Part Ⅰ金融英语.pptx

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1、2021/9/111Part Financial MarketsChapter 1 Functions of Financial MarketsChapter 2 Money MarketsChapter 3 Capital MarketsChapter 4 Foreign Exchange Markets2021/9/112Chapter 1Functions of Financial Marketsv1.1 SignificancevThe word“finance”signifies capital in monetary form,that is,in the form of fund

2、s lent or borrowed,normally for capital purposes,through financial markets or financial institutions.When finance goes international,it is then an international finance.vWhat is a financial market?It is a place where financial transactions take place.Financial markets facilitate the lending of funds

3、 from savers to those who wish to undertake investments.Those that wish to borrow to finance investment projects sell financial instruments to savers.2021/9/113vWhen an investor purchases the securities issued by ultimate borrowers(those who use the funds to invest in real assets),capital market ope

4、rations for equities,bonds would fall largely into this category.When an investor chooses to invest in the obligations of financial intermediaries,which in turn lend the funds to those who invest in real assets,they are operations in money market for term deposits and loans,interbank transactions of

5、 such nature.The primary distinction between the two channels is that,in the first case,i.e.direct financing,the investor is faced directly with the credit risk of the issuer,while in the second case,i.e.financing through financial intermediation,a financial institution,such as a bank,interjects its

6、elf between users and providers of funds.Any analysis of the sector of money market dominated by financial intermediaries must be very much concerned with these financial institutions themselves(their policies,financial conditions and official regulatory environment)in addition to those factors gove

7、rning the suppliers and users of funds.vInternational financial transactions include purchases and sales of foreign currency,securities,gold bullion,and lending and borrowing.2021/9/114vForeign exchange marker deals with the exchanges of different means of payment.These exchanges are necessary for i

8、nternational capital flows.As the relative values among different currencies(the exchange rates)will fluctuate according to economic and political circumstances of the currencies of the relative countries,international investors or financiers face exchange risks.To this end,foreign exchange markets

9、provide services,such as forward transactions and foreign currency futures to eliminate such risks.v1.2 Functions vApart from borrowing from banks,a firm or an individual can obtain funds in a financial market in two ways.The most common method is to issue a debt instrument,such as a bond or a mortg

10、age,which is a contractual agreement by the borrower to pay the holder of the instrument fixed amounts at regular intervals(interest and principal payments)until a specified date(the maturity date),when a final payment is made.The maturity of a debt instrument is short-term if its maturity is less t

11、han a year and long-term if its maturity is ten years or long.Debt instruments with a maturity between one and ten years are said to be intermediate-term.2021/9/115vThe second method of raising funds is by issuing equities,such as common stock,which are claim to share in the net income(income after

12、expenses and taxes)and the assets of a business.Equities usually earn periodic payment(dividends)and are considered long-term securities because they have no maturity date.vA primary market is a financial market in which new issues of a security,such as a bond or a stock,are sold to initial buyers b

13、y the corporation or government agency borrowing the funds.A secondary market is a financial market in which securities that have been previously issued(and are thus secondhand)can be resold.vThe primary market for securities is not well known to the public because the selling of securities to initi

14、al buyers take place behind doors.An important financial instrument that assists in the initial sale of securities in the primary market is the investment bank.It does this by underwriting securities,that is,it guarantees a price for a corporations securities and then sells them to the public.2021/9

15、/116vWhen an individual buys a security in the secondary market,the person who sold the security receives money in exchange for the security,but the corporation that issued the security acquires no new funds.A corporation acquires new funds only when its security are first sold in the primary market

16、.Nonetheless,the secondary market serves two important functions.First,financial instruments are more liquid.The increased liquidity of the instruments makes them more desirable and thus easier for the issuing firm to sell in the primary market.Second,they determine the price of the security that th

17、e issuing firm sells in the primary market.The firms that buy securities in the primary market will pay the issuing corporation no more than the price that they think the secondary market will set for this security.The higher the securitys price in the secondary market,the higher the price that the

