IPM Module 2

Financial Markets

platforms or networks that facilitate the buying, selling, and trading of financial assets such as stocks, bonds, currencies, and derivatives. It is a market in which people trade financial securities, commodities, and value at low transaction costs and at prices that reflect supply and demand.  

Money Market

• a market for short-term funds which deals in monetary asset whose period of maturity is up to one year. 

• Instruments include commercial papers, treasury bills, certificate of deposits, etc. 
  

Participants in the Money Market

• central bank & commercial banks - control liquidity

• treasury department - borrown & lend

• corporations - issue commercial paper

• retail investor - invest in safe instrument

• money market funds - invest pooled funds

• government - issues t-bills

functions of the money market

• financing trade

• central bank policies

• commercial banks self-sufficiency

money market funds

mutual funds that are offered by brokerages, investment companies, and financial services firms

certificates of deposit

time deposit, commonly offered to consumers by banks, thrift institutions, and credit unions

Commercial paper

for buying and selling unsecured loans for corporations in need of a short-term cash infusion.

Bankers acceptance

a short-term loan that is guaranteed by a bank. Used extensively in foreign trade, this is like a post-dated check and serves as a guarantee that an importer can pay for the goods. 

Repos

or repurchase agreement is part of the overnight lending money market. Treasury bills or other government securities are sold to another party with an agreement to repurchase them at a set price on a set date.

Treasury bills

are short-term, low-risk debt securities issued by governments (e.g., Bureau of the Treasury in the Philippines) with maturities of one year or less (91, 182, or 364 days).

Capital market

• Markets where long-term securities such as stocks and bonds are traded. They provide capital for businesses and governments.

• It refers to the whole network of organizations, institutions and instruments that deal in medium-term and long-term funds. Instruments include stocks and bonds. 

Initial Public Offering

• the process through which a company offers equity to investors and becomes a publicly-traded company. Through this, the company is able to raise funds and investors are able to invest in a company for the first time.

• generally risker since investor does not know what may happen to the company in the future

Follow-on Public Offering

• already listed companies offer fresh equity in the company

• raise additional funds from the general public

• the investors may study the past performance and make assumptions about the growth prospects

fixed income market

a financial market where investors trade debt securities that provide regular interest payments and return the principal at maturity. It is often referred to as the bond market and includes instruments like government bonds, corporate bonds, treasury bills, and fixed-income mutual funds.

over-the-counter market

Stocks of corporations not listed and therefore not traded in the stock exchange but registered and licensed by the Securities and Exchange Commission for sale to the public are only available in this market.

equity instruments

stocks/shares

Represent ownership in a company.

investment banking

the division of a bank or financial institution that serves governments, corporations, and institutions by providing underwriting (capital raising) and mergers and acquisitions (M&A) advisory services. ___ act as intermediaries between investors (who have money to invest) and corporations (who require capital to grow and run their businesses).

underwriting

• work between investors and companies that want to raise money or go public via the IPO process. This function serves the primary market or “new capital”.

• the process of raising capital through selling stocks or bonds to investors (e.g., an initial public offering IPO) on behalf of corporations or other entities. Businesses need money to operate and grow their businesses, and the bankers help them get that money by marketing the company to investors.

3 types of underwriting

1. firm commitment

2. best efforts

3. all-or-none

firm commitment

underwriter agrees to buy the entire issue and assume full financial responsibility for any unsold shares

best efforts

underwriter commits to selling as much of the issue as possible at the agreed-upon offering price but can return any unsold shares to the issuer without financial responsibility

all-or-none

if the entire issue cannot be sold at the offering price, the deal is called off and the issuing company receives nothing

mergers & acquisitions

are business transactions in which the ownership of a company, business organization, or one of their operating units is transferred to or consolidated with another company or business organization.

sales & trading

Matching up buyers and sellers of securities in the secondary market. Sales and trading groups in investment banking act as agents for clients and also can trade the firm’s own capital.

equity research

or “coverage”, of securities helps investors make investment decisions and supports trading of stocks.

asset management

Managing investments for a wide range of investors including institutions and individuals, across a wide range of investment styles