CHANGING FINANCIAL MARKETS PRESENTATION - al part2.pptx

7/29/2019 CHANGING FINANCIAL MARKETS PRESENTATION - al part2.pptx

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Reporters:

Jimmy Q. Arroyo Jr.

Evangelyn Bugahod

Al Urao


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FINANCIAL MARKET

Definition:

A market in which people and entities can deal and trade financialsecurities(like stocks and bonds), commodities(like precious metals oragricultural goods), and other fungible items of value at low transactioncosts and at prices that reflect supply and demand.

In economics, a markettypically means the aggregate of possiblebuyers and sellers of a certain good or service and transactionsbetween them.

market economy is an economy which relies primarily oninteractions between buyers and sellers to allocate resources.(in contrast to a command economy or a non-market economy such as agift economy).


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FINANCIAL MARKET

"Market" is also used for exchanges - organizations that facilitate thetrade in financial securities (e.g., a stock or commodity exchange).

This may be a physical location (like the NYSE, BSE, NSE) or anelectronic system (like NASDAQ).

Much trading of stocks takes place on an exchange; while others mayagree to sell stock from one to the other without using an exchange.

Trading of currencies and bonds is largely on a bilateral basis,

although some bonds trade on a stock exchange, and people arebuilding electronic systems for these as well, similar to stockexchanges.

Financial markets can be domestic or international.
http://en.wikipedia.org/wiki/New_York_Stock_Exchangehttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Bond_markethttp://en.wikipedia.org/wiki/Foreign_exchange_markethttp://en.wikipedia.org/wiki/NASDAQhttp://en.wikipedia.org/wiki/New_York_Stock_Exchange


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FINANCIAL MARKET

Function:

Financial markets facilitate:

The raising of capital (in the capital markets)

The transfer of risk (in the derivatives markets) Price discovery

Global transactions with integration of financial markets

The transfer of liquidity (in the money markets)

International trade (in the currency markets)

used to match those who want capital, to those who have it!
http://en.wikipedia.org/wiki/Capital_(economics)http://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/International_tradehttp://en.wikipedia.org/wiki/Liquidityhttp://en.wikipedia.org/wiki/Riskhttp://en.wikipedia.org/wiki/Capital_(economics)


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FINANCIAL MARKET

Mechanics:

Markets are bothgeneral markets (where many commodities aretraded) and specialized markets (only one commodity is traded).

It works by placing many interested buyers and sellers, includinghouseholds, firms, and government agencies, in one "place", makingit easier for them to find each other.

Typically a borrower issues a receipt to the lender promising to pay

back the capital. These receipts are securities which may be freelybought or sold. In return, the lender will expect some compensationin the form of interest or dividends from the borrower.
http://en.wikipedia.org/wiki/Receipthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Dividendshttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Receipt


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Types of Financial Market

"financial markets" typically refers to the markets used to raisefinance: Capital markets, for long term finance, andMoney markets, forshort term finance.

also as a catch-all term for all the markets in the financial sector, as;

Capital markets

Stock markets, provide financing through issuance of shares orcommon stock, and the subsequent trading thereof.

Bond markets, provide financing through the issuance of bonds,and the subsequent trading thereof.

Money markets, which provide short term debt financing andinvestment.
http://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Money_markethttp://en.wikipedia.org/wiki/Capital_market


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Capital markets, may also be divided into:

primary markets

- where newly formed (issued) securities are bought or sold, such as duringinitial public offerings

- the transactions exist between issuers and investors

secondary markets

- allow investors to buy and sell existing securities

- transactions exist among investors

- Liquidity is a crucial aspect of securities traded in secondary markets.

this refers to the ease which it can be sold without a loss of value.- Securities with an active secondary market mean that there are many buyers

and sellers at a given point in time. Investors benefit from liquid securitiesbecause they can sell their assets whenever they want

- an illiquid security may force the seller to get rid of their asset at a largediscount
http://en.wikipedia.org/wiki/Capital_markethttp://en.wikipedia.org/wiki/Capital_market


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stocks


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Money markets


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Commodity Markets

are markets where raw or primary products are exchanged. These rawcommodities are traded on regulated commodities exchanges, in whichthey are bought and sold in standardized contracts.

