Financial Markets and Institutions - Lecture 02

okay guys we continue lecture number two before I continue with as the class's questions any questions that you have more questions that you have it is raise your hand remember you can't be shy this is not about home from shine know you've asked questions also there are no questions which are like stupid questions okay all the questions are good as long as they are within the subject of teaching okay so question number 1 plus a box is what does this thing mean mature payable bamboo means very simple that a payment must be made we say a specific payment must be paid on specific time so on that particular day you gotta make a payment so I got a rent Babel in payable is also in accounting in law synonymous with the word Jew so my rent is famill on the 15th day rule means I must make the payment a specific amount of money let's say $500 all the 15th of this month okay that's what payable means the second question was the question about users funds in other words you have that little chart where funds flow from savers those with excess of but we can generically call them investors though we could also call them and some of them are called creditors to those who are users so funds form from savers to users so now the question is who are the users well users will be generically businesses and businesses will be using funds either as debt in other words users of that we call in general what's the general word for those who use debt if these are creditors sector yes we call them debtors from debt become debtor and deckers we've also called in English that's the last word in English we'll call them borrowers so back to answering the users question so businesses can issue stock or equity so they can use funds as equity they can use funds as credits same as death in other words isn't far worse sex will be household use funds only as borrowers they borrowed to buy a house and we call that mortgage I'll be getting to that soon number two they borrowed to buy a car they borrowed to buy a motorcycle I understood just the other day well of course that's been happening in West for a long time the people who borrow to buy an iPhone on credit so an iPhone cost on all 700 u.s. dollars and maybe 12 payments of $60 a month okay so 700 will be done principal and there's going to be a little bit of an extra okay so households could be borrowing money for vacations for a hospital or whatever yes the government is the government is the biggest for work of all usually governments are deep in debt okay and they issue and I'll be any will wouldn't have big issue laws so bond is a standard the most standard instrument well another major forward user of borrowed in general funds will be financial institutions they use funds from households they can use funds from businesses okay they can borrow funds from each other okay one financial institution one thing leads to another and so on so these are the primary now so we call them classes of users that's how they typically divide them into households businesses financial institutions and governments any other questions so far yes ngo yes possibly an NGO could possibly borrow funds yes it could possibly be using but usually the name and your make more they might but again these are the primer it doesn't mean these are all you know these are the main ones now let's get down to the asset classes over here the first asset classes all stops and quippy so this stock is an instrument of equity and equity is an instrument ownership or residual claim so you've studied that I'm gonna have a whole lecture on what whole chapter on stocks and stock markets so stock market is a financial market where stocks are traded the third financial class will be currency is in money in currency u.s. dollars British Pound Japanese and European Europe okay this will be currency number four will be real estate as in land and buildings okay and number five is commodities the monitors will have a number of seven classes so commodities is of primary investment class well let's provide a few seven classes we can say grains it wants a green kind of like what you feed for a bunch of weeds rice corn okay these are some well there are many grades so grades will be one class but completely different class commodities will be people energy okay we're going to get two goals energy such as oil natural gas coal okay and whatever else is associated with energy third will be metals as in copper singing iron we call these metals in English and chemistry based base the other category such as gold silver platinum palladium and everything we call that's the kind of women like jewelry beauty usually made of silver platinum palladium you reading we call these precious precious so we're gonna precious metals gold silver platinum plated rhythm these are very rare in very expensive high priced and base metals are usually abundant and a lot cheaper than precious metal base metals will be copper so these are the men there may be other commodities that I want to get the key is to understand that these are done by primary asset classes now we need to discuss form each class how we call them return remember these are the primary investment classes or was the return on equity when you get when it get the asset what do you get in return so for equity how do i call return on it whether you get again interest again capital gain capital gain okay let's do that it's not an income first of all what is a game definition game game is simply the increase of a price of an asset that you saw in other words gain is the difference between selling the asset in buying that game okay so I can gain on this book by let's say my 420 and selling it for 25 that's a game okay now from game we get to the next concept which is capital a capital gain is the difference between buying an investment in seven years okay that's capital gain so you