FIN 010: CAPITAL MARKETS

FINANCIAL
INTERMIDIARIES

FUNDS

FUNDS
FUNDS
LENDERS- SAVERS BORROWERS – SPENDERS
1. HOUSEHOLDS FINANCIAL 1. HOUSEHOLDS
2. BUSINESS FIRMS FUNDS MARKETS FUNDS 2. BUSINESS FIRMS
3. GOVERNMENTS 3. GOVERNMENTS
Financial market is a market in which people and entities can trade
financial securities, commodities, and other fungible items of value
at low transaction cost and at prices that reflect supply and demand.
Securities include stocks and bonds, and commodities include
precious metals and agricultural goods.
Financial markets refer broadly to any marketplace where the trading
of securities occurs, including the stock market, bond market, forex
market, and derivatives market, among others.
 Funds are directed to deficit spending units (DSUs) which can use
them most efficiently.
 Link between savers and investors
 Stability in security prices
 Speed up economic growth and development
 Helps in capital formation
 Helps in creating liquidity
1. Direct Finance
 Refers to lending by ultimate borrowers with no
intermediary,. Under this method, the Surplus Spending
Units (SSUs) give money to the DSU in exchange for
financial claims on the DSU. The claims issued by the
DSU are called direct claims.
 SSUs have a venue for savings with expected returns while
DSUs are provided with a source of funds for consumption
or investment.
 Private Placement
Selling securities by private negotiation directly to insurance companies, commercial
banks, pension funds, large-scale corporate investors and wealthy individual investors.
 Broker and Dealers
Broker is the one who acts an intermediary between buyers and sellers but does not take
title of the security traded.
Dealer is one who is in the security business and acting as a principal rather than an agent.
The dealer buys for his account and sells to customers from inventory and makes profits by
selling it at a higher cost.
 Investment Broker / Investment Banker
A person who provides financial advice and who underwrites and distributes new
investment securities.
 Also called financial intermediary
 Refers to lending by an ultimate lender to a financial
intermediary that then lends to ultimate borrowers.
 Financial intermediaries include commercial banks, mutual
savings banks, credit unions, life insurance companies, and
pension funds.
 Primary markets
 Secondary markets
 Money market
 Capital market
 Bond market
 Stock market
 Mortgage market
 Consumer credit market
 Auction market
 Negotiation Market
 Organized market
 Over-the-counter market
 Spot market
 Futures market
 Options market
 Foreign exchange market
 Primary Market