Overview of Financial Market
Overview of Financial Market
Overview of Financial Market
OVERVIEW OF
FINANCIAL MARKET
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Chapter Outline
◦Definition
◦Types
◦The Malaysian Market Structure
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Introduction
Market traditionally can be defined as a place where the buyer and
seller meet together to transact a business.
✓Buyer – take delivery of a good upon payment
✓Seller – make delivery of a good for payment
Traditionally: both buyer and seller must meet at one designated place
in person
Modern: a market does not necessarily require a physical place
✓ Not all business transactions require immediate settlement.
✓Buyers and sellers are allowed to delay the delivery of goods and
payment until a specified future date known as the expiry date.
✓Forward (delayed) transaction in derivative market (specifies today an
agreement to be fulfilled at a later date.
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Malaysian
Financial System
Foreign
Investment
Exchange Bond Markets Savings Institutions
Bank
Market
Structure of the
Insurance
Others Companies
Malaysian
Financial System -ERIMALIDA YAZI- Other Financial
4
Intermediaries
Financial
Market
Money Capital
Market Market
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Cash Market vs. Derivative Market
Cash market Derivative Market
◦ Also known as spot or physical ◦ Derivative is a security with a price
market. that is dependent upon or derived
from one or more underlying assets.
◦ Spot: spot transaction-immediate
delivery of goods (physical or ◦ The derivative itself is a contract
financial assets) by a seller and between two or more parties based
payment by a buyer. upon the asset(s).
◦ Physical: physical place ◦ Its value is determined by fluctuations
in the underlying asset. The most
◦ Normally the traditional markets such common underlying assets include
as mini-market, super-market etc. stocks, bonds, commodities,
◦ Financial markets: buyers & sellers do currencies, interest rates and market
not have to meet at specified indexes.
physical place (ex: stock market). – ◦ Buyer not required to make
communication through phone call immediate payment or seller deliver
etc. goods immediately. (can delay the
delivery of goods and cash later
date) – forward or futures
◦ Where the standardized contracts are
bought and sold, not the underlying
commodities themselves.
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Primary Market vs. Secondary Market
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