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4. AUCTION MARKET
➢ Where the trading is done by an
independent third party matching prices on
orders received to buy and sell a particular
security
5. FOREIGN EXCHANGE
MARKETS
➢ Foreign exchange market provides the physical
and institutional structure through which the
money of one country is exchanged for that of
another country, the rate of exchange between
currencies is determined, and foreign exchange
transactions are physically completed.
TWO TIERS OF FOREIGN MARKETS
1. The Interbank Market
➢ This is the primary market where large financial
institutions, such as banks, trade currencies with each
other.
➢The interbank market operates on a global scale and
sets the exchange rates for currencies.
2. The Retail Market
➢This is the secondary market where individuals, tourists,
and small businesses exchange currencies for personal
or commercial purposes.
➢The retail market is where individuals can buy or sell
currencies through banks, exchange offices, or online
platforms
6. SPOT MARKETS
➢ Spot markets are called such because buying and
selling is done "on the spot," that is, for immediate
delivery and payment. The buyer pays
immediately and the seller delivers immediately.
7. FUTURE MARKETS
➢ unlike the spot market, future market is where
contracts are originated and traded that give the
holder right to buy something in the future at a
price specified in the contract. An agreement
involving future exchange
1. Call Option: gives the buyer the right to buy the stock at a set price
on or before a set date.
2. Put Option: gives the buyer the right to sell the stock at a set price on
or before a set date.
10. SWAP MARKET
➢ Swaps are agreements between two parties (counterparties)
in exchanging specified periodic cash flows in the future based
on an underlying instrument or price (e.g., a fixed or floating
rate on a bond or a note). Like forward, futures, and options,
swaps allow firms to better manage their interest rate, foreign
exchange, and credit risks. The swap market is where swaps
are traded.
2. Risk-taker investors (bears and pigs). They are the investors who are
ready to pay a higher price for an investment regardless of the risks
involved.
3. Risk-neutral investors. They are investors who do not, take into account
the risks involved in the investment and who are focused only on the
expected returns
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