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Course 3 : Financial markets and investment banking - Coggle Diagram
Course 3 : Financial markets and investment banking
Financial markets
Definition :
A system comprised of individuals and institutions, instruments, and procedures that brings together borrowers and savers i.e . Sellers and Buyers of securities
Types of financial markets
long vs short term market
Capital market
Includes instruments with maturites < 1 year
= long term market
Money market
instrument traded mature in 1 year or less
= short term market
types of things exchanged
Debt market
Loans - treasury, corporate, mortgage-backed, money market, municipal, etc...
Equity market
Stock market
Types of stock market transaction
you go there when you need money
Market efficiency
Theory by Fama (1965)
3 types of market efficiency
information efficiency
: all material public information is available
weak form efffciency : information is reflected on current market price
Semi-strong form efficency : current market prices relfect all publicly available information
Strong form efficiency : current market price reflect all information
Economic efficiency
: funds are allocated towards the optimal use : economic growth, social satisfaction
Functional / operationnal efficiency
: transactions price are optimzed + fair dealing for all participant
The financial market in the US
NYSE
bourse de NY
actors of NYSE
largest and most active financial markets
US markets are generally more efficient than foreign markets
flow of funds
provides the ability to transfer money through times
borrowing money = sacrificing your income now
because of the interest rates
because you need money now
Saving is the opposite of borrowing
Conditions
If this capital is expected to generate greater returns than its cost (after taxes)
If the expected return is higher than the Cost of Living Adjustments and there is a greater funding need in the future (e.g. retirement)
3 ways to transfer the flow of funds
Direct transfer
Business sells its stocks or bonds directly to investors
Indirect transfer through investment bankers
Investment banker acts as middleman and facilitates issuance of securities by reselling the securities to savers
INdirect transfer through fianncial intermediaries
Organizations such as banks or mutual funds obtain funds from savers and then use the money to lend or to purchase securities
Investment Banking
INvestment banking process
Raising capital
Stage 1
Stage 2