Global Capital Marke Global Capital Markets & Finance

Term Definition
Function of financial system #1 1. Reducing information costs: overcome an information asymmetry between borrowers and lenders which can occur ex ante (adverse selection) and ex post (monitoring)
Function of financial system #2 2.Reducing transaction costs, e.g. by pooling funds
Function of financial system #3 3. Facilitating the trading, diversification, and management of risk: e.g. by providing liquidity and through securitisation
Participants in financial market by Trading Motive 1) Public investors:2) Dealers3) Brokers
Public investors ultimate owners motivated by return on holding the securities and include private individuals and institutional investors
Dealers They trade on their own account motivated by profit from trading securities (living from the bid-ask spread – see next slide)
Brokers They act as agent for public investors motivated by commission fees for their services (they do not own securities
Questions a financial manager may ask #1 : – Which financial instruments am I going to use for covering our financial needs? N.A
Questions a financial manager may ask #2 : – Should I finance our newly founded subsidiary in Taiwan with equity?1) Where do I get this equity from? N.A
Questions a financial manager may ask #3 : – Should I try to finance the subsidiary mentioned above by a bank loan?1) Will I get a bank loan for that? N.A
Questions a financial manager may ask #4 :- Should I try to access the US equity capital market for funding our US subsidiary?1) What requirements do I need to fulfill to get listed at a US stock exchange? N.A
Questions a financial manager may ask #5.1 : – Our long term bank loan carries a fixed interest rate of 9% p.a.1) How can I take advantage of the currently low interest rates? N.A
Questions a financial manager may ask #5.2 : – Our long term bank loan carries a fixed interest rate of 9% p.a.2) Which one-off costs come with refinancing the above loan? N.A
Questions a financial manager may ask #5.3 : – Our long term bank loan carries a fixed interest rate of 9% p.a.3) The bank wants to have collateral. Which assets may I use? N.A
Questions a financial manager may ask #6 :- How much does our equity financing costs? N.A
Cash Conversion Cycle N.A
Bank-Based System Indirect finance as the main route for moving funds from lenders to borrowers
Market-Based System Countries that rely more on financial markets
Direct finance: Sector in need of funds borrows from another sector via a financial market
Indirect finance: financial intermediaries obtains funds from savers and uses these savings to make loans to a sector in need of finance
Atomistic markets: N.A
Free-rider Problem: N.AFor Example: when an investor acquires information about an investment project and behaves accordingly, he reveals this information to all investors. Banks, however, may keep the information they acquire.

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