Financial Markets

Ana Flor V. Cerbo

 Financial Markets
• Institutions and systems that facilitates
transactions in all types of financial claims.
• Bridge between who have excess funds and
with those who need funds.
• At the heart of financial system:
• Determining the volume of credits available,
• Attracting savings
• Setting interest rates
• Security prices
Classification of
Financial Markets
• As to term or
Maturity Short Term
Instruments
• Money Market
• Capital Markets
Long Term
Instruments
Money Markets
• Consist of a network of institutions and
facilities for trading debt securities with a
maturity of one year or less.
• Bought for the quick need of cash
• Have high Liquidity
• Usually dealt with financial intermediaries
• Not in a physical market, through phone
call or internet.
Capital Markets
• For long-term securities
• Long term loans, mortgages, financial leases.

• Both dept and equity securities are traded

• Deals with long term assets such as: land,
property, building or plant expansions.
• As to type of Issue
• Primary Market
• Secondary Market
Primary Markets
• Consist of:
• Underwriters( merchant banks)
• Issuers (the one who issues stocks and
bonds)
• Instruments (stocks and bonds)
• Issues are issued to initial suppliers of
funds or investors
Secondary Markets
• They involve trading of previously
issued money market instruments
• Securities were previously bought
and owned and now being resold by
these initial investors.
• All transactions after the initial issue
in the primary market are done in the
secondary markets.
• Security Brokers
• Do not buy on their own account
• They find buyers for already owned
securities.
• Security Dealers
• they buy the securities and resell
them
Financial Institutions/
Intermediaries
• Firms that bridge the gap
between the Surplus Units
(investors lenders) and the Deficit
Units (Borrowers).
• They channel funds from the
lenders to the borrowers
Classification of
Financial
Intermediaries
• DEPOSITORY INSTITUTION- financial
institutions that accepts deposits from surplus
units.
• it issues checking or current account, savings,
and time deposits.
Depository
Institutions
• Commercial banks
• Ordinary commercial banks – perform more simple
functions of accepting deposits and granting loans
• They do not do investment function

• Expanded or universal commercial banks –

function as investment house and investing on stocks
and bonds.
• They render financial services, payment processing,
securities transactions, underwriting, and financial analysis.
• Bank supervision - deals with ensuring the
soundness and safety of banks
• Bank regulation – consist of the administration
of laws in the form of rules and regulation that
govern the conduct of banking and the structure
of the banking industry.
Thrift Banks
• Composed of savings and mortgage banks,
private development banks, stock savings and
loan associations and microfinance.
• Cater the needs of household, agriculture anf
industry.
• Examples is the Credit Unions – encourage people to
save.
Under thrift banks
• Savings and Mortgage banks – granting
mortgage loans other than the basic function of
accepting deposits.
• Private development banks – cater to the needs
of agriculture and industry providing them with
reasonable rate loans for medium and long-term
purposes
• Microfinance thrift banks – are small thrift
banks that cater small, micro and cottage industry
• Credit unions – are cooperative organized by
people from the same organization.
Rural Banks and
Cooperative Banks
• Are the more popular type of bank in the rural
communities.
• They promote and expand the rural economy by
providing rural community with basic financial
services.
Non depository
Institution
• Such as pension funds, life insurance
companies, mutual funds and finance
companies.
• Also perform financial intermediation
Classification of
Non depository
Institution
• Life Insurance Companies – sells life
insurance policies.
• Policy holders pay regular insurance premiums,
these premiums are used to purchase
investments so that company can pay cash as
needed when an insured dies.
Finance companies
• Are profit oriented financial institution that
borrows and lends fund to households and
businesses.
• They do not issue checking or savings and time
deposits
• They raise funds from open market and borrow
from banks.
Security Brokers &
Dealers
• security brokers – compensated by means of
commission
• Security Dealers – buy securities and resell
them.
Pawnshop
• Are agencies where people and small
businesses
• “pawn” their assets in exchange of an amount
much smaller that the value of the asset or use
their asset as collateral for loan.
Trust Companies
• Organized for the purpose of accepting and
executing trust and acting as trustee under
wills, as executors or as a guardian.
• Act as fiscal agents or paying agents for the
government.
Lending Investors
• Granting loans in small amounts
• Intended for consumers and households.
Non- financial
Institutions
• Businesses other than financial institutions.
• They trade manufacturing, extractive industries,
constructions and etc.