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Financial Markets And The Role of The Primary And Secondary Markets
August 16, 2011 | 
Author Financial Markets and the role of the primary and secondary marketsDefinition of Financial Market
A financial market may be defined simply as a market for the exchange of capital and credit in the economy. Money markets concentrate on short-term debt instruments; capital markets trade in long-term debt and equity instruments. The purpose of these markets is to channel savings and surplus liquidity into long-term productive investments.
In economics, a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient market hypothesis. Financial markets have evolved significantly over several hundred years and are undergoing constant innovation to improve liquidity.
The financial markets can be divided into different subtypes:
• Capital markets which consist of:
o Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof.
o Bond markets, which provide financing through the issuance of Bonds, and enable the subsequent trading thereof.
• Commodity markets, which facilitate the trading of commodities.
• Money markets, which provide short term debt financing and investment.
• Derivatives markets, which provide instruments for the management of financial risk.
o Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market.
• Insurance markets, which facilitate the redistribution of various risks.
• Foreign exchange markets, which facilitate the trading of foreign exchange.
Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Banks take deposits from those who have money to save. They can then lend money from this pool of deposited money to those who seek to borrow. Banks popularly lend money in the form of loans and mortgages.
Financial Market Instruments
Financial Market instrument are defined as long-term financial instruments generally with maturity exceeding one year.
Capital Markets
The capital markets consist of primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities that they hold or buy existing securities. A capital market is a market where both government and companies raise long term funds to trade securities on the bond and the stock market. It consists of both the primary market where new issues are distributed among investors, and the secondary markets where already existent securities are traded.
In the capital market, mortgages, bonds, equities and other such investment funds are traded. The capital market also facilitates the procedure whereby investors with excess funds can channel them to investors in deficit.
Financial Instruments
The capital market provides both overnight and long term funds and uses financial instruments with long maturity periods. The following financial instruments are traded in this market:
• Equity instruments
• Credit market instruments
• Derivative instruments
• Foreign exchange instruments
• Hybrid instruments
• Insurance instruments
In today’s financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument. Different subcategories of each instrument type exist, such as preferred share equity and common share equity, for example.
Negotiability of Financial Instruments
As the financial markets function with the help of financial instruments through which financial resources are mobilized and invested, these instruments require to be negotiable. The negotiability means that these instruments can be bought and sold and ownership of instruments transferred from one person to another through the act of buying and selling between a party who wishes to invest surplus funds and the holder who is willing to dispose of a particular instrument. The examples of negotiable instruments are cheques, certificates of deposits, promissory notes, banker acceptances, bonds, etc.
Role of the Primary Market
In the primary market, securities are issued on an exchange basis. The underwriters, that is, the investment banks, play an important role in this market: they set the initial price range for a particular share and then supervise the selling of that share. Investors can obtain news of upcoming shares only on the primary market. The issuing firm collects money, which is then used to finance its operations or expand business, by selling its shares. Before selling a security on the primary market, the firm must fulfill all the requirements regarding the exchange. After trading in the primary market the security will then enter the secondary market, where numerous trades happen every day. The primary market accelerates the process of capital formation in a country’s economy.
The primary market categorically excludes several other new long-term finance sources, such as loans from financial institutions. Many companies have entered the primary market to earn profit by converting its capital, which is basically a private capital, into a public one, releasing securities to the public. This phenomena is known as “public issue” or “going public.”
There are three methods though which securities can be issued on the primary market: rights issue, Initial Public Offer (IPO), and preferential issue. A company’s new offering is placed on the primary market through an initial public offer.
The Role of the Secondary Market
The secondary market is a market for used goods where one investor can buy a security from other investors instead of the issuer. All the securities are first created in the primary market and then, they enter into the secondary market.
Banking thrives on the existence of secondary financial markets. The commercial banks invest in very short-term financial assets, which they can convert into cash very quickly at negligible conversion cost. There are several ingredients of a secondary financial market: financial papers, dealers, and financial institutions.
Various kinds of financial assets such as securities, bonds, shares, debentures, commercial papers are the financial instruments. Merchant banks, investment banks, mutual funds, investment funds etc. are the financial institutions. Then, there are a large number of buyers and sellers who deal in these financial papers.
