Sunil Mahajan 1

Financial Markets

“In Markets, there is no such thing as scarcity or oversupply. There is only price.”

Sunil Mahajan 2

Financial Markets

• Specialisation

Separation of production &

consumption decisions• Intermediation

Separation of savings and

investment decisions

Sunil Mahajan 3

Intermediation

• Maturity• Size• Liquidity• Risk

Sunil Mahajan 4

Functions

• Intermediation : capital raising• Price discovery & asset valuation• Investment : allocation of capital• Risk management

Sunil Mahajan 5

Financial Markets

• Equities• Fixed income securities• Foreign exchange• Derivatives

Sunil Mahajan 6

Market Participants

• Investors : Risk & return• Speculators : Liquidity & price info• Arbitrageurs : Efficiency & law of one

price

Sunil Mahajan 7

Investors

• Retail• Institutions

: Mutual funds

: Insurance companies

: Pension funds

Institutionalisation of financial markets