Financial Markets Essay
A bazaar is a abode area accommodating buyers and accommodating sellers meet. There are several markets; basic markets which includes banal markets and band markets, bazaar for appurtenances and casework (commodities), derivatives bazaar consisting of approaching markets, allowance bazaar and adopted barter markets. The markets can be all-embracing or bounded with trading demography abode at a accustomed area e. g. NYSE, LSE or electronically e. g. NASDAQ. Basic markets can be added breach into primary bazaar which is acclimated to barter in anew issued balance and accessory bazaar which is for trading already absolute balance (Schenk, R.(2008).
One key affection about markets is that they are interrelated, i. e. they accept some affectionate of connection. The aftereffect of this is that a botheration in one of the markets affects the alternative markets. A acceptable archetype to allegorize this affirmation is the banking bazaar crisis in the USA. The acclaim crisis furnishings accept been acquainted the apple over (Schenk, R. (2008). A banking bazaar is a abode area banking balance are traded. Examples of these banking balance accommodate shares, bonds, debentures, assemblage trusts etc. The basic action of the banking bazaar is to admeasure assets to the best assembly use.
Financial markets additionally act as a average through which changes in the abridgement are transmitted. Intermediaries One of the important aspects of the banking markets is that of intermediation. A lot of investors do not admission the banking markets by themselves but they use banking intermediaries. Examples of these banking bazaar intermediaries are the banks, alternate funds, alimony funds, acclaim unions, accumulation and accommodation institutions and alike allowance companies. Alternative investors, though, appoint anon in the banking markets and for this, they may acquire college allotment due to the college accident complex (Schenk, R.
(2008). Investors application intermediaries to admission the banking bazaar are able to abate the akin of accident complex in their investments. The banking agent can alter and appropriately abstain incurring huge losses. Banking intermediaries can additionally be able to accommodate clamminess to the investors aural a actual abbreviate aeon of time. If an broker has invested in absolute acreage e. g. a house, then, converting that abode into banknote will booty time. This is area the banking agent comes in. the banking agent could acquaintance problems if the investors (depositors) appetite to abjure the money at the aforementioned time.
Hence an agent may be afflicted to seek costs from the government to accommodated the appeal for the money. As apparent earlier, banking markets are interconnected. Banking intermediaries too are interconnected. Banking intermediaries are affiliated to anniversary alternative in agreement of debts and assets. It is for this acumen that if one banking agent adventures problems, the alternative is acceptable to be affected. The sub prime crisis in the USA acutely illustrates this; Buck Stearns collapses, and what follows is a alternation of collapses or abreast collapses that had to be rescued by the government.
Financial intermediaries’ problems can additionally be acquainted in the economy. The abreast recession of the USA abridgement acutely illustrates this point (Schenk, R. (2008). Role of government in banking markets The government acts as a regulator in the banking markets as able-bodied as acting as an agent through the axial bank. In the USA, the government regulates the bazaar through the SEC and Federal Deposit Allowance Corporation (FDIC). The SEC regulates the banal and bonds as able-bodied as shareholders advice requirements. FDIC covers deposits at bartering banks and accumulation and acclaim societies (Oswego (2008).
Importance of banking markets Apart from accouterment a abode area balance are traded, the banking bazaar additionally provides an admission area investors can administer risk. This is done through the use of banking instruments alleged derivatives. The account of this accident is the aberration of allotment prices, band prices, bill ante or alike absorption rates. Banking markets additionally serve as a belvedere for trading in currencies added accurately alleged the adopted barter market. Apart from importers and exporters, banks, speculators, government, tourists additionally anatomy allotment of the adopted barter market.
Bond bazaar This is a abode area debt instruments/securities are issued and traded. The band bazaar is additionally alleged the debt market, acclaim bazaar or the anchored assets market. The best accepted debt balance dealt with are government bonds and accumulated debt securities. The blazon of band markets accommodate asset backed, corporate, funding, municipal, government, mortgage backed, collaterized debt balance etc. Best of these balance are traded over-the-counter (OTC) although some are traded in the exchange.
Trading in bonds is through an cyberbanking arrangement (Faerber, 2001:15). The band bazaar is additionally bedeviled by players additionally begin in the banking markets who are about buyers and sellers. Some of the participants in the band bazaar accommodate the government, traders, institutions and alike individuals. The allotment of the bazaar for individuals is low because of the specific attributes and abridgement of clamminess in abate bonds. Therefore, a huge admeasurement of the band bazaar is bedeviled by institutional investors e. g. alimony funds, banks and alternate funds.
Individuals can be able to admission the band bazaar through advance cartage like the Barter Traded Funds (EFTs), band funds, closed-end-funds or alike assemblage advance trusts. Best of these advance cartage are able to bisect bonds into abate affordable units that can be calmly bought by individuals. The new issues of bonds are commonly awash in the primary bazaar through an agent e. g. an advance bank. Bonds that accept been bought through affair can be disposed off afore they mature. This is done in the accessory bazaar (Faerber, 2001:20).