The establishment of an efficient secondary market will be crucial to the smooth functioning of PLS investment. There are two main reasons for this.
1. It is difficult to value the underlying assets and their earning potential, particularly for small periods or during the gestation period. No such problem arises in the case of debt contract, since the earnings and time schedule are agreed at the beginning of the project.
2. Long-term PLS financing outside the Stock Market may also be illiquid, which discourages investors. This is not peculiar to PLS, but, together with item I above, it can cause further difficulties.
The secondary market can provide the valuation method and, by making trading possible, solves the liquidity problem. Contracts made by financial intermediaries can be listed on the Stock Market and traded just like primary securities and their value will be available at all times.
Thus the existence of the secondary market solves both the problems mentioned above. The elimination of a known cost of capital is replaced by a mechanism which continuously updates the value of capital and gives adequate opportunities for risk transfer through the trading of ownership.
Written by Zia Ahmed
Investment Banker, Islamic Banker
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Role of Marketing in Organizations
Nature and Role of Markets and Marketing and advertising
What is advertising and marketing?
· “The procedure of organizing and executing the conception, pricing, advertising and distribution of ideas, goods and providers that gratify specific and organisational objectives” (American Advertising Association)
· Marketing:
o Requires a broad assortment of routines
o Is directed at suggestions and goods
o Relevance of enjoyable exchanges
o Is not limited to the routines of company
· Features:
o Gathering marketplace details
o Promoting
o Distributing
o Promoting and promoting
o Calculating price
o Understanding the merchandise
o Exchanging some thing of worth
o Fulfilling men and women
o Disseminating data
o Forecasting revenue
o Serving customers
The part of marketing and advertising in the firm and culture
1) The marketing and advertising program outlines the tactics to be utilised to provide the purchaser and vendor collectively. The organization desires to be in a position to identify:
a) Wherever the market place is
b) Who will purchase the product
c) Why they will obtain the merchandise
two) The core of marketing is gratifying active client would like
3) Advertising is the income creating exercise of any organization
Sorts of market place
· A market place is people or an business who:
o Need or want a product
o Have the purchasing power to obtain the products
o And socially and legally authorised to do so
· 6 Primary sorts of marketplace:
o Resource market
§ These engaged in major creation, mining, agriculture etc.
o Industrial marketplace
§ Contains industries and business organizations that purchase products to use in the manufacturing of other goods or in their daily operations
o Intermediate marketplace
§ Wholesalers and merchants
o Client markets
o Mass markets
o Market markets
Creation, offering and market place orientation – Approaches to marketing and advertising
· Creation orientated – 1820s-1910s
o Emphasis on making merchandise
o Demand for merchandise is larger than supply
o Taking orders and delivering products
· Income orientated – 1920s-1960s
o Emphasis on selling goods
o Need is much less robust
o Advertising and personalized selling
· Marketing method – 1960s-present
o Emphasis on marketing items
o Establishing and keeping client relationships
o Identifying buyer requirements
o Producing products for customers’ demands
o Coordinated efforts aimed at satisfying customers’ wants
The Marketing Principle
· The marketing idea is a company philosophy which states that sections of the organization are concerned in fulfilling a buyers wants and would like while achieving the business’s targets
· The Advertising method:
o Phase one:1960s-1980s
§ Shift to customer oriented approach – need to have to undertake market place research and develop a advertising concept
§ The organization need to immediate all of its policies, programs and functions to achieving consumer satisfaction. As a result, the advertising and marketing strategy requirements to turn into integrated into all aspects of the organization.
§ The marketing and advertising principle is primarily based on four concepts. It need to be:
1) Client oriented
2) Supported by integrated marketing and advertising methods
3) aimed at gratifying buyers
4) integrated into the enterprise prepare so as to attain the business’ goals
o Stage 2: 1980s – current
§ Altering socio-economic conditions have noticed a modification to the advertising and marketing method
§ Social responsibility – pollution etc.
