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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.

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
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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
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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# 2Money 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.
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 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.
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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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