Focus in the relationship between simple commodity money and themore complex instruments offered in the commodity markets.

The modern commodity markets have their roots in the trading ofagricultural products. While wheat and corn, cattle and pigs, werewidely traded using standard instruments in the 19th century in theUnited States, other basic foodstuffs such as soybeans were only addedquite recently in most markets. For a commodity market to beestablished, there must be very broad consensus on the variations in theproduct that make it acceptable for one purpose or another.

The economic impact of the development of commodity markets is hardto overestimate. Through the 19th century "the exchanges becameeffective spokesmen for, and innovators of, improvements intransportation, warehousing, and financing, which paved the way to

expanded interstate and international trade.


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Commodity Markets

The trading of commodities consists of direct physical trading andderivatives trading. Exchange traded commodities have seen an upturnin the volume of trading since the start of the decade.

Commodity Trading

Spot trading- is any transaction where delivery either takes place

immediately, or with a minimum lag between the trade and delivery dueto technical constraints.

Forward contracts are agreements between two parties to exchange atsome fixed future date a given quantity of a commodity for a pricedefined today.

Futures contracts has the same general features as a forward contract butis standardized and transacted through a futures exchange.

Hedging, a common practice of farming cooperatives, insures against apoor harvest by purchasing futures contracts in the same commodity.

Delivery and condition guarantees- In addition, delivery day, methodof settlement and delivery point must all be specified


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Commodity Markets

Regulation of commodity markets

In the United States, the principal regulator of commodity and futures markets isthe Commodity Futures Trading Commission but it is the National FuturesAssociation that enforces rules and regulations put forth by the CFTC.

Oil

Building on the infrastructure and credit and settlement networksestablished for food and precious metals, many such markets haveproliferated drastically in the late 20th century. Oil was the first form of

energy so widely traded, and the fluctuations in the oil markets are ofparticular political interest.

Some commodity market speculation is directly related to the stability ofcertain states, e.g., during the Persian Gulf War, speculation on the survivalof the regime of Saddam Hussein in Iraq. Similar political stability concernshave from time to time driven the price of oil.


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Commodity Markets

The oil market is an exception. Most markets are not so tied to thepolitics of volatile regions - even natural gas tends to be more stable, as itis not traded across oceans by tanker as extensively.

Commodity markets and protectionism

Developing countries (democratic or not) have been moved to hardentheir currencies, accept International Monetary Fund rules, join theWorld Trade Organization (WTO), and submit to a broad regime ofreforms that amount to a hedge against being isolated. China's entry into

the WTO signaled the end of truly isolated nations entirely managingtheir own currency and affairs. The need for stable currency andpredictable clearing and rules-based handling of trade disputes, has ledto a global trade hegemony - many nations hedging on a global scaleagainst each other's anticipated protectionism, were they to fail to jointhe WTO.


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Derivatives Markets

During the 1980s and 1990s, a major growth sector in financial markets isthe trade in so called derivative products, or derivatives for short.

In the financial markets, stock prices, bond prices, currency rates,interest rates and dividends go up and down, creating risk. Derivativeproducts are financial products which are used to control risk orparadoxically exploit risk. It is also called financial economics.

Derivative products or instruments help the issuers to gain an unusualprofit from issuing the instruments. For using the help of these productsa contract has to be made. Derivative contracts are mainly 3 types: 1.

Future Contracts 2. Forward Contracts 3. Option Contracts. The derivatives market is the financial market for derivatives, financial

instruments like futures contracts or options, which are derived fromother forms of assets.


