Financial markets and systems 2 Capital Market

1
Financial markets and systems 2Capital Market
2
Introduction

• financial asset
• debt vs. equity (residual) claims
• value of a financial asset (cash flow)
• properties of FA (moneyness, divisibility and
  denomination, reversibility, term to maturity,
  liquidity, convertibility, currency, cash flow
  and return predictability, complexity, tax status)

3
Market participants and financial innovation

• entities (examples?)
• direct vs. indirect financing
• financial intermediaries providing maturity
  intermediation, risk reduction via
  diversi-fication, reducing the costs, providing a
  payment mechanism
• financial innovation market broadening
  instruments, risk management instruments,
  arbitraging instruments and processes

4
Depository and nondepository institutions

• depository institutions commercial banks and
  other similar institutions
• they are exposed to risk credit r. (default),
  regulatory r., funding r.
• nondepository i. life insurance comp., property
  and casuality comp., pension funds and investment
  companies
• investment banking institutions

5
Primary markets

• registration (prospectus - public, additional
  information)
• underwriting due diligence.
• types of underwriting bought deal, auction
  process, preemptive rights offering

6
Secondary market

• function of SM
• trading location
• market structures
• perfect markets
• SM trading mechanics (orders)
• brokers, dealers (market makers)
• market efficiency (operational, pricing)
• transaction costs