International Financial Markets-sample

The International Financial Markets

Carlos Fernndez Rivera

This document is a SAMPLE that only includes some slides of each lesson.

1/6/15 Interna7onal Financial Markets 2

Agenda Introduction 0

The Financial Markets 1.1. What are the financial markets 1.2. The main financial markets 1.3. Risk, liquidity and profitability 1.4. Current International landscape

1

Money Market 2.1. The Central Bank and the price of the money 2.2. Common products

2

Fixed Income Market 3.1. Bonds as a financial tool 3.2. The secondary market of the bonds 3.3. The risk and the risk premium

3

Stock exchange Market 4.1. Some analysis tools 4.2. Seasoned equity offering (capital increase)

4

Derivatives Market 5.1. The main markets 5.2. Futures Market 5.3. Options Market

5

Foreign Currency Market 6.1. The exchange rate 6.2. FOREX 6.3. Common products

6

Company Valuation Tools 7.1. Static Methods 7.2. Comparable Multiples Methods 7.3. Dynamic Methods

7

IT tools 8.1. Financial sources of information 8.2. Investment tools

8

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Introduction

The financial markets have a key role in our lives. In this course, we will study the most important markets and how they work.

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The financial assets are traded in the financial markets. But who/what controls the financial markets?

No. The Financial markets are as any other market, and are under the Law of Supply and Demand.

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Introduction SAMPLE


Lesson 1: The International Financial Markets


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What are the financial markets? The financial markets are the places where the financial assets (FA) are bought and sold. Physical or virtual places.

FA: Intangible assets whose value is based in the right to obtain benefits in

the future.

The issuer has needs for capital, and the investor has excess of capital.

The investor is who buy the FA

The issuer is who sell the FA

FA

, $, ,

Intermediaries

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What are the financial markets? The functions of the financial markets are: Create prices Generate liquidity Decrease transactions costs The key intermediaries in the financial markets are: Banks Contractual saving institutions Investment intermediates:

Investment funds Finance companies

Market intermediates: Agencies and securities firms: Brokers and Dealers* Investment banks

*Brokers operate for others; Dealers operate on their own and are the market makers.

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Lesson 2: Money Market


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The Central Bank and the price of the money The European Central Bank (ECB) is the only Institution that

can emit euros. Literally, the ECB has the printer of euros. The ECB is an independent entity. The ECB has two tools to perform their main functions: In addition, the ECB also has responsibility over the exchange rate (currencies), manage the foreign reserves of the Central Banks, monitoring the financial system and participate in international cooperation programs.

Determines the monetary policies in the

Eurozone

Sets the Interest Rate (IR) of the euro

Price stability in the Eurozone

Control of the inflation

Mario Draghi, current President of the ECB

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Lesson 3: Fixed Income Market


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Bonds as a financial tool When an entity, public or private, borrows money to the savers during a fixed period of time and with an interest fixed at the beginning of the period, the entity is issuing debt in the format of a bond. Bond is a generic word to refer to notes, mortgage bonds, debentures, liabilities always long-term products. The investor that owns a bond is the bondholder: the interest of the bond always is paid to the bondholder, regardless of whoever. Each payment of interests is called coupon.

EUROPE USA

Maturity Common nomenclature Maturity Common nomenclature

3, 6, 9, 12 or 18 months. Treasury Bill

1, 3, 6 or 12 months Treasury Bill

2, 3 or 5 years Treasure Bonds (coupon each year) 1, 3, 5, 7 or 10 years

Treasure Notes (coupon each 6 months)

10, 15 or 30 years

Treasure Long Bonds (Obligaciones del Estado) 20 or 30 years

Treasure Bonds (coupon each 6 months)

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Bonds as a financial tool Bonds can be bought in: The secondary market is decisive to set the interest rate of the bonds in the primary market.


Primary Market

The entity issues the bonds at a rate of interest to major investors. Its the subscription/underwriting market. The major investors can be banks or investment funds.

Secondary Market

Its the second hand market of the bonds, or aftermarket. The investors buy and sell the bonds between them. The price of the bonds in this market fluctuates according to the supply and demand of bonds.

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Lesson 4: Stock Exchange Market



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Stock Exchange Market The Stock Exchange market is the secondary market where the stocks of the companies are bought and sold, between the shareholders at a market price. Stocks/shares are participations in the equity of a company (shareholders equity).


Banks Contractual Saving Institutions Investment funds

Primary Market

Secondary Market

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Stock Exchange Market


Stocks issued from a company to the shareholders are not refundable to them: the equity is not payable because equity is own funding.

Stocks are liquid assets, so they can be sold and bought in the secondary market between shareholders at market price.

Stocks give the shareholders rights and benefits, but also share the risk of the company with them.

Poli;cal rights

Economic rights

Right to vote at shareholders meeting, exclusive promotions and privileges, etc.

Dividends: are the retribution of the stocks. Its a % over the Net Profit, then its paid IF the company has benefits.

Capital gain: if the shareholder sells his shares at a higher price than bought, there is a benefit with the trade.

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Lesson 5: The Derivatives Market



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The derivatives products consist in the exchange of an asset (underlying asset) in a determinate date in the future (maturity) at a price established previously (strike price) agreed in a contract. The underlying asset can be any financial asset: bonds, stocks, stock index, commodities

The main markets


Spot Market

The asset is delivered and paid inmediately. Short-term transactions, until 1 month to deliver the financial asset. Deposits, Bonds, Stocks, Commodities, Currencies.

Deriva;-ves

Market

The asset is delivered and paid in the future. Forward transactions. Non-organized markets: Over the counter (OTC). Forward contract Organized markets: standardized contracts. Futures and options.

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Lesson 6: Foreign Currency Market


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This market comes from the need of the Countries to have foreign currencies to pay the imports. For example, USA needs euros to pay the importations from Europe (and vice versa). But the commercial function of the currency market only represents 2.1% of the total transactions (2013). The remaining transactions (97.9%) were for speculative purposes: there is no intention of getting the underlying asset. The overall volume of transactions in the foreign exchange market was 5.3 trillion (1012) dollars daily.


Foreign Currency Market

$$$

Products

USD ($)

EUR ()

EUR ()

Exchange rate

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Lesson 7: Company Valuation

Tools Carlos Fernndez Rivera

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There are several ways to determine the value of a company. However, it doesnt exist a single approach and the valuation becomes subjective.

The valuation depends on many factors: growth prospects, branding, political and economic environment

The result is a range of possible values within which is the price of the company.

Company valuation


Static Methods Comparable Multiples Methods

Dynamic Methods

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International Financial Markets-sample