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Derivatives Markets

The market can be divided into two, that for exchange-traded derivativesand that for over-the-counter derivatives. The legal nature of theseproducts is very different as well as the way they are traded, thoughmany market participants are active in both.

The derivative markets have been accused lately for their alleged role inthe financial crisis of 2007-2010. The leveraged operations are said tohave generated an irrational appeal for risk taking, and the lack ofclearing obligations also appeared as very damaging for the balance ofthe market. The G-20s proposals for financial markets reform all stressthese points, and suggest:

higher capital standards

stronger risk management

international surveillance of financial firms' operations

dynamic capital rules.


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Futures Markets

A futures exchange or futures market is a central financial exchangewhere people can trade standardized futures contracts; that is, a contract tobuy specific quantities of a commodity or financial instrument at aspecified price with delivery set at a specified time in the future. These

types of contracts fall into the category of derivatives. Such instruments arepriced according to the movement of the underlying asset (stock, physicalcommodity, index, etc.). The aforementioned category is named"derivatives" because the value of these instruments is derivedfrom anotherasset class.

Nature of Contracts

Standardization

Clearing and Settlement

Central Counterparty

Margin and Mark-to Market (Initial Margin and Mark-to-MarketMargin)


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Insurance Markets

Insurance is the equitable transfer of the risk of a loss, from one entity toanother in exchange for payment. It is a form of risk managementprimarily used to hedge against the risk of a contingent, uncertain loss.

Risk which can be insured by private companies typically share seven

common characteristics:[2] Large number of similar exposure units: Since insurance operates

through pooling resources, the majority of insurance policies areprovided for individual members of large classes, allowing insurers tobenefit from the law of large numbers in which predicted losses are

similar to the actual losses. Definite loss: The loss takes place at a known time, in a known place,

and from a known cause.

Accidental loss: The event that constitutes the trigger of a claimshould be fortuitous, or at least outside the control of the beneficiaryof the insurance.


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Insurance Markets

Large loss: The size of the loss must be meaningful from theperspective of the insured.

Affordable premium: If the likelihood of an insured event is so high,

or the cost of the event so large, that the resulting premium is largerelative to the amount of protection offered, then it is not likely thatthe insurance will be purchased, even if on offer.

Calculable loss: There are two elements that must be at leastestimable, if not formally calculable: the probability of loss, and theattendant cost.

Limited risk of catastrophically large losses: Insurable losses areideally independent and non-catastrophic, meaning that the losses donot happen all at once and individual losses are not severe enough tobankrupt the insurer; insurers may prefer to limit their exposure to aloss from a single event to some small portion of their capital base.


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Insurance Markets

When a company insures an individual entity, there are basic legalrequirements. Several commonly cited legal principles of insuranceinclude:

Indemnity

Insurable interest

Utmost good faith

Contribution

Subrogation

Causa proxima, or proximate cause

Mitigation

Insurance can have various effects on society through the way that itchanges who bears the cost of losses and damage. On one hand it canincrease fraud, on the other it can help societies and individuals preparefor catastrophes and mitigate the effects of catastrophes on bothhouseholds and societies.
http://en.wikipedia.org/wiki/Indemnityhttp://en.wikipedia.org/wiki/Insurable_interesthttp://en.wikipedia.org/wiki/Implied_covenant_of_good_faith_and_fair_dealinghttp://en.wikipedia.org/wiki/Implied_covenant_of_good_faith_and_fair_dealinghttp://en.wikipedia.org/wiki/Implied_covenant_of_good_faith_and_fair_dealinghttp://en.wikipedia.org/wiki/Implied_covenant_of_good_faith_and_fair_dealinghttp://en.wikipedia.org/wiki/Implied_covenant_of_good_faith_and_fair_dealinghttp://en.wikipedia.org/wiki/Implied_covenant_of_good_faith_and_fair_dealinghttp://en.wikipedia.org/wiki/Insurable_interesthttp://en.wikipedia.org/wiki/Insurable_interesthttp://en.wikipedia.org/wiki/Insurable_interesthttp://en.wikipedia.org/wiki/Indemnity


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Insurance Markets

The business model is to collect more in premium and investmentincome than is paid out in losses, and to also offer a competitive pricewhich consumers will accept. Profit can be reduced to a simple equation:

Profit = earned premium + investment income - incurred loss -underwriting expenses.

