Introduction to Capital Market and Investment Strategies
Summary
TLDRThis video offers an introductory guide to capital markets, presented by Dr. P, focusing on defining capital markets, their importance, and the roles of primary and secondary markets. It explains how capital markets connect buyers and sellers of securities like stocks, bonds, and currencies, facilitating long-term funding for businesses. The primary market is highlighted as the place for issuing new securities, while the secondary market is where existing securities are traded. The video also touches on the various players involved, such as corporations, investment banks, institutional investors, and the types of securities traded, setting the stage for further exploration of investment strategies and the public and private markets in upcoming videos.
Takeaways
- 📚 Capital markets are financial markets that connect buyers and sellers to trade securities such as stocks, bonds, and currencies.
- 🏭 The primary market is where new securities are issued, allowing businesses to raise long-term funds through debt or equity.
- 🔄 The secondary market is for the trading of existing securities, providing liquidity and marketability for investors.
- 💼 Investment banks play a crucial role in the primary market by helping companies issue securities and connecting them with institutional investors.
- 🤝 Institutional investors are key participants in the primary market, providing the funds for new securities issued by corporations.
- 📈 The secondary market helps determine the fair market value of securities, influenced by supply and demand as well as macro and microeconomic factors.
- 🔄 Diversification is facilitated by the secondary market, allowing investors to spread their investments across various securities.
- 👥 Retail investors can participate in the secondary market through brokerage accounts to buy and sell existing securities.
- 💼 Market makers are financial institutions that provide liquidity by continuously buying and selling securities in the secondary market.
- 🌐 Major exchanges like the New York Stock Exchange and NASDAQ are platforms where existing securities are traded in the secondary market.
- 📊 The primary market involves a one-time issuance of new securities, while the secondary market features frequent buying and selling of existing securities.
Q & A
What is the primary purpose of capital markets?
-The primary purpose of capital markets is to bring together buyers and sellers to trade securities such as stocks, bonds, and currencies. They also allow businesses to raise long-term funds by issuing securities to investors.
What is the main difference between primary and secondary markets?
-The main difference is that primary markets are where new securities are issued and sold to investors, while secondary markets are where existing securities are traded among investors.
What types of securities are commonly traded in capital markets?
-Commonly traded securities in capital markets include equity securities such as common and preferred shares, debt securities like bonds, foreign exchange currencies, and derivatives such as futures and forward contracts.
How does a corporation raise funds through the primary market?
-A corporation raises funds through the primary market by issuing either debt or equity securities. This process is facilitated by an investment bank, which connects the corporation with institutional investors who provide the funds.
What role do investment banks play in the primary market?
-Investment banks play a crucial role in the primary market by originating new securities, packaging the deals, and connecting issuing corporations with institutional investors who are interested in investing in these new securities.
Why are institutional investors important in the primary market?
-Institutional investors are important in the primary market because they provide the capital needed by corporations to fund their initiatives. They purchase the newly issued securities, thus injecting cash into the corporation.
What is the role of Black Rock, as mentioned in the script, in the context of capital markets?
-Black Rock, as an example of a large institutional investor or fund manager, invests in securities issued by corporations through investment banks. They manage funds from various investors and lenders, and use these funds to invest in securities for a return.
What is the purpose of the secondary market?
-The purpose of the secondary market is to provide liquidity and marketability to securities, determine the fair market value of securities, allow investors to diversify their portfolios, and facilitate the exchange of securities between buyers and sellers.
How does the trading of existing securities in the secondary market affect the price of those securities?
-The price of existing securities in the secondary market is regulated by supply and demand, along with other macroeconomic and microeconomic factors. Any changes in these factors can influence the market value of the securities.
What are some of the key players in the secondary market?
-Key players in the secondary market include retail investors, mutual funds, pension funds, insurance companies, and market makers. These entities buy and sell existing securities on major exchanges or over-the-counter.
How does the process of issuing new securities in the primary market differ from the trading of existing securities in the secondary market?
-In the primary market, new securities are issued by corporations to raise funds, with the help of an investment bank that connects them to institutional investors. In contrast, the secondary market involves the trading of existing securities among investors and traders, facilitated by financial intermediaries and exchanges.
