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Financial markets

Financial markets. Necessity Financial system of Financial Markets Flow of funds. Money. Incomes. Expenditures. Pay back, savings. Loan. Time. Rate of households savings:. Overspending. Necessity Financial system of Financial Markets Flow of funds.

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Financial markets

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  1. Financial markets

  2. Necessity Financial systemof Financial MarketsFlow of funds Money Incomes Expenditures Pay back,savings Loan Time Rate of households savings: Overspending

  3. Necessity Financial systemof Financial MarketsFlow of funds Rate of households savings: Investments Italy Japan Swiss France Austria Dollar UK USA Netherlands Sweden Norway Incomes Expenditures -10 0% 10 20 30 Évek Source: OECD and international statistics

  4. Necessity Financial systemof Financial MarketsFlow of funds Households’ incomes (salaries, wages) Households’ expenses (purchases) Financialsystem Firms(deficit units) Households(surplus units) Lending Borrowings Return Debts service Retainedearnings Government Government Governmental expenditures Taxes

  5. Necessity Financial systemof Financial MarketsFlow of funds money direct flow of funds Surplus Deficit Directclaims Securitiesdealer money money indirect claims security, credit indirect flow of funds Commercial Banks Depository Institutions Insurance Companies Pension Funds Investment Companies Finance Companies Mutual Funds

  6. Types of Financial systemFinancial MarketsFlow of funds • Duration: money and capital markets • Issuing: open and closed markets • Function: primary and secondary markets • Expiration: prompt and future markets • Concentration: concentrated, OTC and decentralised • Types offinancial assets: security and foreign currency

  7. Capital Market Financial systemInformation Sys. Guaranties of security markets quick accurate reliable relevant available Price determination Brochure Regular report Extraordinary report

  8. Financial systemRegulation and concentration Decentralised OTC Concentrated Concentration Regulation (Standardisation) • geographically distributed • participants contract • no boundary conditions • lack of information • cheap (third market) • interbank online network • security, exchange etc. • intermediary firms • technical boundaries • price: traders negotiation • quick and cheap • geographically concentrated • auction (demand) • market of unique products • price: based on bidding • tender (supply) • stock exchange • of homogeneous mass prod. • perfect market price

  9. Classification Securities I.Types of securities Yield of security Formally not yielding Fixed interest rate Variable yielding Territory of Sales Domestic trading International trading • Issuer • Government sec’s • Issued by financial company • Issued by firms • Owners of Security • Open to public • Closed to public

  10. Bond Securities Types of securities • Credit - surpluss • Loan • Long expiration (usually) • Investment financing • Pay back: face value + something (generally interest) • No membership rights • Payback can be • on the expiry date the total amount • Annuity type • After a given period as annuity • etc.

  11. Stock Securities Types of securities • Stockholders are the owners of the corporation. • Therefore • it means a permanent financing (no expiration), • the face value represents a part of the equity • so the owners of the shares have ultimate control of the company, i.e. right to vote. • Ownership rights • Right to vote • Rights to control • Remonstrate rights

  12. Hungarian Government SecuritiesGov. Sec. market Role in the Economy • Immobilisation: issuing only one but merged security (this is printed out and deposited). • Smaller units of the series is recorded as electronic sign. • Only those are printed which is intended to purchase by smaller investors. • The deals are clarified by Central Clearing House and Depository Ltd. (KELER)

  13. Government SecuritiesForms of selling • 15 primary dealers • Secondary markets • However the Hungarian State Treasury Government Debt Management Agency (ÁKK) has the rights to sell to smaller investors as well.

  14. Hungarian Government SecuritiesGov. Sec. market Role in the Economy • Immobilisation: issuing only one but merged security (this is printed out and deposited). • Smaller units of the series is recorded as electronic sign. • Only those are printed which are intended to be purchased by private investors. • The deals are clarified by Central Clearing House and Depository Ltd. (KELER)

  15. Stock Exchange Economic significance • Organised capital market for the free surpluses • Stock exchange just gives the place • Gives alternatives for the investors • Continuos, public valuation of corporations • Government independent indicator

  16. Development of Stock Exchange Stock ExchangesEconomic significance I. Antwerpen 1531. Toronto 1611. Amsterdam 1852. Tokio London 1802. New York 1878. 1792. Sydney 1834. Johannesburg 1887.

  17. Types of Stock Exchange Stock exchangesEconomic significance Exchange Stock Exchange Commodity Exch. Commodity and Stock exch. General Special General Special Commodities Commodities Stock Exch. Stock Exch. Foreign Currency Specialised Specialised for a unique commodity Precious Stock Exch. for given group of goods metal Stock Exch. non-ferrous metal Plane rubber sugar cotton spirit grain • Classification upon the circulated commodity

  18. Stock Exchange Operation Budapest Commodity Exchange Treasury Central Bank 7,25 % Debt Man. Agency Budapest Stock Exchange Deák F. str. 5. 92,75% Listed Corporations Brokerages Investors

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