...Financial Institutions, Instruments and Markets—7th edition Instructor’s Resource Manual Christopher Viney and Peter Phillips Chapter 1 A modern financial system Learning objective 1.1: explain the functions of a modern financial system • The introduction of money and the development of local markets to trade goods were the genesis of the financial system of today. • Money is a medium of exchange that facilitates transactions for goods and services. • With wealth being accumulated in the form of money, specialised markets developed to enable the efficient transfer of funds from savers (surplus entities) to users of funds (deficit entities). • A modern financial system comprises financial institutions, instruments and markets that provide a wide range of financial products and services. • A financial system encourages accumulated savings which are then available for investment within an economy. • Financial instruments incorporate attributes of risk, return (yield), liquidity and time–pattern of cash flows. Savers are able to satisfy their own personal preferences by choosing various combinations of these attributes. • By encouraging savings, and allocating savings to the most efficient users, the financial system has an important role to play in the economic development and growth of a country. Learning objective 1.2: categorise the main types of financial institutions, being depository financial institutions, investment banks and merchant banks,...
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...Individual Assignment: Defining Financial Terms Resource: Financial management: Principles and applications Define the following terms and identify their roles in finance: • Finance - The management of revenues or other liquid resources of a government, business, group or individual; the conduct or transaction of money matters generally, especially those affecting the public, as in the fields of banking, investments and credit. It can simply be defined as sell on credit or commercial activities that are study to manage capital and assets. Finance is an important part of any organization because it deals with resource allocation, accounting, resource management, and investments. • Efficient market - A market in which the values of securities at any instant in time fully reflect all available information, which results in the market value and the intrinsic value being the same. Efficient market is an integral part of understanding the value of shares and value of shareholders. In doing so, financial managers will have better information in making decision in terms of maximization of shareholder wealth. • Primary market- Transactions in securities offered for the first time to potential investors. Is the main market to which you are selling or buying directly from the issuer at par value (e.g. corporate bond). It is the company or any entity that the securities come from. In order for a stock to be considered in the primary market, the company or other entity...
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...FINANCIAL MARKETS FIN 4040A 1. A financial market is the market for capital, a significant factor of production. The obligations created are in form of financial assets or financial instruments severally called securities. These assets are intangible and offer promises and claims by issuers and holders. A classification of the financial markets will greatly improve our mental constructs. CLASSIFICATION OF FINANCIAL MARKETS | | Type of classification |Specific operational terms | | |1 |Nature of claim |DEBT MARKETS | | | | | | | | | |EQUITY MARKETS | | |2 | |MONEY MARKET | | | | | | | | |Maturity of claim |CAPITAL MARKET | | |3 | ...
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...ASSIGNMENT#1 Submitted By: Saadia 1. Accounting and Auditing Organization for Islamic financial institution (AAOIFI) The AAOIFI is a non-profit organization that focuses mainly on the area of accounting and auditing for Islamic financial institutions. While recognizing the need for standards, AAOIFI was established on February 1990 in Algeria and was registered on March 1991 in the kingdom of Bahrain. The organization is supported by 200 institution members from 45 countries across the global. The AAOIFI is one of prominent Islamic agency that attempts to install accounting and auditing standard for Islamic financial industry. The main object is to develop and disseminate accounting and auditing thought relevant to Islamic financial institutions and their applications. Its tasks include holding seminars, publishing periodicals, newsletters, commissioning research and prepare, promulgate, interpret and review, the accounting and auditing standards for Islamic financial institutions. Its notable efforts are to inform and encourage banking supervisors around the world to adopt its standard as the benchmark for Islamic financial institutions in their countries. These attempts to improve the transparency and comparability of the financial reporting of Islamic financial institutions are bearing fruit. The AAOIFI’s standard has been applied in various countries such as Bahrain and Sudan which require Islamic Banks in their countries to follow AAOIFI’s standards. In Qatar and Saudi...
