PUNJAB COLLEGE OF COMMERCE

Assignment#01

Group Members:

Reg. #

Junaid Subhani

L4F14MCOM0017

Muhammad Abubakar Saleem

L4F14MCOM2005

Sheikh Shahzaib Ali

L4F14MCOM0018

Muhammad Iftikhar

L4F14MCOM0014

Section:
MA2

Course:
Business Finance

Submitted To:
Prof. Nawaz Madni

Submission Date:
05/05/2015

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Financial Markets:
Financial Market is the market where financial securities like stocks and bonds
and commodities like valuable metals are exchanged at efficient market prices. Here, by
efficient market prices we mean the unbiased price that reflects belief at collective
speculation of all investors about the future prospect. The trading of stocks and bonds in
the Financial Market can take place directly between buyers and sellers or by the medium
of Stock Exchange. Financial Markets can be domestic or international.

Money Market:
A money market consists of financial institutions and dealers in money or credit
who wish to either borrow or lend. It provides short term liquid funding to the
participants who borrow and lend for short periods of time which is normally one year
or less and often 30 days or less. The money market is a sector of the capital market
where short term obligations such as Treasury bills, Commercial paper and bankers
acceptances are bought and sold.

Capital Market:
The capital market is composed of long term borrowing or debt instruments than
those that trade in the money market. Capital markets are a source of financing for
companies around the world. Companies utilize capital markets to raise money for
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projects by issuing stock IPOs, bonds and short-term money market securities. Individual
investors wish to earn interest or dividends on their savings can meet companies looking
to raise funds by issuing securities. It improves the efficiency of capital allocation
through competitive pricing mechanism. The most famous of the capital markets are
the stock market and bond market.
Following are the worlds 10 largest Capital Markets: NYSE Euro next, United States ~ $12.4 trillion
Tokyo Stock Exchange, Japan ~ $3.5 trillion
NASDAQ OMX, United States ~ $3.5 trillion
NYSE Euro next, Europe ~ $2.8 trillion
London Stock Exchange, United Kingdom ~ $2.8 trillion
Shanghai Stock Exchange, China ~ $2.6 trillion
Hong Kong Exchanges, China/Hong Kong ~ $2.3 trillion
TSX/Toronto Stock Exchange, Canada ~ $1.8 trillion
Bombay Stock Exchange, India ~ $1.4 trillion
BM&F Bovespa, Brazil ~ $1.3 trillion

Primary Markets:
The primary market is that part of the capital market that deals with the issuance
of new securities. The main players of these markets are the private and public companies
that offer equity or debt based securities such as stocks and bonds in order to raise money
for their operations such as business expansion, modernization and so on.
Companies sell their securities to the public through an Initial Public Offering (IPO).
Primary markets are basically the platform where an investor gets the first opportunity to
purchase a new security thats why it is also called New Issue Market which means the
market for issuing new securities. In Pakistan the function of Primary market is
performed by stock exchange.
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Following are the 10 largest Global IPOs of the world:1. Alibaba Holdings Group:Raised $21.8 billion
2. ABC Bank (Agricultural Bank of China):Raised $19.228 billion
3. ICBC Bank (Industrial and Commercial Bank of China):Raised $19.092 billion
4. NTT DoCoMo:Raised $18.099 billion
5. Visa Inc.:Raised $17.864 billion
6. AIA:Raised $17.816 billion
7. Enel S.p.A.:Raised $16.452 billion
8. Facebook:Raised $16.007 billion
9. General Motors:Raised $15.774 billion
10. Nippon Tel:Raised $15.301 billion

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Secondary Market:
The secondary market is that part of the capital market that deals with the
securities that are already issued in the primary market. Securities issued by a company
for the first time are offered to the public in the primary market.
Once the IPO is done and the stock is listed, they are traded in the secondary market. The
main difference between the two is that in the primary market, an investor gets securities
directly from the company through IPOs, while in the secondary market, one purchase
securities from other investors willing to sell the same.
In the secondary market, the value of a particular stock also varies from that of the face
value. The resale value of the securities in the secondary market is dependent on the
fluctuating interest rates. In Pakistan the function of secondary market is also performed
by stock exchange. Equity shares, bonds, preference shares, treasury bills, debentures,
etc. are some of the key products available in a secondary market.

Business Ethics:
Ethics is a branch of social science. It deals with moral principles and social
values. It helps us to classify, what is good and what is bad? It tells us to do good things
and avoid doing bad things. Business ethics are moral principles that guide the way a
business behaves. The same principles that determine an individuals actions also apply to
business.
Acting in an ethical way involves distinguishing between right and wrong and then
making the right choice. It is relatively easy to identify unethical business practices.
For example, companies should not use child labour. They should not unlawfully use
copyrighted materials and processes. They should not engage in bribery.

