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CHAPTER 1

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

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CHAPTER 1

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  1. CHAPTER 1 AN OVERVIEW OF FINANCIAL MARKETS

  2. FINANCIAL SYSTEM • FINANCIAL MARKETS • FINANCIAL INSTITUTIONS &INDIVIDUALS • FINANCIAL INSTRUMENTS (SECURITIES) • RULES AND REGULATIONS

  3. FINANCIAL MARKETS • Financial markets consist of - fund suppliers-lenders - fund demanders-borrowers - financials instruments (fin assets, securities) - financial institutions (intermediaries)

  4. TYPES OF FINANCIAL MARKETS • MONEY MARKET • FOREIGN EXCHANGE MARKET • GOLD MARKET • BONDS AND BILLS MARKET • STOCK MARKET • DERIVATIVES MARKET

  5. MONEY MARKET-CAPITAL MARKET

  6. PRIMARY MARKET-SECONDARY MARKET

  7. ORGANIZED MARKET-OTC MARKET

  8. 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.

  9. 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.

  10. 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 ORGANIZED AND OTC MARKETS IN TURKEY

  11. BASIC FUNCTIONS OF CAPITAL MARKETS • CAPITAL FORMATION • LIQUIDITY CREATION • RISK MANAGEMENT

  12. 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.

  13. 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.

  14. 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

  15. 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?

  16. CAPITAL MARKET BOARD (CMB) CMB has; • regulating • supervising • mixed (regulating and supervising) and • operational duties

  17. 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

  18. 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

  19. CMB Supervising duties of the CMB; • Supervising the issuers, banks and dealers-brokers • Supervision of all kinds of advertisements in capital markets

  20. 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,

  21. 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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