...Summary: International Financial Markets (master blok 1) Book: Financial Markets and Institutions (a European perspective) – Haan et al. Author: Kim Cornelissen Chapter 1: Functions of the Financial System 1.1. Functions of a financial system The financial system Figure 1.1; page 5 – Working of the financial system Financial system: includes all financial intermediaries and financial markets, and their relations with respect to the flow of funds to and from households, governments, business firms, and foreigners, as well as the financial infrastructure. Main task is to channel funds from sectors that have a surplus to sectors that have a shortage of funds. Financial infrastructure: the set of institutions that enables effective operation of financial intermediaries and financial markets, including such elements as payment systems, credit information bureaus and collateral registries. * Direct finance: occurs if a sector in need of funds borrows from another sector via a financial market. Financial market: is a market where participants issue and trade securities. * Indirect finance: a financial intermediary obtains funds from savers and uses these savings to make loans to a sector in need of finance. financial intermediaries: coalitions of agents that combine to provide financial services, such as banks, insurance companies, finance companies, mutual funds, pension funds etc. Bank-based system: indirect finance is then the main route for moving funds...
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...David Y. Kim Section 004, Foundations of Financial Markets Professor Jeffrey Wurgler Homework 1 1. Bid = 102 ¼, Ask = 102 ½ a. Buy = 4,000(102.25) = $409,000 Sell = 4,000(102.50) = $410,000 Profit = $410,000 – $409,000 = $1,000 Value of Inventory at Ask price = –6,000(102.50) = –$615,000 b. New Bid = 110.25, New Ask = 110.5 Sell = 2,000(110.5) = $221,000 Buy = 8,000(110.25) = $882,000 Sold 6,000 shares yesterday for 6,000(102.50) = $615,000 Loss = $221,000 – $882,000 + $615,000 = –$46,000 Inventory = –2,000 + 8,000 – 6,000 = 0 c. A market maker’s objective is to profit off the bid-ask spread, mostly by creating a market and undercutting the market price. To improve performance, you could have avoided filling the entire buy order. If you sold only a portion of the buy order on the first day, you wouldn’t have to be short 6,000 shares overnight before the price jump. 2. d. Price bond is selling for = 1,000/(1+0.05)^5 = $783.53 e. Maturity: 325.57 = 1,000/(1+0.05)^t (1+0.05)^t = 3.072 t = log(3.072)/log(1.05) = 23 years 3. Future Value of Option A = $1,000 Future Value of Option B = 550(1+0.055)^10 = $939.40 Because the FV of Option A is larger than the FV of Option B ($1,000 < $939.40), Investment A is preferable. 4. Annual interest rate of 5% Annuity PV = (C/r)(1 – 1/(1+r)^t) PV = (10,000/0.05)(1 – 1/(1+0.05)^6) PV = $50,756.92 Perpetuity PV = (C/r)(1/(1+r)^t) PV = (10,000/0.05)(1/(1+0.05)^10) ...
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...FINANCIAL MARKETS FIN 4040A 1. A financial market is the market for capital, a significant factor of production. The obligations created are in form of financial assets or financial instruments severally called securities. These assets are intangible and offer promises and claims by issuers and holders. A classification of the financial markets will greatly improve our mental constructs. CLASSIFICATION OF FINANCIAL MARKETS | | Type of classification |Specific operational terms | | |1 |Nature of claim |DEBT MARKETS | | | | | | | | | |EQUITY MARKETS | | |2 | |MONEY MARKET | | | | | | | | |Maturity of claim |CAPITAL MARKET | | |3 | ...
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...Monitoring Financial Market The market where securities are sold and purchase is called financial market. Financial System The system in which the surplus and deficit which meets together for their mutual benefits. e.g. Bank loan. Surplus Unit The units which have excess money. Deficit Unit The units which need money. Financial Intermediaries The bank, person or party, financial institution which act as a middle man between surplus and deficit units are called financial intermediaries. Three types of financial intermediaries (1) Investment Bank (2) Broker (3) Dealer Investment Bank (a) Under Writing or Initial Public Offering (IPO) IPO: The first prize of the security (b) Best Efforts Offering Underwriting In under writing the bank took the security from the company and tries to sell them in the market. The unsold securities should be purchased by bank. Purchased these securities less than “IPO” price. Best Efforts Offering In this service the bank took the securities from the company and tries to sell in the market. The amount of sold securities and unsold securities return back to the company. Broker (Agent) It is a person which act or perform on the behalf of the owner. Dealer It is a person which work independently Types of Financial Market There are five major types 1 Primary Market 2 Secondary Markets 3 Money Market 4 Capital Market 5 Over the Counter Market (1) Primary Market The market where the new...