Outlines
📚 Introduction to Capital Markets
This paragraph introduces the video on Capital Markets, presented by Philly Du, also known as Dr. P. The video aims to provide a comprehensive understanding of Capital Markets by defining them and exploring their roles from various expert perspectives. The script outlines the course objectives, starting with defining Capital Markets, examining primary and secondary markets, and their respective players. It emphasizes the importance of these markets for corporations and the role they play in facilitating the raising of long-term funds through the issuance of securities like stocks, bonds, and currencies. The paragraph also explains the function of Capital Markets in matching investors with businesses that require funding.
🏦 Understanding Primary and Secondary Markets
The second paragraph delves into the specifics of primary and secondary markets within the context of Capital Markets. The primary market is described as the birthplace of new securities, where corporations like Microsoft can raise funds for projects by issuing debt or equity securities through investment banks such as Morgan Stanley. The role of institutional investors, like Black Rock, is highlighted as they provide the capital for these new issues. On the other hand, the secondary market is where existing securities are traded among investors, including both institutional and retail investors. The paragraph also discusses the regulatory role of supply and demand on security prices and the impact of macroeconomic and microeconomic factors.
💼 The Dynamics of Capital Market Trading
This paragraph further explains the trading dynamics in Capital Markets, focusing on the types of securities traded, such as equity securities, debt securities, foreign exchange, and derivatives. It provides an overview of the primary and secondary markets, using Microsoft as an example to illustrate the process of raising funds in the primary market and the subsequent trading of these securities in the secondary market. The paragraph also discusses the multifaceted purposes of the secondary market, including providing liquidity and marketability to securities, determining fair market value, and enabling portfolio diversification.
🔍 Summary of Capital Market Functions and Players
The fourth paragraph summarizes the key functions and players in Capital Markets. It distinguishes between the primary market, where new securities are issued, and the secondary market, where existing securities are traded. The paragraph identifies large corporations as the main players in the primary market and investors and traders as the key participants in the secondary market. It also outlines the roles of investment banks, such as the originating team in the primary market and the sales and trading team in the secondary market, and the types of products traded in each market, including IPOs and existing securities.
🚀 Conclusion and Future Video Preview
The final paragraph concludes the video by summarizing the main points discussed about Capital Markets, including the distinction between primary and secondary markets, the purpose of each, and the key stakeholders involved. It also provides a preview of upcoming videos that will explore investment strategies and the differences between public and private markets. The presenter, Dr. P, thanks the viewers and signs off, maintaining the video's duration within the intended 15 to 20 minutes.
Mindmap
Keywords
💡Capital Market
💡Primary Market
💡Secondary Market
💡Securities
💡Investment Bank
💡Institutional Investors
💡Equity Securities
💡Debt Securities
💡Derivatives
💡Market Makers
💡Liquidity and Marketability
Highlights
Introduction to capital markets presented by Philly Du, emphasizing the importance of understanding capital markets from various perspectives.
Capital markets defined as financial markets that facilitate the trading of securities such as stocks, bonds, and currencies.
The role of capital markets in matching investors with corporations needing funds for long-term investments.
Explanation of primary markets as the birthplace of new securities and the involvement of institutional investors.
Secondary markets described as platforms for trading existing securities and their importance in providing liquidity.
The process of corporations raising funds through the issuance of debt or equity securities in primary markets.
The function of investment banks in facilitating the connection between corporations and institutional investors.
The role of fund managers and institutional investors in purchasing new securities issued by corporations.
How the secondary market operates with the trading of existing securities among investors and the influence of supply and demand on security prices.
Different types of securities traded in capital markets, including equity securities, debt securities, foreign exchange, and derivatives.
The importance of the investment bank's origination team in the primary market for new securities issuance.
The multifaceted purpose of the secondary market, including providing liquidity, determining fair market value, and allowing portfolio diversification.
The schematic representation of the primary market process involving corporations, investment banks, and institutional investors.
The schematic representation of the secondary market process involving fund managers, retail investors, and the exchange of existing securities.
Summary of the primary and secondary markets, their purposes, and the main players involved in each.
The distinction between the one-time event of new securities issuance in the primary market and the frequent trading in the secondary market.
The various departments within an investment bank and their roles in both primary and secondary markets.
Upcoming video content预告 on investment strategies and the exploration of public and private markets.
