MBB7

2. Money, Banking,
and Business
Lecture 7
Financial Markets

3. Questions?

4. Markets
Instruments
Financial System

5. Primary
Market
Secondary
Market
Money
Market
Capital
Market
Spot
Market
Futures
Market
New or Resale
Time of Maturity
Time of Trade

6. Six Financial Markets
Primary Market
Secondary Market
Money Market
Capital Market
Spot Market
Futures Market

7. Primary Market
Where the security is sold
for the first time
Secondary Market
Where securities are resold
Previously issued or
outstanding

8. Money Market
Securities with an original
maturity of less than one year
Capital Market
Securities with an original
maturity of greater than one
year

9. One
YearMoney
Market
Capital
Market

10. Spot Market
Instantaneous Trades
Futures Market
Agree today to buy or sell in
the future
Forward Market

11. Futures Market
Standardized Contracts
Forward Market
Variable Contracts

12. Futures Market
Derivative Market
The value of the instrumenting
is derived from some
underlying instrument such as a
bond, stock, or foreign
exchange

13. Primary
Market
Secondary
Market
Money
Market
Capital
Market
Spot
Market
Futures
Market
New or Resale
Time of Maturity
Time of Trade

14. Financial Instruments
Risk and Time
Negotiable - Tradable
Debt
U.S.Treasury Bills
Equity
Stock

15. U.S.Treasury
Bills
Notes
Bonds
4, 13, 26, 52 weeks
2 , 3, 5, 7, 10 years
20 and 30 years

17. $10,000 x .10125 = $1,012.50
Semiannual = $506.25

18. Money Market Instruments
U.S.Treasury Bills
CDs
Commercial Paper
Banker’s Acceptance
Repurchase Agreements
Federal Funds
Eurodollars

19. U.S.Treasury Bills
4 to 52 weeks
FaceValue or ParValue
Sold at discount
Market sets discount rate

20. U.S.Treasury Bills
I buy a $10,000 T-Bill for $9,270
What is my yield?
%∆ = ($10,000 - $9,270) ÷ $9,270
= $730 ÷ $9,270
7.87%
$10,000 ÷ $9,270 = 1.0787
7.87%

21. Negotiable CD
Banks issue
1 week to 12 months

22. 3.65% ÷ 365 =.010%
100,000 x .01% = 10
180 x10 = 1,800

23. Commercial Paper
Corporations issue
up to 270 days
quick loans