Essay topic the role of financial market

PARTICIPANTS The operation of the financial market takes place on a large scale, so the owners participating in this market are also very diverse:... Debt and Equity Markets Capital is

TRƯỜNG ĐẠI HỌC KINH TẾ QUỐC DÂN … 0O0….

ESSAY Topic: THE ROLE OF FINANCIAL MARKET Class : Banking EEP 63 Group : 3

Group member: Lương Thị Thúy Hiền - 11212150

Phạm Minh Anh - 11210693

Hoàng Diệu Trang - 11215763

Nguyễn Hà Trang - 11215810

Nguyễn Vân Hà - 11211939

Ngô Ngọc Huyền -11218780

VJ Thị Ngọc 䄃Ānh - 11210883 Instructor: PhD Tran Phi Long

Ha Noi – 4/2023

TABLE OF CONTENTS

INTRODUCTION

A FINANCIAL MARKET

I Definition……….4

II The factors contributing to the financial market’s formation……….…4

III Participants ……… 4

IV Types of financila market……… 5

1 Debt and Equity Markets……… 5

2 Primary and Secondary markets………7

3.Exchange traded maket and over the counter market……….…9

4 Money market and Capital market……… ……… 11

5 Official market and Unofficial market……… 14

B THE ROLE OF FINANCIAL MARKET I Funtions of financial market……… ……….16

II Roles of financial market……… 17

II.Financial market in Viet Nam……….19

CONCLUSION……….…… 20

REFERENCE……….21

It can be said that the financial market is becoming increasingly important, playing adecisive role in the development of countries, especially in the context of the currentmarket economy The advent of financial markets made all financial activities of theeconomy diversified, contributing to the great advances that were decisive for the history

of human civilization by promoting promote trade and economic activities to develop and

at the same time is also an effective tool to help the state effectively manage theeconomy The financial market is a place to mobilize idle capital in the society andallocate it to investment projects to bring great benefits to society

To understand this issue, the essay focuses on analyzing "the role of the financial market in the economy"

Errors in the implementation process cannot be prevented because this is a very intriguing topic and has a wealth of extremely deep knowledge It is thus anticipated that the professor will contribute to making the essay better

Sincerely thank!

II THE FACTORS CONTRIBUTING TO THE FINANCIAL MARKET’S FORMATION

1 Factors

To form the financial market, there are three important factors that affect:

 The conflict between supply and demand in the economy leads to a request to beresolved

 Demand for transfer, purchase and sale of securities between owners

 Flexible forms of capital mobilization in the diversified commodity economy

2 The conditions for the formation of financial markets

Diversified, developed commodity economy and sustainable currency:

 Rich and diversified financial instruments

 Financial intermediaries were formed and grew

 A solid legal basis for professional practice

 Build a spacious and solid technical infrastructure

 A team of traders and managers with deep knowledge of financial markets

III PARTICIPANTS

The operation of the financial market takes place on a large scale, so the owners

participating in this market are also very diverse:

 The principal lender-savers are households, but business enterprises and thegovernment sometimes also find themselves with excess funds and so lend themout

 The most important borrower-spenders are businesses and the government, buthouseholds and foreigners also borrow to finance their purchases of cars, furniture,and houses

 Financial intermediaries are intermediaries of financial services with the aim ofmaking financial transactions safer and easier to access for clients

IV TYPES OF FINANCIAL MARKET

1 Debt and Equity Markets

Capital is the most important condition for the existence and development of a firm.They can obtain funds in a financial market in two ways: use debt instruments and stocks.With different forms of capital mobilization, financial markets include debt markets and

holder of the instrument fixed dollar amounts at regular intervals until a specifieddate, when a final payment is made

 The maturity of a debt instrument is the number of years (term) until thatinstrument’s expiration date A debt instrument is short-term if its maturity term

is less than a year and long-term if its maturity term is ten years or longer Debtinstruments with a maturity term between one and ten years are said to be

intermediate term.

c Characteristic

 Debt markets offer a fixed rate of return that is predetermined by the holder of

the debt instrument committing to future fixed loan payments However, theowners of these debt instruments do not have the right to participate in the use ofcapital of the debt instrument issuer

 The lender does not have any responsibility for the results of the use of funds In

all cases, the borrower of the loan instrument must be responsible for payment

according to the commitment specified in the loan contract

d Function

The debt market is one of the important markets, which keeps the economy running Itchannelizes the funds in a productive way and benefits the issuer and the investor.Starting from Government to Corporate uses this market as a source of finance Forinvestors, it acts as a fixed-regular source of income

Discover more from:

Test Bank for Fundamentals of Corporate Finance 10th

 Equities often make periodic payments (dividends) to their holders and areconsidered long-term securities because they have no maturity date In addition,owning stock means that you own a portion of the firm and thus have the right tovote on issues important to the firm and to elect its directors.