§ Boost in desire for ecologically sustainable items
· Customer orientation
o Advertising and marketing idea philosophy – consumer partnership commences at the sale
o MC needs to be adopted by all personnel of business to be efficient – personnel need to work in direction of buyer satisfaction by supplying positive relations with buyers
o When a enterprise bases its advertising and marketing selections on its customers would like
· Partnership marketing and advertising
o The improvement of extended phrase and charge powerful relationships with personal customers
o Mass mail outs, and so on. are gone
o Making client loyalty
o ’80-20’ principle – 80% of revenue arrive from twenty% of business’s customers
§ forming a robust relationship with this loyal group should be produced and maintained
Advertising Planning Method
Crucial to have a advertising and marketing strategy
Business surroundings constantly changing
New markets open up, other individuals shut
Customers tastes modify
Globalisation
Competitors
Strategic marketing organizing
The method of building and implementing marketing and advertising techniques to accomplish advertising goals
five Steps in program
Executing situational examination, including SWOT and merchandise life cycle examination
Establishing market aims
Identifying target marketplace
Creating marketing and advertising methods
Applying, monitoring and managing
Ongoing process
· Step1: Doing situational evaluation
Investigates the marketing possibilities and possible troubles
Attempts to solution 2 wide concerns Wherever is the company now?
Wherever will the enterprise be in the long term
Stage two: Establishing market place targets
A statement of what is to be attained via the advertising pursuits
Wise
Phase 3: Identifying focus on markets
Who will obtain the G or S
The group of customers to whom the company intends to market its product
Analysis to identify customers’ requirements
Questionnaires, casual interviews, surveys
A company that does not have a apparent comprehending of why its buyers purchase its items will be not able to decide the finest way to market, price and existing the products
Phase 4: Creating advertising and marketing methods
Steps undertaken to attain the business’s advertising goals
Marketing combine – mixture of 4 elements of marketing and advertising
Enterprise need to decide emphasis to be placed on every variable
Stage 5: Employing, monitoring and controlling the marketing program
Monitoring – evaluating real functionality with predetermined functionality expectations
Marketplace reveal examination, profitability by products or territory
If prepare is located to be failing, modifications require to be manufactured
Advertising and marketing – an evolutionary approach
Factors of a marketing and advertising plan
Introduction
Advertising prepare really should be integrated with other facets of company
Factors in a advertising strategy: Situational examination
Create industry goals
Determine target markets
Develop marketing and advertising strategies
Implementation, monitoring and controlling
Situational examination
SWOT
Item lifestyle cycle
Updating to maintain items ‘fresh
Creating Market Objectives
Wise
Escalating market share
Refers to the business’s reveal of the complete business sales for a specific marketplace
Expanding the merchandise range: the product mix
Merchandise blend width
The amount of merchandise lines
Product mix depth
Range of similar items presented in a specific product line
Broadening geographical representation
The presence of a business’s and the assortment of its goods across a suburb, town, town, state or region
Variations in climates, landforms, customs, can mix to have an impact on buyers tastes and preferences
Growth through export
Market place limited in Australia
From the 1980’s Australia started to remodel into a a lot more open economy
Rewards consist of
Increased income
Achievement of economies of sale
Establishment of new focus on markets
Access to new technology
Maximising client services
Responding to the needs and troubles of the customer
Most crucial targets
Prepare the staff in how to deal with the clients
Assessment the item combine
Maintain customer make contact with
Anticipate market tendencies by studying and conducting research
Find out what the rivals are presenting
Reward employees for outstanding consumer services
Ask the consumers what they want
Identifying Goal Markets
Total marketplace method
Standard food things
Industry segmentation approach
When the total marketplace is subdivided into groups of people who reveal typical traits
Building Marketing and advertising Techniques
Marketing and advertising Combine 4P’s
Item
Top quality
Layout
Title
Warranty and guarantee
Packaging
Labelling
Unique functions
Value
Value tactics
Marketing
inform persuade and reminding consumers about merchandise
Spot
Distribution, intermediaries
Applying the Advertising Strategy
How, where and when
Is the program integrated with other sections of the enterprise?
How ought to the enterprise be structured and organised?
Have effective lines of communication in between the marketing and advertising department and other departments been founded?
Who are the best individuals for the various tats required to apply the program?
Are the marketing and advertising personnel motivated and focused?
Are all staff acquainted with the advertising and marketing goals and techniques
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