Slide 1
Finance and Markets
Lecture 1: Introduction and overview of financial system
Financial Markets
Slide 2
Broad arenas where
people, organizations and
other entities can buy
and sell financial
securities, commodities
and other instruments.
Financial markets
facilitate:
- The raising of capital;
- Risk management;
- Price discovery;
- The transfer of liquidity
between participants.
2
Primary Markets
Slide 2
Primary market refers to the financial marketplace where new
securities are issued to the public.
3
Primary Markets
Slide 2
An IPO (initial public offering) is the process by which a private
company offers shares of its stock for the first time.
Through an IPO, a company transitions from being privately-held
to publicly-traded.
Alibaba (2014) – $25 billion
Facebook (2012) - $16 billion
Google (2004) - $1.7 billion
Visa (2008) - $17.9 billion
4
Secondary Markets
Slide 2
The place where investors buy and sell securities that they
already own.
Secondary markets offers
buyers and sellers liquidity –
the ability to turn an asset
into cash quickly at its fair
market value and price
determination (current value
of the securities they own).
5
Money Markets
Slide 2
Markets that trade debt securities or instruments with
maturities of one year or less
Money markets:
- Over-the-counter (OTC)
markets;
- Low-risk markets;
- Very liquid;
- Low returns.
6
Money Markets
Slide 2
7
Capital Markets
Slide 2
Markets that trade instruments
with maturities of more than one
year:
- Equities;
- Debt Market (Bond market);
- Derivatives;
- Foreign Exchange (FOREX);
- Private Equity;
- Commodity Markets.
8
Capital Markets
Slide 2
9
Foreign Exchange Markets
Slide 2
Global marketplace for
buying and selling
currencies.
It is the largest financial
market in the world, with
a daily trading volume
often exceeding $5
trillion.
Trading happens OTC.
10
Derivative Markets
Slide 2
Involves trading of
derivative securities,
which are financial
instruments that derive
their value from an
underlying asset.
11
Financial Institutions
Slide 2
Organizations that provide a wide
range of financial services, from
deposit – taking and loan making to
investment management and
insurance coverage.
They play a vital role in the global
economy by facilitating the flow of
money, providing liquidity and
enabling economic growth.
12
Financial Institutions Types
Slide 2
Commercial banks – depositary
institutions whose major assets
are loans and whose major
liabilities are deposits.
13
Financial Institutions Types
Slide 2
Thrifts – depository institutions in the form of savings associations,
savings banks, and credit unions.
Insurance companies – financial institutions that protect individuals
and corporations from adverse events.
Investment banks – financial institutions that help firms issue
securities and engage in related activities such as securities
brokerage and trading.
Investment funds – financial institutions that pool financial resources
of individuals and companies and invest those resources in
diversified portfolios of assets.
14
Financial Institutions Types
Slide 2
Pension funds are pools of funds
collected from individuals during
their employment years to provide
retirement income.
These funds are significant source
of long-term capital and play a vital
role in financial markets.
15
Financial Institutions Functions
Slide 2 Monitoring costs
Liability and price risk
Transaction cost services
Maturity/denomination intermediation
Money supply transmission
Credit allocation
Wealth transfers/payment services
16
Financial Institutions
Slide 2
17
World Financial Markets - Debt
Slide 2
18
World Financial Markets – Stock Market
Slide 2
19
World Financial Markets - Banks
Slide 2
20
Recommended readings
Slide 2
Anthony Saunders, Marcia Millon Cornet: “Financial Markets and
Institutions”; Seventh Edition 2019
Chapter 1: Introduction
21
Slide 11
THANK YOU