Professional Documents
Culture Documents
Introduction
Financial Markets
Financial
Financial markets
markets are
are structures
structures
through
through which
which funds
funds flow
flow
Financial
Financial markets
markets can
can be
be distinguished
distinguished
along
along two
two dimensions
dimensions
primary
primary versus
versus secondary
secondary markets
markets
money
money versus
versus capital
capital markets
markets
1-3
Secondary
Secondary markets
markets
markets
markets where
where financial
financial instruments
instruments are
are traded
traded
among
among investors
investors (e.g.,
(e.g., NYSE
NYSE and
and Nasdaq)
Nasdaq)
1-4
Capital
Capital markets
markets
markets
markets that
that trade
trade debt
debt (bonds)
(bonds) and
and equity
equity
(stock)
(stock) instruments
instruments with
with maturities
maturities of
of more
more
than
than one
one year
year
1-5
1-6
1-7
Spot
Spot FX
FX
the
theimmediate
immediateexchange
exchangeof
ofcurrencies
currenciesatatcurrent
current
exchange
exchangerates
rates
Forward
Forward FX
FX
the
theexchange
exchangeof
ofcurrencies
currenciesin
inthe
thefuture
futureon
onaaspecific
specific
date
dateand
andatataapre-specified
pre-specifiedexchange
exchangerate
rate
1-8
1-9
The
The Securities
Securities Exchange
Exchange Act
Act of
of 1934
1934
Securities
Securities and
and Exchange
Exchange Commission
Commission (SEC)
(SEC) isis
the
the main
main regulator
regulator of
ofsecurities
securities markets
markets
1-10
Financial
Financial Institutions
Institutions are
are distinguished
distinguished
by
by whether
whether they
they accept
accept deposits
deposits
depository
depository versus
versus non-depository
non-depository financial
financial
institutions
institutions
1-11
Suppliers of
Funds
(households)
Cash
1-12
Flow
FlowofofFunds
Fundsinina aWorld
Worldwithout
with FIs
FIs
FIs
(brokers)
Users of Funds
Cash
Suppliers of Funds
FIs
(asset
transformers)
Financial Claims
(equity and debt securities)
Cash
Financial Claims
(deposits and insurance policies)
1-13
Non-depository
Non-depository institutions
institutions
insurance
insurance companies,
companies, securities
securities firms
firms and
and
investment
investment banks,
banks, mutual
mutual funds,
funds, pension
pension funds
funds
1-14
Reduce
Reduce monitoring
monitoring costs
costs
Increase
Increase liquidity
liquidity and
and lower
lower price
price risk
risk
Reduce
Reduce transaction
transaction costs
costs
Provide
Provide maturity
maturity intermediation
intermediation
Provide
Provide denomination
denomination intermediation
intermediation
1-15
1-16
Credit
Credit
Foreign
Foreign exchange
exchange
Country
Country or
or
sovereign
sovereign
Interest
Interest rate
rate
Market
Market
1-17
Off-balance-sheet
Off-balance-sheet
Liquidity
Liquidity
Technology
Technology
Operational
Operational
Insolvency
Insolvency
1-19