The purpose of the Markets is to match the people who want capital (borrowers) with those who have capital (lenders).

Banks take deposits from those with capital and bundle them in various ways as they can be lent to other people. When money is lent, the lender issues a receipt for the money and these bit of paper, in the most general sense are called securities. These actual securities can then be freely bought and sold to try to make life easier for the lenders and borrowers.

Markets are always looking ahead and discount future events or what the investor expects will happen to the future.
For example if investors think interest rates will rise in the near future, they will probably start selling fixed interest rate bonds.

In any type of market the buyers and sellers may deal direct with each other or they may go through a middleman. This middleman is known as a market maker.

The buying and selling in the secondary market does not directly affect the finances of the government or corporates but if investors were not able to buy and sell the securities in the secondary market they would be more reluctant to buy them in the first place (primary market).

Markets are also affected by expectations. Suppose everyone beleives firmly that the general level of interest rates is due to fall. Lots of people will want to lend money for long periods and benefit from the higher interest rates. Not many people will want to borrow long term, they might as well wait until rates are lower.
As a result long-term rates start to fall in relation to short-term rates
Conversely if rates are expected to rise, then everyone wants to lend short-term, hoping for higher rates later. Borrowers prefer to borrow long-term and lock in lower-rates while they can,
Long term rates will now rise in order to attract funds to meet the demands of the investors.

The markets are all about the raising of capital and the matching of those who want capital (borrowers) with those who have capital (lenders).

Banks take deposits from those who have money to save and bundle it up in various ways so it can be lent to those who want to borrow.

IMF - International Monetary Fund (headquaters in Washington DC)

USD 20 mm - what is the mm an abreviation for ??

Investment Banking Activities

AcceptingBills of exchange
Promisory notes 
Corporate FinanceNew issues (equities or bonds)
Rights Issues 
Mergers & Acquisitions 
Securities TradingSecondary Market
Trading on behalf of clients 
Proprietary trading (taking its own position) 
Proprietary TradingMaking money for itself from other banks mis-matching prices and arbitrage opportunities
Investment ManagementInvesting other people's money
Pension Funds 
Mutual Funds 
Loan ArrangementThe bank may not llend its own money but it will help to assemble syndicated loans for special projects
Venture Capital / Private Equity 

Financial institutions often act as market makers for the more commonly traded instruments. This means that they are always prepared to quote both a bid price and an offer price

Types of Bill

Trade Billsbiils with a trader
Bank / Eligible Billsbills with a bank
Treasury Billsbills with a government

Domestic Markets

These are transactions in the local currency and under the control of the local central bank.
This included the wholesale market and the retail market (involving the general public and small businesses)

Triple Watching

This occurs on the third Friday of March, June, September and October, four times a year.
Futures index options and equity options all expire together, on the corresponding month.

Buyers and sellers might seek to reduce the risk of an adverse price movement with a hedge.

Market Makers

These are traders who, when asked to do so, will quote both a bid and an offer price.
The bid is the price at which the market maker is prepared to buy, and the offer is the price at which the market maker is prepared to sell.
Exchanges set the upper limit for the bid-offer spread.
Market makers add liquidity to the market.

Methods of trading
Voice - client calls the sales desk and sales tell trading
Electronic friendly - banks own electronic platforms
Electronic no friendly - Request for Price (RFQ) - fierce completion, TradeWeb, Bloomberg, MTS BondVision, ThomsonReuters

5 main areas:
Curve generation & pricing, intraday risk/pnl, endofday risk/pnl, trade capture, ecommerce

fpML - xml message standard for OTC derivatives industry managed by ISDA

Capital Markets

These are long-term investments, with a maturity of more than a year
For each type of investment and also for a lot of derivative products there is a market. There are markets in commodities, government bonds, etc. It is important to realise that no market is entirely independent of the others. The factor that links all the markets is the "cost of money". When interest rates rise or fall this is likely to have an affect on all the markets.
Money is cheap when interest rates are low.
Money is expensive when interest rates are high.
When one interest rate moves significantly, most other rates will move in the same direction.
A market is just the mechanism that allows individuals and organisations to trade with each other. In any time of market the buyers and sellers may deal direct or through a market maker. Market makers add liquidity to the market.
The market price of a security is a reflection of the number of buyers and sellers in the market. Prices will always move towards the point where there are the same number of buyers and sellers.
Each market contains a primary and a secondary market.

equity market also known as the stock market
bond market also known as debt market, credit market, or fixed income market

The Markets can be classified into two parts:

  • Direct Investment

Money Markets
Capital Money
FX Markets

  • Indirect Investment

Pension Funds
Mutual Funds
Unit Trust - Investors typically pile into unit trusts when the stockmarket is buoyant. Money from individual investors that is then invested in the stockmarket (mainly shares) to provide a spread of risk. These are often operated by large investment management groups.
Euro Markets - This is an international market for funds that are deposited in currencies outside the country of origin.

Common Stock 
Preferred Stock 
Treasury Notes 
Municipal Sec. 
Corporate Bonds 
Foreign Bonds 
Soverign Bonds 
Asset Backed Bonds 
Floating Rate Notes (FRNs) 

Basis Points

A basis point is used to express a small difference in interest rates.

1 basis point1/100 %
50 basis points %
100 basis points0.01

Weighted Average Cost

Also known as WAC
This is the average cost you have bought an asset at.
To calculate get the position at the start of the month, get the wac at the start of the month
then need to include positions + price for current month.

Return on Money

Money can be deposited to produce an income and it can be used to buy commodities or goods which are expected to rise in value (but not always) or it can be invested in stockmarket securities which are also expected to rise (but not always) and have a capital gain (or loss) as well.

Hybrid Systems

This name refers to both "order driven" (where orders of buyers and sellers are matched) and "quote driven" (where market makers quote frim bid and offer prices) dealing systems

When a firm both buys and sells securities for its own account, it is said to be "making a market"

US Government securities 
US Agency securities 
Corporate Bonds 
Municipal Bonds 
Shares in SmallCap companies 
Shares in most Banks and saving & loans 
Options on Bonds 
US Depository receipts 

The "spot" market is the market for immediate delivery.


Markets in Financial Instruments Directive
MIFID - have to send a list of all the trades we have done to the, this is automatically FTP'd to them.

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