Introduction and Overview of Financial Markets

Prof. Annedrei Maurizze Barcarse, MBA,CSSWB

Learning Objectives

• To define what is Financial

Market
• To know the Importance of
Financial Market
• To distinguish and
differentiate the different
Financial Markets
 • A place where
individuals are involved
in any kind of financial
transaction.
• Financial market is a
platform where buyers
and sellers are involved
in sale and purchase of
financial products like
shares, mutual funds,
bonds and so on.
What is Financial Market and
Why do we need to study it?
 1. Puts savings into
more productive use
2. Determines the
price of securities
3. Makes financial
assets liquid
4. Lowers the cost of
transactions

Important Functions of
Financial Markets
 • Financial markets provide a
place where participants like
investors and debtors,
regardless of their size, will
receive fair and proper
treatment.
• They provide individuals,
companies, and government
organizations with access to
capital.
• Financial markets help lower
the unemployment rate
Importance of Financial because of the many job
opportunities it offers
Markets
 What is a
Primary Market?
• a form of capital market where various
companies issue new stock, shares and
bonds to investors in the form of IPO’s
(Initial Public Offering). Primary Market is
a form of market where stocks and
securities are issued for the first time by
organizations.

• IPO – Initial Public Offering

the process of offering shares of a private
corporation to the public in a new stock
issuance for the first time
What is a Secondary Market?

• a form of capital market

where stocks and
securities which have
been previously issued
are bought and sold
 Money Vs. Capital Markets
Money Market
• A place for short term lending and
borrowing, typically within a year. It
deals in short-term debt financing
and investments.
• Purchases and sells new instruments
rather than trading in outstanding
claims.
• Subject to very slight price risk.
• Individual players cannot invest
through in the money market as the
value is large.
Capital Market
• Refers to the stock market, which
indicated for trading in shares and
bonds of companies on recognized 
stock exchanges.
• Sells and trade old instruments.
• It shows considerable price variation.
• Anybody can make investments
through a broker
 Money Vs. Capital Markets
Money Market Capital Market

• Debt Instruments only. • Equity Instruments only.

• It is more secured than the capital • It contains a high risk and high
market. return.
• Deals are transacted on phone or • Trading is through recognized stock
through electronic systems exchanges.
What is a Foreign
Exchange Market?
• The foreign exchange (Forex)
market helps conduct currency
trade. These markets are
operated through 
financial institutions and are
used to determine foreign
exchange prices for every money.
 • The market which deals
with the trading of
contracts which are derived
from any other asset is
called as derivative market.
• Individuals and firms can
trade in futures, options,
forward contracts, and
swaps here. Such trades
can be entered either via
over-the-counter or in
exchange-traded
What is a Derivative derivatives to manage the 
financial risk.
 Market?
 The
Derivative
Market
Types of Derivative Contracts

1. Options
Options are financial derivative contracts that give the buyer the right, but not the
obligation, to buy or sell an underlying asset at a specific price (referred to as the 
strike price) during a specific period of time.
2. Futures
Futures contracts are standardized contracts that allow the holder of the contract to
buy or sell the respective underlying asset at an agreed price on a specific date. The
parties involved in a futures contract not only possess the right but also are under
the obligation, to carry out the contract as agreed. The contracts are standardized,
meaning they are traded on the exchange market.
Types of Derivative Contracts

3. Forwards
Forwards contracts are similar to futures contracts in the sense that the
holder of the contract possesses not only the right but is also under the
obligation to carry out the contract as agreed. However, forward contracts
are over-the-counter products, which means they are not regulated and are
not bound by specific trading rules and regulations.
Since such contracts are unstandardized, they are traded over the counter
and not on the exchange market.
What is a Financial Institution?
What is a Financial Institution?
• Financial institutions are entities
that help individuals and
businesses fulfill their monetary
or financial requirements, either
by depositing money, investing it,
or managing it. Some of the
institutions labeled under this
category include – banks,
investment firms, trusts,
brokerage ventures, insurance
companies, etc.
 • Banks
• Credit unions
Types of • Community development financial institutions
Financial • Utilities
•
Institutions •
Government lenders
Specialized lenders
Who uses financial institutions?

• Individuals and businesses use these entities to serve their personal and
professional financial requirements and commitments. These institutions
allow customers to deposit money, withdraw when needed, transfer them
online instantly, save them for future use, and manage them smartly for
gains. They are also for those who want to buy and sell stocks, bonds, and
derivatives to earn profits.
Who regulates our financial
institutions here in our
country? (5 points on your
quiz)
What is the minimum
amount insured by the
PDIC on banks? (5 points
on upcoming quiz)
 • In your point of view, which type of market you will invest to
and why?

Homework
1