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...governments. D. some combination of government transfer and barter. Short selling is: A. the sale of a financial product at a discount to its current market value. B. the sale of a financial product in small quantities. C. the sale of a financial product that the seller does not own. D. the sale of a financial product where the seller agrees to buy it back at a predetermined price. The term ‘medium of exchange' for money refers to its use as: A. coinage. B. currency. C. something that is widely accepted as payment for goods and services. D. any standard of value that prices can be expressed in. The role of money as a store of value refers to: A. the value of money falling only when the money supply falls. B. the value of money falling only when the money supply increases. C. the fact that money allows worth to be stored readily. D. the fact that money never loses its value compared with other assets. Money increases economic growth by assisting transfers from: A. consumers to investors. B. savers to borrowers. C. businesses to consumers. D. borrowers to investors. Financial markets have developed to facilitate the exchange of money between savers and borrowers. Which of the following is NOT a function of money? A. A store of value B. A medium of exchange for settling economic transactions C. A claim to future cash flows D. Short-term protection against inflation Buyers of financial claims lend their excess funds because they: A. expect to borrow extra funds in the future. B. want...
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...Questions 1. Primary markets are markets where users of funds raise cash by selling securities to funds' suppliers. True False 2. Secondary markets are markets used by corporations to raise cash by issuing securities for a short time period. True False 3. In a private placement, the issuer typically sells the entire issue to one, or only a few, institutional buyers. True False 4. The NYSE is an example of a secondary market. True False 5. Privately placed securities are usually sold to one or more investment bankers and then resold to the general public. True False 6. Money markets are the markets for securities with an original maturity of 1 year or less. True False 7. Financial intermediaries such as banks typically have assets that are riskier than their liabilities. True False 8. There are three types of major financial markets today: primary, secondary, and derivatives markets. The NYSE and NASDAQ are both examples of derivatives markets. True False Multiple Choice Questions 9. What factors are encouraging financial institutions to offer overlapping financial services such as banking, investment banking, brokerage, etc.? I. Regulatory changes allowing institutions to offer more services II. Technological improvements reducing the cost of providing financial services III. Increasing competition from full service global financial institutions IV. Reduction...
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...Abstract The paper talks about the primary market, FDIs, capital makets, banking sector and infrastructure financing as well. With all these elements in the India Financial market, it happens to be one of the oldest across the globe and is definitely the fastest growing and best among all the financial markets of the emerging economies. The history of Indian capital markets spans back 200 years, around the end of the 18th century. It was at this time that India was under the rule of the East India Company. The capital market of India initially developed around Mumbai; with around 200 to 250 securities brokers participating in active trade during the second half of the 19th century. The journey of Indian financial markets has been of many shades over the last decade. We have seen a lot of progress, but also significant pauses. Many twists and as many turns. Awe inspiring growth punctuated by its gasping lack of inclusiveness. Presumably, these are the teenage pangs of a free economy which is jostling for its rightful place in the Globe. The fastest free market economy is now face to face with the challenges and opportunities to opt for either slow and steady or fast and furious growth, in the next decade. Financial market You are fully aware that business units have to raise short-term as well as long-term funds to meet their working and fixed capital requirements from time to time. This necessitates not only the ready availability of such funds but also a transmission...
