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Chapter No 4. Instruments traded on Financial Markets. . Lec # 1. Financial Market & Instrument. By : Nusrat ullah noori Email/ F.B : [email protected] What is Market?. Market is a place which combines 3 elements to gather. 1. Buyer and seller 2. Product 3. Price

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Chapter no 4

Chapter No 4

Instruments traded on Financial Markets.


Financial market instrument

Lec# 1

Financial Market & Instrument

By:

Nusratullahnoori

Email/ F.B : [email protected]


What is market
What is Market?

  • Market is a place which combines 3 elements to gather.

  • 1. Buyer and seller

  • 2. Product

  • 3. Price

  • The name of the market depends on the product traded there.


What is financial market
What is Financial Market ?

  • A market where financial instruments are traded .

  • Elements of F.M

  • 1. Buyer & seller

  • 2. Financial instruments

  • 3. Prices

  • What are financial Instruments??

  • A document that has a monetary value and represents a legal agreement between two or more parties.


Financial market
Financial Market

  • Financial market is divided into 2.

  • 1. Money Market:

  • A financial market where short term securities and long term securities whose remaining maturity is less than a year are traded .

  • 2. Capital Market:

  • A financial market where long term securities are traded .

  • Maturity period is more than one year


Financial Market

  • Each financial market is divided into 2.

  • 1. Primary Market

  • 2. Secondary Market


Financial instruments
Financial Instruments

  • Financial Instruments are divided in to 2.

  • 1. Money Market Instruments

  • 2. Capital Market instruments


Financial Instruments

Money Market Inst..

Capital Market Inst..

  • T. Bills

  • Commercial Paper

  • Repurchase Agreements

  • Certificates of Deposit

  • Bankers acceptance

  • Promissory notes

  • Bills of exchange

  • T. Notes

  • T. Bonds

  • C. Bonds

  • Common Stock

  • Proffered Stock

  • Mortgages

  • Mutual funds


Money market instruments

Lec# 2

Money Market Instruments

By:

Nusratullahnoori

Email/ F.B : [email protected]


Treasury bills
Treasury Bills

  • They are government securities issued by the central bank on behalf of the government.

  • They are zero coupon and bear no interest.

  • They are issued on discount and repurchased or redeemed on face or par value.

  • They are issued to meet short term deficits faced by the government and generate revenue.

  • They can of 1 month, 3 months, 6 months and 52 weeks or 1 year.

  • They can be traded in secondary money market.



Commercial paper
Commercial paper

  • In the global money market, commercial paper is an unsecured promissory note with a fixed maturity of 1 to 270 days not more than 9 months.

  • They issued by highly large , strong and well reputed companies and financial institutions.

  • They are issued to fulfill the gape between the receipts and payments by the company.

  • Commercial paper is usually sold at a discount from face value, and carries higher interest repayment rates than bonds.

  • The amount of fun borrowed and the date of maturity is mentioned on the paper.



Certificates of deposits
Certificates of deposits

  • A certificate of deposit (COD) is a financial product commonly offered to consumers by commercial banks.

  • The COD is the evidence of the deposit made by a person in a bank specifying the amount.

  • CODs are similar to savings accounts , they are "money in the bank".

  • The period of the deposit and interest rate is specified.

  • They are traded in the secondary money market.

  • They also called negotiable CODs.

  • It is intended that the COD will be held until maturity, at which the money may be withdrawn together with the accrued interest.



Repurchase agreement
Repurchase agreement

  • A repurchase agreement is also known as a repo .

  • It is the sale of securities together with an agreement for the seller to buy back the securities at a later date.

  • The sale price and repurchase price is specified and also the time of repurchase.

  • The terms and conditions and also the rate of interest is specified.

  • It’s a mean of financing.

  • It can be an over night repo or term repo.

  • Over night repo is for one day

  • Term repo can be more than one day.



