Market Basics

Market	Money	Bond	Equity	Foreign Exchange
Role	Short Term Funding 30 to 120 days	Medium to long term funding for governments and corporations 1 year to 20 years	Obtain part ownership of a company Indefinetely	Facilitate overseas payments and borrowings
Instruments	Unsecured Promissory Notes Certificates of Deposit Commercial Papers Bank Accepted Bills Treasury Notes Bill Facilities Repurchase Agreements	Government bonds Semi government bonds Non-governmental bonds	Public Offerings Private Placements Stock and shares Rights Issues	Currencies Forward rate agreements
Price Discovery	Short Term Funds Bank Bill Reference Rate Bank Bill Swap Rate London Interbank Offer Rate	Reveals cost of long term funds Cash Rate	Reveals market value of company	Reveals purchasing power and market value of a currency
Risk	Short holding period Interest Risk Tradable in markets	Default risk on coupons Long term uncertainty	High market risk Traders use stop orders	High market risk Corporations use forward rate agreements
Return	Pays Simple Interest	Pays coupons over holding period and face value at maturity or	Pays dividends and prices of stock may soar	Invest in currencies for appreciation
Repayment Priority	Form of debt, so priority over dividends	Priority over dividends	Residual Claim	-
Information Asymmetry	Low risk participants	Future Prices Unknown	Other parties better informed Insider Trading	Other Dealers better informed
Participants	Governments ADIs Large corporation Low risk borrowers	Governments Large corporations Banks and financial nstitutions Fund managers, local and overseas	Companies seeking capital Investment banks General Public	FX Dealers Multinational Corporations
Primary Market	Wholesale	Tendered by governments Issued by non financial corporations	Issued by companies at IPOs to investment banks	Traded at Foreign Exchange by dealers
Secondary Market	Not open to public Can be traded for liquidity	Traded publicly for liquidity	Traded at stock exchanges around the world	Retail purposes
Role of Authorities	Central bank enforces monetary policy by: Trading treasury notes Setting target cash rate	Raise funds via taxes	Ensure corporate integrity and fair up to date reporting	Stabilise currencies by buying or selling