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Consequences of unethical Behavior of various firms:

Enron:
The well-established company Enron, which was once ranked by Fortune as the most
innovative company in America faced bankruptcy and thus the downfall of Enron. One
of the causes of Enrons failure is that there is a weak corporate governance of board of
directors.Their lack of social responsibility from the 4 main criteria which were
economic, legal, ethical and discretionary responsibilities. The reason to Enrons failure
is because of the ethical behavior of accountants and managers. The accountants were
both self-satisfied and incompetent enough to certify Enrons financial statements. This is
because they lack in solid ethical framework, and with further push from the managers, it
affects these accountants ability to work. In my opinion, they were given a choice,
whether their actions will be rewarded or punished by their supervisors. The manager that
practices the utilitarian view knowing that he made a few bad decisions which leads to
the loss of millions of the company, tries to cover up by hiring outside accountants to deal
with off-balanced financial sheets. The environment of the organization has lead to the
unethical behavior of accountants

WorldCom:
Bernie Ebbers built WorldCom a small Mississippi long distance reseller, into a national
corporation by swallowing ever-larger companies, eventually even MCI. In 2005, at the age of
63, Ebbers was accused and convicted of conspiracy, securities fraud, and false regulatory filings
for his role in a massive accounting fraud that led to the downfall of the nations second largest
telecommunications firm. Shares of WorldCom stock once worth more than $60 were reduced to
mere pennies. The fraud at WorldCom ultimately topped $11 billion and led to the countrys
biggest bankruptcy filing. Nearly 17,000 employees lost their jobs as a result of the scheme to
bury expenses and inflate revenue. Ebbers, weeping in court as he learned his fate, were
sentenced to 25 years in prison. Even with possible time off for good behavior, Ebbers would
remain imprisoned until the age of 85.

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Arthur Anderson:
Arthur Andersen was charged with and found guilty of obstruction of justice for
shredding the thousands of documents and deleting e-mails and company files that tied
the firm to its audit of Enron. Although only a small number of Arthur Andersen's
employees were involved with the scandal, the firm was effectively put out of business
the SEC is not allowed to accept audits from convicted felons. The company surrendered
its CPA license on August 31, 2002, and 85,000 employees lost their jobs. The conviction
was later overturned by the U.S. Supreme Court due to the jury not being properly
instructed on the charge against Andersen. The Supreme Court ruling theoretically left
Andersen free to resume operations. However, the damage to the Andersen name has
been so great that it has not returned as a viable business even on a limited scale.

Merrill Lynch:
It facilitated Enron to sell Nigerian Barges therefore making Enron record about
$12 million in earnings and thereby meet its earnings goals at the end of 1999. This was a
sham. It facilitated Enron in fraudulently manipulating its income statements by entering
into a deal whereby Enron would buy Merrill Lynch in 6 months time with a guaranteed
15% rate of return. Merrill Lynch replaced a research analyst after his coverage of Enron
which displeased Enrons executives. This coverage would have saved Enron from
demise if Merrill Lynch would have prevailed upon Enron to implement it. Merrill Lynch
gave in to threats by Enron that it would be excluded from a coming $750 million stock
offering and instead, the replacement analyst is reported to have upgraded his report on
Enrons stock rating. This was unethical and unprofessional.

Citigroup:
Citigroup Inc. and other top Wall Street securities firms were accused of
misleading investors. The securities firms research divisions did this misconduct. The
analysts used biased research to sell stock that they knew were not good buys. The
analysts ignored the legitimate research because of concern over backlash from their
investment bankers. They were encouraged to do this by the investment sections of their
companies in return for bonuses and stock options. It was fueled by corporate greed, and
showed a zero regard for ethics and good business practices. The investigation found that
the research and stock ratings issued by analysts were not performed with integrity.
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One of the injured parties was the investors who initially bought stock based on
Research. They bought the stock and continued to buy the stock even while the prices
were going down. They lost money because they listened to the unethical research
reports, and often invested in companies until the stock totally plummeted. Other injured
parties include the companies whose stock was being sold because of the biased research.
They were getting a false sense of success because of the stock being sold in a disregard
for compliance to law. The everyday tax payer was also a injured party because when a
Bank as large as Citigroup fails it impacts not only corporate investments but also the
hard working middle class investor.
The unethical behavior affected the individual and society because the unethical and
biased analysts robbed them. By the end of 2002, the effects of the various allegations
were weighing heavily on Citigroup. The amount of money owed by Citigroup grew by
billions because of the costs of regulatory and private litigation. Many People and
organizations lost money because of these analysts reports. This may have eroded trust
in Wall Street and the stock market, not just for the injured parties but also for the public
at large.

