IIMFC201T116-V007500
Summary
TLDRThis week's course delves into financial markets, which are platforms for trading financial instruments of varying maturities. It distinguishes between short-term (money markets) and long-term (capital markets) markets, highlighting instruments like Treasury bills and corporate bonds. The course will explore specialized markets including foreign exchange, derivatives, private equity, and mortgage markets, examining how they operate and the factors influencing financial instruments' pricing and yields.
Takeaways
- 🏦 Financial markets are platforms for trading financial instruments with varying maturities.
- 📈 These markets facilitate price discovery, determining prices and yields based on factors like cash flows and risk.
- 💼 Markets are categorized into short-term (money markets) and long-term (capital markets) based on the maturity of traded instruments.
- 💵 Short-term markets include instruments like call money, Treasury bills, and commercial paper, with maturities up to one year.
- 🏢 Long-term markets involve government securities, corporate bonds, and equities, with maturities from one year to perpetual.
- 🌐 Specialized markets include foreign exchange, derivatives, private equity, and mortgage markets.
- 🔄 Financial markets are dynamic, influenced by macroeconomic factors, investor sentiment, and issuer risk profiles.
- 🌐 The distinction between short-term and long-term markets is based on the maturity of the instruments, not the holding period of the investor.
- 💹 Equity prices, interest yields, and exchange rates are driven by both fundamental theories and market forces.
- 📚 Upcoming sessions will delve into the nature, composition, and structure of money and capital markets, and how they operate.
Q & A
What are financial markets?
-Financial markets are real and virtual marketplaces where financial instruments of varying maturities are traded, including instruments that can be bought and sold such as overnight instruments, short-term instruments, long-term instruments, and perpetual instruments like equity shares.
What is price discovery in financial markets?
-Price discovery refers to the process by which markets determine prices and yields for financial instruments based on factors like projected cash flows, risk profile of the issuer, interest rate expectations, liquidity, and news flows in a free and transparent manner.
How are financial markets classified based on the maturity of instruments?
-Financial markets are broadly classified into short-term markets (money markets) and long-term markets (capital markets) based on the maturity of the instruments traded, ranging from overnight to a maximum of 180 days in the short term and from one year to perpetuity in the long term.
What are some examples of instruments traded in short-term markets?
-Short-term markets, also known as money markets, trade instruments such as call money, Fed Funds, Treasury bills, commercial paper, and certificates of deposits.
What is the significance of long-term markets in financial markets?
-Long-term markets, also known as capital markets, primarily include the government securities market, the equity stock market, and the corporate bond market. They facilitate the raising of financial resources used by firms for long-term capital investments and by governments for fiscal deficits and long-term infrastructure investments.
What are specialized financial markets?
-Specialized financial markets include the foreign exchange market, the derivatives market, the private equity market, and the mortgage market. These markets deal with specific types of financial instruments and transactions, such as currency trading, complex financial derivatives, private investments, and real estate loans.
What is the role of the private equity market?
-The private equity market involves institutional investors and high net worth individuals investing in private equity funds (PE funds), which in turn invest in the equity and sometimes debt of listed and unlisted companies. These investments are typically held for a long period and sold for profit when the firm's financial performance improves.
How does the mortgage market function in the context of financial markets?
-In the mortgage market, individuals and organizations take loans to buy property. These loans are then packaged by lenders as mortgage-backed securities (MBS) and sold to financial institutions, which trade these securities.
What factors drive the prices and yields in financial markets?
-Equity share prices, yields on interest-bearing instruments, and exchange rates are driven by underlying theories of finance and market forces such as global and country-specific macroeconomic factors, investor sentiments and expectations, risk profiles of issuers, and news flows.
How does the maturity of an instrument differ from the holding period by an investor?
-The maturity of an instrument refers to the time until its final payment is due, while the holding period is the duration for which an investor holds the instrument before selling it. An investor can buy a long-term instrument, like a 15-year corporate bond, and sell it after a short period, making a short-term trade.
Outlines
📈 Introduction to Financial Markets
This paragraph introduces the third week of a course focusing on financial markets. It explains that financial markets are places where financial instruments of varying maturities are traded, including short-term instruments like Treasury bills and long-term instruments like government securities and corporate bonds. The paragraph also discusses the concept of price discovery, where markets determine the prices and yields based on factors such as cash flows, risk, and news. It distinguishes between short-term markets (money markets) and long-term markets (capital markets), and mentions specialized markets like foreign exchange, derivatives, private equity, and mortgage markets. The paragraph sets the stage for future discussions on the structure and dynamics of these markets.
📊 Maturity and Holding Period in Financial Markets
Paragraph two delves into the concept of maturity and holding period in financial markets. It clarifies that 'short-term' and 'long-term' refer to the maturity of the instruments, not the holding period by investors. For instance, an investor might buy a long-term corporate bond and sell it after a short period, making a trading profit or loss. The focus of future videos will be on understanding the nature, composition, and structure of both short-term (money markets) and long-term (capital markets), and how various financial metrics like equity prices, yields, and exchange rates are influenced by financial theories and market forces, including macroeconomic factors, investor sentiments, and issuer risk profiles.
