chapter 1 Financial market

Chapter 1
Financial market

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Chapter 1 : Financial market
1.1 Formation of financial market
1.2 Functions of financial market
1.3 Classification of financial markets
1.4 The Financial Market’s Commodities
1.5 Participants in financial markets

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1.1 Formation of financial
market
1.1.1 The objective indispensability of the
process of regulating capital.
1.1.2 Formation base of financial market
1.1.3. Nature of financial market

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1.1.1 The objective
indispensability of the process
of regulating capital.
• Reproduction process requires a lot of
capital
• Investors look for the way to make their
capital gain profit
=>Regulating capital from surplus to
inadequate places
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1.1.2 Formation of financial
market
• Forms of connecting Demand - Supply
– Direct borrowing and lending
– Via financial intermediaries
– Issuing securities

Forming financial market: the place in
which trading of financial assets between
buyers and sellers occurs

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1.2 Functions of financial
market
•
•
•
•

Function of conducting capital
Function of forming price of financial
assets based on market mechanism
Function of guaranteeing the liquidity
of financial assets
Function of decreasing expense for
research and circulation
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1.3 Classification of financial
market
• Based on the turnover term
• Based on the specialization of market
• Based on the turnover process of financial
instruments

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1.3.1. Based on the turnover term
Financial market consists of money market
and capital market
Money market
Short-term
Foreign capital market
Exchange
Inter-bank
market
Market
Mortgage
Stock
Leasing
market
market
market
OTC
Stock
exchange Market
Capital market
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Money market
• Concept of Money market
– A market in which short-term money is traded

(including short-term valued papers under a
year) in the economy

• Components of Money market:
– Inter-bank market
– Foreign exchange market
– Short-term capital market
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Capital market
• Concept of capital market:
– is the place for transactions of long-term
capital instruments

• Components of capital market:
– Mortgage market
– Leasing market
– Securities market

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1.3.2. Based on the specialization of the
market
• Debt instrument market

• Equity/capital instrument market
• Derivatives market

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1.3.3. Based on the turnover process of
financial instruments
• Primary market
• Secondary market

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1.4. The Financial Market’s
Commodities
•
•
•
•
•
•
•
•

Bill of Credit

Inter-bank Loan
Debenture
Negotiable Certificate of Deposit (NCD)
Banker's acceptance
Bond
Stock
Derivatives
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1.5. Participants in financial markets

• Deposit-taking institutions:
– Commercial banks
– Savings and loan associations

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Quiz for chapter 1
1- What’s financial market?
2-What is the difference between:
• Primary and secondary market
• Capital market and Money market
• Debt market and equity market
3- You can buy stocks and bonds directly, or

put your money in securities investment
fund. Why do you choose the second
option?
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Quiz for chapter 1
4- What are the key differences between a
bank, a mutual fund and an insurance
company?
6- What are the functions of financial
market? Describe them.
7- Why is liquidity important to investors?

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