Presentation on theme: "WHY STUDY FINANCIAL MARKETS AND INSTITUTIONS?"— Presentation transcript:
1 WHY STUDY FINANCIAL MARKETS AND INSTITUTIONS?
Chapter #1 By; Sajad Ahmad
2 What is Financial Market
What is Financial Market? All institutions and procedures for bringing buyers and sellers of financial instruments together is called financial market. Financial Markets are the markets in which funds are transferred from people who have an excess of available funds to people who have a shortage Financial Markets are important in channeling funds from people who do not have a productive use for them to those who do
3 TYPES OF FINANCIAL MARKETS
DEBT MARKET STOCK MARKET FORIEGN EXCHANGE MARKET
4 DEBT MARKETS and INTEREST RATES
Debt Markets, also often referred to generally as the Bond Markets. are especially important to economic activity because they enable corporations/ governments to borrow to finance their activities Bond Markets are the markets where interest rates are determined A bond is a debt security that promises to make payments for a specified period of time A security ( also called a financial instrument ) is a claim on the issuer's future income or assets
5 THE INTEREST RATES The interest rate is the cost of borrowing or the price paid for the rental of funds which is usually expressed as a percentage Interest Rates are important on a number of levels On a personal level, high interest rates could deter you from buying a house or a car because the cost of financing it would be high Conversely, high interest rates could encourage you to save because you can earn more interest income by putting aside some of your earnings as savings
6 THE STOCK MARKETS The Stock Markets are the markets in which claims on the assets and earnings of corporations ( share of stock ) are traded A common stock ( typically just called a stock) is a security that represents a share of ownership in a corporation It is a claim on the earnings and assets of the corporation Issuing stock and selling it to the public is a way for corporations to raise funds to finance their activities
7 THE FORIEGN EXCHANGE MARKET
For funds to be transferred from one country to another, they have to be converted from the currency in the country of origin ( say $ ) into the currency of the country they are going to ( say Euros ) The foreign exchange market is where this conversion takes place It is where the foreign exchange rate, the price of one country's currency in terms of another, is determined
8 Why Study Financial Markets?
Financial markets, such as bond and stock markets, are crucial in our economy. These markets channel funds from savers to investors, thereby promoting economic efficiency. Market activity affects personal wealth, the behavior of business firms, and economy as a whole
9 Why Study Financial Markets?
Well functioning financial markets, such as the bond market, stock market, and foreign exchange market, are key factors in producing high economic growth. We will briefly examine each of these markets;
10 WHY STUDY FINANCIAL INSTITUTIONS
Financial Institutions are the institutions that make financial markets work “Financial Institutions are the intermediaries, that take funds from the people who save and lend it to people who have productive investment opportunities”.
11 STRUCTURE OF THE FINANCIAL SYSTEM
If you wanted to make a loan to IBM or General Motors or any other company , for example, you would not go directly to the president of the company and offer a loan. Instead you would lend it to such companies indirectly through financial intermediaries institutions such as commercial banks, insurance companies, leasing companies etc
12 CENTRAL BANK / COMMERCIAL BANKS/ OTHER INSTITUTIONS
Central Bank, the government agency responsible for the conduct of monetary policy, which in Afghanistan is the “Da Afghanistan Bank”. Commercial Banks, are the financial institutions, that accept deposits and make loans Other financial institutions include Leasing Companies, Insurance Companies, etc
13 Why Study Financial Institutions?
We will also spend considerable time discussing financial institutions. These institutions play a crucial role in improving the efficiency of the economy. We will look at: Central Banks and the Conduct of Monetary Policy Structure of the Financial System Helps get funds from savers to investors
14 Why Study Financial Institutions?
Banks and Other Financial Institutions Includes the role of insurance companies, mutual funds, pension funds, etc. Financial Innovation Focusing on the improvements in technology and its impact on how financial products are delivered Managing Risk in Financial Institutions Focusing on risk management in the financial institution.