Investment Bank:
An Investment Bank is a financial investment institution which acts as an
intermediary, and performs a variety of services which includes underwriting
(underwrites the securities by buying all the available shares at a set price and then
reselling them to the public), usually acting as an intermediary between an issuer of
securities and investors (helps companies in raising capital by arranging new bond or
stock issues to market), facilitating mergers and acquisitions, acting as a broker for
institutional clients, also responsible for preparing the company prospectus, which
presents important data about the company to public.
Unlike a commercial bank or a savings and loan company, an investment bank doesn't
usually provide retail banking services to individuals. In this way Investment banks and
traditional banks are separated financially because they handle different type of economic
transactions.

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Example:
JS Investment Bank
Pakistan Industrial Credit and Investment Corporation (PICIC)
Escorts Bank
IGI Investment Bank

Commercial Banks:
A commercial bank is a financial institution that is authorized by law to receive
money from businesses and individuals and lend money to them. Commercial banks are
open to the public and serve individuals, institutions and businesses. A commercial bank
is the type of bank that most people regularly use. Commercial banks are probably the
largest source of financing for private capital investment in the country.
A commercial bank is authorized to serve the following functions:
Receive deposits
Disburse payments
Collections Invest funds in securities for a return
Safeguard money
Maintain and service savings and checking accounts of its depositors
Maintain custodial accounts
Lend money
Examples:
Askari Commercial Bank Ltd.
Bank Alfalah Ltd.

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 MCB Bank
Habib Bank Ltd.

Mutual Funds:
Mutual Funds are the common name for open ended funds that are operated by an
investment company which raises money from shareholders and invests in a group of
assets with a stated set of objectives. Mutual funds raise money by selling shares to the
public, like any other type of company can sell stock in itself to the public. Mutual funds
then take the money they receive from the sale of their shares and use it to purchase
various investment vehicles, like stocks, bonds and money market instruments.
In return for the money they give to the fund when purchasing shares, shareholders
receive an equity position in the fund and, in effect, in each of its underlying securities.
For most mutual funds, shareholders are free to sell their shares at any time, although the
price of a share in a mutual fund will fluctuate daily, depending upon the performance of
the securities held by the fund.
Benefits of mutual funds are diversification and professional money management. Mutual
funds offer choice, liquidity, and convenience. Fee is charged against it.
Some of the Important types Mutual Funds are: Money Market Funds
Equity Funds
Bond Funds
Balanced Funds

Hedge Funds:
Like mutual funds, hedge funds are vehicles that allow private investors to pool
assets to be invested by a fund manager. It is usually used by wealthy individuals and
institutions which are allowed to use aggressive strategies that are unavailable to mutual
funds including selling short, leverages, program trading, swaps, arbitrage, and
derivatives.
Hedge Funds are commonly structured as private partnerships so, are exempt from many
of the rules and regulations governing other mutual funds which allow them to
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accomplish aggressive investing goals. They are restricted by law to no more than 100
investors per fund.

Life Insurance Companies:

Life insurance is a contract between an insured (insurance policy holder) and an
insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of
money (the "benefits") in exchange for a premium upon the death of the insured person.
Depending on the contract, other events such as terminal illness or critical illness can also
trigger payment. The policy holder typically pays a premium, either regularly or as one
lump sum. Other expenses (such as funeral expenses) can also be included in the benefits.
Life Insurance Company is a financial intermediary (the insurer) that shares the financial
risk of untimely death of its policy holder (the insured).
Examples:
New Jubilee Life
Eastern Federal Union (EFU)
State Life Insurance Corporation
East West Life Assurance Company

Worlds Largest Banking Companies:

Following 10 are the Worlds largest Banking Companies: ICBC Bank (Industrial and Commercial Bank of China)
China Construction Bank Corporation
JP Morgan Chase
Bank of America
HSBC Holdings
Citigroup
Bank of China
Wells Fargo & Co.
Agricultural Bank of China
Mitsubishi UFJ Financial Group

Leading Global Investment Banks:

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Following 10 are the Worlds Leading Global Investment Banks: Goldman Sachs & Co
JP Morgan
Bank of America Merrill Lynch
Morgan Stanley
Citigroup
Deutsche Bank
Barclays
Credit Suisse
Wells Fargo
Royal Bank of Scotland

References:
http://www.economywatch.com/market/market-types/financial-market-types.html
http://www.investopedia.com/articles/investing/011215/top-10-largest-global-ipos-alltime.asp
http://todayforward.typepad.com/todayforward/2010/04/the-15-largest-stock-marketsand-exchanges.html
http://www.investorwords.com/3173/mutual_fund.html#ixzz3YzwFs0jW
http://thefinanser.co.uk/fsclub/2014/07/the-top-1000-banks-in-the-world-2014.html
http://markets.ft.com/investmentBanking/tablesAndTrends.asp
http://en.wikipedia.org/wiki/Enron_scandal#Arthur_Andersen
http://www.scribd.com/doc/98946428/Ethics-and-Enron#scribd

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