BACHELOR OF BANKING AND FINANCE MANAGEMENT

PRINCIPLE OF BANKING AND FINANCIAL MARKETTING(ACUO7111)

MR. KAZUNGU WILLIAM

GROUP ASSIGNMENT: GROUP 1

SN STUDENT NAME REGISTRATION NUMBER

1 SALIM A. SHARIFU 03.0202.01.01.2022
2 ANASTAZIA M. MPEJIWA 03.2507.01.01.2022
3 COLLINS A. KAYOMBO 03.0784.01.01.2022
4 SAMIRA S. RASHIDI 03.6379.01.01.2022
5 MOSSES T KAGINA 03.3967.01.01.2022
6 MUDHIHIRI R. MLOWEKWA 03.4427.01.01.2022
7 NAAH THE CR UNKNOWN
8 THE REST I DIDN’T GET NUMBERS SO

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QN 1. Define financial market.
Financial markets are structures through which fund flows from who have excess fund usually investors and savers
to the ones in need of funds usually borrowers. In financial markets there are financial intermediaries who facilitate
transactions and financial regulators who always ensure the is fair play of participants in financial market.

QN 2. Explain key players of financial markets

Players of financial markets are simply the participants in financial markets. The players in financial markets can be
broadly categorized as follows
Market intermediaries. They are sometimes known as investment managers or investment bankers. They act
as middlemen and establish a link between investors and savers (where the excess money comes from) to the
users of fund. These services include investment consultancy, market analysis and credit rating of financial
institutions. Markets intermediaries includes share brokers, underwriters, investment company, banks and credit
rating agencies
Regulators. These are usually government agencies and regulatory authorities charged with the duty of
supervising, overseeing activities of financial markets and ensuring fair play in financial markets. Example Central
banks like Bank of Tanzania (BOT)
The corporates. They are also knowns as firms or companies. They are the net borrowers. Different types of
securities and financial instruments are offered by them and channeled to real time investments and when the
profits are made, they are distributed to the individual investors. The corporates are sometime play as individual
investors as well.
The individuals. These are the ones whom directly save and purchase securities and other financial instruments
issued by the corporates. They also do other types of investment hence providing fund
Government. National governments play in financial markets in many defend ways. They borrow funds in long
term and short term for various purposes like dealing with financial deficit, regulating money supply and
controlling liquidity.

QN 3. Describe different types of financial markets

 1.Primary Markets —markets in which corporations raise funds through new issues of securities. The primary
markets for securities are not well known to the public because the selling of securities to initial buyers often
takes place behind closed doors. An important financial institution that assists in the initial sale of securities in
the primary market is the investment bank. It does this by underwriting securities: It guarantees a price for a
corporation security and then sells them to the public.
 2.Secondary Markets —markets that trade financial instruments once they are issued. Once financial
instruments such as stocks are issued in primary markets, they are then traded—that is, rebought and resold in
secondary markets. Buyers of secondary market securities are economic agents such as consumers, businesses,
and governments with excess funds. Sellers of secondary market financial instruments are economic agents in
need of funds. Secondary markets provide a centralized marketplace where economic agents know they can
transact quickly and efficiently. Example of secondary markets includes foreign exchange markets, futures
markets, and options markets
 3.Money Markets —markets that trade debt securities or instruments with maturities of less than one year. In
the money markets, economic agents with short-term excess supplies of funds can lend funds that is buy money
market instruments to economic agents who have short-term needs or shortages of funds (i.e., they sell money
market instruments)
 4.Capital Markets —markets that trade debt and equity instruments with maturities of more than one year.
Capital market securities, such as stocks and long-term bonds, are often held by financial intermediaries such as
insurance companies and pension funds, which have little uncertainty about the amount of funds they will have
available in the future.
 5.Foreign Exchange Markets — or simply forex markets, are markets where currency conversion takes place and
in which cash flows from the sale of products or assets denominated in a foreign currency are transacted.
 6.Derivative Markets —markets in which derivative securities trade. A derivative security is a financial security
(such as a futures contract, option contract, swap contract, or mortgage-backed security) whose payoff is linked

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 to another, previously issued security such as a security traded in the capital or foreign exchange markets.
Derivative securities generally involve an agreement between two parties to exchange a standard quantity of an
asset or cash flow at a predetermined price and at a specified date in the future. As the value of the underlying
security to be exchanged changes, the value of the derivative security changes

QN 4. Identify instruments traded in different financial markets

i. Treasury bills (T-bills) --are short-term obligations of the governments issued to cover current government
budget shortfalls (deficits) and to refinance maturing government debt.
ii. Commercial paper --is an unsecured short-term promissory note issued by a corporation to raise short-term
cash, often to finance working capital requirements. Commercial paper is one of the largest of the money
market instruments,
iii. Mortgages --are loans to households or firms to purchase housing, land, or other real structures, where the
structure or land itself serves as collateral for the loans
iv. Corporate Bonds --These long-term bonds are issued by corporations with very strong credit ratings. The
corporate bond sends the holder an interest payment twice a year and pays off the face value when the bond
matures. Some corporate bonds, called convertible bonds, have the additional feature of allowing the holder to
convert them into a specified number of shares of stock at any time up to the maturity date. This feature makes
these convertible bonds more desirable to prospective purchasers than bonds without it and allows the
conjuration to reduce its interest payments because these bonds can increase in value if the price of the stock
appreciates sufficiently
v. Stocks --Stocks are types of security which gives stockholder share and ownership of the company in which the
stock holder will have various rights including right to receive dividend in specified period of time.

