Financia

Financial
l
Management
Manage
Chapter Two ment

( FMI ) Romario
RomarioKhaled
Khaled
2024 01271535731
01271535731
01149154059
01149154059
 Financial Management [CHAPTER TWO]

Chapter 2
FINANCIAL ENVIRONMENT

Learning objective
1- Introduction to Financial system
2- The Egyptian Financial System
3- The Role of the Financial Markets and Financial institutions in the Flow of
funds process.
4- Market Efficiency & its Implications.

1-A Financial system :

- is a system that allows the exchange of fund between savers and borrowers .
- It operate at global , national and firm specific level ‫مستوي معٌن من الشركات‬
- term system indicates a group of complex and closely linked (financial institutions,
financial processes financial markets and financial instruments)

2 - The Egyptian financial system (Two Sectors )

First Sector (Bank Financial sector )
- includes all banks preforming banking activities operating in the Egyptian market
A Bank : (Governed and controlled by CBE)
- is a financial intermediary ‫ وسٌط‬that offers loans, accepts deposits, and offers other
payment services.
- is a financial intermediary that accepts deposits and channels those deposits into
lending activities, either directly or through capital markets. ً‫تموٌل شركات مدرجة ف‬
‫البورصة‬
CBE Role :
- according to the law of the Central Bank (Law No. 88 of the year 2003, amended
‫ معدل‬by Law No. 162 of the year 2004 and Law No. 93 of the year 2005)
- CBE regulatory body, is supervising the entire Egyptian banking financial sector

. ‫ تشرف على المطاع المالً المصرفً المصري بأكمله‬، ‫هٌئة رلابٌة‬

- work on realizing price stability and banking system soundness ‫ سالمة‬within the
context ‫ ثٌاق‬of the general economic policy of the State.

.‫العمل على تحمٌك استمرار األسعار وسالمة النظام المصرفً فً سٌاق السٌاسة االلتصادٌة العامة للدولة‬

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Financial Management [CHAPTER TWO]

Second sector (Non bank Financial sector )

The Egyptian non-banking financial sector is governed and controlled by the Egyptian
Financial Regulatory Authority (FRA),
- non-banking financial activities in the Egyptian market such as
- capital market,
- insurance
- mortgage financing ‫الرهن العماري‬
- financial leasing ً‫التأجٌر التموٌل‬
- factoring, ‫التخصٌم‬
- pension funds ‫صنادٌك التماعد‬
- microfinance activities ) ‫تموٌل المشارٌع الصغٌرة ( زي شركة تساهٌل‬
- securitization activities.)‫(اصدار وشراء و اعادة بٌع‬
FRA Role and function .
1 – License Non bank financial activity ‫ترخٌص‬
2 - Inspect licensed entities engaged in non-banking financial
Activities ‫رلابة‬
3 - Regulating the dissemination ‫ نشر‬of information related to non-
banking financial markets
4-Ensure transparency and competitiveness in non-banking
‫ضمان الشفافٌة و المنافسة‬
5 - Supervise training of market participants ‫اشراف و تدرٌب‬
6 - Protect non-banking market investors’ rights
7 - Take necessary measures to limit market manipulation and fraud
8 - Cooperate and coordinate with other non-banking regulatory bodies abroad, thus
developing and increasing efficiency of means and methods of supervision in non-
banking financial markets and instruments domains

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Financial Management [CHAPTER TWO]

[3] THE ROLE OF THE FINANCIAL MARKETS AND FINANCIAL INSTITUTIONS IN

THE FLOW OF FUNDS PROCESS.
Firms that have financial needs (financial requirements) can get them from external
sources through three ways:
1- Financial institutions
2- Financial markets The following figure shows, in comprehensive view, flow of funds for
financial institutions and financial markets:
3 – Private Placement

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Financial Management [CHAPTER TWO]

1 - FINANCIAL INSTITUTIONS
- serve as intermediaries by channeling the savings of individuals ,businesses, and
governments into loans or investments.
-financial institutions directly or indirectly pay savers interest on deposited funds;
- the key suppliers of funds and the key demanders of funds are individuals, businesses,
and governments
- In general, individuals are net suppliers of funds, while businesses and governments
are net demanders of funds.

2 - Financial Markets
- A financial market is a market where financial assets are exchanged
- The market in which a financial asset trades for immediate delivery is called the spot or
cash market.
private placement The sale of a new security directly to an investor or group
of investors.
public offering The sale of either bonds or stocks to the general public.
Financial market in which securities are initially issued; the
primary market only market in which the issuer is directly involved in the
transaction.
secondary market Financial market in which preowned securities (those that
are not new issues) are traded.

Classifications of Financial Markets

Role of Financial Markets
1- the interactions of buyers and sellers in a financial market determine the price of
traded asset.
2- financial markets provide a mechanism for an investor to sell a financial asset.
) ‫( تروٌج (الشاشة و االسعار و معلومات‬
3 - reduces the cost of transacting.
Classified as (nature of claim)
Debt market (loan and bond)
Equity market (CS or PS )
Classified as (maturity)
the money market (short term less than one year )(high liquidity ,low risk)
Transactions in short-term debt instruments, or securities ‫اوراق مالٌة‬,
the capital market. (Long term term )
. Long-term securities—bonds and stocks—are traded in the capital market.

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Financial Management [CHAPTER TWO]

Classified as (issuance)
primary market (issuing market )
Financial market in which securities are initially issued the only market in which the
issuer is directly involved in the transaction.
Initial public offering ‫االكتتاب العام‬
The sale of either bonds or stocks to the general public
Classified as (trading )
secondary market (Trading Market )
Financial market in which preowned securities (those that are not new issues) are
traded..
private placement :‫االكتتاب الخاص‬
The sale of a new security directly to an investor or group of investors.

4 - A Market efficiency &implications ‫اآلثار المترتبة على كفاءة السوق‬

- Efficient Market Hypothesis )theory )(EMH) ‫ فرضٌة كفاءة السوق‬:
1- speed of Quality to prices adjustment to new information .Only new information
case price change
2- Prices of Securities fully and fairly reflect all relevant available info
(Market value = fair value)
3- Large number of buyer and seller (no monopoly )
4- No one control market (no monopoly )
5- Perfect information ( easy to get and represent the true(
6- More rational investor ( not attract to profit maximization or underpricing stocks
Market efficiency does NOT mean prices do not depart from their true economic value,
however under EMH it's expected that deviations to be random
‫ال تعنً كفاءة السوق أن األسعار ال تحٌد عن لٌمتها االلتصادٌة الحمٌمٌة‬
Market efficiency levels:

• Weak form (the random Market prices reflect all information contained in past)
• Semi-strong form Market prices reflect all publicly available information.
• Strong form Market prices reflect all known information.

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