Professional Documents
Culture Documents
Provides the ability to transfer income through time Borrowing sacrifices future income to increase current income. Saving, or investing, sacrifices current income in exchange for greater expected income in the future.
Flow of Funds
1. Direct Transfer
business sells its stock directly to investors
Flow of Funds
2. Indirect Transfer through Investment Bankers
investment banker acts as middleman and facilitates issuance of securities by reselling the securities to savers
Flow of Funds
3. Indirect Transfer through financial intermediary
bank or mutual fund obtains funds from savers and uses the money to lend or purchase securities
Money market
Money market is a mechanism that deals with the lending of short term funds (less the a year) A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded
Primary market
Secondary market
Primary market
Primary market is that market in which shares debentures and other securities are sold for the first time for collecting long term capital The market is concerned with new issues therefore the primary market is also called NEW ISSUE MARKET
SECODARY MARKET
The secondary market is that market in which the buying and selling of the previously issued securities is done The transactions of the secondary market are generally done through the medium of stock exchange The chief purpose of the secondary market is to create liquidity in securities
Equity Markets
Primary
corporations raise funds by issuing new securities
Secondary
securities are traded among investors after they have been issued
Debt market
Derivatives Markets
Options, futures and swaps are securities whose value is determined, or derived directly from other assets These can be used to manage risk or to speculate
Option market
A option gives right its owner the right to buy or sell an underlying assets on or before a given date at a predetermined price There are two type of options Call option Put option
Call option
Put option
Put option gives the option holder right to sell a fixed numbers of shares of a certain stock at a given exercise price on or before the expiration date
Future market
Futures contract is an agreement between two parties to exchange an asset for cash at a predetermined future date for a price that is specified today Financial futures contracts may be various types such as Interest rate futures Treasury bills futures Euro dollar futures Treasury bond futures Stock index futures Currency futures