Mindmap
Keywords
💡Financial Markets
💡Maturities
💡Price Discovery
💡Money Markets
💡Capital Markets
💡Interest Rate Expectations
💡Derivatives Market
💡Private Equity Market
💡Mortgage-Backed Securities (MBS)
💡Investor Sentiments and Expectations
💡Global and Country-Specific Macroeconomic Factors
Highlights
Introduction to week three focusing on financial markets aspects of the course.
Definition of financial markets as places where financial instruments are traded.
Instruments traded include overnight, short-term, long-term, and perpetual instruments.
Financial markets facilitate price discovery based on projected cash flows and risk profile.
Markets are classified into short term (money markets) and long term (capital markets).
Short term markets include call money, Treasury bills, and commercial paper markets.
Long term markets primarily refer to government securities, equity stock, and corporate bond markets.
Specialized markets include foreign exchange, derivatives, private equity, and mortgages.
Private equity market involves investments in private equity funds by institutional investors and high net worth individuals.
Mortgage market involves loans for property, which are packaged as mortgage-backed securities.
The distinction between short term and long term markets is based on the maturity of instruments, not holding period.
Investors can trade long term instruments in a short period, affecting the market dynamics.
Upcoming videos will explore the nature and composition of money and capital markets.
Discussion on the structure of financial markets and the instruments they trade.
Analysis of factors driving equity share prices, yields, and exchange rates.
Emphasis on the influence of macroeconomic factors, investor sentiments, and risk profiles on financial markets.
Transcripts
hi welcome to week three of this course
you will recall in the first two weeks
we looked at the banking aspects of this
course from here on we would be looking
at the financial markets aspects of the
course financial markets are basically
markets both real and virtual where
financial instruments of varying
maturities are traded by that I mean
these instruments can be bought and sold
instruments traded in the financial
markets include overnight instruments
such as coal money and Fed Funds
short-term instruments with maturities
up to one year such as Treasury bills
commercial paper etc long-term
instruments with maturities up to 30
years such as government securities
corporate bonds and so on and last but
not the least perpetual instruments such
as equity shares financial markets
facilitate price discovery and by that
we mean markets determine prices and
yields for interest bearing instruments
price for equity shares etc based on
factors such as projected cash flows and
risk profile of the issuer interest rate
expectations liquidity news flows etc in
a free and transparent manner across
markets they are broadly classified into
short term markets and long term markets
short term markets include call money
markets or fed funds as it is known in
the United States Treasury bills market
the repo market bankers acceptance or
commercial bills market as it is known
in some countries commercial paper
market certificate of deposits markets
and so on there one thing important
about the short term markets is the
maturities for instruments traded in the
short term market vary from overnight to
a maximum of 180 days
in some cases up to one year these
markets almost universally or also
commonly referred to as money markets
the long-term market on the other hand
primarily refers to the government
securities market the equity stock
market and the corporate bond market in
the long term markets the maturities for
instruments traded vary from one year to
perpetuate in other words they don't
have a maturity date these markets are
commonly referred to as capital markets
because financial resources raised in
these markets are often used by firms to
fund their long term capital investments
and by governments to fund their fiscal
deficit as well as long term investments
in infrastructure development so on and
so forth in addition to the markets that
we saw there are some very specialized
markets these include the foreign
exchange market or the currency market
where different currencies are bought
and sold the derivatives market where
more complex instruments such as options
and futures are traded either to hedge
or to speculate on the movement and
interest rates exchange rates etc then
there is the private equity market which
is very recent in origin by the way when
compared to the other markets this is
where institutional investors and high
net worth individuals invest in private
equity funds popularly referred to as PE
funds these P funds in turn invest in
the equity shares and sometimes in the
debt of listed and unlisted companies
such investments are generally held for
a long period 5 years or more and sold
off for a profit once the financial
performance and consequently the value
of the firm or the share price
of the investing improves and finally we
have the mortgages market where
individuals and organizations take loans
to buy property ie
real estate these loans are then
packaged together by the lenders as
mortgage backed securities MBS for short
and sold to financial institutions who
in turn trade in these securities do
bear in mind that short term or long
term in the context of financial markets
and instruments refers to the maturity
period of the instruments issued they do
not refer to the holding period by the
investor for example an investor could
buy a corporate bond of 15 years
maturity which is a long term instrument
and sell it at the end of 90 days ie in
a short period and he books his trading
profit or loss in this case the
instrument is a long term and hence part
of the long term market or capital
markets but the holding period is in the
short-term in several videos to follow
we will look at the nature and
composition of each of these markets
both short term ie money markets and
long term ie capital markets we will
look at the structure of each of these
markets and the instruments traded in
these markets we will also look at how
equity share prices yields on interest
bearing instruments exchange rate
between currencies etc are driven both
by the underlying well rooted theories
of finance and market forces such as
global and country specific
macroeconomic factors investor
sentiments and expectations risk profile
of the issuers news flows etc all of
which are dynamic and vary with time
Посмотреть больше похожих видео
Key Roles for Financial Markets I A Level and IB Economics
Business Finance Module 2: Financial Institutions, Instruments and Markets | Overview | Grade 12
Financial Markets & Institutions - Lecture 1 - Introduction - Assignment 1
1w FinEcon 2024fall v1
Capital Market Explained | Types of Capital Market and its Instruments | Capital Market kya hoti hai
Business Finance Module 3: Flow of Funds and the Role of the Financial Manager | Overview | Grade 12
5.0 / 5 (0 votes)