UNDERSTANDING THE ROLE

OF THE FINANCIAL
MARKETS AND
INSTITUTIONS
CHAPTER 8
WHAT ARE FINANCIAL
MARKETS?
FINANCIAL MARKETS
Meeting place for people,
corporations, and
institutions, that either need
money or have money to lend
or invest.
1. Public Financial Markets
-primarily borrowers of funds
for highways, education,
welfare, and other public
activities
2. Corporate Financial Markets
-large corporations who raise
funds
TYPES OF
FINANCIAL
MARKETS
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Physical Asset Market Financial Asset Market

• are for products that has • deals with financial

physical substance (size, shape).
• For example: wheat, cars, real
securities like stocks,
estate, computers, machineries bonds, notes,
etc. mortgage, derivative.
• Thus it is also called “tangible”
or “real” assets market
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Spot Markets Future Markets

• Markets in which assets
are bought or sold for “on-
the-spot” delivery.
• Spot market prices are the
current prices of the asset.
• markets in which participants agree
today to buy or sell an asset at some
future date at a particular price.
• Prices at the futures market are
estimated.
• Transactions in the futures market
can reduce risk, called hedging.
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Money Markets Capital Markets
• Are markets in which • Markets for stocks and for
funds are borrowed or intermediate or long-term debt (one
loaned for short year or longer).
• All the stock exchanges in the world
periods(less than a year). are examples of Capital Market.
• NY, London, and Tokyo
money markets are the
largest in the world.
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Primary Markets
• Markets in which
corporations raise capital
by issuing new securities.
• The transaction starts
when securities are sold
for the first time directly
from the issuer.
y
Secondary Markets
• Markets in which securities
and other financial assets are
traded among investors after
they have been issued by
corporations.
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Private Markets Public Markets
• Markets where transactions • Markets in which standardized
are negotiated directly contracts are traded on
between the buyer and organized exchanges.
seller. • Large number of buyers and
• Ex. Bank loans, insurance, sellers hold similar securities
etc. in public markets.
FINANCIAL INSTITUTIONS

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CATEGORIES OF INVESTMENT BANKS
FINANCIAL 01 - An organization that
underwrites and distributes new
INSTITUTIONS investment securities and helps
business obtain funds.

COMMERCIAL BANKS
- The traditional “department
02 store ” of finance serving a
variety of savers (deposits) and
borrowers (loans).

FINANCIAL SERVICES
03 CORPORATION
-a firm that offers a wide range of
financial services, including
investment banking, brokerage
operations, insurance, and commercial
banking.
CATEGORIES OF CREDIT UNIONS
-cooperative associations
FINANCIAL 04 whose members are supposed
INSTITUTIONS to have a common bond, such
as being employees of the same
firm.
-often the cheapest source of
funds available to individual
borrowers.
PENSION FUNDS
-retirement plans funded by
05 corporations or government
agencies for their workers and
administered primarily by the
trust departments of
commercial banks or by life
insurance companies.
Thank You
DIXIE DAME D. POLINIO