18、issuing firm will receive for a security in the primary market and hence the greater the amount of capital it can raise.Conditions in the secondary market are therefore the most relevant to corporations issuing securities.It is for this reason that studies dealing with financial market focus the beh

19、avior of secondary markets rather than primary markets.2021/9/117vAnother way of distinguishing market is on the basis of the maturity of the securities traded in each market.The money market is a financial market in which only short-term debt instruments(maturity of less one year)are traded;the cap

20、ital market is the market in which long-term debt(maturity of one year or longer)and equity instruments are traded.Money market securities are usually more widely traded than long-term securities and so they are more liquid.In addition,short-term securities have smaller fluctuations in prices than l

21、ong-term securities,making them the safer investment.As a result,corporations and banks actively use this market to earn interest on surplus funds that they expect to have only temporarily.Capital market securities,such as stocks and long-term bonds,are often held by individuals and financial interm

22、ediaries such as insurance companies and pension funds,which have little uncertainty about the amount of funds they will have available in the future.2021/9/118Chapter 2 Money Marketsv2.1 CharacteristicsvMoney market instruments,which are discussed in detail later in this chapter,have three basic ch

23、aracteristics in common:vThey are usually sold in large denominations.vThey have low default risk.vThey mature in one year or less from their original issue date.Most money market instruments mature in less than 120 days.vThe well-developed secondary market for money market instruments makes the mon

24、ey market an ideal place for a firm or financial institution to“warehouse”surplus funds for short periods of time until they are needed.Similarly,the money market provide a low-cost source of the funds to firms,the government,and intermediaries that need a short-term infusion of funds.2021/9/119vMos

25、t investors in the money market who are temporarily warehousing funds are ordinarily not trying to earn unusually high returns on their money market funds.Rather,they use the money market as an interim investment that provides a higher return than holding cash or money in banks.They may feel that ma

26、rket conditions are not right to warrant the purchase of additional stock,or they may expect interest rates to rise and hence not want to purchase bonds.Idle cash represents an opportunity cost in terms of lost interest income.The money markets provide means to invest idle funds and to reduce this o

27、pportunity cost.At the same time,the sellers of money market instruments find that the money market provide a low-cost source of temporary funds.vWhy do corporations and the government sometimes need to get their hands on funds quickly?The primary reason is that cash inflows and outflows are rarely

28、synchronized.vThe money market provides an efficient,low-cost way of solving these problems.2021/9/1110v2.2 Participants of Money Marketv1.The GovernmentvIn money market,the government is unique because it is always a supplier and demander of money market funds.The U.S.Treasury is the largest of all

29、 money market borrowers worldwide.It issues Treasury bills(often called T-bills)and other securities that are popular with other money market participants.Short-term issues enable the government to raise the maturing issues.v2.The Central BankvThe Central Bank is the Treasurys agent for the distribu

30、tion of government securities.The central bank holds vast quantities of Treasury securities that it sells if it believes that the money supply should be reduced.Similarly,the central bank purchases Treasury securities if it believes that the money supply should be expanded.The central banks responsi

31、bility for the money supply makes it the single most influential participant in the money market.2021/9/1111v3.Commercial Banks vCommercial banks hold a larger percentage of government securities than any other group of financial institutions.This is partly because of regulations that limit the inve

32、stment opportunities available to banks.Specifically,banks are prohibited from owning risky securities,such as stocks or corporate bonds.There are no restrictions against holding Treasury securities because of their low risk and high liquidity.vBanks are also the major issuer of negotiable certifica

33、tes of deposit(CDs),bankers acceptances,and repurchase agreements.In addition to money market securities to help manage their own liquidity,many banks trade on behalf of their customers.vNot all commercial banks deal for their customers in the secondary money market.The ones that do are among the la

34、rgest in the country and are often referred to as money center banks.2021/9/1112v4.BusinessesvMany businesses buy and sell securities in the money market.Such activity is usually limited to major corporations because of the large transactions involved.As discussed earlier,the money market is used ex

