention in this market.

 To provide a reasonable access to users of short- term funds to meet

their requirement quickly, adequately at reasonable cost.
 4. Importance of Money Market?

o Development of trade & industry.

o Development of capital market.
o Smooth functioning of commercial banks.
o Effective central bank control.
o Formulation of suitable monetary policy.
o source of finance to government.
 5. Composition of Money Market?

Money Market consists of a number of sub- markets which collectively

constitute the money market. They are,

 Call Money Market

 Commercial bills market or discount market

 Acceptance market

 Treasury bill market

 6. Instrument of Money Market?
A variety of instrument are available in a developed money market. In
India till 1986, only a few instrument were available.

They were
• Treasury bills

• Money at call and short notice in the call loan market.

• Commercial bills, promissory notes in the bill market.

 New instrument
Now, in addition to the above the following new instrument are
available:

 Commercial papers.
 Certificate of deposit.
 Inter-bank participation certificates.
 Repo instrument
 Banker's Acceptance
 Repurchase agreement
 Money Market mutual fund
 Treasury Bills (T-Bills)
 (T-bills) are the most marketable money market security.

 They are issued with three-month, six-month and one-year

maturities.

 T-bills are purchased for a price that is less than their par (face)
value; when they mature, the government pays the holder the full
par value.

 T-Bills are so popular among money market instruments because

of affordability to the individual investors.
 Certificate of deposit (CD)

 A CD is a time deposit with a bank.

 Like most time deposit, funds can not withdrawn before maturity
without paying a penalty.

 CD’s have specific maturity date, interest rate and it can be issued in
any denomination.
 The main advantage of CD is their safety.

 Anyone can earn more than a saving account interest.

 Commercial paper (CP)

 CP is a short term unsecured loan issued by a corporation typically

financing day to day operation.

 CP is very safe investment because the financial situation of a

company can easily be predicted over a few months.

 Only company with high credit rating issues CP’s.

 Repurchase agreement (Repos)

 Repo is a form of overnight borrowing and is used by those who deal

in government securities.

 They are usually very short term repurchases agreement, from

overnight to 30 days of more.

 The short term maturity and government backing usually mean that
Repos provide lenders with extreamly low risk.

 Repos are safe collateral for loans.

 Banker's Acceptance

 A banker’s acceptance (BA) is a short-term

credit investment created by a non-financial firm.
 BA’s are guaranteed by a bank to make
payment.
 Acceptances are traded at discounts from face value in the
secondary market.
 BA acts as a negotiable time draft for financing imports, exports or
other transactions in goods.
 This is especially useful when the credit
worthiness of a foreign trade partner is unknown.
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