Financial Markets &

Credit institutions

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Course assessment?

Had you get handbook on time?Course objective explained?Study material covers course objectiveVariety for teaching like video & case

study?Availability of teacher?Thinking skills improvement?

Lecture objectives

To define financial markets.What are types of financial markets?What are segments of money markets?What are segments of capital market?How national and international financial

institutes help economy to grow?

Financial Markets

Financial markets in which funds are transferred from people who have surplus funds to people who have a shortage of funds. Financial markets thus allow movement of surplus funds from savers to investors. By facilitating transfer of funds, the financial markets contributes to higher production & efficiency in overall economy. Commercial banks, development financial institutions,

micro finance, such as leasing companies, investment banks etc. are the examples of financial market in Pakistan

Segments of Financial Markets

Direct FinancingFunds are transferred directly from ultimate

savers to ultimate borrowers.

Indirect FinancingA financial “ intermediary” transforms financial

claims with one set of characteristics into financial claims with other characteristics e.g. deposits are used to make loans.

Transfer of funds on Financial Markets

Surplus Spending Units

House HoldsBusiness FirmsGovernments

Deficit Spending Units

House HoldsBusiness FirmsGovernments

Finance Markets

Financial Intermediaries

Direct Financing

Indirect Financing

FundsFunds

Funds Funds

Classifications of Financial markets

Money Markets

Capital Markets

Money Markets

The flow of short term is facilitated by Money Markets. It basically meets the short term requirements of the borrowers for money and provides liquidity of cash to the lenders.

Features of Money Markets

Constituent of Money MarketBorrowers & LendersShort term funds like Treasury Bills & Commercial

BillsPrice in the form of rate of interest

Dealers of Money MarketsHeterogeneous MarketNear Money assets

Instruments of Money Market

Call LoansTreasury BillsBankers AcceptanceCommercial BillsCollateral LoansSale / Purchase operations

Importance of Money Markets

Financing IndustryFinancing TradeProfitable InvestmentSelf sufficiency of BanksEffective implementation of

monetary policyEncourage economic growthHelp to the GovernmentProper allocation of

Resources

Capital Markets

The capital markets deals with the grant of medium term & long term loans. The capital markets thus refers to the institutional arrangements which facilitate the lending and borrowing of medium & long term loans.

Categories of Capital Markets

Primary MarketsIssue of Debt instruments such as a bonds or a Mortgage

having a maturity more than one year. Primary markets facilitate the issuance of new securities.

E.g. The sale of new corporate stock or new treasury securities.

Secondary MarketsRaising funds by issuing of equities (shares) by public

limited companies. Secondary Markets facilitate the trading of existing securities

Equity markets in Pakistan are Karachi Stock exchange, Lahore Stock exchange, Islamabad Stock Exchange.

E.g. Sale of existing stock.

Securities Traded in Capital Markets

BondsMortgageGovernment SecuritiesMutual FundsStocks / Shares

Functions of Capital Markets

Mobilization of equity CapitalSavers & BorrowersSaving IncentivesBalanced Economic GrowthAttraction of Foreign investorsStability in Security prices

Difference Between Money Market &

Capital Market

Types of LoansInstruments of MarketsLiquidity RateInstitutions of MarketsCommercial Banks

Specialized Credit institutions - National

Pakistan Industrial Credit &

Investment Corporation(1957)

PICIC

Industrial Development Bank Of

Pakistan(1961)

IDBP

Agricultural Development Bank of

Pakistan(1951)

ADBP/ZTBL (2002)

Investment Corporation Of

Pakistan (1966)

ICP

Small & Medium Enterprise Development Authority

SMEDA(1998)

House Building Finance Corporation(1952)

HBFC

Specialized Credit institutions - International

International Monetary Funds

IMF (1944)

International Bank of Reconstruction & Development

IBRD(1944)

International Development Association (1960)

IDA

International Finance Corporation

IFC

Multilateral investment Guarantee Agency (1988)

MIGA

Islamic Development Bank (1973)

IDB

Asian Development Bank

ADB

Important terms

Money marketCapital marketDifference b/w bills and securitiesKIBOR and its brief functionMortgage, pledge, lien, hypothecationDifference b/w share, debenture.