Lecture Business finance (9/e) - Chapter 8: The capital market

Chapter 8 The Capital Market Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance by Peirson, Brown, Easton, Howard and Pinder 8–1 Prepared by Dr Buly Cardak Learning Objectives • Understand the functions of a capital market. • Distinguish between the roles of financial agency institutions, financial intermediaries and investing institutions. • Identify and explain the role of financial agency institutions, financial intermediaries and investing institutions. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance by Peirson, Brown, Easton, Howard and Pinder 8–2 Prepared by Dr Buly Cardak The Flow of Funds • An economic entity will be either a ‘savings deficit unit’ or a ‘savings surplus unit’ (over a given period of time). • The financing process involves a flow of funds from the savings surplus units to the savings deficit units. • The flow of funds may be direct or indirect. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance by Peirson, Brown, Easton, Howard and Pinder 8–3 Prepared by Dr Buly Cardak Financial Intermediaries • Financial intermediaries are institutions that act as a principal in accepting funds from depositors and lending them to borrowers. • They enable the preferences of savers and lenders to be matched. • This is achieved via: – Asset transformation – Maturity transformation – Credit risk diversification – Creation of liquidity Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance by Peirson, Brown, Easton, Howard and Pinder 8–4 Prepared by Dr Buly Cardak Definition of ‘Capital Market’ • The market in which long-term financial securities are traded. • The suppliers and users of funds can negotiate the conditions on which funds will be transferred. • This transfer can be done in either the debt or equity market. • It is the debt and equity markets together which form the capital market. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance by Peirson, Brown, Easton, Howard and Pinder 8–5 Prepared by Dr Buly Cardak ... - tailieumienphi.vn