35、tensively by businesses both to warehouse surplus funds and to raise short-term funds.v5.Investment CompaniesvLarge diversified brokerage firms are active in money markets.The primary function of these dealers is to“make a market”for money market securities by maintaining an inventory from which to

36、buy or sell.These firms are very important to the liquidity of the money market because they help ensure that both buyers and sellers can readily market their securities in the primary market as well as in the secondary market.2021/9/1113v6.Insurance CompaniesvProperty and casualty insurance compani

37、es must maintain liquidity because of their unpredictable need for funds.To meet this demand,the insurance companies sell some of their money market securities to raise cash.vAs to the life insurance companies,because their obligations are reasonably predictable,large money market security holdings

38、are unnecessary.However,it is a common practice that an individual can have his/her money invested in the money market through the agent department of banks and investment companies,to earn a higher interest rate than otherwise deposited in the banks.v2.3 Instruments of Money Market vSecurities with

39、 maturities within one year are referred to as money market instruments.A variety of money market instruments are available to meet the diverse needs of market participants.2021/9/1114v1.Treasury BillsvTo financial the national debt,the government issues a variety of debt securities.The most widely

40、held liquid security is the Treasury bill,which is commonly issued by the ministry of finance.However,some Treasury bills,like the Treasury bill of the U.S.government,do not actually pay interest.Instead they are issued at a discount from par(their value at maturity).The investors yield comes from t

41、he increase in the value of the security between the time it was purchased and the time it matures.v2.Inter-bank MarketsvInter-bank markets are money markets in which short-term funds transferred(loaned or borrowed)between financial institutions,usually for a period of one day,that is,they are usual

42、ly overnight investment.The interest rate for borrowing these funds is close to,but always slightly higher than rate that is available from the central bank.v3.Commercial PapervCommercial paper is a short term debt instrument issued only by well-known,larger and creditworthy corporations.2021/9/1115

43、vIt is typically unsecured,and the interest rate placed on it reflects the firms level of risk.It is normally issued to provide liquidity or finance a firms investment and accounts receivable.The issuance of commercial paper is an alternative to short-term bank loan.v4.NCDs or CDsvA negotiable certi

44、ficate of deposit is a bank-issued security that documents a deposit and specifies the interest rate and the maturity date.It was firstly issued in 1961 by Citibank.Because a maturity date is specified,a CD is a term security as opposed to a demand deposit.Term securities have a specified maturity d

45、ate while demand deposits can be withdrawn at any time.A CD is also called a bearer instrument.This means that whoever holds the instrument at maturity receives the principal and interest.The CD can be bought and sold until maturity.v5.Banks AcceptancesvA banks acceptance is an order to pay a specif

46、ied amount of money to the bearer on a given date.Bankers acceptances have been in use since the twelfth century,and are commonly used for international trade transactions.2021/9/1116Chapter 3 Capital Marketsv3.1 Purpose and ParticipantsvFirms that issue capital market securities and the investors w

47、ho buy them have very different motivations than they have when they operate in the money market.Firms and individuals use the money market primarily to warehouse funds for short periods of time until a more important need or a more productive use for the funds arises.By contrast,firms and individua

48、ls use the capital market for long-term investments.The capital markets provide an alternative to investment in assets such as real estate or gold.Meanwhile,the primary reason that individuals and firms choose to borrow long-term funds is to reduce the risk that interest rates will rise before they

49、pay off their debt.This reduction in risk comes at a cost.However,Most long-term interest rates are higher than short-term rates due to risk premiums.Despite the need to pay higher interest rates to borrow in the capital markets,these markets remain very active.2021/9/1117vThe primary issuers of cap

50、ital market securities are governments and corporations.However,governments never issue stocks.vCorporations both issue bonds and stocks.One of the most difficult decisions a firm faces can be whether it should finance its growth with debt or equity.The distribution of a firms capital between debt a