FINANCIAL

MARKETS
Presented by: Mr. Ernest Kapumpe
What is a Financial Intermediary?

A financial intermediary is an entity that

acts as the middleman between two
parties in a financial transaction, such as
a commercial bank, investment bank,
mutual fund, or pension fund.

Financial intermediaries offer a number of

benefits to the average consumer,
including safety, liquidity, and economies
of scale involved in banking and asset
management.
 Unlike brokers, dealers, and investment banks,
financial intermediaries are financial institutions
that engage in financial asset transformation.
That is, financial intermediaries purchase one
kind of financial asset from borrowers --
generally some kind of long-term loan contract
whose terms are adapted to the specific
circumstances of the borrower (e.g., a
mortgage) - and sell a different kind of financial
asset to savers, generally some kind of
relatively liquid claim against the financial
intermediary (e.g., a deposit account). In
addition, unlike brokers and dealers, financial
intermediaries typically hold financial assets as
part of an investment portfolio rather than as an
inventory for resale. In addition to making profits
on their investment portfolios, financial
intermediaries make profits by charging
relatively high interest rates to borrowers and
paying relatively low interest rates to savers.
 How a Financial Intermediary
Works

A non-bank financial intermediary does

not accept deposits from the general
public. The intermediary may provide
factoring, leasing, insurance plans, or
other financial services.

Many intermediaries take part in

securities exchanges and utilize long-term
plans for managing and growing their
funds.
THE ROLE OF THE FINANCIAL SYSTEM
In the financial system funds flow from those
who have surplus funds to those who have a
shortage of funds, either by direct, market-
based financing or by indirect, bank-based
finance.
The basic needs in the financial environment may
simply be stated as follows:
 The need to invest excess money – this is
called money supply in elementary economics,
which you must have studied by now.
 The need to borrow money - this is called
demand for money. This phenomenon happens
where there is a shortage of money in the
hands of those who want to make use of it.
EXAMPLE
An example would be:
 ZESCO Limited may need ZMK 100 million for a
period of at least 10 years to erect new power
lines in Nchelenge District.
 Barclays Bank has ZMK 50 million it wants to
invest for 8 years
 Investrust Bank Plc has ZMK 50 million it wants
to invest for 10 years.
An intermediary such as Intermarket Securities
Limited, or Pangea/ EMI Securities Limited would
seek to merge these different needs and demands
of borrowers and lenders through negotiation and
financial instruments. A certificate would be issued
to the lender giving him the right to the interest
payments and the redemption amount at expiry of
the loan. These instruments are called securities.
THE ROLE OF FINANCIAL INSTITUTIONS IN ZAMBIA
The financial sector has grown and now comprises the
following key players:

The Bank of Zambia;

Commercial banks;
Non-bank financial institutions (comprising the three
building societies, some micro Finance institutions, the
National Savings and Credit Bank (NSCB), the
Development Bank of Zambia (DBZ), Bureau de changes
and leasing companies);
Insurance companies;
Pension funds; and
Capital markets.
The Bank of Zambia (“BoZ”)
The Banking environment in Zambia is controlled
by the Central Bank - Bank of Zambia whose
principle objectives include: -
Maintenance of monetary and financial
system stability through the formulation and
implementation of appropriate monetary and
supervisory policies
Issuing of bank licenses, supervising and
regulating the activities of banks and non-bank
financial institutions to promote safe, sound and
efficient payment mechanisms;
Acting as banker and fiscal agent to the
Government;
Supporting the efficient operation of the
exchange systems;
Acting as advisor to the Government on
economic and monetary management
 What Are Financial Markets?
Financial markets refer broadly to
any marketplace where the
trading of securities occurs,
including the stock market, bond
market, forex market, and
derivatives market, among
others. Financial markets are
vital to the smooth operation of
capitalist economies.
 What is the Money Market?

 Money markets are unorganized

markets where banks, financial
institutions, money dealers, and
brokers trade in financial instruments
quickly. For example, they trade in
short-term debt instruments like
trade credit, commercial paper,
certificate of deposit, T bills, etc.
 What is Capital Market?

 The capital market is a type of

financial market where financial
products like stocks, bonds,
debentures are traded for a long
time. They serve the purpose of
long-term financing and long-term
capital requirement.
The capital market is a dealer and an
auction market and consists of two
categories:

 Primary market: A primary market

where the fresh issue of securities
is offered to the public.
 Secondary market: A secondary
market where securities are traded
between the investors.
 Types of Financial Markets
Stock Markets
 Perhaps the most ubiquitous of financial
markets are stock markets. These are
venues where companies list their shares
and they are bought and sold by traders
and investors. Stock markets, or equities
markets, are used by companies to raise
capital via an initial public offering (IPO),
with shares subsequently traded among
various buyers and sellers in what is
known as a secondary market.
 Over-the-Counter Markets

An over-the-counter (OTC) market is a

decentralized market—meaning it does
not have physical locations, and trading is
conducted electronically—in which market
participants trade securities directly
between two parties without a broker.
While OTC markets may handle trading in
certain stocks (e.g., smaller or riskier
companies that do not meet the listing
criteria of exchanges), most stock trading
is done via exchanges
 Bond Markets
A bond is a security in which an investor
loans money for a defined period at a pre-
established interest rate. You may think of a
bond as an agreement between
the lender and borrower that contains the
details of the loan and its payments. Bonds
are issued by corporations as well as by
municipalities, states, and sovereign
governments to finance projects and
operations. The bond market sells securities
such as notes and bills issued by the United
States Treasury, for example. The bond
market also is called the debt, credit, or
fixed-income market.
 Money Markets
 Typically the money markets trade in
products with highly liquid short-term
maturities (of less than one year) and
are characterized by a high degree of
safety and a relatively low return in
interest. At the wholesale level, the
money markets involve large-volume
trades between institutions and traders.
At the retail level, they include money
market mutual funds bought by
individual investors and money market
accounts opened by bank customers.
 Derivatives Markets
 A derivative is a contract between two or
more parties whose value is based on
an agreed-upon underlying financial
asset (like a security) or set of assets
(like an index). Derivatives are
secondary securities whose value is
solely derived from the value of the
primary security that they are linked to.
In and of itself a derivative is worthless
 Forex Market

 The forex (foreign exchange) market is

the market in which participants can buy,
sell, hedge, and speculate on the
exchange rates between currency pairs.
The forex market is the most liquid
market in the world, as cash is the most
liquid of assets.
Interest rate and rate of return

The interest rate is the cost of debt

for the borrower and the rate of return
for the lender

A rate of return (RoR) is the net gain

or loss of an investment over a
specified time period, expressed as a
percentage of the investment's initial
cost.
THE END

Thank you !