chapter 5 organization of the financial markets
DESCRIPTION
TRANSCRIPT
![Page 1: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/1.jpg)
Chapter 5ORGANIZATION OF THE FINANCIAL MARKETS
• What are the different types of financial markets?
• How do the primary financial markets function?
• Why are secondary financial markets important?
• How are the secondary financial markets organized?
• How are financial markets evolving?
![Page 2: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/2.jpg)
What is a financial market
• A general definition
• Characteristics of a good market
• Liquidity
• Sufficient information is available
• Trading takes place in full view of all participants
![Page 3: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/3.jpg)
What is a financial market – Cont.• Price continuity
• Low transactions costs
• Equal access to the market
• Price adjust quickly to new information
![Page 4: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/4.jpg)
Classification of financial markets
• Primary and secondary markets
• Money and capital markets
• Debt and equity markets
• Organized versus over-the-counter markets
• Global versus regional markets
![Page 5: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/5.jpg)
Primary financial markets
• Open auctions
• US Treasury security auctions
• Federal agency security auctions
• Mortgage backed security auctions
![Page 6: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/6.jpg)
Figure 5.1 – Example of an IPO
![Page 7: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/7.jpg)
Underwriting and investment banking• Role of the investment banker
• The underwriting process
• Underwriting discount
• Competitive versus negotiated arrangements
• Syndication
• Private placements
![Page 8: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/8.jpg)
The importance of secondary markets• Liquidity
• Price discovery
• Why some securities develop better secondary markets than others
• Bid-ask spread as an indication of the depth of the market
• Trading volume
• Size of the issue
![Page 9: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/9.jpg)
Secondary bond markets
• U.S. government securities
• Municipal bonds
• Corporate debt securities
• International bond markets
![Page 10: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/10.jpg)
Domestic stock markets
• Distribution of trading activity
• NYSE – largest by dollar value of shares traded
• Nasdaq – largest by number of shares traded
• Stock market indexes
![Page 11: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/11.jpg)
The New York Stock Exchange
• Listing requirements
• Trading practices
• Auction market
• The role of the specialist
![Page 12: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/12.jpg)
The Nasdaq stock market
• Listing requirements
• Trading practices
• Electronic market
• Role of the market maker
![Page 13: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/13.jpg)
Other domestic stock markets• The American Stock Exchange
• Regional exchanges
• Third and fourth markets
• Third market
• Fourth market
• Electronic Communications Network (ECN)
• In house networks
![Page 14: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/14.jpg)
International stock markets
• The London Stock Exchange
• The Tokyo Stock Exchange
• Emerging markets
![Page 15: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/15.jpg)
Figure 5.2 – Growth in Trading Volume in International Stock Issues on the London Stock Exchange
![Page 16: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/16.jpg)
Figure 5.3 – Month-to-Month Volatility in the Brazilian Stock Market Index
![Page 17: Chapter 5 ORGANIZATION OF THE FINANCIAL MARKETS](https://reader033.vdocuments.us/reader033/viewer/2022061306/54b38d214a7959b8468b4601/html5/thumbnails/17.jpg)
The future of the financial markets• Growing importance of institutional
investors
• Globalization
• Advances in technology
• Will 24 hour trading every become a reality?