,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,CAPITAL MARKETS AND FINANCIAL INSTITUTIONS(BUS 498),By,ARTURO RUBALCAVA,1,CAPITAL MARKETS AND FINANCIAL,This course examines:,The way in which,Financial Markets function,The pivotal role played by,Financial institutions,Main emphasis:,Coverage of,Canadian markets,and,institutions,Coverage of,risk measurement and management,Risk-return tradeoffs,available to investors.,2,This course examines:2,Introduction,Financial System,Financial Markets,Financial Institutions,Economic functions of FIs,Financial Innovation,Regulation of the Financial System,Conclusions,3,IntroductionFinancial System3,1.Financial System,Its main role is to gather money from parties that have more money than they need right now and route those funds to those that can use them for either business or consumer expenditures.,This is facilitated by,Financial Markets,and,Financial Institutions,4,1.Financial SystemIts main ro,2.Financial Markets,Markets,where parties buy and sell,financial instruments,including,stocks,bonds,options,foreign exchange contracts.,Example:BCE needs to finance a$400 million telecom project.It can get the money via:,A)Financial Markets by borrowing,directly,from investors(e.g.,households),B)By borrowing,indirectly,from households via a Financial Intermediary(e.g.,a commercial bank).,Household,s,Nortel,$,$,Bonds,Bonds,Financial,Markets,A),5,2.Financial MarketsHouseholds,Financial markets:,Classification,Money Market.Short term debt instruments,Maturity of securities 1 year,Debt,Markets(Government Securities Market,Municipal Bond Markets,Corporate Debt Markets),Stock,Market(TSX),Depositary Receipts Market,Foreign Exchange markets.,Markets in which foreign currencies are traded,Other Markets:Financial Derivative Markets,6,Financial markets:Classificat,Financial Markets:Alternative classification,Primary Market.,Market for,new,issue,of securities sold to initial buyers by investment bankers.,Secondary Market.,Market in which,already-issued,securities are traded among investors,Brokers.,Match buyers and sellers for a fee.,Dealers.,Sell and buy securities from buyers and sellers.,7,Financial Markets:Alternative,Types of secondary markets,1.Exchange Market,Transaction are centralized in a,physical,location via communication network.,Examples:TSX,TSX Venture Exchange(formerly CDNX),Montreal Exchange,Winnipeg Commodities Exchange,NYSE,AMEX.,2.Over-the-counter Market:,Transaction made through communications network with,no physical,centralization of trades,Examples:CDN,(Canadian government bonds),NASDAQ.Foreign exchange market,8,Types of secondary markets1.E,Domestic and International Financial Markets,Domestic Market,Banks,Money Market,Bond Market,Stock Market,International Market,International Bond Market,Foreign Bonds,Eurobonds,Eurocurrencies,Foreign stock markets,9,Domestic and International Fin,International Bond Market,A)Foreign Bonds,A bond issued by a foreign firm or government for sale in another country in the currency of that country.,Example?,Yankee bonds,.,U.S.dollar,denominated bonds issued,within,the,U.S.,by a foreign borrower(e.g.Bombardier).Others:Samurai bonds,Bulldogs,B)Eurobond Market:Eurobonds,A bond issued by a foreign firm or government for sale outside the country in whose currency it is denominated.,Example?A Canadian dollar-denominated bond for sale to investors outside of Canada.,10,International Bond Market10,c)Eurocurrency market:Eurocurrencies,International currencies that are deposited in banks outside their home countries.,Examples:Eurodollars.A US dollar deposited in a bank outside the US.Other examples:Euroeuros,Euroyens,etc.,International Bank Loans and Syndicate Credits:Ex.Loans in Eurocurrency(Eurocredits),Foreign Stock Markets,E.g.,Shares of Potash Corp.are listed on the TSX,and NYSE.,11,c)Eurocurrency market:Eurocu,Reasons of the significant growth in foreign financial Markets,Deregulation of financial markets,Globalization of trade,Easy accessibility of information via advances in computer technology,12,Reasons of the significant gro,Financial Markets,(Continued),How borrowers obtain funds?,Money Market.-Short term debt,Capital Markets.-Long term debt and equity,When to finance in the Money Mkt?When in the Capital Mkt?,When to finance with Long Term Debt?When with Equity?,What type of firms will finance more with equity than with debt?When to finance in the domestic or in international markets?,Advantages for lenders,Debt vs.Equity,13,Financial Markets(Continued)H,3.Financial Institutions(FIs),The,flow of funds,from lenders to borrowers is facilitated by Financial Institutions,This can be done,A)Directly,In the financial markets through the assistance of securities firms(investment banks).,B)Indirectly,Through,Other financial intermediaries,(e.g.,via a commercial bank).,14,3.Financial Institutions(FI,A)Direct Finance,Process by which funds move directly from,lenders,to,borro