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...Financial Markets Table of Contents Introduction 1 Overall Canadian Economy 1 Equity Market Analysis: 2 Bond Market 3 Money Market 4 Portfolio Allocation 5 Risk Analysis 5 Appendix 1: 6 Appendix 2: 6 Appendix 3: 9 Introduction The objective of this paper is to determine how market institutional portfolio managers should properly allocate their funds amongst the different financial markets. We will focus only on the Canadian money, bond and stock markets over the following year until the second quarter of 2014. Following a top-down approach, we will first discuss the strengths and weaknesses of the overall Canadian economy. We will then perform a similar analysis of the 3 financial markets and will conclude by choosing an appropriate asset allocation and determining the return and risk forecasts of the portfolio. Overall Canadian Economy According to the Bank of Canada, the Canadian economy is experiencing material slack, heightened competitive pressures in the retail sector and slower increases in regulated prices, resulting in a total and core CPI inflation of 1.2% in the second quarter of 2013. As the economy returns to full capacity, inflation is projected to rise gradually to 1.8% by the second quarter of 2014 (refer to appendix 1). The Bank of Canada also mentions that the exchange rate of the CAD is expected to remain at around USD$0.98 over the following year. This constant exchange rate will not cause any change in the competitiveness...
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...Vision Finance Report prepared by Paul Mahoney S3356863 BAFI2112 Financial Markets Study Period 3 |Financial Markets Report |Submitted 18th November 2011 | | |Client Name:BHC | |Executive summary |Scenario One: Financial Investment Advise| |The current investment market is a hazardous environment for all stakeholders involved as a result of | | |recovering investor confidence post-global financial crisis (GFC) and with the possible effects of the | | |European credit crisis. It is therefore essential to analyse current expert opinion, economic factors and | | |interest rate forecasts when selecting an optimal investment strategy. Vision Finance provides this | | |analyses and a specified expert opinion for BHC given their current need for investment of funds in the | | |Australian money and debt capital markets within this report. | | Table of Contents ...
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...Financial Markets and Institutions. Money Markets vs. Capital Markets The money markets lend or borrow funds for a shorter time period, one year or less period. The main characteristics of money market are deposits, loans, acceptances and bills of exchange. There are number types of institutions that are operated in money markets, such as, central banks and commercial banks. Money markets are largely unregulated and informal because most of the payments are done by phone, fax and online. Money markets provide individual business or government companies. Cash is the main purpose for opening money markets. The money market is important for ensuring companies and governments maintain the steady level of cash flow. Investors use the money markets to invest funds because money markets are safe and the amount of risk is small. The reliability of short time period gives little time for a nonpayment to happen that is why, the risk is decreased. The capital markets lend or borrow the funds for long-term period, i.e. for more than one year. The main instruments that are used in the capital market are stocks, shares, bonds, and securities of the government. Some important institutions of the capital market are stock exchanges, commercial banks and nonbank institutions, such as insurance companies, loan banks, and construction groups. In capital markets, the institutions not largely regulated. Capital markets provide fixed cash for their institutions to buy land, estate and machinery...
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...Financial Institutions and Financial Markets FIN/370 Financial Institutions and Financial Markets The state of the economy in the United States is very crucial to businesses and society. The success of the economy is reliant on financial institutions and financial markets. “The market for the creation and exchange of financial assets such as money, stocks, and bonds, plays a central role in organizing and coordinating our economy” (Colander, 2013, p. 643). Financial institutions are essential in providing funding for activities that take place within the financial markets. This paper will describe the roles of financial institutions and financial markets in our economy, as well as compare and discuss the differentiations between markets. The Roles of Financial Institutions Financial institutions play a vital role in the success of our economy and financial markets. They are responsible for financial transactions such as deposits, investments, and loans. Examples of financial institutions are commercial banks, investment banks, credit unions, insurance companies, mutual funds, and brokerages. A few of the well-known U.S. financial institutions are Bank of America, JP Morgan Chase Bank, Wachovia Bank, and Wells Fargo Bank. Financial institutions provide a means of savings for society and businesses. Saving money incurs interest, which allows people and businesses to save additional funds. Financial institutions provide loans so businesses can grow...
