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Chapter No 4

Chapter No 4. Instruments traded on Financial Markets. . Lec # 1. Financial Market & Instrument. By : Nusrat ullah noori Email/ F.B : nusrat2008noori@yahoo.com. 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

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  1. Chapter No 4 Instruments traded on Financial Markets.

  2. Lec# 1 Financial Market & Instrument By: Nusratullahnoori Email/ F.B : nusrat2008noori@yahoo.com

  3. 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.

  4. 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.

  5. 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

  6. Financial Market • Each financial market is divided into 2. • 1. Primary Market • 2. Secondary Market

  7. Financial Instruments • Financial Instruments are divided in to 2. • 1. Money Market Instruments • 2. Capital Market instruments

  8. 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

  9. Lec# 2 Money Market Instruments By: Nusratullahnoori Email/ F.B : nusrat2008noori@yahoo.com

  10. 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.

  11. Treasury Bill

  12. 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.

  13. Commercial paper

  14. 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.

  15. Certificates of deposits

  16. 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.

  17. Repurchase agreement

  18. 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.

  19. Banker’s Acceptance

  20. Lec# 3 Capital Market Instruments By: Nusratullahnoori Email/ F.B : nusrat2008noori@yahoo.com

  21. 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.

  22. Treasury Notes

  23. 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.

  24. Treasury Bond

  25. 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.

  26. 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 .

  27. Bond

  28. 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.

  29. 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.

  30. Common Stock

  31. 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.

  32. 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.

  33. Preferred stock

  34. Thank you All For Being with us

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