In the USA, the bazaar allotment of the assorted bonds varies. The Treasury bazaar forms the better allocation of the band market. The Treasury band allotment is over 50. Some of the balance beneath this class accommodate non absorption address Treasury bills, Treasury notes, Treasury bonds and Treasury aggrandizement indexed securities. The Accumulated band bazaar represents over 20% of the absolute band market. These bonds are basically issued by companies in altered sectors of the abridgement although they are broadly classified as industrial, transportation, account and banking securities.
Examples of Accumulated bonds which can aught advertisement or convertible accommodate apart bonds (debentures), subordinated agreement bonds, aerial crop bonds, clutter bonds, anchored bonds etc. (Faerber, 2001:75). Trends in the band markets Over the aftermost 8 years, the band bazaar in the USA has been experiencing some anatomy of volatility. In the year 2000-2003, the band yields (10 year Treasury note), were falling advertence that the band prices was rising. The trend, was however, burst in the backward 2003 back the prices of the bonds started to decline. This abatement adumbrated that the band yields were rising.
This trend was empiric until aboriginal 2007 back the band prices antipodal and started to admission (Douglas, A. (2008). The acceleration in band prices (falling band yields) was short-lived. The aboriginal account of sub prime crisis abashed the band market. The sub prime crisis acquired the acclaim bazaar crisis. The appeal for Treasury bonds started to admission because the investors anticipation that they will not be afflicted by the accepted acclaim crisis. This was not the case though. The Borough bonds were the abutting advantage but this admission was additionally not sufficient.
The alternative acumen why there is alternation in the band bazaar is that the bazaar depends on banknote from overseas. The banknote breeze from adopted countries anatomy a abundant allotment of the USA band bazaar and appropriately any assurance of agitation ability aftereffect in withdrawals which will account the band bazaar to collapse (Jubak, J. (2007). The acclaim ratings additionally accept not been accurate. Consequently, there accept been abundant downgrades of assertive bonds which were advised to be good. As the abridgement continues to falter, the accumulation charcoal an affair as the government (USA) aims to jumpstart the abridgement by arising an bread-and-butter bang package.
The funds are to be accomplished through the advertise of bonds, addendum as able-bodied as press of money (Hurley M. A. (2008). The prices of bonds are college which appropriately agency lower yields because the mortgage ante are bottomward while the mortgage prepayments accept risen and appropriately the investors charge to advantage admitting added Treasury bonds actuality sold. Band issues The band issues accept been on a abatement back aftermost year. This is witnessed in all band types with cogent drops actuality witnessed on the asset backed aegis bonds as able-bodied as advance brand accumulated bonds. The ABS bonds fell from a aerial of about $1.
25 abundance amid January and September 2007 to a low of about $ 250 billion in a agnate aeon this year. The advance brand accumulated bonds fell from about $ 2. 5 abundance to low of $ 1. 8 abundance in the aforementioned aeon this year. The contempo slump in the band bazaar is a aftereffect of the acclaim crisis which has persisted back aftermost year back the sub prime mortgage crisis started (Thomson Reuters (2008). Best of the investors offloaded the alternative blazon of bonds and autonomous for the government Treasuries. The Treasuries additionally angry out to be black because their falling yields
Therefore, over the aftermost one year, the affair of Accumulated bonds has been crumbling abundantly because of the acclaim crisis. Allotment bazaar The banal bazaar additionally alleged disinterestedness bazaar is a bazaar (private or public) for trading of shares and derivatives. The shares can be listed on the disinterestedness bazaar or traded by clandestine placement. The banal barter is a aggregation or alignment that brings buyers and sellers who would barter in the securities. Examples of banal exchanges includes London Banal Exchange, New York Banal Exchange, NASDAQ etc. The banal barter can be a concrete area e.
g. a allowance or a basic trading belvedere (Share bazaar basics (2008). In the banal market, individuals, advance banks and barrier armamentarium traders are complex in the affairs and affairs of securities. The prices of balance are bent by the armament of appeal and accumulation and the abstraction of bid-ask. The banal bazaar offers the investors advance cartage for which they can advance their monies. Companies can additionally accession basic through the affair of shares. Investors additionally accept admission to clamminess as they can actuate off their balance with affluence (Share bazaar basics (2008).
The action of the banal bazaar is additionally all-important for the all-embracing advance of a country’s economy. Therefore, the banal bazaar that is alive is advised to be the agent of the economy. The bazaar care to be able in agreement of operations advice processing and allocation of securities. This agency tat the aegis prices should be able to reflect the advice accordingly. Achievement of the banal bazaar The achievement of the banal bazaar can be either bearish or bullish depending on the bazaar fundamentals.
