SUMMARY ON THE OVERVIEW OF FINANCIAL MARKETS

Financial Markets - Provides the avenue for financial management decisions of deficit units and investment
management decisions of surplus units.

 DIFFERENT TYPES:
1. PRIMARY MARKET VS SECONDARY MARKET

1.1 Primary Market 1.2 Secondary Market

- is a financial market where securities are
INITIALLY issued.
- is a financial market in which new issues of
security are sold to INITIAL buyers.
- is a financial market in which securities that
have PREVIOUSLY been issued can be
resold.

- It is where new funds are raised. - No new funds are raised.

- A place where the investors’ trade with fellow

investors.

- Gives us information on the liquidity of the

securities and also provides us with
information on the pricing of the said
securities.
Notes to Remember on Primary Market:
- The one who sells financial instruments either debts or equity securities are called ISSUER.
- Initial public offering (IPO) denotes the first time that a previously private company offers its
equity shares to the general public. 
- During the IPO period, the issuing company is the only seller. When investors purchase shares
through an IPO, they purchase shares directly from the issuing company and the funds raised are
part of the issuing company’s capital or equity.

Notes to Remember on Secondary Market:

- Liquid securities normally have secondary market.
- We will know if they’re liquid when they can be sold quickly for a fair value.
- An example of secondary market is stock exchange– where investors are buying and selling (trading)
stocks with fellow investors.

2. MONEY MARKET VS CAPITAL MARKET

2.1 Money Market
- A financial market where money market
securities are traded
These are short-term debt securities.
Has a maturity of 1 year or less.
Has a high level of liquidity.
2.2 Capital Market
- A financial market where capital market
securities are traded.
These are long-term debt and equity securities.
Raise funds for the purchase of capital assets.

Examples: Includes:
- Treasury bills, - Bonds
- Commercial Papers, - Shares of stock
- Negotiable certificate of deposits - Mortgages – are long term debts created to
finance the purchase of real estate.
Can either be:
1. Residential – for real estate purchase for
individual households.
2. Commercial – for purchase of commercial
purposes / those of business use.
3. Subprime – offered to borrowers who have
been assessed to have no
sufficient income or cannot make
a down payment.
– Exhibits a higher risk of default.
3. DERIVATIVE VS EXCHANGE VS OTC MARKETS
3.1 Derivative Market
- Financial market where
derivatives are traded
a financial instrument whose
value is derived from the value
of another financial
instrument.
Common example:
Convertible bond
 Bonds which can be
converted into sales at the
option of the bond holder.
 The value of the bond
depends on the value of
the shares.
3.2 Exchange Market
- Secondary markets in which -
buyers and sellers, including
their agents and brokers, of
securities meet in one
central location to conduct
trades.
- Are ORGANIZED and
REGULATED markets to
trade particular financial
exchange
Example:
- Stock Exchange
 It is an organized market
governed by regulations
that facilitate the trading
of stocks
Potot, Jeanne Marie P. | 2019010599
3.3 OTC Market
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.
- Are NOT ORGANIZED and
LESS REGULATED
Example:
- Foreign Exchange Market
 It is an OTC global
market place that
determines the exchange
rate for currencies around
the world.
 It has no centralized
location.
 Considered as the largest
and most liquid
Types of Transaction:
1. Spot FX
- An immediate exchange
of currencies at the
current exchange rate.
2. Forward FX
- The exchange of
currencies at a specified
date in the future and at a
specified exchange rate.