FINANCIAL

INSTITUTION
S
 WHY DO
BUSINESS
RAISE FUND?
 WHY DO
BUSINESS
RAISE FUND?
EXPANSION

PURCHASE OF EQUIPMENT

START-UP CAPITAL

DEBT PAYMENT

EXPENSES
 HOW DO
BUSINESS RAISE
CAPITAL?
CAPITAL FORMATION
PROCESS DIAGRAM
MARKET
 Is the means through which buyers and sellers are brought
together to aid in the transfer of goods and services
 Does not need to have a physical location
 Does not necessarily own the goods and services involved.
those who establish and administer the market need only to
provide a cheap, smooth transfer of goods and services
 A market can deal in any variety of goods and services
CHARACTERISTICS
 AVAILABILITY OF INFORMATION
 LIQUIDITY
 LOW TRANSACTION COST
FINANCIAL MARKET
 Mechanism through which deficit units meet surplus unit
 Mechanics through which buyers and sellers are brought together to
facilitate the exchange of financial asset
 Financial asset are often known as securities or financial investments
 Thus, financial market exist in order to bring together buyers and sellers
of securities
 TYPES OF
FINANCIAL
MARKET
PHYSICAL ASSET VS.
FINANCIAL ASSET
 Physical asset are for tangible or real assets with physical
existence
 Financial asset markets are for intangible financial
instruments with contractual provision
CAPITAL VS MONEY MARKET
 Capital market instruments have longer maturity
 Involve financial assets that have life span of more than one year
 It is the market from which long term capital raised for the setting up and
sustained growth of business organizations
 Money market instruments have shorter maturity
 Involve financial assets that have a life span of less than one year
 It is the market of short-term borrowing instruments
PRIMARY MARKET
 Market where new issues are sold by corporations to acquire new
capital via the sale of common stock, preferred stocks or bonds.
 The sale take place through an investment banker.
 In which corporation raise new capital
 Initial public offering (IPO) (unseasoned new issue)
 Seasoned new issue market
 Refers to the offering of an additional amount of an already existing security
 Shares involve the initial offering for a security to the public
 SECONDARY MARKET
 Involves between owners after the issue has been sold to the public by
the company
 The proceeds from the sale in the secondary market do not go to the
company, as in the case of ipo
 In which existing securities are traded among investors
 NYSE
 PSE
PRIMARY MARKET VS
SECONDARY MARKET
OVER-THE-COUNTER MARKET
 Market for securities outside the control of the official stock exchange
 Trading securities not listed in the physical stock exchange
 The broker-dealers are linked by a network of telephones and computer
terminals through which they deal directly with one another and with
customers
BLOCK SHARE
TRADING
 Traders are institution
 Essentially a communication network among institutional investors that
trade large blocks without the aid of a brokerage house
EQUITY VS DEBT
MARKET
 IN EQUITY MARKET, CORPORATE STOCKS ARE TRADED
 IN DEBT MARKET, BONDS OR CORPORATE LIABILITIES ARE
TRADED
WHAT IS FINANCIAL
INSTITUTIONS
TYPES OF FINANCIAL INSTITUTIONS
 Banks
 Commercial banks
 Middleman between saver and borrowers
 Investment banks
 An organization that helps to sell new investment securities (bonds, stocks)
 Financial services corporation
 A firm that offers a wide range of financial services, including investment banking,
commercial banking, brokerage and insurances

 Funds-pool money to invest

 Mutual funds
 Pension funds-retirement plans
 Hedge funds
 Exchange traded funds

 Other financial institutions

 Life insurance companies: collect premiums and invest
 Private equity: borrows money to invest/manage the whole company