A buck bazaar is a abatement of over 20% while a balderdash bazaar is an admission of over 20% (Hays D (2002). Over the aftermost 102 years to 2002, the bazaar in the USA accomplished abundant bearish and bullish trends. The Dow Jones Industrials acquired an all-embracing amount of 91. 5% in the balderdash market. In the buck market, the DJI acquired 30% over the aforementioned aeon admitting the abundant banal bazaar blast of 1929. The above causes of the changes in the achievement of the banal bazaar abundantly depend on the country. For the USA, for instance, was not afflicted by wars appropriately did not acquaintance abiding declines in the banal market.
The European counterparts on the alternative hand, took time to balance from the furnishings of war. Advancements in telecommunication and technology are additionally addition agency that afflicted the achievement of the bazaar over time. Globalization is addition agency that has added the achievement of the banal markets. In the aboriginal 1900s, there were abounding baby bounded exchanges which were after alloyed and appropriately lower operational costs appropriately acumen above allotment (Hays D (2002). New affair of shares The aggregate of new issues over the years has been accretion at a aerial rate.
This is due to the actuality that the banking markets accept been developing. Equities can be issued in the banal bazaar through an introduction, tender, action for sale, adjustment and accessible issue. Afore the banking bazaar crisis, the affair and trading of shares in all the arch banal exchanges was on the rise. Some of the proposed new issues had to be annulled or abeyant until the banking bazaar agitation calms (BHF-bank (2008) Admitting this, the appeal for basic has never beneath and appropriately it will answer to say that the aggregate of new allotment issues in the approaching will abide to rise.
In the year 2000, the cardinal of issues averaged 700 with the gain from these issues averaging $ 125 billion. There was a bead in the cardinal of issues and gain in the year 2001- the aboriginal division of 2003 back the issues rose. In the alternating division f year 2007, the cardinal of issues and gain fell. That bead has connected to the accepted year. The cardinal of issues in the aboriginal division of 2008 was about 500, ascent to about 900 in the additional division afore bottomward to 500 in the third division (Thomson Reuters (2008)
It is important to agenda that a aggregation can accession basic from issues of shares or bonds. The continuing banking bazaar accident afflicted these two analytical aegis markets and this is why the banal indices and band yields accept been affected. The banal bazaar action in agreement of allotment trading will abide to acceleration as the apple banking markets expands. The charge for basic by companies will additionally ensure that added shares are issued in the banal market. Conclusion I accede with the analyst that the band and disinterestedness markets are on a all-a-quiver ground.
The acumen for this is that the abridgement is accepted to apathetic bottomward and appropriately the investors will acquisition it adamantine to advance in equities, accumulated bonds and alternative types of bonds accustomed the ambiguous bread-and-butter times. The bazaar fundamentals are additionally adjoin the band bazaar currently. Until and back the all-around acclaim crisis is over, again the band and disinterestedness markets are activity to absolutely rebound. References BHF-bank (2008). All-around disinterestedness bazaar slump continues. (Online). Available. Accessed on 26/11/2008 from http://www. fxstreet. com/technical/market-view/fx-briefing/2008-10-27. html Douglas, A. (2008). Band bazaar collapse is imminent.
(Online). Available. Accessed on 26/11/2008 from http://news. goldseek. com/GoldSeek/1223911533. php Faerber, E. (2001). Fundamentals of the Band Market. New York. Mc Graw-Hill Professional Hays D,(2002). Morning Bazaar Comments. Banal Bazaar Achievement over 102 Years (Online). Available. Accessed on 26/11/2008 from http://www. super-business. net/General-Articles/282. html Hurley M. A. (2008). Today’s market. The angle today. Booty the money and run. (Online). Available. Accessed on 26/11/2008 from http://www. bondsonline. com/Todays_Market/The_Outlook_Today. php Jubak, J. (2007). Steer bright of the adulteration band market.
(Online). Available Accessed on 26/11/2008 from http://articles. moneycentral. msn. com/Investing/JubaksJournal/SteerClearOfTheRottingBondMarket. aspx Thomson Reuters (2008). Deals annual reviews. (Online). Available. Accessed on 26/11/2008 from http://www. thomsonreuters. com/content/PDF/financial/league_tables/de/2008/3Q08_equity_capital_mkts. pdf Thomson Reuters (2008). Deals annual reviews. (Online). Available. Accessed on 26/11/2008 from http://www. thomsonreuters. com/content/PDF/financial/league_tables/de/2008/3Q08_debt_capital_mkts. pdf Schenk, R. (2008). Overview. Banking Markets.
(Online). Available. Accessed on 26/11/2008 from http://ingrimayne. com/econ/Financial/Overview8ma. html. Seeking alpha (2008). All-embracing disinterestedness bazaar snapshot. (online). Available. Accessed on 26/11/2008 http://seekingalpha. com/article/85307-international-equity-market-snapshot Allotment bazaar basics (2008). How banal bazaar works. (Online). Available. Accessed on 26/11/2008 from http://www. sharemarketbasics. com/How-Stock-Market-Works. htm Oswego (2008). Chapter 3. Role of Government in Banking Markets. (Online). Available. Accessed on 26/11/2008 from http://www. oswego. edu/~edunne/342ch3. html
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