Management of Financial Institution

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Management of FinancialInstitution
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Financial Environment
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Financial Markets
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Financial markets could mean

• 1.Organizations that facilitate the trade in
  financial products. i.e. Stock exchanges
  facilitate the trade in stocks, bonds and
  warrants.

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• Bonds
• Stocks

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• 2.Stocks and shares are traded between buyers and
  sellers in two ways including
• use of stock exchanges
• directly between buyers and sellers etc.
• The coming together of buyers and sellers to
  trade financial products

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• 3.In academia, students of finance will use both
  meanings but students of economics will only use
  the second meaning.

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Functions of Financial markets
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Financial markets facilitate

• The raising of capital (in the capital markets)
• The transfer of risk (in the derivatives
  markets)
• International trade (in the currency markets).

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• They are used to match those who want capital to
  those who have it.
• Typically a borrower issues a receipt to the
  lender promising to pay back the capital. These
  receipts are securities which may be freely
  bought or sold. In return for lending money to
  the borrower, the lender will expect some
  compensation in the form of interest or dividends.

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Financial Environment Structure Financial Environment Structure Financial Environment Structure Financial Environment Structure
Lenders Financial Intermediaries Financial Markets Borrowers
1. Individuals2. Companies Banks Insurance Co Pension Funds Mutual Funds Inter bank Stock Ex Money Market Bond Market Foreign Ex Individuals Companies Central Govt Municipalities Public Co
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Types of Financial Markets
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Types of Financial Markets

• 1.Capital Markets
• The capital markets consist of primary markets
  and secondary markets. Newly formed (issued)
  securities are bought or sold in primary markets.
  Secondary markets allow investors to sell
  securities that they hold or buy existing
  securities.

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1. Capital Markets Contd..

• The capital market (securities market) is
  the market for securities, where companies and
  the government can raise long-term funds. The
  capital market includes the stock market and the
  bond market.

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1. Capital Markets Contd..

• Financial regulators, such as the. Securities and
  Exchange Commission of Pakistan, oversee the
  capital markets in their respective countries to
  ensure that investors are protected against
  fraud. The capital markets consist of the primary
  market, where new issues are distributed to
  investors, and the secondary market, where
  existing securities are traded.

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2. Stock Market

• The term 'the stock market' is a concept for
  the mechanism that enables the trading of company
  stocks (collective shares), other securities, and
  derivatives. Bonds are still traditionally traded
  in an informal, over-the-counter market known as
  the bond market.

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2. Stock Market Contd..

• Commodities are traded in commodities markets,
  and derivatives are traded in a variety of
  markets (but, like bonds, mostly
  'over-the-counter').
• The stocks are listed and traded on stock
  exchanges which are entities (a corporation or
  mutual organization) specialized in the business
  of bringing buyers and sellers of stocks and
  securities together.

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2. Stock Market Contd..

• The stock market in Pakistan includes the trading
  of all securities listed on the
• KSE 100,
• the LSE 30
• ISE 10,

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2. Stock Market Contd..

• European examples of stock exchanges include the
  Paris Bourse (now part of Euronext), the London
  Stock Exchange and the Deutsche Börse.

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3. Bond Market

• The bond market, also known as the debt,
  credit, or fixed income market, is a financial
  market where participants buy and sell debt
  securities usually in the form of bonds. The size
  of the international bond market is an estimated
  45 trillion of which the size of outstanding
  U.S. bond market debt is 25.2 trillion

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3. Bond Market Contd..

• References to the "bond market" usually refer to
  the government bond market because of its size,
  liquidity, lack of credit risk and therefore,
  sensitivity to interest rates.
• Because of the inverse relationship between bond
  valuation and interest rates, the bond market is
  often used to indicate changes in interest rates
  or the shape of the yield curve.

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4. Commodity Markets

• Commodity markets are markets where raw or
  primary products are exchanged. These raw
  commodities are traded on regulated commodities
  exchanges, in which they are bought and sold in
  standardized Contracts.

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5. Money Market

• The money market is the global financial market
  for short-term borrowing and lending. It provides
  short-term liquid funding for the global
  financial system. The money market is a sector of
  the capital market where short-term obligations
  such as Treasury bills, commercial paper and
  bankers' acceptances are bought and sold.

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5. Money Market Contd..

• Money market consists of financial institutions
  and dealers in money or credit who wish to either
  borrow or lend. Participants borrow and lend for
  short periods of time, typically up to thirteen
  months.

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5. Money Market Contd..

• Money market trades in short term financial
  instrument commonly called "paper". This
  contrasts with the capital market for longer-term
  funding, which is supplied by bonds and equity.

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6. Derivatives Market

• The derivatives markets are the financial markets
  for derivatives. The market can be divided into
  two, that for exchange traded derivatives and
  that for over-the-counter derivatives. The legal
  nature of these products is very different as
  well as the way they are traded, though many
  market participants are active in both.

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7. Futures exchange Market

• A futures exchange is an exchange which provides
  a marketplace where one can buy and sell futures
  that is a contract to buy specific quantities of
  a commodity or financial instrument at a
  specified price with delivery set at a specified
  time in the future.

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8. Insurance market

• Insurance, in law and economics, is a form of
  risk management primarily used to hedge against
  the risk of a contingent loss. Insurance is
  defined as the equitable transfer of the risk of
  a loss, from one entity to another, in exchange
  for a premium. Insurer, in economics, is the
  company that sells the insurance.

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8. Insurance market Contd..

• Insurance rate is a factor used to determine the
  amount, called the premium, to be charged for a
  certain amount of insurance coverage. Risk
  management, the practice of appraising and
  controlling risk, has evolved as a discrete field
  of study and practice.

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9. Foreign exchange market

• The foreign exchange (currency or forex or FX)
  market exists wherever one currency is traded for
  another. It is by far the largest financial
  market in the world, and includes trading between
  large banks, central banks, currency speculators,
  multinational corporations, governments, and
  other financial markets and institutions.

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Analysis of financial markets

• The claims of the technical analysts are disputed
  by many academics, who claim that the evidence
  points rather to the random walk hypothesis,
  which states that the next change is not
  correlated to the last change.

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Culture of The Markets

• Only negative stories about financial markets
  tend to make the news.
• Enron
• Barings Scandal
• Black Wednesday
• The Story of Tulip Mania

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Baring Scandal

• The traders, Mr. Nick Leeson, was employed by
  Barings to profit from low risk arbitrage
  opportunities between derivatives contracts on
  the Singapore Mercantile Exchange and Japans
  Osaka Exchange.

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Conclusion

• Betterment of economy
• Uplifting of economy
• Economic growth
• Very useful to us.