B anker s acceptance
Banker’s Acceptance

  • A banker's acceptance, or BA, is a promised future payment, or time draft, which is accepted and guaranteed by a bank and drawn on a deposit at the bank.

  • The banker's acceptance specifies the amount of money, the date, and the person to which the payment is due.

  • The holder of the draft can sell (exchange) it for cash at a discount to a buyer who is willing to wait until the maturity date for the funds in the deposit.

  • It is usually used in export and import of goods by businessmen.

  • The bank becomes the connector b/w exporter & importer.


B anker s acceptance1
Banker’s Acceptance


Capital market instruments

Lec# 3

Capital Market Instruments

By:

Nusratullahnoori

Email/ F.B : [email protected]


Treasury notes
Treasury Notes

  • A T. Note is a Long term government debt security with a fixed interest rate

  • Its maturity is between one and 10 years.

  • Notes are issued in terms of 2, 3, 5, 7, and 10 years.

  • Interest payments on the notes are made every six months until maturity.

  • They are issued by the central bank on behalf of the government.

  • They are issued on discount and repurchased or redeemed on face or par value.

  • They are issued to meet long term deficits faced by the government.

  • They can be traded in secondary capital market.


Treasury notes1
Treasury Notes


Treasury bonds
Treasury Bonds

  • A T. Bond is a long term government debt security with a maturity of more than 10 years.

  • Treasury bonds make interest payments semi-annually until maturity.

  • Treasury Bonds are usually issued in thirty-year maturities, and pay interest twice a year.

  • They are issued by the central bank on behalf of the government.

  • They are issued to meet long term deficits faced by the government.

  • They can be traded in secondary capital market.



Bonds
Bonds

  • A Bond is a long term debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing.

  • Bonds make interest payments periodically until maturity.

  • They are issued by the banks and companies to raise funds.

  • They are issued to meet long term deficits faced by the financial institutions.

  • Bond Holder get the interest payments periodically.

  • They can be traded in secondary capital market.


Bonds1
Bonds

  • There different types of bond offered by the companies such as term bond, series bond, secured & unsecured bond.

  • Generally, a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity).

  • They provide a tax shield to the organization who offer these.

  • The interest expense is charged from the operating income of the company.

  • Bond holders have no ownership in the company .



Common stock
Common Stock

  • A Common Stock is a long term security with an unlimited maturity.

  • It is a piece of paper showing the ownership of a person in a corporation.

  • The person having it is called shareholders or stock holder.

  • They are issued by the companies to raise funds.

  • They are a source equity financing.

  • Share Holder get the dividend payments periodically.

  • They are interest free & the dividend received on it is fluctuating, it depends on the profit earn by the company.

  • They can be traded in secondary capital market.

  • The dividend is declared based on accounting period.


Common stock1
Common Stock

  • The common stock holder has the voting power or right in choosing the boards of governors.

  • In the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debt holders have been paid in full.

  • Common Stock holder enjoys "preemptive rights” too.

  • This meansthat common share holders with preemptive rights have the rightbut not the obligationtopurchasenew shares of the company.

  • Stock exchange is the best market where these are traded for the propose of capital gain.



Preferred stock
preferred Stock

  • A preferred Stock is a long term security with an unlimited maturity.

  • It is a piece of paper showing the ownership of a person in a corporation.

  • The person having it is called shareholders or stock holder.

  • They are issued by the companies to raise funds.

  • They are a source equity financing.

  • Share Holder get the dividend payments periodically.

  • The dividend received on it is fixed.

  • They can be traded in secondary capital market.

  • The dividend is declared based on accounting period.


preferred Stock

  • The preferred stock holder has no voting power or right in choosing the boards of governors.

  • In the event of liquidation, preferred shareholders have rights to a company's assets only after bondholders, have been paid in full.

  • Preferred Stock holder has no "preemptive rights”.

  • This meansthat preferred share holders have the right topurchasenew shares of the company only if the common stock holders deny .

  • Stock exchange is the best market where these are traded for the propose of capital gain.



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