chapter 1 an overview of financial markets. financial system financial markets financial...
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CHAPTER 1
AN OVERVIEW OF
FINANCIAL MARKETS
FINANCIAL SYSTEM
FINANCIAL MARKETS FINANCIAL INSTITUTIONS &INDIVIDUALS FINANCIAL INSTRUMENTS (SECURITIES) RULES AND REGULATIONS
FINANCIAL MARKETS
Financial markets consist of
- fund suppliers-lenders
- fund demanders-borrowers
- financials instruments (fin assets, securities)
- financial institutions (intermediaries)
TYPES OF FINANCIAL MARKETS
MONEY MARKET FOREIGN EXCHANGE MARKET GOLD MARKET BONDS AND BILLS MARKET STOCK MARKET DERIVATIVES MARKET
MONEY MARKET-CAPITAL MARKET
Differences Money Market Capital Market
Due-date Short-term Medium and Long Term
Fin. Instruments Commercial Papers, Treasury Bills etc.
Securities (Common Stock, Bonds etc.)
Sources of Funds Individual Savings Individual and Institutional Savings
Uses of Funds Woring Capital (Current Assets)
Investment Capital
(Fixed Assets)
PRIMARY MARKET-SECONDARY MARKET
PRIMARY MARKET SECONDARY MARKET
-firstly issued securities are traded
- Issuers raise new capital
-existing securites are traded
- Issuers does not raise new capital
ORGANIZED MARKET-OTC MARKET
Have central physical location No physical location
Commission No commission
Registration is required No need for registration
Controlling system Any controlling system. They are informal
Customers orders provide liqıidity Buying and selling transaction of financial intermediaries on their portfolios provides liqıidiy
Listing No listing (except NASDAQ)
Advantages of OTC markets for small firms
They can raise funds in OTC market with a little cost.
It helps them to develop and get the listing conditions (requirements).
Firms in the OTC markets are not followed closely by the public like in OSE.
It increase the reputation of the firms and increase the ability to find out debt financing sources.
Disadvantages
CSs in these markets are seen as more risky and those securities are being being bought and sold for speculative purposes which decrease the marketability of them.
Buying publicly held corporations requires the declaration of information about corporation which is not acceptable especially in competitive markets.
Being publicly held is costly especially for small firms which is a disadvantage from the economical point of view.
ORGANIZED AND OTC MARKETS IN TURKEY
Central Bank Open Market Central Bank Interbank Money
Market Central Bank Foreign Exchange
Market ISE Stock Market ISE Bonds and Bills Market ISE International Bonds and
Bills Market Istanbul Gold Market Turkish Derivatives Exchange
Interbank Money Market Interbank Repo Market Interbank Bonds Market Interbank Foreign Exchange
Market Free Gold Market
BASIC FUNCTIONS OF CAPITAL MARKETS
CAPITAL FORMATION LIQUIDITY CREATION RISK MANAGEMENT
Capital Formation
CMs facilitate the flow of funds from suppliers to demanders. By this way it provides increases in savings and investments into profitable areas.
Provides capital accunulation. Convestrs small savings to large
investments.
Liquidity Creation
Liquidity is the ability to buy or sell a security at any time you want.
This function increase the demand for the securities in both primary and secondary markets.
Risk Management
Security markets permit investors to reduce risk through diversification and hedging.
Diversification: Investing into more than one securities by this way we can reduce the risk.. By combining negatively correlated assets into the a portfolio (losses in some investments are offset by gains in others), we can reduce the total risk.
- Industry diversification - Country diversification
Risk Mang Contd.
Hedging: Individual and institutional investors use derivatives such as futures, options, forwards and swaps to hedge looses.
The risks that can be hedged with them are;– Foreign exchange risk– Interest rate risk– Commodity risk– Equity risk
Is there any derivative market in Turkey?
CAPITAL MARKET BOARD (CMB)
CMB has;– regulating – supervising – mixed (regulating and supervising) and – operational duties
CMB
Regulating and supervising duties of the CMB; Initial public offerings IPOs Clearing, safekeeping and rating Securities exchanges (existing and upcoming
alike) Trading through internet
CMB
Regulating duties of the CMB; Laying down the standard ratios for the issuers (initiators) The rules and regulations on external auditing The rules and regulations on certificates of registration and
prospectuses Laying down rules on proxy voting Rules and regulations on derivative business Rules and regulations on repos and reverse repos Rules and regulations on margin trading Rules and regulations on overseas securities to be traded in Turkish
markets Electronic trading Voting rights at general meetings of shareholders
CMB
Supervising duties of the CMB; Supervising the issuers, banks and dealers-
brokers Supervision of all kinds of advertisements in
capital markets
CMB
CMB regulates and supervises the following institutions; corporations offering their securities to the public, securities market intermediaries and banks-limited to their capital
market activities, mutual funds and investment companies including real estate
investment companies and venture capital investment companies, independent external auditing firms offering services to capital market
institutions, stock exchanges and the secondary markets in general, precious metal exchanges and derivative exchanges, other related institutions operating on the capital markets such as
rating agencies, clearing and depository institutions,
CMB
Operational duties of the CMB; Registration of securities and suspension of IPOs if
deemed in the best interest of Public Review of financial tables and reports Briefing relevant Secretary of State Real estate surveillance companies Educating all in the markets Cooperation with overseas counterparts
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