Insurers make money in two ways:

Through underwriting, the process by which insurers select the risksto insure and decide how much in premiums to charge for acceptingthose risks;

By investing the premiums they collect from insured parties.

Insurers will often use insurance agents to initially market or underwritetheir customers. Agents can be captive, meaning they write only for onecompany, or independent, meaning that they can issue policies fromseveral companies. The existence and success of companies using insurance

agents is likely due to improved and personalized service.
http://en.wikipedia.org/wiki/Earned_premiumhttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Investinghttp://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/Agency_(law)http://en.wikipedia.org/wiki/Investinghttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Earned_premiumhttp://en.wikipedia.org/wiki/Earned_premiumhttp://en.wikipedia.org/wiki/Earned_premium


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Insurance Markets

Types of Insurance- Auto insurance, Gap insurance, Health insurance,Life insurance, Property insurance, Liability insurance, Credit insurance,Other types of insurance, Insurance financing vehicles, Closedcommunity self-insurance, Accident, sickness and unemployment

insurance, etc Insurance companies may be classified into two groups:

Life insurance companies, which sell life insurance, annuities andpensions products.

Non-life, general, or property/casualty insurance companies, which

sell other types of insurance. General insurance companies can be further divided into these sub-

categories.

Standard lines

Excess lines


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Foreign Exchange Markets

Seemingly, the most obvious buyers and sellers of currencyare importers and exporters of goods. While this may havebeen true in the distant past, when international trade

created the demand for currency markets, importers andexporters now represent only 1/32 of foreign exchangedealing, according to the Bank for InternationalSettlements.

The picture of foreign currency transactions today shows:

Banks/Institutions

Speculators

Government spending (for example, military bases abroad)

Importers/Exporters

Tourists


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The foreign exchange market (forex, FX, or currency market) is a formof exchange for the global decentralized trading of internationalcurrencies.

Financial centers around the world function as anchors of trading

between a wide range of different types of buyers and sellers around theclock, with the exception of weekends.

EBS and Reuters' dealing 3000 are two main interbank FX tradingplatforms.

The foreign exchange market determines the relative values of different

currencies. The foreign exchange market assists international trade and investment

by enabling currency conversion.

In a typical foreign exchange transaction, a party purchases somequantity of one currency by paying some quantity of another currency.


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The foreign exchange market is unique because of the followingcharacteristics:

its huge trading volume representing the largest asset class in theworld leading to high liquidity;

its geographical dispersion;

its continuous operation: 24 hours a day except weekends, i.e.,trading from 20:15 GMT on Sunday until 22:00 GMT Friday;

the variety of factors that affect exchange rates;

the low margins of relative profit compared with other markets offixed income; and

the use of leverage to enhance profit and loss margins and withrespect to account size.

Foreign exchange is an over-the-counter market wherebrokers/dealers negotiate directly with one another, so there is nocentral exchange or clearing house.


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MARKET PARTICIPANTS:

Commercial companies

Central banks

Foreign exchange fixing

Hedge funds as speculators

Investment management firms

Retail foreign exchange traders

Non-bank foreign exchange companies Money transfer/remittance companies and bureaux de

change


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RAISING CAPITAL VANGIES TOPICS

Raising capital Relationship bet. Lenders & borrowers

Analysis of financial markets

Financial market terminologies


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Role Of Financial System And The Economy

A dynamic financial market is an important requisite for theaccelerated development of an economy.