Transcripts
[Music]
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all right welcome to
this video it's about intro to Capital
markets presented by myself Philly du
also known to my students as Dr P now I
know that you've looked at Capital
markets and other modules but like I
said in my intro video it's always good
to get uh a definition or perspective of
what Capital Market is or the definition
of capital markets from different
experts from different uh practitioners
that way you can form your own opinion
have a bigger or wider understanding of
what Capital Market is now it's always
good to start by listing the course
objectives so that we can build a road
map first of all we'll Define Capital
Market what it is the definition then
we'll look at primary market and the
players that are playing in that primary
market then we'll look at second
secondary market and the players and
finally we'll summarize everything and
so that we can have an understanding of
how these markets uh are important for
corporations uh what are their role and
they each have a a role and their their
role is very important in any markets
really uh across the Clone right so
first of all what is Capital Market so
Capital markets it's a financial markets
that bring together buyers and sellers
to trade Securities right and these
Securities may be assets such as stocks
bonds and Cur currencies right these are
some of the Securities that we're
talking about and we'll see a list of
different products or trading products
that are available able in capital
markets whether it be on one side or the
other of the capital markets they also
allow businesses to raise long-term
funds by issuing Securities to investors
right so you can either issue new
Securities or you can trade existing
Securities in the market so this Capital
Market it matches it's Pro it provides a
platform to match uh people with money
investors with people who need money
right the
corporations uh the large or small
corporations really so if you think
about it capital markets is a place
where it's a market where it matches uh
Savers with with people who need money
right uh people in institutional uh
investors right so now if you're looking
at Capital markets on one side you have
primary markets this is where new
Securities are born right if you're an
institution that needs to expend or you
need to invest in a positive npv project
right a project that will create wealth
for the shareholders then you can issue
new Securities and if you issue new
Securities that will be done in the
primary market now if there are existing
Securities trading right the trading of
existing Securities will happen in the
secondary market right and that trade
will happen on certain uh exchange right
whatever Exchange in the US we have
NASDAQ uh New York Stock Exchange or any
really Global exchange platform that's
where the the existing Securities will
be traded out of right so now if you're
looking at the Capital Market how does
it work so if you have a corporation
that's looking for money and that
Corporation is looking for money either
to expend build new uh uh a
manufacturing facilities or purchase a a
piece of equipment any capital
expenditure right any big ticket item
they'll need to raise some funds in
order to uh uh fund this initiative and
when they need to fund this initiative
that will this will be an assurance of
new Securities and this assurance of new
Securities will happen in a way where
it'll issue either debt or Equity
Securities right uh debt uh is is really
when you borrow money right uh the fund
is the the the corporation is borrowing
money uh they'll issue debt they'll
issue bonds or if the corporation
decides to sell a piece of itself right
provide a percentage of itself then will
be done under Equity Securities and
really where these monies are going to
come from these monies are going to come
from Mostly institutional investors
right if you're talking about large
corporation we're talking about
institutional investors
now how does that happen in the
secondary market now we said that in the
secondary Market it's the trading of
existing existing Securities so if
you're trading existing Securities here
you can understand why we have in this
diagram why we have institutional
investors at the top and also
institutional investors at the bottom
and here really aside from institutional
investors we can have retail investors
as well right you and I for instance we
go in stock exchange to purchase a share
of Apple share of Google or many shares
of Apple and Google and that's that's
done via platform and we can trade
existing Securities and we can trade
existing debt we can trade bonds for
instance we can trade existing Equity we
can trade shares I can sell a share of
Apple on the platform on Exchange and
you buy it so here what regulates the
price of this of these existing
Securities is really the supply and
demand amongst many other factors right
there's also noise around the price of
the stock right if something happens uh
across the world if there's war if
there's shortage of of oil all these
things all these ma macroeconomic
factors and microeconomic factors will
play a very important role in the price
of the security but most likely supply
and demand is the main factor that will
you know give you some indication of how
the company is trading the price per
share for the company right uh now when
we talk about products right trading
products we have Equity Securities and
here you have common shares and
preferred shares uh debt Securities you
have bonds for instance when we talking
about foreign exchange we're talking
about currencies right currencies you
can exchange currencies we can we can
trade currencies right and lastly but
not least derivatives and in derivatives
the examples that I want to give here in
derivatives you can have future and for
contracts right you can trade few Trad
forward contracts and those are found
mostly in Commodities right if you're
trading Commodities you're you're buying
future contracts so you're paying for
forward contracts now let's shift gears
into the two markets and this is really
an overview later on in the future video
we'll talk about uh uh uh much in detail
