Leon 3Financial Market
The word \"finance\" signifies capital in monetary form, that is, in the form of funds lent or borrowed, normally for capital purposes, through financial markets or financial institutions.When finance goes international, it is then an international finance.What is a financial market? It is a place where financial transactions take place.When a financial transaction takes place between a resident of a country and a non-resident, it is an international financial transaction, and the place where the transaction is traded is called an international financial market.A financial market consists of foreign exchange market, money market, capital market and gold market.
The flow of funds through the financial markets may be divided into different segments, depending upon the characteristics of financial claims being traded and the needs of different groups.One of the most important divisions in the financial system is between the money market and the capital market.
The money market is designed for the making of short-term loans.It is the institution through which individuals and institutions with temporary surpluses of funds meet borrowers who have temporary funds shortages.Thus, the money market enables economic units (principally busine firms and governments) to manage liquidity.By convention, a security or loan maturing within one year or le is considered to be a money market instrument.One of the principal functions of the money market is to finance the working -capital needs of corporations and to provide governments with short-term funds in lieu of tax collections.The money market also supplies funds for speculative buying of securities and commodities.Because most loans and securities traded in the money market are large, typically in million dollar units, it is often called a wholesale market, catering to the largest borrowers.
In contrast, the capital market is designed to finance long-term investments by businees, governments, and households.Trading of funds in the capital market makes poible the construction of factories, office buildings, highways, bridges, etc.Financial instruments in the capital market have original maturities of more than one year and range in size from small loans to very large, multi-million dollar credits.Thus, the capital market trades in both wholesale (large) loans and securities and retail (small) loans and securities.
In the followings, we shall focus our study on capital market.
As mentioned above, capital market refers to the trading market with loan maturity over one year, it is also called medium and long-term capital market.There are two kinds of financing on the capital market, namely, medium and long-term loan of the bank and securities trading.Therefore, the capital market, to be specific, can be divided into medium and long-term credit market of the bank and securities market.
1.Medium and long-term credit market of the bank.This is where banks offer medium and long-term credit funds.Through the market, the supply and demand sides of medium and long-term capital realize financial accommodation.The demand side in the market is chiefly government,industrial and commercial enterprises.If the
term of fund maturity is1to 5 years, it is generally called medium-term.If the term is over 5 years, it is called long-term.The interest rate of funds is determined by various factors, including economic situation, capital supply volume, inflation rate and financial policy.Since capital turnover period in this market is long, the risk is also rather high.Therefore, in considering loan making, the bank will, apart from examining the loan applicant\'s objective, concentrate on analyzing its debt payment ability.
2.Securities market.This is the place for the iuance and circulation of securities.The stock exchange where concentrated security trading is conducted is a physical market with fixed location.The source of capital in security market comes mainly from insurance company, investment and trust company, savings bank and fund organizations of various kinds.They attract large sums of capital from the vast number of policyholders, investors and depositors and then put the capital into the securitymarket.Capital demand in the market comes from government and enterprises.Securities usually traded on the security market include (1) government bond, that is, treasury notes and treasury bonds iued by the government, which can be transferred any time on the market but is unredeemable before maturity; (2) corporate bond, that is, promiory note of enterprise for debt raising, committing to pay back principal and interest within a certain period.(3) corporate stock, that is, a stock certificate iued bythe enterprise for raising capital fund.It should be designed in accordance with the form and content laid down in the Company Law of the individual country, making clear the amount of capital, the total number of stock and the amount of each share.The stock is generally divided into common stock and preferred stock.Common stock dividend will be allocated only when the enterprise is making a profit and after dividend is paid to preferred stock.As to the actual amount of dividend, it will bedecided by the shareholder meeting on the plan submitted by the board of directors, The preferred stock carries with it fixed dividend rate which will be paid ahead of common stock from the after tax net profit of the enterprise.The function of the security market:
The basic function of the security market is the promotion of the movement of factors and the rational allocation of resources.This is also why the security market is the core of modem market economic system, enjoying great vigor and attractivene.The security market can play a role to optimize resource allocation because it poees the following four functions:
l.The self-expansive function of the security market
Direct financing and indirect financing are the two basic forms of capital movement in modern market economy.With fixed sum of capital in society, when the amount of direct financing goes up, indirect financing amount will decrease correspondingly.The special attraction of the security market, the stock market in particular, lies in the fact that it is composed of the primary market and the secondary
market.The amplifying effect and multiplier effect of the stock price on the secondary market have special attraction for investors.Such attraction of the secondary market in tum strengthens activities in the primary market, making it poible for the continued iuance of stocks by enterprises that enjoy advantageous position and poe vast prospect.The activity in the primary market will provide more reliable guarantee for the operation of the secondary market, thus further expanding room of activity and choice for the secondary market.Through such combination of primary and secondary markets, the ratio of direct financing in social economy will be continuously raised and the position and role of security market in resource allocation will also be improved.
2.The self-selection function of the security market
The self-selection function of the security market consists of two parts: the market and the listing company.In terms of the market, the fact that the exchange, through strict listing standard, chooses listing company, is in itself an important way of improving resource allocation efficiency.The more rigorous the listing standard, the greater the constraint on the stock company, which will further make it improve its economic efficiency.In terms of listing company, the formation of special power structure and restraint mechanism such as shareholders meeting, board of directors and board of supervisors, and the poeion by the company of the two channels of direct and indirect financing, will facilitate the company to carry out independent operation and self-development in accordance with the intrinsic demand of a stock company, to choose the mechanism and form of composition of self-owned capital and capital of another party in accordance with the actual situation of the enterprise, and to choose the time and direction of investment in accordance with the inner demand of the market.Such company is only responsible to and must be responsible to the market and the investors and to no other person.
3.The self-stimulation function of the security market
4.The self-restraint mechanism of the security market
Exercise:
I.Translations:
1．金融机构2．债券市场3．直接／间接融资4．上市公司5．股份公司
6．资源配置
7经济效益8．资金供求量9．通货膨胀率10.股权凭证11.普通股／优先股 12.股息13.银行中长期信贷市场14.兑换本金15.资金周转16.国库券
Ⅱ.E TO C:
The U.S.money market is a wholesale market for short-term, high-quality debt instruments.Original maturities are one year or le, much of the trading is in very short maturities, and there is usually a very active secondary market.There is no central exchange.Trading is carried out on an over-the-counter basis in the trading rooms of investment dealers and banks, working with electronic communication rather than communicating face-to-face.The dollar size of individual trades is large; $100 million is not uncommon.The total market volume runs to hundreds of billions of dollars each day.
The money market serves two primary purposes.First, it provides the means by which the Fed can implement monetary policy as developed by the Federal Reserve Board.The open-market operations of the Fed involve the purchase or sale of government securities, which, in turn, control commercial bank reserves, credit expansion, and the money supply.
The second function of the money market is that of any capital market, to move resources from sectors with surplus funds to those in a deficit position.
The principal instruments in the U.S.money market include Fed funds, treasury bills and government agency notes, Eurodollars, certificates of deposit, commercial paper, banker\'s acceptances, and repurchase agreements.
III.C TO E:
金融市场可分为一级市场和二级市场。一级市场是指那些还未发行的新债券的买卖市场。二级市场是交易已发行的股票，其主要功能是为证券投资者提供变现工具。如果你将股票或债券出售给亲戚、朋友，或一经纪人；或购买在股票交易所上市的股票，你就参与了二级市场的交易。
