TYPES OF FINANCIAL MARKETS

INTRODUCTION TO FINANCIAL MARKET

Financial market is where financial
securities like stocks and bonds and
commodities like valuable metals are
exchanged at efficient market prices.

Efficient market prices means the

unbiased price that reflects belief
at collective speculation of all
investors about the future prospect.

Financial market can be

domestic or international.
TYPES OF FINANCIAL MARKET
 MONEY MARKETS

Money market is a centre for

Money market become a
dealing mainly of a short term
component of the financial
character, in monetary assets;
markets for assets involved in
it meets the short-term
short term borrowing, lending,
requirements of the borrowers
buying and selling with original
and provides liquidity or cash
maturities of one year or less.
to lenders.
 MONEY MARKETS

Money market consists of

Money market developed
financial institutions and
because there are parties
dealers in money or credit
that had surplus funds,
who wish to either borrow
while others needed cash.
or lend.
 MONEY MARKETS

The central banks,

commercial banks, co-
The core of the money
operative banks, saving
markets consists of
banks discount houses
interbank lending.
etc. are the main
constitutes.
 FUNCTION OF MONEY MARKET
Transfer of large
sums of money.
Transfer from parties with
surplus funds to parties with a
deficit.

Allow governments
to raise funds.
Help to implement
monetary policy.
Determine short-term
interest rates.
 MONEY MARKET INSTRUMENT
 Call money
 Certificates of deposit
 Treasury bills
 Short-term government securities transactions
 Bankers’ acceptances/commercial bills
 Commercial papers
 Inter-corporate funds.
 CAPITAL MARKETS

For instance, capital It consists of a

Generally
market is the number of
understood as the
market for all the individuals and
market for long-
financial institutions that
term funds.
instruments, short- canalize the supply
However, also
and long-term, and demand for
includes the market term
as also commercial, long-term capital
for short-term
industrial and and claims on
funds.
government paper capital.
CONSTITUENTS OF CAPITAL MARKET

Stock Commerc Co-operative

exchanges ial banks banks

Saving Develope Insurance

banks d banks companies

Investment
trust or
companies
 ●
Provides
Bond
Bond financing by
Marke
Marke bond issuance
tt ●
and bond
trading.

CAPITAL Stock
Stock
Mark
Mark
●
Provides
financing by
shares or stock
issuance
et
et ●
and by share
trading.

MARKET
 FOREIGN EXCHANGE MARKET

FEM or FX or currency
The main participants in
market is a global
this market are the larger
decentralized market for
international banks.
the trading of currencies.
 FOREIGN EXCHANGE MARKET

Electronic Broking
Services (EBS) and Reuters The FEM is the most liquid
3000 Xtra are the main financial market in the
interbank FX trading world.
platforms.
 FOREIGN EXCHANGE MARKET

Traders includes large

FX is an over-the-counter
banks, central banks,
market where
institutional investors,
brokers/dealers negotiate
currency speculators,
directly with one another,
corporations,
so there is no central
governments and retail
exchange.
investors.
 CHRACTERISTICS OF FEM
 Huge trading volume representing the largest asset class in
the world leading to high liquidity.

 Geographical dispersion.

 Continuous operation.

 Variety of factors that affect exchange rates.

 Low margins of relative profit compared with other markets of

fixed income.

 Use of leverage to enhance profit and loss margins and with

respect to account size.
 COMMODITY MARKET

Commodity markets can

Commodity market refers to include physical trading and
markets that trade in derivatives trading using
primary rather than spot prices, forwards,
manufactured products. futures, and options on
futures.
 TOP TRADED COMMODITIES
1. Minerals, fuels, oils, distillation products etc.
2. Electronic, electrical equipment
3. Machinery, nuclear reactors, boilers etc.
4. Vehicles, other than railways, tramway.
5. Plastics and articles
6. Optical, photo, technical, medical, etc. apparatus
7. Pharmaceutical products
8. Iron and steel
9. Organic chemicals
10. Pearls, precious stones, metals etc.
 CONTRACTS IN THE COMMODITY
MARKET
 Spot contract

 Forward contract

 Futures contract

 Hedges

 Swaps

 Exchange-traded commodities (ETCs)

 DERIVATIVE MARKET

Derivative market is the financial market for derivatives,

financial instruments like futures contracts or options
which are derived from other forms of assets.
 Exchang
e-traded
derivativ

DERIVATIVE
es

Over-
the-
counter
derivative
s

MARKET
 INSURANCE MARKET

Insurance is the equitable

Insurance market is transfer of the risk of a
simply the buying and loss, from one entity to
selling of insurance. another in exchange for
payment.
Risk which can be insured by private companies
typically shares seven common characteristics

 Larger number of similar exposure units

 Definite loss
 Accidental loss
 Large loss
 Affordable premium
 Calculable loss
 Limited risk of catastrophically large losses.
Thank you…