primary and secondary Market but for the
purpose of this insure to Capital Market
what is a prim primary Market um I'm
going to try to put it in the diagram so
that you can understand exactly how it
works right so primary Market here let's
say you have a company let's call it
Microsoft and Microsoft is looking to
build a new tech facility uh we'll pick
a country like India right and they're
looking for a hundred million to to do
this now Microsoft is not in the
business of raising money right they
simply know the VP of Capital Market
meets with the SE Suite they meet with
the CEO and the and the uh uh uh uh the
CFO and they decide right we want to
build this new facility we've done some
analysis we've done this for years and
years we know that it's going to cost us
a100 million they're not in the business
of raising money therefore they're going
to go to an investment bank right
they're going to go to an investment
bank and here we're choosing Morgan
stenley uh for various reasons number
one I've worked at Morgan steny it's
very easy to talk about it because I
know what's going on within Morgan steny
Morgan syy has a division the Investment
Bank Division and most importantly they
have a team within Morgan Cindy called
the origination team right they're the
one who will work with Microsoft in
order to really uh uh find out exactly
what's the best product to put out there
in order to raise these monies right in
micro in Morgan sttinley not only
they're in the business of raising
monies in the form of debt or in or
Equity but also they have a pool of
investors that they work with they have
fund managers that they work with they
have institutional investors that they
work with right and here we're going to
choose Black Rock black rock is one of
the biggest uh one of the biggest uh uh
institutional investors or fund managers
now Microsoft decides to raise this
money they're going to go to the
investment bank which is Morgan sty
Morgan s is going to package the deal
for them and and go to their fund
management and and and and and to to
find this money now the fund managers
will pour this cash all right into
Microsoft in order to start this
initiative to build this facility and
Microsoft in return will issue debt or
Equity Securities to these fund managers
and all that is done via right the
vehicle here that vehicle here that
drives this transaction is the
investment big and here Morgan ston the
the team within Morgan ston
is the one who will be in charge of
leading this transaction right they will
help Microsoft originate new Securities
debt and or Equity remember primary
Market New Securities right the these
new Securities will be purchased by
these fund managers or institutional
investors these institutional investors
and fund managers will pour this cash
into Microsoft in order to build this
new facility now you may ask the
question where are these money coming
from where is Black Rock getting all
these monies well Black Rock has a slew
of investors and lenders that are
investing in Black Rock So Black Rock
can have these funds to work to invest
and earn a return give the return back
to these investors pay the lenders
principle and interest so this is really
the diagram if I were to explain to you
exactly what happens within the primary
market now let's shift towards the
second secondary market and here I want
you all to have in mind that the
secondary Market is where existing
Securities are traded right therefore
Microsoft in that previous Slide the
debt and Equity that Microsoft has
issued for the first time in order to
build this facility now this debt and
Equity will be in circulation therefore
they'll go to the secondary Market if
Black Rock decides to trade these
Securities and that will happen in the
second market so here we say that the
secondary Market is where investors buy
and sell Securities they already own
right and really what is the purpose of
the secondary market and they have
multifaceted purpose right uh provide
liquidity and marketability to
Securities right that's very important
to have liquidity and marketability
because if Black Rock purchases these
Securities from Microsoft and they're
not able to trade them then they'll be
stuck with these Securities and they'll
they won't have any liquidity so they
have have to be able to sell it right
after a period of time whenever they
decide that they've made enough return
on this investment they'll sell it in
the secondary market now the secondary
Market helps in determining the fair
market value of Securities and here
again supply and demand fair market
value that has nothing to do with the
intrinsic value right the intrinsic
value really know that in the primary
Market in the first time you issue these
Securities but once these Securities are
placed in the secondary Market to be
traded it's the market value of course
the value has to be fair fair market
value it allow investors to diversify
their portfolios we'll talk a little bit
more about diversification of portfolio
when we talk about the different
strategies right uh uh uh that you have
as investment strategies retail
investors would trade through brokerage
accounts right the the retail investors
will use some type of brokerage account
through uh on a certain Exchange in
order to sell and buy these Securities
right and institutional investors like
mutual funds pension and insurance
companies will use the secondary Market
again right for what for liquidity and
marketability of the Securities that
they purchased in the primary market
market makers firms that provide
liquidity by buying and selling
securities and all in all in the
secondary Market it is there to help the
exchange of the flow right of Securities
the flow of products between the ones
who are buying and the ones who are
selling right now if we were to put this
into a schematic what does it look like
right so first of all you have the fund
managers in order retail investors and
who are they right it's very important
to say who they are so that we can have
a mutual understanding of who these
people are you have the retail investors
the mutual funds the pensions funds the
insurance companies and the market
