tailieunhanh - Lecture Business finance (9/e) - Chapter 8: The capital market

Chapter 8 introduces you to the capital market. The goal is for you to learn: Understand the functions of a capital market; distinguish between the roles of financial agency institutions, financial intermediaries and investing institutions; identify and explain the role of financial agency institutions, financial intermediaries and investing institutions. | Chapter 8 The Capital Market 2 2 2 2 2 2 Learning Objectives Understand the functions of a capital market. Distinguish between the roles of financial agency institutions, financial intermediaries and investing institutions. Identify and explain the role of financial agency institutions, financial intermediaries and investing institutions. 2 2 2 2 2 2 The Flow of Funds An economic entity will be either a ‘savings deficit unit’ or a ‘savings surplus unit’ (over a given period of time). The financing process involves a flow of funds from the savings surplus units to the savings deficit units. The flow of funds may be direct or indirect. 3 3 3 4 4 4 Financial Intermediaries Financial intermediaries are institutions that act as a principal in accepting funds from depositors and lending them to borrowers. They enable the preferences of savers and lenders to be matched. This is achieved via: Asset transformation Maturity transformation Credit risk diversification Creation of liquidity 4 4 | Chapter 8 The Capital Market 2 2 2 2 2 2 Learning Objectives Understand the functions of a capital market. Distinguish between the roles of financial agency institutions, financial intermediaries and investing institutions. Identify and explain the role of financial agency institutions, financial intermediaries and investing institutions. 2 2 2 2 2 2 The Flow of Funds An economic entity will be either a ‘savings deficit unit’ or a ‘savings surplus unit’ (over a given period of time). The financing process involves a flow of funds from the savings surplus units to the savings deficit units. The flow of funds may be direct or indirect. 3 3 3 4 4 4 Financial Intermediaries Financial intermediaries are institutions that act as a principal in accepting funds from depositors and lending them to borrowers. They enable the preferences of savers and lenders to be matched. This is achieved via: Asset transformation Maturity transformation Credit risk diversification Creation of liquidity 4 4 4 5 5 5 Definition of ‘Capital Market’ The market in which long-term financial securities are traded. The suppliers and users of funds can negotiate the conditions on which funds will be transferred. This transfer can be done in either the debt or equity market. It is the debt and equity markets together which form the capital market. 5 6 6 7 7 7 Primary Market ‘Primary market’ refers to transactions between companies seeking finance and investors directly. Primary market transactions create new financial securities. It is the market for new issues of securities, where the sale proceeds go to the issuer of the securities. 6 7 7 8 8 8 Secondary Market Secondary market transactions involve transactions in existing financial instruments. The instruments that are traded are those that have already been created in the primary market. The secondary market enhances the marketability and liquidity of primary issue instruments. 7 8 8 9 9 9 Deregulation of the Financial Markets Lifting of .

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