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...INTRODUCTION FINANCIAL SYSTEM: it is the system of country which deals with the financial aspects. COMPONENTS OF FINANCIAL SYSTEM: I. FINANCIAL MARKETS II. FINANCIAL INSTITUTIONS III. FINANICAL INSTRUMENTS IV. FINANCIAL SERVICES. I. FINANCIAL MARKETS * Primary markets: deals with new issues * Secondary markets: trading in existing securities II. FINANCIAL INSTITUTIONS: these are the institutions which deal with the financial instruments. They create the various instruments of credit. III. FINANCIAL INSTRUMENTS: these are the claims against an institution or a person for payment at a future date of sum of money in the form of dividend/ interest. IV.FINANCIAL SERVICES: financial services are those which help in borrowing and funding, buying and selling securities, lending and investing, making and enabling payments and settlements and managing risk exposures in financial markets * MEANING OF FINANCIAL SERVICES All types of activities which are of financial nature may be regarded as financial services. In simple words, the term financial services means mobilizing and allocating savings. Thus, it includes all activities in the transformation of savings into investments., The financial services is also called financial intermediation. Financial intermediation is the process by which funds are mobilized from savers and make them available to the corporate customers for investments. Financial intermediaries Money market intermediaries(...
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...Week 2: Introduction to the Financial System 1.1 Functions of a financial market * Markets are the process that facilitates the exchange of things of values. These things of value are often categorised as real assets, such as a house or a car, and financial assets, such as a loan to buy a house or car. These could take place in a non-formal market place, non-market exchanges can be very time consuming. * It brings opposite parties together. If not, those with needs must go everywhere to find the items themselves e.g. milk at farms. This enables double coincidence of wants that is necessary before an exchange can take place * Money acts as a medium of exchange and solves the divisibility problem. (e.g. bag of potatoes might be worth half of the left rump, but a person would not just take off a rump from a living cow and directly exchange). Other roles include store of value (saving of individuals’ surplus earning). The funds saved by surplus units- those savers with current excess funds- can be put to use by those whose current demand for goods and services is greater than their current available funds. (Deficit units) * Financial institutions and markets facilitate financial transactions between the providers of funds and the users of funds. * Financial assets are represented by financial instrument that states how much has been borrowed, and when and how much is to be repaid by the borrower. E.g. money invested in a term deposit with a bank, the...
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...Introduction A financial institution is an establishment that conducts financial transactions such as investments, loans and deposits. Almost everyone deals with financial institutions on a regular basis. Everything from depositing money to taking out loans and exchanging currencies must be done through financial institutions. Here is an overview of some of the major categories of financial institutions and their roles in the financial system. Types Of Financial Institutions And Their Roles Commercial Banks Commercial banks accept deposits and provide security and convenience to their customers. Part of the original purpose of banks was to offer customers safe keeping for their money. By keeping physical cash at home or in a wallet, there are risks of loss due to theft and accidents, not to mention the loss of possible income from interest. With banks, consumers no longer need to keep large amounts of currency on hand; transactions can be handled with checks, debit cards or credit cards, instead. Commercial banks also make loans that individuals and businesses use to buy goods or expand business operations, which in turn leads to more deposited funds that make their way to banks. If banks can lend money at a higher interest rate than they have to pay for funds and operating costs, they make money. Banks also serve often under-appreciated roles as payment agents within a country and between nations. Not only do banks issue debit cards that allow account holders...
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...filing Maximizing value * Limited liability- the lower the risk the higher the value, all else equal * Growth opportunities: corporations can raise capital easier to take advantage of these opportunities. * Liquidity: an asset value also depends on how easy it is to sell it. Management’s primary goal Our focus: profit, publicity held companies Management’s goal: maximize shareholder wealth, which translates into maximizing the stock price. Maximizing shareholder value: A company’s shareholder wealth is equal to the number of shrares outstanding times market value per share. * We need to know what factors affect the stock price. * The value of a share of stock is the present value of the cash flows an “average investor” expects to receive in the future id he or she bought the stock. * Long-term view important. Market price VS intrinsic value Stock’s market price: actual market price of the share of stock. Value based on perceived returns and risk. (could be wrong) Intrinsic value: what a fully informed analyst would estimate as the “true” value of a stock...