Qn 5.Explain short term sources of finance

Short-term sources of funds are Money acquired which must be paid back within one year. These sources are used
for fulfilling short-term funds requirements.
Various types of short-term sources of funds are as follows: -

 Commercial Paper Commercial paper is an unsecured promissory note issued by high creditworthy companies
for raising short-term funds. The maturity period of this source ranges from 90 to 180 days. Commercial papers
are issued by companies to banks, insurance companies, or business funds at discount on face value and are
redeemed at their face value on maturity.
 Trade Credit It means credit provided to the business by the supplier of raw materials or goods for the short
term. Trade credit helps businesses in continuing their operations without interruption as it helps them in
getting supplies without any immediate payment. Businesses are not required to pay any interest amount on
trade credit.
 Bank Overdraft Bank overdraft is a credit facility extended by the bank to their account holders for a shorter
period. Under this facility, customers can overdraw the amount from their account up to a certain limit set by
the bank. Customers need to pay interest over the overdrawn amount to the bank.
 Bill Of Exchange Bill of exchange is a financial instrument which is drawn by the creditor upon his debtor. It is a
written negotiable instrument which contains an unconditional order for paying the mentioned amount to the
holder of the instrument. This instrument is either payable on-demand or on the maturity of a particular time
period.
 Certificates Of Deposit It is an unsecured negotiable instrument issued by commercial banks or financial
institutions to investors. Certificate of deposit is issued to depositors against the amount deposited by them for
a fixed maturity period. The maturity period of these instruments is decided in accordance with the needs of
depositors and ranges from 90 to 365 days.

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QN 6. Explain Long-Term Sources of Finance
Long-term sources of fund: Fund raised through these instruments can be paid back over many years. It enables in
fulfilling money requirements needed for longer time period.Various types of long-term sources of fund are as
described below: -

 Equity Shares
It is the capital market instrument issued by companies for acquiring funds for a long period of time. These
shares represent ownership capital in the business. Equity shareholders are real owners of the business and have
full voting rights. They have full control over the functioning of the company and also elect directors.
 Preference Shares
Companies can issue another type of shares for raising long-term funds known as preference shares. These
shares carriers some preferential rights over ordinary or equity shares. Preferential shareholders are eligible to
get a fixed rate of dividend on their shareholdings and that too before paying any dividend to equity
shareholders. In addition to this, these shareholders are paid back their capital amount before the equity
shareholders.
 Debentures
A debenture is a debt instrument issued by the company for raising long-term funds. It represents debt capital
and holders of these instruments are creditors of company who possess no voting rights. On debentures, fixed
rate of interest is paid irrelevant of whether profit earned or not by the company.
 Retained Earnings
It means reinvesting the profit earned by the company back into its activities for expansion and growth.
Companies instead of disturbing all of their earnings among shareholders, retain some part of it for investing it
back into their operations. This is also termed as ploughing back of profits.
 Long Term Loans
It refers to long term loans taken by business from commercial banks or other financial institutions. Lending
institutions require some sort of security for approving the loan amount. Borrowers need to pay a fixed rate of
interest regularly to the lending company and full borrowed amount before the period of maturity.
Qn7. Outline functions of financial markets
1) Determination of prices of financial instruments. Through forces of demand and supply (that is market forces) in
the financial market, prices of financial instruments get to be allocated. This is when supply and demand of
financial instruments interact and it takes place in financial markets
2) Funds Mobilization. Financial markets are where all investors and savers get a platform to come together to put
their money collectively and this kind of fund mobilization allows re-allocation of those funds in other productive
sectors for investment and generation of profit
3) Liquidity.The liquidity function of the financial market provides an opportunity for the investors to sell their
financial instruments at their fair value prevailing in the market at any time during the working hours of the
market. Thus, investors can sell their securities readily and convert them into cash in the financial market,
thereby providing liquidity.
4) Risk sharing. The financial market performs the function of risk-sharing as the person who is undertaking the
investments is different from the persons who are investing their fund in those investments. With the help of the
financial market, the risk is transferred from the person who undertakes the investments to those who provide
the funds for making those investments.
5) Reduction in Transaction Costs and Provision of the Information.The trader requires various types of information
while doing the transaction of buying and selling the securities. For obtaining the same time and money is
required. But the financial market helps provide every type of information to the traders without the
requirement of spending any money by them. In this way, the financial market reduces the cost of the
transactions.
6) Capital Formation.Financial markets provide the channel through which the new investors’ savings flow in the
country, which aids in the country’s capital formation.