1 / 9

CHAPTER 2 The Financial Environment:

CHAPTER 2 The Financial Environment:. Outlines Financial Markets Financial Institutions. The Capital Flow Process. In a well-functioning economy, capital flows efficiently from those who supply capital to those who demand it.

lexiss
Download Presentation

CHAPTER 2 The Financial Environment:

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 2The Financial Environment: Outlines Financial Markets Financial Institutions

  2. The Capital Flow Process In a well-functioning economy, capital flows efficiently from those who supply capital to those who demand it. Suppliers of capital – individuals and institutions with “excess funds.” These groups are saving money and looking for a rate of return on their investment. Demanders or users of capital – individuals and institutions who need to raise funds to finance their investment opportunities. These groups are willing to pay a rate of return(interest) on the capital they borrow.

  3. Three ways capital flow from savers to borrowers? • Direct transfer • Investment Bank • Securities pass through the investment bank • Financial intermediary • Intermediary create new securities for savers.

  4. What is a market • Market: A place/venue where goods and services are exchanged • FM: A place where funds/financial assets are traded. • lender: those with surplus of funds (individual, firms, Gov.) • borrower: those need funds ( individual, households, firms) • Who are lender/borrower: stock M, bond M

  5. Types of financial markets • Money vs. Capital • Primary vs. Secondary • Spot vs. Futures • Public vs. Private

  6. FM • F Asset /F instruments: contracts specifying borrowing/lending terms, claims on real assets • i.Money M (borrowed for less than 1 Y) and Capital M (1 Y or longer) • ii.Primary M and secondary M • 1.PM: New issues are sold to the public • 2.SM: outstanding issues traded among investors • iii.Private M vs. Public • 1.Private: transactions between two parties • 2.Public: standardized contracts traded on exchanges. • iv.Spot M vs. Future M • 1.     SM: transaction “on-the-spot” • 2. FM: Contract specifying terms of future trading

  7. Types of Financial Institutions • Banks • Commercial banks • Middleman between savers and borrowers • Investment banks • An organization that helps to sell new investment securities (bonds, stocks). • Financial services corporations • A firm that offers a wide range of financial services, including investment banking, commercial banking, brokerage and insurances. • Citi, B of A, JPM

  8. Types of Financial Institutions • Funds-pool money to invest • Mutual funds • Pension funds-retirement plans • Hedge funds • Exchange traded funds-ETF • Other financial institutions • Life Insurance companies: Collect premiums and invest • Private equity: borrows money to invest/mange the whole company

  9. The stock market • Types of stock market transactions • The secondary market • The primary market: • IPO market: Initial Public Offering • additional new shares • Basics of stock market and stock investing

More Related