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AZERBAIJAN STATE UNIVERSITY of ECONOMICS Student: Shahlar Bayramov Managing teacher: Ruslan Talibov Faculty: STF Finance Group: M6 Topic: Investment Markets Baku 2014
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investment markets graduation paper work

Aug 17, 2014

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Economy & Finance

this is the presentation of graduation paper. since we had given only 10 minutes to speech I was obliged to pass shortly over economic/financial crisis and more focus on financial markets instruments, and suggestions for the future of investment markets. for those who need material I can send my paper work. [email protected]
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Page 1: investment markets graduation paper work

AZERBAIJAN STATE UNIVERSITY of ECONOMICS

Student: Shahlar BayramovManaging teacher: Ruslan TalibovFaculty: STF Finance Group: M6Topic: Investment Markets

Baku 2014

Page 2: investment markets graduation paper work

Content

• Chapter 1• The history and essence of investment markets• The stages of investment markets development

• Chapter 2• The main operations in investment markets• The role of investment banks in economy

• Chapter 3• Sources of financing• Risk reducing ways in investment markets

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Introduction and essence of investment markets

• Financial markets and institutions are at the heart of the financial system…

• Sine-qua-non-efficient flow of funds in economic system

• Prices must accurately convey the value of a good or a service

• Minimum intervention of government

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Chapter 1The history and essence of investment markets

• The role of Globalization, and main international events in the process of Investment markets development

• The period between 1915-1942(1915-1945)• Formal abandonment of the gold standard• Bretton woods financial order (1945)• General Agreement On Tariffs And

Trade(GATT)» (1947)

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Chapter 1The stages of investment markets development• The Next Step of Financial Globalization. • Financial integration and systemic crises

(1980-present)• 1990s economic crisis• 1997-Asian crisis unproductive real estate investment*

• 2001 dot.com crisis

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Chapter 1The stages of investment markets development• The Next Step of Financial Globalization.

• 2007 financial crisis

• 2009 Greek financial crisis

• 2012–13 Cypriot financial crisis.

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Chapter 2The main operations in investment markets

• Channeling funds from surplus – to shortage

• direct finance- from lenders in financial markets to borrowers by selling them securities

• Indirect finance – involves third parties in channeling operations

• Primary market vs. secondary market

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Chapter 2The main operations in investment markets

• Brokers vs. dealers • money marketThey are usually sold in large denominations.They have low default risk.They mature in one year or less from their original issue date.

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Chapter 2The role of investment banks in economy

• Investment banks make their money primarily:

• By advising corporate clients on the creation of stocks, bonds and other securities

• By underwriting securities• By facilitating mergers and acquisitions, along with any due

diligence and securities exchanges that may go along with them.• And by brokering (or selling) securities to investors.

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Chapter 2The role of investment banks in economy

• Underwriting helps in 2 ways

• 1. it reduces the risk for issuer

• 2. it sends positive signal to investors

about the quality of appropriate assets

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Chapter 2 Main participants of investment markets

• U.S. Treasury Department – • T-Bills and other securities

• Federal Reserve System – regulator of money supply - most influential participant in the U.S. money market.

• Commercial Banks - hold a percentage of U.S. government securities second only to pension funds.

• Businesses - Many businesses buy and sell securities in the money markets

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Chapter 2 Main participants of investment markets• Investment Companies – (Bank of America, Merrill Lynch,

Barclays Capital, Credit Suisse, and Goldman Sachs)

• Individuals – people owning funds or cash from their career activities and

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Chapter 3Sources of financing

• Treasure bills - U.S. Treasury Department issues a variety of debt securities. The most widely held and most liquid security is the Treasury bill. Treasury bills are sold with 28, 91, and 182-day maturities

• Federal funds-are short-term funds transferred (loaned or borrowed) between financial institutions, usually for a period of one day

• Repurchase agreements-(repos) work much the same as fed funds except that nonbanks can participate

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Chapter 3Sources of financing

• Negotiable Certificates of Deposit - is a bank-issued security that documents a deposit and specifies the interest rate and the maturity date.

• Commercial Paper - are unsecured promissory notes, issued by corporations that mature in no more than 270 days(only the largest and most creditworthy corporations issue commercial paper.)

• Asset-backed commercial paper - backed (secured) by some bundle of assets

• Banker’s Acceptances - A banker’s acceptance is an order to pay a specified amount of money to the bearer on a given date

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Chapter 3Sources of financing

• Eurodollars: Many contracts around the world call for payment in U.S. dollars due to the dollar’s stability

• Bonds - are securities that represent a debt owed by the issuer to the investor.

• Separate Trading of Registered Interest and Principal Securities - to be sold in book entry form means that no physical document exists; instead, the security is issued and accounted for electronically.

• Mortgage bonds - used to finance a specific project

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• Equipment trust certificates - are bonds secured by tangible non-real-estate property, such as heavy equipment or airplanes

• Debentures - are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer

• Variable-rate bonds - financial innovation spurred by increased interest-rate variability in the 1980s and 1990s

Chapter 3Sources of financing

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• Common vs. preferred stocks

• Common Stock in a firm represents an ownership interest in firm.

• Preferred Stock in a firm represents no ownership interest in firm

• *(Less than 25% of new equity issues are preferred stock)• **only about 5% of all capital is raised using preferred stock

Chapter 3Sources of financing

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Chapter 3Risk reducing ways in investment markets

• Types of risk• 1) Credit risk• 2) Price risk• 3) Reinvestment risk• 4) Inflation risk• 5) Liquidity risk• 6) Foreign-exchange risk. • 7) Sovereign risk

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Chapter 3Risk reducing ways in investment markets

• Pooling risk Financial markets and institutions allow firms and

individuals to pool their risksmutual fund that invests in a diversified portfolio of common

stocks or other securities

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• Systematic vs. unsystematic risk

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Chapter 3Risk reducing ways in investment markets• A Simple Forward Contract• Futures Exchange• Swaps – fixed floating- floating floating• (*fixed fixed is not possible)

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Conclusion

• Disastrous financial crisis which had a great impact on economies throughout the world

• Financial institutions focus on short time cash increase rather than long term.

• Governments intervention into economy can increase or decrease efficiency

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Conclusion

• Governments, or governmental authorities keep declaring changes in legislations on behalf of big companies…

• The gap between small to big size companies will increase constantly

• Information asymmetry problem remains the same- re-regulations are inefficient

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Conclusion

• Recent finance crisis seems to produce many long-term return anomalies

• The long-term return anomalies are fragile.

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Suggestions to possible outcomes of conclusion

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Suggestions to possible outcomes of conclusion

• Competition and markets

• Specialization a major trend

• Exchange and diversification of staff

• More long-term investment in future possible

trends

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Suggestions to possible outcomes of conclusion

• Clients and products• An improving domestic economy • Central bank support • Derivatives market importance• Improve flexibility of firms

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Suggestions to possible outcomes of conclusion

• Government risk and compliance• Political problems (land occupancies)• FTZ- improvement• Fresh wave of rules and regulatory

proposals concerning capital markets activities

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Suggestions to possible outcomes of conclusion

• Financial management• Long term perspectives rather than short

term• Balance investors desire for better returns

with countervailing cost• Regulatory, and risk factors

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Suggestions to possible outcomes of conclusion

• Organizational effectiveness • Many firms have pushed tactical efficiency and

cost reduction measures • Capital markets firms should pursue

fundamental changes to their cost base and operating models. Standardized processes, streamlined product offerings, shared processing capabilities, and technology automation

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Suggestions to possible outcomes of conclusion

• Technology dynamics

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• Thank you for attention !