Gemini Solutions

AMC L0 | Session 2
Capital Markets
Market Participants
A case study on Capital Markets

Where can he get the money from?

Options Available with Mr Ace

From Banks Go Public

Mr Ace can approach banks, but it will nor • Mr Ace can go public and get listed on the
prove to be a healthy option because: stock companies
• Bank will charge him high rate of interest
• Lending of loans is a very tedious task.
Banks first scrutinises the documents and
verifies them
• It is a very time consuming process
Capital Market

• Capital Market is the part of financial system which is

concerned with raising capital funds by dealing in
shares, bonds, and other long-term investments.
• The market where investment instruments like bonds,
equities and mortgages are traded is known as the
capital market
• The different types of financial instruments that are
traded in the capital markets are
➢ Equity Instruments : These are the shares in the
ownership of the company
➢ Credit Market Instruments : Also known as debt market,
it includes fixed income instruments which are issued
by government
➢ Foreign exchange instruments : The main trading
instruments of Foreign exchange market are the
currencies of various countries
➢ Derivative instruments : These instruments derive their
value from an underlying asset such as currencies,
stocks etc.
Types of Capital Market

• A primary market is the one in which the securities are sold for the first-
time in order to collect long-term capital for the businesses.
Primary • This market is for creation of long-term capital
Market

• A secondary market is the one in which the securities of the companies are
traded among the investors. Investors can buy and sell securities freely
without any intervention of the issuing company
Secondary
Market • Types of secondary markets are stock exchange, OTC markets
Primary market vs Secondary Market
Primary Market
• It is a way of issuing fresh shares in the
market. It is also referred to as New Issue
Market. A major component of the primary
market is IPO (Initial Public Offering)
• Securities are issued by the companies to
the investors.
• Here the intermediaries are
underwriters/investment bankers
• Securities can be traded only for once
Secondary Market
• It is a place where already issued or
existing shares are traded. It is called
After Issue Market
• Securities are exchanged between buyers
and sellers, and stock exchanges
facilitates the trade
• Here the intermediaries are brokers
• Securities can be traded infinite items
 Participants of Capital Market

Primary Market Secondary Market

Corporations

Buyers and Sellers

Institutions

Investment Banks
Investment Banks

Public Accounting Firms

 Participants in Primary Market
Corporations
These are businesses that require
capital to grow and run operations
Issue debt or equity to the
institutions in the forms of Bond and
Shares, respectively
Institutions (Buy side)
Consist of Fund Managers, Institutional
Investors and Retail Investors
Institutional Investors: people who pool
money to purchase assets
Retail Investors: who purchase securities
directly
These provide capital to corporations
Investment Banks (Sell Side)
Hired to facilitate deals between
corporations and institutions
Their work is to analyze risk, return
expectations and investment styles.
Example: Credit Suisse
Public Accounting Firms
Responsible for financial reporting,
auditing financial statements, taxes,
consulting on accounting systems,
Merger & Acquisition advisory and
capital raising
Hired by corporations for their
accounting and advisory services.
Example: Deloitte
 Participants in Secondary Market
Buyers and Sellers
Fund Managers or any Investor who
wish to purchase securities or debts,
will have to locate a seller
Transactions are facilitated through a
central marketplace, including a stock
exchange or over the counter (OTC)
OTC: trading of securities via broker-
trader network instead of trading on a
centralized stock-exchange
Investment Banks
While they facilitate the issuance of bonds
and shares in primary market, they expedite
the sales and trading of issued debts and
equities between buyers and sellers in
secondary market
They provide equity research coverage on
each stock’s upside potential, downside risk,
and rationale to help buyers and sellers
make a judgement. Moreover, they sell and
trade securities on behalf of the clients,
acting as custodians
 Market Participants wrt Mr. ACE
Primary Market
Mr. ACE visits an investment bank who
analyze risk, return expectations and
investment styles for him.
Investment Bank also introduce him to
institutional investors who will help him
to pool money
Later he also hired a public accounting
firms as well for his accounting, reporting
and auditing needs
Secondary Market
Now in secondary market buyers and sellers
would see the company future perspective
of the so they can finalize if they would like
to buy its share or sell it to book profit or
avoid any loss (whichever applicable
according to their own market study).
Investment banks who are custodian would
do their own analysis to buy or sell the
shares accordingly
 Money Market vs Capital Market

Money Market Overview

• Money Market is where individuals, • The Capital Market is inclined

banks, other companies and towards long-term investing.
government to park their cash for a Companies issue stocks and bonds
short period of time, usually one year or
to raise money to grow their
less
• It exist so that business and business. Investors buy them to
governments can quickly get the cash share in the company’s growth
they require at a reasonable cost. • The money market is less risky than
• The instruments associated to money the capital market while the capital
market are deposits, short-term market is potentially more
collateral loans. rewarding.
• Institutions operating in the money
market include the Central Banks of the
country, Commercial Banks.
Demand & Supply
 Law of Demand & Supply

The law of demand and supply is a theory that explains the interaction between a buyer &
a seller in a market-place.

The two laws interact to determine the actual market price and volume of goods in the
market
 Law of Demand

The law of demand states that if all other factors remain equal, the higher the price of a
good, the fewer people will demand that good. In other words, the higher the price, the
lower the quantity demanded.

The amount of a good that buyers purchase at a higher price is less because as the price
of a good goes up, so does the opportunity cost of buying that good.

Demand Curve Factors Affecting Demand:

• Price of the commodity

• Income of the consumer
• Price of related goods - Price of
substitutes & Price of complements
• Wealth of the consumer
• Price/Income Expectation
• Advertisement expenditure
• Taste & preferences
• Other factors
 Law of Supply

The law of supply demonstrates the quantities sold at a specific price. This means that
the higher the price, the higher the quantity supplied. But unlike the law of demand, the
supply relationship shows an upward slope.

From the seller's perspective, each additional unit's opportunity cost tends to be higher
and higher. Producers supply more at a higher price because the higher selling price
justifies the higher opportunity cost of each additional unit sold.

Supply Curve Factors Affecting Supply:

•Input prices
•Technology
•Expectation of future prices
•Number of sellers in the market
•Price of substitute or complementary goods
 Market Equilibrium

Market equilibrium occurs when demand for a good matches its supply and the market
gets cleared. An equilibrium is said to be stable when following any deviation from the
equilibrium there are some automatic forces which bring the system back to equilibrium

Equilibrium Price

Also called a market-clearing

price, the equilibrium price is the
price at which the producer can
sell all the units he wants to
produce, and the buyer can buy all
the units he wants.
 Some Real life Examples

Let us go through some examples that we may have experienced in our lives.

❑ Impact on prices of Sanitizers in Covid-19 crisis:

Before Covid-19, demand for sanitizers was low & supply was in abundance. However,
during the pandemic the demand increased sharply due to which we saw a rise in prices
of sanitizers.

❑ Effect on Prices of Agricultural Produce:

The increasing demand and staggered supply leads to increase in prices of agricultural
produce like for example Onion & Tomato. The reasons for less supply could be low crop
yields because of environmental factors like drought, floods etc. Seasonality of crops
also leads to increased prices.

❑ Effect on Prices of Gold:

The supply of assets such as gold is mostly fixed with small increases over time. Demand
of gold increases during festivals like Akshay tritiya & Diwali which leads to increase in
the gold prices.
Thank You!
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