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...FINANCIAL ENVIRONMENT Components of Financial Environment Financial environment consists of three main components * Financial Managers who determine how to invest a firm’s funds to capitalize on potential opportunities. They also determine how to obtain the funds needed to finance their respective firms’ investments. * Financial Markets that facilitate the flow of funds from the suppliers of funds to firms or governments who need funds. Financial institutions serve as intermediaries by channeling the savings of individuals to firms that need funds. * Investors commonly finance the investments made by firms by purchasing debt securities or equity securities issued by those firms. In this assignment, functioning of Financial Markets would be explained with details of Capital and Money Markets’ Instruments.. Financial Markets; Types and Functions A financial market is a place for buying and selling of financial securities such as stocks and bonds. The financial markets can be divided into different subtypes; * Capital Markets * Stock Markets, that deal in issuance and subsequent trading of shares or common stock. * Bond Markets, that deal in issuance and subsequent trading of bonds. * Commodity Markets, that facilitate the trading of commodities. * Money Markets, that provide short term debt financing and investment. * Derivatives Markets, that provide instruments for the management of financial risk. * Futures Markets...
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...Financial Terms and Roles · Finance -- The science of the management of money and other assets. · Efficient market – A market in which prices correctly reflect all relevant information. · Primary market – This is part of the capital market that deals with issuing of new securities. · Secondary market – This part also called the aftermarket, is the financial market in which previously issued financial instruments such as stock, bonds, options, and futures are bought and sold. Another frequent use of the secondary market is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. · Risk – The possibility that shareholders will lose money when they invest in a company that has debt, if the company’s cash flow proves inadequate to meet its financial obligations. · Security – is a negotiable financial instrument with a recognized financial worth. · Stock – The capital raised by a corporation through the issue of shares entitling holders to an ownership interest (equity). · Bond -- A debt that is issued for a period of more that one year. The government sells bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically. · Capital – Financial assets or the financial...
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...------------------------------------------------- Financial System of Bangladesh The Financial System is a set of institutional arrangement through which surplus units transfer their fund to deficit units. At present the financial system in Bangladesh is mainly composed of two types of institutions like banks and non-bank financial institution (NBFIs). The formal financial sector in Bangladesh includes: (a) Bangladesh Bank as the central bank, (b) 48 commercial banks, including 4 Government owned commercial banks, 30 domestic private banks (PCBs) (of which 6 banks are operating under Islamic Shariah), 9 foreign banks (FCBs) (of which 1 bank is operating as Islamic bank); and 5 government-owned specialized banks (DFIs); (c) 28 non-bank financial institutions (NBFIs) – licensed by the Bangladesh Bank); (d) 2 large government- owned insurance companies (life and general) and 60 private owned (17 life and 43 general) insurance companies; (e) 2 stock exchanges and, (f) some co-operative banks. Besides, a good number of semi-formal micro finance institutions (MFIs) also are operating in Bangladesh. Structure of Financial System: The main constituents of financial system are : i) Financial Institutions ii) Financial Instruments, and iii) Financial Markets. Financial Institutions The modern name of Financial Institution is Financial Intermediary (FI), because it mediates or stand between ultimate borrowers and ultimate lenders and helps transfer funds from one to another. The Financial system helps production...