 The main disadvantage of owning a corporation’s equities rather than its debt is

that the corporation must pay all its debt holders before it pays its equity holders

2 Primary and secondary markets

The stock market after issuance will be traded on different markets Based on the

process of issuance and circulation of financial instruments, financial markets include theprimary market and secondary market

place through intermediaries, which are investment banks, securities companies orinsurance companies An important type of financial institution will underwrite theissuance by guaranteeing a fixed price of securities That is, they will directly spendmoney to buy all lots of securities at the agreed price (usually lower than the announcedprice), then sell them right on the market to other investors at a higher price to make aprofit.

c Function

The first-tier market creates goods and is the basis of operation for the second-tier market, and at the same time, the stock price is also determined as the reference basis for the second-tier market

2.2 Secondary market

a Definition

Secondary market, also known as a secondary market, is a financial market in which the

resale and purchase of issued securities (old securities) takes place

b Characteristic

 If the primary market is considered a wholesale market for securities, thesecondary market is considered a retail market The difference between theprimary market and the secondary market is that the operation of the primarymarket increases capital for the economy, i.e.issuers will be financed directly fromthis market, while the operation of the secondary market only ensures the ability totransfer ownership of securities holders

 When an individual buys a security in the secondary market, the individual, whojust sold it, receives the money to sell the security, but the company that issued thesecurities for the first time will no longer make any money A company is entitled

to gain capital only when its securities are first sold on the tier one market Buyingand selling in the secondary market is usually done through brokerage firms

c Function

 The secondary market makes it easy to sell financial instruments for cash, i.e itmakes these financial instruments "liquid" The extra "liquidity" of financial

instruments makes them more popular and thus makes it easier for issuers to sellthem in the primary market.

 The secondary market determines the price of the securities that the issuer sells inthe tier one market Securities firms in the tier one market only pay the deliverycompany at the price they think the secondary market will accept The higher theprice of securities in the secondary market, the higher the price the issuer willreceive in the tier one market and so the issuer receives the higher the totalinvestment It is for this reason that when studying financial markets, people oftenfocus on studying how the secondary market behaves rather than the first-tiermarket

3 Exchange traded market and Over the Counter market

According to the mode of Organizational Structure, the financial market includes Exchange traded market and Over the Counter market

3.1 Exchange traded market

a Definition

Exchange traded market is a market in which the securities trading and trading areorganized centrally at a certain time and place This fixed place is called a stockexchange, this is also the place where market participants conduct transactions withsecurities that are allowed to be listed and traded on the market Examples of fixedexchanges: New York Stock Exchange, Hanoi Stock Exchange, etc

 The Exchange traded market operates on the principle of intermediaries, in order

to ensure that the securities traded are real securities, ensuring the interests ofinvestors

 The Exchange traded market is regulated by strict legal regulations

 The Exchange traded market is highly organized Subjects are limited marketparticipants

c Function

 Through the Exchange Traded Market, the issued securities are tradedcontinuously, increasing the liquidity and marketability of the securities Issuerscan issue to raise capital through the stock market, and investors can easily buy orsell listed securities easily and quickly

 The function of determining fair prices is extremely important in creating acontinuous market The price is not imposed by the Stock Exchange or itsmembers but is determined by the Stock Exchange on the basis of matching buyand sell orders for securities Prices are determined only by supply and demand inthe market Thereby, the new Exchange traded market can create a free, open andfair market Moreover, this market can provide accurate and continuous reports onsecurities, performance of listed organizations and securities companies

3.2 Over-the-counter (OTC) Market

a Definition

Over-the-counter market is a market in which securities trading activities are distributed

in different places and times

b Characteristic

 The OTC market is organized in a decentralized form, with no centralized tradingplace between buyers and sellers The market will take place at transactionlocations of banks, securities companies and convenient locations for buyers andsellers

 The pricing mechanism in the OTC market is mainly implemented throughnegotiation and bilateral agreement between the buyer and the seller, which isdifferent from the centralized auction mechanism on the Stock Exchange Theform of order matching in the OTC market is very uncommon and is only applied

to small orders

 Securities traded on the OTC market include 2 types:

 The majority are securities that are not eligible to be listed on the Exchange butmeet the liquidity and minimum financial requirements of the OTC market, inwhich mainly securities of small and medium-sized companies, high-techcompanies and have growth potential Therefore, the risk level will be greater thanthat of securities listed on the Stock Exchange.

 The securities listed on the Stock Exchange

 The Market has the participation and operation of market makers, that is, trading brokerage companies These companies can trade in two forms: First, they buy andsell securities for themselves, with the company's capital - that is trading Thesecond is to act as a securities broker for clients to receive commissions - that isbrokerage activities

- Use a wide-area electronic computer network to link all market participants

 OTC market management includes: State management level and self-managementlevel

c Function

 Support and promote the stock market to focus on development

 Limit and narrow the free market, contributing to ensuring the stability andsoundness of the stock market

 Create a market for securities of small and medium-sized companies, securities notyet eligible for listing

 Create a flexible and favorable investment environment for investors

4 Money market and Capital market

4.1 Money market

a Definition

Money market is a financial market in which only short-term debt instruments(generally those with original maturity terms of less than one year) are traded Moneymarket has become a component of the financial market for buying and selling ofsecurities of short-term maturities, such as treasury bills and commercial papers

b Instrument

 It is fund-term market funds.

 It is maturity period is up to one year

 It trades with assets can be transformed into cash easily

 All the transactions take place through phone, email, text

 The components of a money market are the Commercial Banks, Non- bankingfinancial companies and Central Bank, etc

d Function

 Financing Trade

The money market provides financing to local and international traders who are inurgent need of short-term funds, it provides a facility to discount bills of exchange, andthis provides immediate financing to pay for goods and services

 Central Bank Policies

The central bank is responsible for guiding the monetary policy of a country and takingmeasures to ensure a healthy financial system Through the money market, the centralbank can perform its policy-making function efficiently For example, the short-terminterest rates in the money market represent the prevailing conditions in the bankingindustry and can guide the central bank in developing an appropriate interest rate policy.Also, the integrated money markets help the central bank to influence the sub-marketsand implement its monetary policy objectives

 Commercial Banks Self-Sufficiency

The money market provides commercial banks with a ready market where they caninvest their excess reserves and earn interest while maintaining liquidity Short-term