Financial Market

A market is a place where two parties are involved in transaction of goods and services in exchange of
money. The two parties involved are:

 Buyer
 Seller

In a market the buyer and seller comes on a common platform, where buyer purchases goods and services
from the seller in exchange of money.

What is a Financial Market ?

A place where individuals are involved in any kind of financial transaction refers to financial market.
Financial market is a platform where buyers and sellers are involved in sale and purchase of financial
products like shares, mutual funds, bonds and so on.

The various types of financial market:

Capital Market
A market where individuals invest for a longer duration i.e. more than a year is called as capital market.
In a capital market various financial institutions raise money from individuals and invest it for a longer
period.

Capital Market is further divided into:

i. Primary Market: Primary Market is a form of capital market where various companies issue
new stock, shares and bonds to investors in the form of IPO’s (Initial Public Offering). Primary
Market is a form of market where stocks and securities are issued for the first time by
organizations.
ii. Secondary Market: Secondary market is a form of capital market where stocks and securities
which have been previously issued are bought and sold.

Types of Capital Market

1. Stock Markets:

Stock Market is a type of Capital market which deals with the issuance and trading of shares and
stocks at a certain price.

2.

Bond Markets: Bond Market is a form of capital market where buyers and sellers are involved in
the trading of bonds.
3. Commodity Market:

A market which facilitates the sale and purchase of raw goods is called a commodity market.

Commodity market like any other market includes a buyer and a seller. In such a market buyer
purchases raw products like rice, wheat, grain, cattle and so on from the seller at a mutually
agreed rate.

4. Money Market:

As the name suggests, money market involves individuals who deal with the lending and
borrowing of money for a short time frame.

5. Derivatives Market:

The market which deals with the trading of contracts which are derived from any other asset is
called as derivative market.

6. Future Market:

Future market is a type of financial market which deals with the trading of financial instruments
at a specific rate where in the delivery takes place in future.

7. Insurance Market:

Insurance market deals with the trading of insurance products. Insurance companies pay a certain
amount to the immediate family members of owner of the policy in case of his untimely death.

8. Foreign Exchange Market:

Foreign exchange market is a globally operating market dealing in the sale and purchase of
foreign currencies.

9. Private Market:

Private market is a form of market where transaction of financial products takes place between
two parties directly.

10. Mortgage Market:

A type of market where various financial organizations are involved in providing loans to
individuals on various residential and commercial properties for a specific duration is called a
mortgage market. The payment is made to the individual concerned on submitting certain
necessary documents and fulfilling certain basic criteria.
 GAAP
(Generally accepted accounting principles)
GAAP (generally accepted accounting principles) is a collection of commonly-followed accounting rules
and standards for financial reporting. The acronym is pronounced "gap."

GAAP specifications include definitions of concepts and principles, as well as industry-specific rules. The
purpose of GAAP is to ensure that financial reporting is transparent and consistent from one organization
to another.

There is no universal GAAP standard and the specifics vary from one geographic location or industry to
another. The Securities and Exchange Commission (SEC) mandates that financial reports adhere to
GAAP requirements. The Financial Accounting Standards Board (FASB) stipulates GAAP overall and
the Governmental Accounting Standards Board (GASB) stipulates GAAP for state and local government.
Publicly traded companies must comply with both SEC and GAAP requirements.

Financial statements prepared and presented by a company typically follow an external standard that
specifically guides their preparation. These standards vary across the globe and are typically overseen by
some combination of the private accounting profession in that specific nation and the various government
regulators. Variations across countries may be considerable making cross country evaluation of financial
data challenging.

Publicly traded companies typically are subject to the most rigorous standards. Small and midsize
businesses often follow more simplified standards, plus any specific disclosures required by their specific
lenders and shareholders. Some firms operate on the cash method of accounting which can often be
simple and straight forward. Larger firms most often operate on an accrual basis. Accounting
standards prescribe in considerable detail what accruals must be made, how the financial statements are to
be presented, and what additional disclosures are required.
 IFRS
(International Financial Reporting Standards)
International Financial Reporting Standards, usually called IFRS, are standards issued by the
IFRS Foundation and the International Accounting Standards Board(IASB) to provide a common
global language for business affairs so that company accounts are understandable and
comparable across international boundaries. They are a consequence of growing international
shareholding and trade and are particularly important for companies that have dealings in several
countries. They are progressively replacing the many different national accounting standards.

Financial reporting framework in Pakistan

Under the Pakistani Companies Ordinance (1984), the Securities and Exchange Commission of
Pakistan notifies the accounting standards that are applied by entities in Pakistan.

Pakistan has adopted most but not all International Financial Reporting Standards (IFRSs) for
mandatory application by listed companies, banks and other financial institutions and
Economically Significant Entities (ESE), even when these are not listed.

 IFRSs are usually adopted as issued by the International Accounting Standards Board
(IASB) and generally include 'any further revisions thereof', however, some differences
are worth noting:
 IFRS 1 was not adopted as Pakistan has not adopted all IFRSs.
 Application of the requirements of IFRIC 4 and 12 has been waived for all companies.
(A voluntary application is possible.)
 IAS 39 is currently applied in the 2009 version of the standard.
 IFRS 10, IFRS 11, and the revised versions of IAS 27 and IAS 28 have been adopted
recently, but in doing so their mandatory effective date was set at 1 January 2015.
(Earlier adoption is encouraged.)
 IFRS 12 and IFRS 13 have been adopted with an effective date of 1 January 2015.
 Adoption of IFRS 9 is currently under consideration.
 IFRS 14 and IFRS 15 have not yet been adopted.
 Standards relevant for financial institutions (IAS 39, IAS 40 , and IFRS 7) have not been
adopted for banks and other financial institutions regulated by the State Bank of Pakistan
(SBP). The SBP has prescribed its own criteria for recognition and measurement of
financial instruments for such financial entities. However, adoption of IAS 40 for these
companies is currently under consideration by the SBP.
 For insurance entities there is specific guidance for the measurement of some investments
that differs from IAS 39.
 Power sector companies have been granted some relieve from the requirements of IAS
21. These regard the capitalization of exchange losses and the fact that these companies
did not recognize embedded derivatives under IAS 39. (If they want to do, they can adopt
the requirements voluntarily.)