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...role of financial systems in the economy This section iscusses the main functions of financial intermeiaries an financial markets, an their comparative roles. Financial systems, i.e. financial intermeiaries an financial markets, channel funs from those who have savings to those who have more prouctive uses for them. They perform two main types of financial service that reuce the costs of moving funs between borrowers an leners, leaing to a more efficient allocation of resources an faster economic growth. These are the provision of liquiity an the transformation of the risk characteristics of assets.[2] 2.1 Provision of liquiity The link between liquiity an economic performance arises because many high return investment projects require long-term commitments of capital, but risk averse leners (savers) are generally unwilling to elegate control over their savings to borrowers (investors) for long perios. Financial systems mobilise savings by agglomerating an pooling funs from isparate sources an creating small enomination instruments. These instruments provie opportunities for iniviuals to hol iversifie portfolios. Without pooling iniviuals an househols woul have to buy an sell entire firms (Levine 1997). iamon an ybvig (1983) show how financial intermeiaries can enhance risk sharing, which can be a preconition of liquiity, an can thus improve welfare. In their moel, without an intermeiary (such as a bank), all investors are locke into illiqui long-term investments that yiel...
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...INTRODUCTION No business functions without finance. For there to be business concern therefore, there must be money. Development has however, changed the business operations in the capital globalize markets. People invest in business to make returns. It is therefore imperative for an individual to invest as well as institutional investors. Prior to development in capital markets, individual investors used to make their own investment decisions. But all these are changed now as individual investors have been replaced by institutional investors. This is also known as shareholding. Institutional investors play a very enviable role in corporate governance since the primary responsibility lies in side the board room, with the top management not with people and system imposed from outside. Looking at Board of Directors and investors, investors are seen as “sources of finance” or “partners in the enterprise”. This means that shareholders are seen as faceless, financial resource whose trust may be limited and need for checks and balances real? Or are they part of the business? Companies do take advice and guidance from their institutional shareholder in domestic and foreign business growth decisions (Stuffman 2008). This takes us to Hermes Fund Management, an institutional investment Corporation, which plays a strategic role in the activities of Total and Premier Oil. Total and Premier Oil has sought assistance from Hermes in managing business concern in Burma. This case study will...
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...INDIAN FINANCIAL SYSTEM The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and household sector. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the deficit. It is a composition of various institutions, markets, regulations and laws, practices, money manager analyst, transactions and claims and liabilities. function of the financial system is the mobilisation of savings, their distribution for industrial investment and stimulating capital formation to accelerate the process of economic growth The features of a financial system are as follows 1. Financial system provides an ideal linkage between depositors and investors, thus encouraging both savings and investments. 2. Financial system facilitates expansion of financial markets over space and time. 3. Financial system promotes efficient allocation of financial resources for socially desirable and economically productive purposes. 4. Financial system influences both the quality and the pace of economic development. The Indian Financial system (financial markets) is broadly divided under two heads: (i) Indian Money Market (ii) Indian Capital Market The Indian money market is the market in which short-term funds are borrowed and lent. The money market does not deal in cash, or money but in bills of exchange, grade bills and treasury...
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...INTRODUCTION TO CAPITAL MARKETS What is investment banking? Investment banks act as intermediaries in capital markets, helping the matching of sellers and buyers of various securities and advising institutional investors, government and companies on their investment strategies, on their financing needs (helping them to raise money) and their acquisitions. Two main areas: (1) Securities or capital markets divisions: trading in the equity, fixed income ,FX and commodities markets and advising and intermediating for institutional investors in those markets. (2) Corporate Finance and public finance (often referred to as investment banking) advising corporations and governments on their financing needs, including the underwriting of securities, on their merger and acquisition activities, or on their restructuring. Securities and capital markets divisions Clients are usually * Institutional investors, corporates or public entities, not private clients; * Mutual funds asset managers; * Pension Fund asset managers; * The insurance companies; * Private Banks; * Hedge Funds; * The treasury departments of large banks or large companies. Capital markets divisions * Equity division: equity research, equity sales, equity trading on cash, flow derivatives and structured products * FIRC or FICC (Fixed Income, currencies and derivatives): * Fixed income cash products, interest and credit derivatives...
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