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...What are financial markets? Financial markets are any type of financial transaction that helps businesses grow and investors make money, commonly known as the stock market. There are three elements to the stock market: stocks, bonds, and commodities. “Investing in the stock market is a bet on the future and the future is what concerns the stock market the most. While current events such as natural and human made disasters can cause an immediate reaction in the stock market, what drives long-term trends is the future. The stock market is all about what will economic and political conditions today mean to corporate profits in the future. Current events that shake the market, but have no long term effect on the economy or business climate are often shaken off and market conditions return to the previous conditions”. (Ken Little, About.com Guide). Stocks are shares of ownership of a public corporation that are sold to investors to allow the companies to raise a lot of cash at once. The investors profit when the companies increase their earnings, which keeps the U.S. Economy growing. Mutual funds give you the ability to buy a lot of stocks at once. In one way, this makes them an easier tool to invest in than individual stocks. By reducing stock market volatility, they have also had a calming effect on the U.S. economy. When stock prices go up, bond prices go down. There are many different types of bonds, including Treasury bonds, corporate bonds, and municipal bonds...
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...Financial Market Homework 1 For 09/30/2014 Azizi Nabil , Ferrary Alexandra , Seneclauze Pierre , Renaud Gigou Review Question (5) : 5. List and explain the three financial factors that influence the value of a business. The three factors that affect the value of a firm's stock price are cash flow, timing, and risk. The Importance of Cash Flow: In business, cash is what pays the bills. It is also what the firm receives in exchange for its products and services. Cash is therefore of ultimate importance, and the expectation that the firm will generate cash in the future is one of the factors that gives the firm its value.(page 9-10) The Effect of Timing on Cash Flows: Owners and potential investors look at when firms can expect to receive cash and when they can expect to pay out cash. All other factors being equal, the sooner companies expect to receive cash and the later they expect to pay out cash, the more valuable the firm and the higher its stock price will be.(page 9-10) The Influence of Risk: Risk affects value because the less certain owners and investors are about a firm's expected future cash flows, the lower they will value the company. The more certain owners and investors are about a firm's expected future cash flows, the higher they will value the company. In short, companies whose expected future cash flows are doubtful will have lower values than companies whose expected future cash flows are virtually certain.(page 9-10) Problem (1-3); ...
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...Financial Markets, Questions 1-16. 1. Mutual Fund Services Explain why mutual funds are attractive to small investors. How can mutual funds generate returns to their shareholders? ANSWER: Mutual funds enable small investors to benefit from a portfolio manager’s expertise, and from diversification capabilities due to a large portfolio. Mutual funds can provide dividends or capital gain distributions to investors. In addition, investors also benefit from share price appreciation; they may be able to sell the shares at a higher price then what they paid. 2. Open- versus Closed-End Funds How do open-end mutual funds differ from closed-end funds? ANSWER: Shares of open-end mutual funds can be sold back to the sponsoring investment company, whereas shares of closed-end mutual funds cannot. 3. Load versus No-Load Mutual Funds Explain the difference between load and no-load mutual funds. ANSWER: Load mutual funds require a fee to help pay for marketing commissions. No-load mutual funds do not require such a fee. 4. Use of Funds Like mutual funds, commercial banks and stock-owned savings institutions sell shares, but the proceeds received by mutual funds are used in a different way. Explain. ANSWER: Shares issued by commercial banks and savings institutions are used to obtain capital, which may be used to finance their fixed assets such as land and buildings. Shares issued by mutual funds are used to obtain funds, which are invested in the mutual funds portfolio. 5. ...
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...Historical View of Financial Markets and Financial Institutions Economics of Money and Banking Professor E. Todd February 16, 2012 Many issues have changed within financial markets and institutions. Many years ago, even BC, there were banking institutions available. Transactions were very informal in the early years to extremely formal in the present day. Financial Markets and Institutions have progressed considerably in the last 50 years. More opportunities of different types have evolved and are available for us to become involved in. Opportunities to invest, save and acquire loans have progressed considerably in financial markets and institutions. What are financial institutions? The two types of financial institutions are the depository financial institution and the non-depository institution. A depository institution is an organization, which may be either for-profit or non-profit, that takes money from clients and places it in any of a variety of investment vehicles for the benefit of both the client and the organization. Common examples of depository institutions are retail banks and savings and loan associations, both of which take deposits into safekeeping and use them to make loans to other customers. A non-depository institution is a government or private organization (such as building society, insurance company, investment trust, or mutual fund or unit trust) that serves as an intermediary between savers and borrowers, but does not accept time...
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