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Financial Market Essay

521 words - 3 pages

Agency Problem
Clash between shareholder and management.
How to Reduce
(1) Threat of job
(2) Stock / Share offering
(3) Centralized Decision
(4) Monitoring
Financial Market
The market where securities are sold and purchase is called financial market.
Financial System
The system in which the surplus and deficit which meets together for their mutual benefits. e.g. Bank loan.
Surplus Unit
The units which have excess money.
Deficit Unit
The units which need money.
Financial Intermediaries
The bank, person or party, financial institution which act as a middle man between surplus and deficit units are called financial intermediaries.
Three types of financial intermediaries
(1) Investment Bank
(2) Broker
(3) Dealer
Investment Bank
(a) Under Writing or Initial ...view middle of the document...

Broker (Agent)
It is a person which act or perform on the behalf of the owner.
Dealer
It is a person which work independently
Types of Financial Market
There are five major types
1 Primary Market
2 Secondary Markets
3 Money Market
4 Capital Market
5 Over the Counter Market
(1) Primary Market
The market where the new securities are issued or the market where the securities are issued by the company first time.
There are two types of issue in primary market.
(a) Direct Placement
Company offer IPO to investor
(b) Indirect Placement
Company provides Intermediaries (Bank, Broker, and Dealer) offer IPO to investor
Secondary Markets
The market where the existing securities are sold and purchased.
Money Market
The market where the securities whose maturity are less than or equal to one year sold and purchased
(a) Treasury Bills (b) Commercial Paper (c) Banker Acceptance
Capital Market
The market where the securities whose maturity are more than one year sold and purchased.
Over the Counter Market
Its an electronic market in which the securities are sold and purchased through electronic media search as internet.
Bond | Share |
“Bond is a long term securities issued by the companies for generating long term funds”Types (1) Secure Bonds / Simple BondsThe bonds issued by the companies after pledging their assets. (to SECP) (2) Un-Secure / DebentureThe bonds issued by the companies without pledging there assets. | “Shares are the long term securities issued by the companies for generating long term fund (1) Preffered Share (a) Fixed Dividend (b) Claim on assets (c) No voting right (d) Less risky (2) Common Share (a) No fixed dividend (b) No claim on assets (c) Voting right (d) More risky |

Difference between bonds and share
Bond | Share |
1 Interest 2 Bond holder3 No ownership4 No voting right | 1 Dividend 2 Share holder3 Ownership4 Voting right |

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