makers right these are the financial
institutions with the monies uh that are
buying big quantity the the securities
and the secondary market now remember
again the buy and sell of existing
security is important and where are
these existing Securities being traded
like I said before they're being traded
on a major exchange whether it's the New
York Stock Exchange and NYC the NASDAQ
any Global exchange or over the- counter
that's where these Securities are being
traded and if you have one side that's
selling of course you have another side
that's buying buying and the other side
that's buying again they're fund
managers and Retail investors so the
retail investors the mutual funds the
pension insurance company and market
makers they're buying and selling those
Securities right and the Securities are
trading on these major exchange and the
keyword here is existing Securities as
opposed to new issues in the primary
Mar now we've hit the 15minute mark if
you know a little bit about me I like to
keep my videos between 15 and 20 minutes
uh that way I catch the attention spend
now it's very important for us to
summarize what we've talked about here I
have about four slides left bear with me
summary of capital markets Warrior
players and and and the purpose of each
of these markets let's talk about it so
you got to think about any the capital
markets you have two two markets right
you have the primary market and you have
the secondary market and here the
summary we want to put together is that
in the primary Market is the new issue
right of Securities to the investors and
the investors will pour cash to the
company in exchange for these new issues
right keyword here new issue in the
secondary Market there is trading of
existing Securities existing issues
right in exchange for cash so investors
and here the relationship is between
investors and investors in the secondary
Market compared to the primary Market is
between large corporation and the
investors right now what is the purpose
of each of these Market well the purpose
of the primary Market is for firsttime
offerings right firsttime issues
firsttime Securities secondary Market is
existing Securities being traded back
and forth and really who is the main
player in each of these markets well in
the primary Market is really large
corporations large companies large firms
in the secondary Market is really
investors and Traders right uh buying
and selling securities and and important
word here buying is selling existing
Securities now who are the stakeholders
in the primary Market we really have
three parties we have the issuing
Corporation remember in my schematic
about primary Market we had Microsoft as
the issuing company we have the
investment bank and we had Morgan stiny
who was there as the facilitator who was
there as the expert in raising funds who
is there to connect the issuing
Corporation Microsoft and the
institutional investors and in my examp
Le we selected Black Rock now on the
secondary Market it's very easy to
understand who is the stakeholder here
is investors buy and sell amongst each
other other uh each other via Financial
intermediaries right via exchange right
now after seeing that the next question
we want to ask ourselves is really uh
what are these intimidate intermediaries
right for the primary Market is the
investment bank which is the originating
team within the Investment Bank that is
heading this this this this this uh this
operation right the new issuance of
Securities new Securities
right on paper it says that the
corporation is the one to issue the new
Securities but in practice the
originating team at the bank is really
the the team that is helping the
Corporation to put this package together
right uh and furthermore the originating
team has a list of clients in they
calling these clients uh often to see if
they have any needs to raise more money
right so that's what really happens in
practice now on the secondary markets
the investment Banks or selles and trade
uh side of the Investment Bank that is
facilidades bank is present on both
markets however the team with within the
Investment Bank is different in the
primary Market we have the originating
team right that's issuing the new issues
or the new security that's issuing new
Securities however in the secondary
Market within the investment bers the
sales and trading team that is
facilitating the buy and sell of
Securities between
investors what are the products that are
being traded well in the primary markets
is really IPOs right in or uh issuance
of new Securities in the second excuse
me in the secondary Market is trading
existing Securities and we've said that
before the frequency is also important
to mention right in the primary Market
is a one time event you only issue that
security one time right every time you
need to raise funds then you're going to
issue uh new Assurance of Securities
whether bonds or or or or Equity however
in the secondary Market the frequencies
very often right frequent sell and buy
of Securities right frequent sell and
buy of Securities and happens in the mil
seconds
right now on the sell side and the buy
side who really are the players in the
Investment Bank you have various
departments that are there to help you
have the underwriting advisory team
that's helping you have the research
team on the sales Side sales and trading
team that's helping with the selles and
buy the Investment Bank is there also
and they have their own function and you
have the originating team that's working
with the debt or INE equity isurance on
the buy side you really have the
investment managers in the hedge fund
that are playing a major role uh uh and
and that's that for this this video uh
next videos we have two more videos uh
one of them will talk about the
investment strategies what are the
different investment strategies and then
we'll dive a bit more into the private
uh the public market in the private
market right as opposed to primary
markets and secondary Market we'll talk
about public market and private market
and who are the players thank you very
much for now and have a good one see you
next video
[Music]
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