FINANCIAL MARKETS AND INSTITUTIONS IN

PAKISTANGROUP MEMBERS

RAHAT JAAN MOHAMMAD

FARHAN SUBHANI

CONTENTS

• What is Financial Market?• Structure of Financial markets?• Functions of Financial markets• Financial Institutions • Types of Financial Institutions

WHAT IS FINANCIAL MARKET?

• A financial market is a place for buying and selling of financial securities such as stocks and bonds.

• Financial markets perform the essential function of channeling funds from economic players that have saved surplus funds to those that have a shortage of funds

STRUCTURE OF FINANCIAL MARKETS

• Financial Market in Pakistan consists of

• (i) Money Market which provides short term depts. • (ii) Capital Market which makes long terms depts available to businesses and

industries.

PRIMARY AND SECONDERY MARKETS

The Financial market can be reclassified into• Primary Market in which new shares or bonds are issued • Secondary Market in which securities previously issued are traded such as

Shares, Bonds, and Mutual Fund.

• Exchanges An organized and central place for trading of securities

• Over The Counter Markets Decentralized dealers with inventory of securities at premium price

FUNCTIONS OF FINANCIAL MARKETS

• Borrowing and lending:Financial markets provide funds to investors by lending money at an interest rate known as the cost of borrowing.

• Price determination:Sets or defines fixed or volatile prices for each type of instrument in the market.

FUNCTIONS OF FINANCIAL MARKETS• Risk sharing:

Financial markets eliminate a type of risk known as systematic risk through investment diversification.

• Liquidity:

The ability to quickly and directly convert securities into cash without value losses during a transaction.

WHAT ARE FINANCIAL INSTITUTIONS ?

• A financial institution is an institution that provides financial services for its clients or members. Probably the most important financial service provided by financial institutions is acting as financial intermediaries.

• Financial intermediaries are firms that collect the funds from lenders and channel those funds to borrowers.

TYPES OF FINANCIAL INSTITUTIONS IN PAKISTAN• The banking sectors and non-banking sectors are regulated by the central

bank, State Bank of Pakistan. While rest of the market (lease, stock exchanges, modarba, mutual funds and insurance) is regulated by Securities and Exchange Commission of Pakistan.

COMMERCIAL BANKS• A type of bank providing checking and saving accounts, credit cards and

business loans. Such a bank induces general public to deposit their savings in the banks and offers a wide range of services such as:

• Deposit Mobilization• Money transfer• Financing Working Capital• Investing in government securities• Call money operations• These banks are of three categories • (i) Public Sector Banks• (ii) Private Bank • (iii) Foreign Banks

INVESTMENT BANKS• Investment banks perform a variety of functions. Primarily, they assist corporations to raise

equity-capital by underwriting the public issues. They also assist companies desiring of mergers and acquisition and derivatives. In addition, they provide services like trading of derivative, foreign exchange, fixed income instruments and shares listed on the stock exchanges.

• Such banks cannot take deposits. They manage their affairs by charging fees such as

• (i) retainer fee

• (ii) advisory fees based on the transactions,

• (iii) commission on underwriting

• BMA Capital Management Limited

• Invest Capital Investment Bank Limited

• IGI Investment Bank Limited

DEVELOPMENT BANKS

• These banks provide guidance in selection of industrial units and extend direct financial assistance to partly cover their financial requirements, Such banks are responsible for speeding up the pace of economic growth in the country in conformity with the national objectives, plans and priorities.

• Their core functions are:

• Direct financial assistance

• Mobilization of domestic savings

• Expanding entrepreneurial base by encourage new comers

• Pak China Investment Company Limited, Islamabad

• Pak Kuwait Investment Company Limited, Karachi

• Pak Libya Holding Company Limited, Karachi

• Pak Iran Joint Investment Company Limited, Karachi

MICROFINANCE BANK

• A microfinance bank would cater to the credit needs of poor households and their small enterprises. Thus microfinance bank provide credit to those poor who are not considered creditworthy by the commercial banks and other financial institutions. They provide basic training in start of a small business, simple book-keeping and accounting.

• The main aim of microfinance institutions is alleviation of poverty through helping poor persons to earn some money especially the women.

• NRSP Micro Finance Bank Limited

• The First Micro Finance Bank Limited

• Khushali Bank Limited

• Network Micro Finance Bank

ISLAMIC BANKS

• In Islam, it is prohibited to charge interest on any loan. However, it is acceptable to pass on funds to a needy person or corporation for trade purpose in which case profit could be shared on an agreed basis whereas loss should be shared according to the funds invested.

• AL Baraka Islamic Bank (Merged into Al Baraka Bank (Pakistan) Limited• Bank Islami Pakistan Limited• Dubai Islamic Bank Pakistan limited

• Meezan Bank Limited-Premier Islamic Bank In Pakistan

DISCOUNT HOUSES

• These are firms which buys and discounts bills of exchange, banker' acceptance, commercial paper, etc. Discount houses also tender for treasury bills, deal in short-dated government bonds, and are an important part of the short-term money markets.

• First Credit & Discount Corp Limited• National Discounting Services Limited• Speedway Fordmetall (Pakistan) Limited

INSURANCE COMPANIES

• Insurance is a hedge against the risk of a contingent and uncertain loss. In other words, it is the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. For this service, the insurer charges a fee called premium depending upon the risk involved.

• IGI Insurance Limited

• East West Life Assurance Company

• New Jubilee Life Insurance Company Limited

• East West Life Assurance Company

• Data Bank International

STOCK EXCHANGE

• Stock exchange is a place where securities are bought and sold. Such securities include shares, derivative, unit trusts and bonds. It also provides facilities for the issue and redemption of securities. Prices of shares and bonds are influenced by their demand and supply like in other commodities.

• Karachi Stock Exchange• Islamabad Stock exchange

LEASING

• It is a contract where owner of an asset agrees to allow someone to use it for a fixed rental. It can be for fixed or indefinite period of time. It is a binding contract which sets out terms of lease agreement between the owner and the user.

• Asian Leasing Corporation Ltd• ASKARI LEASING LIMITED

MUTUAL FUND

• It is a professionally managed type of pooled investment for acquiring securities like stocks, bonds, marketable securities and commodities. The profit is distributed by way of dividend to all investors.

MODARBA

• If is a form of partnership which has two distinct parties:• (i) the financier • (ii) the manager.• The financer takes no part of management of the business. The profits are

distributed among the subscriber while the manager is paid the usual salary.• Modarba is one the modes of Islamic finance. It is like mutual fund minus its

un-Islamic features