EQUITY MARKET

The market in which shares are issued and traded, either through exchanges or over-the-counter markets. Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.


This market can be split into two main sectors: the primary and secondary market. The primary market is where new issues are first offered. Any subsequent trading takes place in the secondary market.

DEBT MARKET

The debt market is any market situation where trading debt instruments take place. Examples of debt instruments include mortgages, Promisiory notes, bonds, and Certificates of Deposit. A debt market establishes a structured environment where these types of debt can be traded with ease between interested parties.

The debt market often goes by other names, based on the types of debt instruments that are traded. In the event that the market deals mainly with the trading of municipal and corporate bond issues, the debt market may be known as a bond market . If mortgages and notes are the main focus of the trading, the debt market may be known as a credit market. When fixed rates are connected with the debt instruments, the market may be known as a fixed income market.

Individual investors as well as groups or corporate partners may participate in a debt market. Depending on the regulations imposed by governments, there may be very little distinction between how an individual investor versus a corporation would participate in a debt market. However, there are usually some regulations in place that require that any type of investor in debt market offerings have a minimum amount of assets to back the activity. This is true even with situations such as bonds, where there is very little chance of the investor losing his or her investment.

One of the advantages to participating in a debt market is that the degree of risk associated with the investment opportunities is very low. For investors who are focused on avoiding riskier ventures in favor of making a smaller but more or less guaranteed return, going with bonds and similar investments simply makes sense. While the returns will never be considered spectacular, it is possible to earn a significant amount of money over time, if the right debt market offerings are chosen.

CLASSIFICATION OF FINANCIAL MARKET

Classification By nature of claim:

Debt market
Equity market

Classification by maturity of claim:

Money market
Capital Market
Classification by seasoning of claim:

Primary market
secondary market

Classification by immediate delivery or future delivery:

Cash or spot market
Derivative market

Classification by organizational stricture:

Auction market
Over the counter market intemediate market

RISK ATTACH WITH FINANCIAL ASSETS

The first is the risk attached to potential purchasing power of the expected cash flow. This is called purchasing power risk or inflation risk. the second risk that the issuer or borrower will default on obligation . This is called credit risk or default risk . Finally for financial assets whose cash flow is not determined is U.S dollars there is risk that the exchange rate will be change adversely , resulting in less U.S dollars . this risk is referred to as Foreign Exchange risk.

DEBT VERSUS EQUITY CLAIM

DEBT:The claim that the hoder of a financial asset has may be either a fixed dollar amount or a varying or residual amount, the financial assets is referred to as a debt instrument.

Example:The car loan , the U.S Treasury bond , the General Motors corporation bond, the Japanese government bond, City of New York bond are the example of debt instrument.

EQUITY CLAIMS: An equity claim which is also called residual claim obligates the issuer of the financial asset to pay the holder an amount based on earnings.

Example:Common stock ,preferred sotck is an example of equity claim.

FINANCIAL ASSETS

Financial assets are intangible assets. for financial assets the typical benefit or value is a claim to future cash. This book deals with the various types of financial assets, the markets where they are traded , and principles for valuing them. the entity that has agreed to make future cash payments is called the issuer of financial asset, the owner of financial asset is referred to as the investors. Here are seven examples of financial assets.

1) A loan by a city bank to an individual to purchase a car.

2) A bond issued by the U.S department of Treasury.

3) A bond issued by General Motors.

4) A bond issued by city of New york.

5) A bond issued by the government of Japan.

6) A share of common stock issued by IBM.

7) A share of common stock issued by a Honda Motor Company.

FINANCIAL MANAGEMENT

Financial management is broadest of the three areas, and with the most job oppertunities. Financial management is important in all types of business, including banks and other financial institutions, as well as industrial and the retail firms. Financial management is also important in governmental operations, from schools to hospitals to highway departments. The job oppertunities in financial management range from making decisions regarding plant expansions to choosing what types of securities to issue when financing expansion.

Regardless of which area a finance major enters , he or she will need a knowledge of all three areas. For example, a bank lending officer cannot do his or her job well without a good understanding of financial management.

INVESTMENT

Finance graduates who go into investments often works for a brokerage house such as Merrill Lynch, either in sales or as a security analyst. Others work for banks, mutual funds , or insurance companies in the management of their portfolios, for financial consulting firms adising individual investors or pension funds on how to invest their capital : for investment banks whose primary function is to help businessman raise new capital : or as a financial planner whose job is to help individuals develop long-term financial goals and portfolios. The three main functions in the invetsments areas are sales, analusing individual securities, and determining the optimal mix of securities for a given investors.

MONEY AND CAPITAL MARKETS

Many finance majors go to work for financial institutions including , banks , insurance companies, mutual funds, and investment banking firms. For success here, one needs to have a knowledge of valuation techniques, the factor that cause inetrest rate to rise and fall , the regulation to which financial institutions are subject, and the various types of financial instruments (mortgages, auto loans, certificate of deposit and so on).

One also need a general knowledge of of all aspects of business administration, because the managment of a financial institution involves accounting, marketing, personnel, and computer systems as well as financial management.

THREE INTERRELATED AREAS OF FINANACE

Finance consist of three interelated areas :

• MONEY AND CAPITAL MARKET
• INVETSMENTS
• FINANCIAL MANAGEMENT