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Financial Markets &
Credit institutions
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Practice
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Course assessment?
Had you get handbook on time?Course objective explained?Study material covers course objectiveVariety for teaching like video & case
study?Availability of teacher?Thinking skills improvement?
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Lecture objectives
To define financial markets.What are types of financial markets?What are segments of money markets?What are segments of capital market?How national and international financial
institutes help economy to grow?
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Financial Markets
Financial markets in which funds are transferred from people who have surplus funds to people who have a shortage of funds. Financial markets thus allow movement of surplus funds from savers to investors. By facilitating transfer of funds, the financial markets contributes to higher production & efficiency in overall economy. Commercial banks, development financial institutions,
micro finance, such as leasing companies, investment banks etc. are the examples of financial market in Pakistan
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Segments of Financial Markets
Direct FinancingFunds are transferred directly from ultimate
savers to ultimate borrowers.
Indirect FinancingA financial “ intermediary” transforms financial
claims with one set of characteristics into financial claims with other characteristics e.g. deposits are used to make loans.
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Transfer of funds on Financial Markets
Surplus Spending Units
House HoldsBusiness FirmsGovernments
Deficit Spending Units
House HoldsBusiness FirmsGovernments
Finance Markets
Financial Intermediaries
Direct Financing
Indirect Financing
FundsFunds
Funds Funds
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Classifications of Financial markets
Money Markets
Capital Markets
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Money Markets
The flow of short term is facilitated by Money Markets. It basically meets the short term requirements of the borrowers for money and provides liquidity of cash to the lenders.
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Features of Money Markets
Constituent of Money MarketBorrowers & LendersShort term funds like Treasury Bills & Commercial
BillsPrice in the form of rate of interest
Dealers of Money MarketsHeterogeneous MarketNear Money assets
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Instruments of Money Market
Call LoansTreasury BillsBankers AcceptanceCommercial BillsCollateral LoansSale / Purchase operations
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Importance of Money Markets
Financing IndustryFinancing TradeProfitable InvestmentSelf sufficiency of BanksEffective implementation of
monetary policyEncourage economic growthHelp to the GovernmentProper allocation of
Resources
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Capital Markets
The capital markets deals with the grant of medium term & long term loans. The capital markets thus refers to the institutional arrangements which facilitate the lending and borrowing of medium & long term loans.
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Categories of Capital Markets
Primary MarketsIssue of Debt instruments such as a bonds or a Mortgage
having a maturity more than one year. Primary markets facilitate the issuance of new securities.
E.g. The sale of new corporate stock or new treasury securities.
Secondary MarketsRaising funds by issuing of equities (shares) by public
limited companies. Secondary Markets facilitate the trading of existing securities
Equity markets in Pakistan are Karachi Stock exchange, Lahore Stock exchange, Islamabad Stock Exchange.
E.g. Sale of existing stock.
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Securities Traded in Capital Markets
BondsMortgageGovernment SecuritiesMutual FundsStocks / Shares
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Functions of Capital Markets
Mobilization of equity CapitalSavers & BorrowersSaving IncentivesBalanced Economic GrowthAttraction of Foreign investorsStability in Security prices
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Difference Between Money Market &
Capital Market
Types of LoansInstruments of MarketsLiquidity RateInstitutions of MarketsCommercial Banks
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Specialized Credit institutions - National
Pakistan Industrial Credit &
Investment Corporation(1957)
PICIC
Industrial Development Bank Of
Pakistan(1961)
IDBP
Agricultural Development Bank of
Pakistan(1951)
ADBP/ZTBL (2002)
Investment Corporation Of
Pakistan (1966)
ICP
Small & Medium Enterprise Development Authority
SMEDA(1998)
House Building Finance Corporation(1952)
HBFC
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Specialized Credit institutions - International
International Monetary Funds
IMF (1944)
International Bank of Reconstruction & Development
IBRD(1944)
International Development Association (1960)
IDA
International Finance Corporation
IFC
Multilateral investment Guarantee Agency (1988)
MIGA
Islamic Development Bank (1973)
IDB
Asian Development Bank
ADB
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Important terms
Money marketCapital marketDifference b/w bills and securitiesKIBOR and its brief functionMortgage, pledge, lien, hypothecationDifference b/w share, debenture.
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