Introduction to Capital Market and Investment Strategies

Summary

This 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

00:00

📚 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.

05:00

🏦 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.

10:03

💼 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.

15:04

🔍 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.

20:05

🚀 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.

Keywords

💡Capital Market

A capital market is a financial marketplace where buyers and sellers engage in the trading of securities, which can include stocks, bonds, and currencies. It is essential for the economy as it allows businesses to raise long-term funds by issuing securities to investors. In the video, the concept of capital markets is central to understanding the dynamics of financial instruments and the roles of various market participants.

💡Primary Market

The primary market is where new securities are issued by corporations or governments to raise capital. It is the initial stage where securities are sold to investors for the first time. In the script, the primary market is illustrated with the example of Microsoft raising funds by issuing new securities to build a new tech facility, facilitated by an investment bank like Morgan Stanley.

💡Secondary Market

The secondary market is where existing securities are traded among investors after they have been issued in the primary market. It provides liquidity to the investors, allowing them to sell their securities after the initial offering. The script explains that the secondary market operates through exchanges like NASDAQ or the New York Stock Exchange, where securities are bought and sold by various investors.

💡Securities

Securities in the context of capital markets refer to tradable financial assets such as stocks, bonds, and currencies. They represent ownership interests or debt in an entity and are the primary instruments traded in both primary and secondary markets. The script mentions securities as the commodities that are bought and sold in capital markets, facilitating the flow of capital between savers and those needing funds.

💡Investment Bank

An investment bank is a financial institution that assists in the creation, purchase, and sale of securities and also provides advice on mergers and acquisitions. In the video, Morgan Stanley is used as an example of an investment bank that helps companies like Microsoft to issue new securities in the primary market and also facilitates trading in the secondary market.

💡Institutional Investors

Institutional investors are organizations such as mutual funds, pension funds, and insurance companies that manage large pools of money and invest in securities. They play a significant role in both primary and secondary markets. The script describes how institutional investors like BlackRock provide the funds needed by companies in the primary market and participate in the trading of securities in the secondary market.

💡Equity Securities

Equity securities represent ownership interests in a company, such as common shares or preferred shares. When a company decides to issue equity securities, it is essentially selling a portion of itself to investors. In the video, equity securities are mentioned as one of the options for corporations to raise funds in the primary market by selling a piece of the company.

💡Debt Securities

Debt securities are financial instruments where an investor loans money to a borrower, represented by instruments such as bonds. The borrower repays the loan with interest. In the script, debt securities are discussed as another method for corporations to raise funds by borrowing money from investors in the primary market.

💡Derivatives

Derivatives are financial contracts that derive their value from the performance of an underlying asset, such as commodities, stocks, or bonds. They can be used for hedging risk or for speculative purposes. The video script includes derivatives as a category of financial products that can be traded in capital markets, with examples being futures and forward contracts.

💡Market Makers

Market makers are firms or individuals that stand ready to buy and sell securities on a regular and continuous basis at a publicly quoted price. They provide liquidity to the secondary market by facilitating the continuous trading of securities. The script explains the role of market makers in the secondary market, where they help maintain the flow of securities between buyers and sellers.

💡Liquidity and Marketability

Liquidity refers to the ease with which an asset can be bought or sold in the market without affecting its price. Marketability is the ease with which an asset can be sold in the market. In the context of the video, the secondary market provides liquidity and marketability to securities, allowing investors to trade them easily and determine their fair market value.

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

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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

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