Role of Financial Markets and Institutions
CHAPTER 1
Role of Financial Markets and Institutions
Chapter Objectives
n Describe the types of financial markets
n Describe the role of financial institutions with financial markets
n Identify the types of financial institutions that facilitate transactions
Overview of Financial Markets
Financial Market: a market in which financial assets (securities) such as stocks and bonds can be purchased or sold n Financial markets provide for financial intermediation--financial savings (Surplus Units) to investment (Deficit Units) n Financial markets provide payments system n Financial markets provide means to manage risk
Broad Classifications of Financial Markets
Money versus Capital Markets Primary versus Secondary Markets Organized versus Over-the-Counter Markets
Primary vs. Secondary Markets
PRIMARY SECONDARY
New Issue of Securities Trading Previously Issued Securities
Exchange of Funds for Financial Claim No New Funds for Issuer
Funds for Borrower; an IOU for Lender Provides Liquidity for Seller
Money vs. Capital Markets
Money Capital
Short-Term, < 1 Year Long-Term, >1Yr
High Quality Issuers Range of Issuer Quality
Debt Only Debt and Equity
Primary Market Focus Secondary Market Focus
Liquidity Market--Low Returns Financing Investment--Higher Returns
Organized vs. Over-the-Counter Markets
Organized OTC
Visible Marketplace Wired Network of Dealers
Members Trade No Central, Physical Location
Securities Listed All Securities Traded off the Exchanges
New York Stock Exchange
Securities Traded in Financial Markets
n Money Market Securities l Debt securities Only
n Capital market securities l Debt and equity securities
n Derivative Securities l
Role of Financial Markets and Institutions
Chapter Objectives
n Describe the types of financial markets
n Describe the role of financial institutions with financial markets
n Identify the types of financial institutions that facilitate transactions
Overview of Financial Markets
Financial Market: a market in which financial assets (securities) such as stocks and bonds can be purchased or sold n Financial markets provide for financial intermediation--financial savings (Surplus Units) to investment (Deficit Units) n Financial markets provide payments system n Financial markets provide means to manage risk
Broad Classifications of Financial Markets
Money versus Capital Markets Primary versus Secondary Markets Organized versus Over-the-Counter Markets
Primary vs. Secondary Markets
PRIMARY SECONDARY
New Issue of Securities Trading Previously Issued Securities
Exchange of Funds for Financial Claim No New Funds for Issuer
Funds for Borrower; an IOU for Lender Provides Liquidity for Seller
Money vs. Capital Markets
Money Capital
Short-Term, < 1 Year Long-Term, >1Yr
High Quality Issuers Range of Issuer Quality
Debt Only Debt and Equity
Primary Market Focus Secondary Market Focus
Liquidity Market--Low Returns Financing Investment--Higher Returns
Organized vs. Over-the-Counter Markets
Organized OTC
Visible Marketplace Wired Network of Dealers
Members Trade No Central, Physical Location
Securities Listed All Securities Traded off the Exchanges
New York Stock Exchange
Securities Traded in Financial Markets
n Money Market Securities l Debt securities Only
n Capital market securities l Debt and equity securities
n Derivative Securities l