15 END OF CHAPTER #1 4
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FAQs
Financial markets provide liquidity, capital, and participation that are essential for economic growth and stability. Without financial markets, capital could not be allocated efficiently, and economic activity such as commerce and trade, investments, and growth opportunities would be greatly diminished.
Why is it important to learn about financial institutions? ›
This helps you have a better financial future. If you have a good understanding of financial concepts, you can make wise investment decisions and save for retirement. Financial literacy can also help you plan for unexpected expenses, such as a car repair or a medical bill.
Why do you think that it is important to study money banking and financial markets? ›
We invest the surplus money in financial instruments that are traded in the financial market. All these three components together form an integral part of our daily lives. All the business activities, personal transactions, government transactions are possible through these components.
Why do we need to know financial markets? ›
Financial markets facilitate the interaction between those who need capital with those who have capital to invest. In addition to making it possible to raise capital, financial markets allow participants to transfer risk (generally through derivatives) and promote commerce.
What is the meaning of financial markets and institutions? ›
Financial markets refer to organized platforms for buying and selling securities such as stocks, bonds, derivatives, currencies, and commodities. It is the platform for businesses to raise capital and mobilize funds that results in the ultimate progress of the nation.
Why study banking and financial institutions? ›
Multiple career options: Studying banking and finance opens up avenues to work in different sectors such as banking, consulting, insurance, broking, and fund management. An individual with a certificate course in banking and finance can take up jobs in MNCs, financial markets and work with the government.
What do you learn from financial markets and institutions? ›
On the financial markets side, we will learn the term structure of interest rates, stocks, principals of derivatives, and currencies. On the institutions side, we will learn commercial banks, investment banks, insurance companies, mutual funds, the Federal Reserve Systems and their role of in the economy.
What is the most important thing about financial institutions? ›
Why Are Financial Institutions Important? Financial institutions are essential because they provide a marketplace for money and assets so that capital can be efficiently allocated to where it is most useful. For example, a bank takes in customer deposits and lends the money to borrowers.
What are the main purposes of a financial institution? ›
The definition of a financial institution typically describes an establishment that completes and facilitates monetary transactions, such as loans, mortgages, and deposits. Financial institutions are a place where consumers can effectively manage earnings and develop financial footing.
Why do financial managers need to understand financial markets and institutions? ›
One way to increase profits is by taking advantage of the financial markets. However, managers need to understand the risks associated with these markets to prevent their organizations from losing money or spending it in ways that are not efficient and beneficial to the growth of the company.
The correct answer is (A) bringing together people with funds to lend and people who want to borrow funds. The financial market has a primary function of bringing savers and borrowers together. This means that the fund that is saved in savings accounts is issued out as loans to spenders or borrowers.
What are the basics of financial markets? ›
A financial market is a place where firms and individuals enter into contracts to sell or buy a specific product, such as a stock, bond, or futures contract. Buyers seek to buy at the lowest available price and sellers seek to sell at the highest available price.
Why study financial markets and institutions? ›
Financial markets and institutions not only affect your everyday life but also involve flows of trillions of dollars of funds throughout our economy, which in turn affect business profits, the production of goods and services, and even the economic well-being of countries other than the United States.
What is the role of financial institutions and markets? ›
Financial institutions are organizations like banks, credit unions, and investment companies that help people manage and grow their money. Financial markets are places where people can buy and sell things like stocks, bonds, and commodities, in order to make investments and trade with each other.
What are the advantages of financial institutions to the financial markets? ›
They play a crucial economic role by facilitating monetary transactions, lending, investment, and risk management. Financial institutions act as intermediaries between savers and borrowers, mobilize savings, and channel them into productive investments, thereby fostering economic growth and financial stability.
Why are financial systems and markets important? ›
Financial markets provide valuable information about the health of companies and the economy, helping investors make informed decisions. They direct money to businesses and projects that show the most promise, ensuring that resources are used efficiently.
Why is it important to study financial economics? ›
The tools of financial economics aid investors to make prudent financial decisions. The tools facilitate analysis of information, such as time, rate of return, present value, and risk factors to arrive at the future value of a financial product. The tools also facilitate analysis of the impact of laws and regulations.