A financial market helps the economy in the following manner:

Saving mobilization: Obtaining funds from savers or surplus units such as

individuals, business firms, public sector units, central or state govts., etc. Investment: F/M play a crucial role in arranging to invest funds thus

collected in those units which are in need of the same.

National Growth: contribute to a nations growth by ensuring unfetteredflow of surplus funds to deficit units. Flow of funds for productive purposes

Entrepreneurship growth: contribute to the development of theentrepreneurial claw by making available the necessary financial resources.

Industrial development: The different components of financial marketshelp an accelerated growth of industrial and economic development of acountry, thus contributing to raising the standard of living and the societyof well-being.


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1. Intermediary Functions

Transfer of Resources: facilitate the transfer of real economicresources from lenders to ultimate borrowers.

Enhancing income: allow lenders to earn interest or dividend on

their surplus invisible funds, thus contributing to theenhancement of the individual and the national income.

Productive usage: allow for the productive use of the fundsborrowed. The enhancing the income and the gross national

production.

Capital Formation: provide a channel through which newsavings flow to aid capital formation of a country.

Functions Of Financial Markets


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1. Intermediary Functions (cont.)

Price determination: determine the price of the traded financialassets through interaction of buyers and sellers. Provide for theallocation of funds in the economy based on the demand and

supply through the mechanism called price discovery process.

Sale Mechanism: provide a mechanism for selling of a financialasset by an investor so as to offer the benefit of marketability andliquidity of such assets.

Information: The activities of the participants in the financialmarket result in the generation and the consequent disseminationof information to the various segments of the market. So as toreduce the cost of transaction of financial assets.



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2. Financial Functions

Providing the borrower with funds so as to enable them to carry

out their investment plans.

Providing the lenders with earning assets so as to enable them toearn wealth by deploying the assets in production debentures.

Providing liquidity in the market so as to facilitate trading of

funds.



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Based on market levels

Primary market: a market for new issues or new financial claims.deals with those securities issued to the public for the first time.

Secondary market: a market for secondary sale of securities whichhave already passed through the primary market. Generally, such

securities are quoted in the stock exchange and it provides acontinuous and regular market for buying and selling of securities.

Based on security types

Money market: a market for dealing financial assets and securities

with a maturity period of up to one year (i.e., purely short term funds)

Capital market: A market for financial assets with long or indefinitematurity. deals with long term securities having maturity period ofabove one year. Capital market further divided into: (a) industrialsecurities market (b) Govt. securities market and (c) long term loans

market.

Constituents Of Financial Markets


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Equity markets: A market where ownership of securities are issuedand subscribed. An example of a secondary equity market for sharesis the Bombay stock exchange.

Debt market: The market where funds are borrowed and lent.Arrangements are made such that borrowers agree to pay the lender

the original amount of loan plus some specified amount of interest.

Derivative markets:

Financial service market: A market that comprises participants suchas commercial banks that provide various financial services like

ATM. Credit cards. Credit rating, stock broking etc. Individuals andfirms use financial services markets to purchase services thatenhance the working of debt and equity markets.



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Depository markets: A market consist of depository institutions thataccept deposit from individuals and firms and uses these funds toparticipate in the debt market, by giving loans or purchasing otherdebt instruments such as treasure bills.

Non-Depository market: Non-depository market carry out various

functions in financial markets ranging from financial intermediary toselling, insurance etc. The various constituency in non-depositarymarkets are mutual funds, insurance companies, pension funds,brokerage firms etc.



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Local Setting-BSP

Foreign Exchange Market and Philippine Dealing

System (PDS) Open Market Operations

Fixed Income Exchange Market

Changing Financial Market


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Current Global Trends on Financial Market Regulation and theImpact on the Philippines

Changing Financial Market


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SOURCES:www.wikipedia.com

www.investopedia.com
http://www.wikipedia.com/http://www.investopedia.com/http://www.investopedia.com/http://www.wikipedia.com/


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Thank you all . . .

Jim, Al & Vangie

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