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Superior College University Campus 1
Lecture # 1
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FINANCIAL MARKETS Chapter 1
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To develop concepts of financial markets To understand some important facts market To know components of financial market To learn six parts of financial system To seek out five parts of money To be familiar with history and elements of
money
Lecture Outcomes
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Financial market is the place where lenders and borrowers are allow to buy and sell financial securities
In general financial markets deals in 1. Securities 2. Commodities
Financial Markets
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Stock exchange◦ Three stock exchanges (KSE, LSE, ISE, 1948,
1974, 1997, 84%, 14%, 1% 167 companies listed)
◦ 2006-7 GDP of Pak US $ 143 billion, 49% capitalization from stock markets.
◦ 1997 dropped due to nuclear issue◦ 2002 declared best market in world.◦ Small market but attractive ◦ Central Depository company (CDC)
Some facts about financial markets
Source: Iqbal, J (2008). “Stock Market in Pakistan: An Overview”
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Money market Capital market
Types of financial markets
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Money market is the market where short term credit instruments are traded.
Money Market
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Money market in Pakistan Call loans Trading in credit ceiling Treasury bills (TBs) REPOs (Repurchase Agreements)
Instrument of Money Market
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Central bank Commercial banks Government Non bank financial intermediaries (NBFI).
◦ Insurance ◦ Micro financial institutes◦ Pension funds◦ Thrift institutions ◦ Discount house etc.
Other participants
Participants/Institutes of Money Market
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Capital market is the market for long term debts .when funds are lent for a period of more than one year.
The capital markets funds are used to finance long term investments.
Capital Market
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Security market (stocks & bonds) Further divided into two categories
◦ Primary market◦ Secondary market
Non security market (Development Finance Institutes)
E.g. PICIC IDBP, ICP, SBFC, ADBP, HBFC,NIT
Types of Capital Market
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Debt instrument ◦ Bonds◦ Government securities◦ Mortgages◦ Mutual funds
Issue of shares Primary Secondary
Instruments of capital markets
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Six parts of financial system Money Financial instruments Financial markets Financial institutions Government regulatory agencies Central bank
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1. Time (has value)2. Risk (requires compensation)3. Information (basis for decision)4. Markets (Markets Determine Prices and
Allocate Resources)5. Stability (improves welfare)
Five parts of money
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MONEY
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MONEY The word money is derived form the Latin
word MONETA which was the surname of the Roman Goddess of Juno in whose temple money was coined
Latin Word MonetaMoney
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MONEY
“Anything that is generally acceptable as a medium of exchange & at the same time acts as a measure and store of value is called money”.
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Elements of Money
MONEY
Medium of Exchange
Measures Value
Standard of deferred payments
Govt Approval
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Resource Person : Muhammad Rafiq
Superior College University Campus 19
Primary Function
Secondary Function
Contingent Function
FUNCTIONS OF MONEY
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Functions Of Money
Primary Function
SecondaryFunction
Contingent Function
Medium of exchange
Standard of Value
Store of wealth
Standard of deferred payments
Money as liquid assets
Money as guarantee of solvencyMedium of Govt payments
Transfer of wealth
Basis of bank credit
Distribution of national Income
Distribution of joint product
Maintenance of accounting record
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Chapter Summary Why Study Financial Markets?:
◦ the three primary markets (bond, stock, and foreign exchange) were briefly introduced.
Why Study Financial Institutions?:
◦ the market, institutions, and key changes affecting these were outlined.
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Chapter Summary (cont.) What is money and its characteristics.
What are element of money.◦ Medium of exchange
◦ Measures value
◦ Standard of deferred payment
◦ Government approval
◦ Money definitions and elements
◦ Functions of money