bought a stock for 52 salt for 55 you bought a bond for 50 we sold it for 57 you bought a currency for 4,000 you seven four four 200 okay so you bought a house for 70 thousand US dollars to sell it for Kate you bought gold for $1000 to sell it for 1,200 that's all capital gain okay but that's not yet the return we need to discuss the return of each class so we do buy above a stock what do you get in return for the stock before you solve it before capital gain exists how do we call that part excellent answer dividend so dividend is the income for holding equity in next four bonds how do we call the income on once again yes well two terms the pavement itself is called a coupon but in general the generic term for the asset class is called interest okay so bonds turn cube or we also in common let's currency must be income on currency interest okay guys guys guys if you have a question you you have a question ask it now young person no interesting next on real estate your own real estate must be eaten you get how do you comment you got a house not Commission what is a Commission Commission is a percentage fee for a transaction to buy or sell an asset you may buy a sale motorcycle and get a commission buy it sell a house and get a commission you can find Silvan and get a commission sure your broker will mind sale of stock and get a commission so Commission is the income or she's called intermediating a particular transaction the purchase of something the purchase of Palace stock bond anything that's Commission it's the income for any asset finance and here the question is for would you have at home it's called ranks I'm you know well the trickiest one is if you own hopper Ariel goal or your own commodity what do you get for it that's a tricky one nobody will probably know it's not well known it's gonna lease in a lease rate okay now what is a lease lease is renting a particular assets could be a house could be a motorcycle could be an apartment could be anything else for a specific period of time at the end of which period the asset is returned to the original lesser so right now a 12-month lease I'm not renting I'm leasing but that was between red and lease is that as a stripped and some people like red red is associated with indefinite period of time and usually payments are made like every month now my lace also requires monthly but it could be any other type of thing the difference that the leases is acidic period of time which is known before the lease begins 12 months up front they say leases for months you take it or leave it you can't choose six or nine or eleven it's 12 okay or of course it may be negotiable for eight months and whatever we agree on that's what we put into these which is different from okay so these are the incomes not any questions and then I get on with the chapter I mean that's halfway most of the chapter time any questions no okay financial this and that and whatnot okay equities death trading okay next one is derivative derivative financial director so a derivative is a financial instruments whose value depends on another asset whose that it derives from the value of another acid derivatives these will be secondary asset classes these are the five primary primary meaning so now you have equity derivatives these are called interest rate derivatives so equity derivatives are derivatives on interest rate derivatives of derivatives on currency derivatives and derivatives on currencies you may have possibly derivatives on real estate they did not exist until recently and of course you will have delivered a double toric derivatives on grains and or candies okay awesome copper and gold and all the other stuff these are financial derivatives will have a chapter to study derivatives in derivative markets so when we study a market will study the financial instrument first and then the market on which the financial instrument is trade so that's the derivative it's a financial instrument whose value depends on gold derivative will be a derivative to spend depend on the price of gold or rice next over-the-counter market we get person exchange so exchange is a collector market is a place in place where financial or primary assets investments are traded we can also say financial exchange is where financial instruments are trained in other words you trade stocks because Stock Exchange okay you can trade ball becomes bond exchange currency becomes currency exchange there is no exchange for real estate and their exchanges or commodities so kind of oil is chain against to all the exchanges in general commodities exchange let's say entirely change so exchange isn't organized that's the key word organized market or market place to trade particular financial instruments now T 1 here is training some people will be buying some people will be saying selling and sometimes they'll be behind in that's an exchange TC over the counter gonna be markets OTC over-the-counter market is a place where you can buy and sell particular financial instrument which is not organized so you can go just walk into the bank and exchange currency okay it couldn't be done in hundred different banks and each bank will have its own exchange rate you can go to a currency exchange you know they have these currency exchange currency exchanges not on exchange it is an OTC market over-the-counter you go to the counter you give them dollars to give it local currency or I give it a Thai Baht they give it back dollars okay so that's Oh TC exchanges an organized place it's got regulations it's got rules it's got dozens or hundreds of buyers dozens or hundreds of sellers okay so that's the OPC let's see what else we got all right I don't want to get into this later in the course is to give you the names and of the money market instruments Natalie which are the main money market instruments you should know now the names and later in the course as we studied like money market stuff you'll be I can look it up for you chapter what's the chapter 5 when I get to do five but inside each instrument separately so the money market instruments are in table one - that's right - the mouse the main money market in months most likely next time I'll discuss each one detail number two number three repose a repost and short for and I'm running out repurchase agreements next will be Treasury bills next we'll be negotiable CDs certificate of deposit see these ads for certificate next movie bankers acceptance so on your first quiz question could be States and define all money market instruments are going to give me each six each one with its own definition next next capital market instruments the main one will be stocks long-term bonds meaning bonds with number three will be mortgages okay this requires definition most people don't understand and most people have a very incorrect very incorrect understanding of what a mortgage is just having already mortgage you want to try and where's the mortgage what is the mortgage mortgages are low in this debate mortgages alone secured by real estate secured by you can use the mortgage to buy a house you can use the mortgage for vacation you can use the mortgage car you can use the mortgage to pay for the hospital so mortgage is defined by the security of real estate it could be for any purpose doesn't matter how you use the loan it's irrelevant the most common use of the loan is for the purchase of a house or but that's not what defines people think all mortgages alone buy a house no more it's a loan secured by a house you could buy anything ok some people say hey I'm gonna buy a car and but you don't have the money so you see bonds these foods be corporate bonds these could be got they could be you were municipal community municipal bond municipal means of local of the state of the city of the municipality so it's a local god this refers to the and of course loans all sorts of balls again when we get to capital markets half the work is going through each one flex financial instrument okay regulation financial markets are hard regulated financial instruments are regulated financial institutions are regulated so regulation our secret rules that must be followed by market participants so they move you rules about financial instruments about the financial markets for financial institutions that market participants must follow the regulations they're usually issued by the government from here you have the next one which is regulatory agency okay ray do the Tory agency is a government agency or government appointed agency responsible for regulation of the financial system remember financial system means markets institutions in it so regulatory agency is by the government responsible for all those things an asset in general any assets any financial instrument can appreciate means increase in value increase in price they give it specifically to currency but it applies to stocks applies to bonds a possibility of the state so you know your house is appreciated or the opposite of appreciate is DPC ya could say depreciate it's a little tricky depreciate has two completely different means but this main meaning is bad so appreciation is increased depreciation is applause now in accounting depreciation maintains loss in value which is for normal wear and tear when you use it you just drive the car over that's depreciation which is nothing to do with a currency depreciation or stop which is simply a fall in the price next is when you buy an asset in general we like to call it investment so you may buy it for a year you may buy it for to invite four five with all this investment period is the amount of time which you all an investment so okay to last week three years next one is investment horizon this is the amount of time that you expect to hold an investment in the future so many by Harrelson expect to sell it in a year maybe I also expect to sell it in so your investment horizon for this instance okay will be covered I'm not gonna go for the financial institutions out there six seven eight financial institutions I gave them through your last time commercial banks investment banks thrifts okay securities firms like brokerages finance companies mutual funds pension funds hedge funds I don't even want to cover and now we will spend maybe five weeks for each one of these loan instead of into coverage between two in three hours financial institution so I think that might be covering about seven financial institutions on average two hours may be going to spend fifteen to twenty hours important concept in financial economics investment risk risk is the possibility loss possibility loss could be resulting from anything would be resulting from many things let's see what else I have and I'll try and see what to do here's what we'll do next time we will begin I still have a few minutes next time we'll begin with detailed discussion of risks that can primary types of rest I need 20 minutes maybe half now we continue you'll remind me next night with the basic concept of diversification and hedging to hit me is very simple to lower race that's it that me more doesn't mean less just lowering risk to reduce us to reduce the size or probability of fine los that's edge diversification means reduction in risk by introducing more financial instruments by increasing financial means in other words you can hedge in many different ways okay but diversification is by using more castles okay so financial institutions have a number of functions let's finish the right because here's plenty of stuff so next time I'll discuss functions of financial institutions all the types of rest I have a few things I have to go quite a bit so how finish

Channel: Krassimir Petrov

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Id: 6NC8SMV385I

Length: 43min 44sec (2624 seconds)

Published: Mon Mar 07 2016