Introduction to Financial Markets

Finance - the study of how individuals, institutions, governments, & businesses acquire, spend, & manage
money and other financial assets

 both an art and a science

 a social science, under the big umbrella of economics
 AN ART - creatively think of ways how to manage money
o no one way to apply theories will depend on the situation, and on the circumstances,
behavioral aspect, behavioral science, the study of the movements of the surroundings
 We deal with finances in our daily lives.

Why Study Finance?

 To make informed investment decisions

 To determine good financing sources.
 We need to know tools & techniques to maximize returns and minimize risks.

Finance versus Economics and Accounting

 Finance grew out of economics and accounting

 Economists developed the notion that an asset’s value is based

Areas of Finance (check ate Kyle’s files)

1. Financial Management - heavy on trying to situate oneself in a corporate set-up

2. Capital Markets and Institutions [focus of the class] -
3. Investments - there is a prerequisite

Areas on Application

1. Corporate Finance - application of finance tools in investing and financing decisions in an institutional
setting.
2. Personal Finance - application of finance tools in the management of individual and family resources.
(my personal fund management decisions)
3. Public Finance - application in finance tools for the effective allocation of public funds for
government services, public investment, and public debt.

Areas of Career Path

1. Financial Management
o concerned with the administration of financial affairs of the business, which includes tasks
such as developing financial plans, ….
o target is to increase the value of the company
2. Financial Services -
o target is to
Agree or Disagree?

1. Your P5 today may still buy the same thing 5 years hence. - disagree
2. Consumption through cash is best when belayed or, if possible, stretched. - agree
3. The higher the risk, the higher the return. - agree
4. Investors are generally risk-takers. - disagree
5. Cash is more important than profit. - agree
6. Profit may not necessarily result in cash flows. - agree
7. Stock price volatility is dependent on the volume of shares supplied and demanded in the market. -
disagree
8. The faster the movement of stock transactions in the market, the better. agree - shows that an
entity/entity’s product is becoming popular or smth shows that company has a high value
9. People always put their interest first before that of the others. - agree
10. To make an employee act for the best interest of the owners of a business, make him/her an owner
too. – disagree

Financial Systems
 investors will hold risky investments if they expect to be compensated with additional return

$Principles$ $of$ $Finance$

1. Money has time value

o a peso received today is worth more than a peso received in the future
2. There is a risk-return tradeoff (Risk requires a trade-off of return)
3. Cash Flows are the source of value
o cash - not profit - is king
4. Market (Share) prices reflect information (efficient market theory)
o investors respond to new information by buying and selling their investments
o the faster transaction the better since it becomes an efficient market
o the speed creates higher value for the entity
5. The principal’s (Owners’) and Agent’s (Managers’) interests may differ
o managers’ decisions may not necessarily be aligned with the owners’ interests unless
incentivized adequately.
o Agency Cost - end cost that is associated with the suffering that the company experiences
due to the differences in the interest of the managers and owners.
o Share-based compensation - gives quota but in terms of the share price.
o Stock options as compensation, not all the time since it’s expensive on the side of the
company; the exchange is the potential to finance a portion of the companies projects
o Split of Stocks - re-register at SEC of Articles of Incorporations with amendments

Financial Systems

 the institutional mechanism established by the society to produce and deliver financial services and
allocate resources participated by different economic units, which takes into account the use of
money, credit, and the various instruments associated with money.
  It consists of the business firms supplying financial services, the customers of the financial service
firms, and the government regulatory entities that enforce the rules prevailing within the financial
sector.
 I’ll give u money but at the end of the day, I will also be an owner.
 The mechanism established by the society for it to be known to everyone includes institutions
connected with funds and money.
 Some individuals and firms may have a surplus of funds that can be made available for savings or
investment (saving-surplus units or supplier of funds).
 Businesses, governments, and Individuals often need to raise capital (savings-deficit units or
demanders of funds):
o Support in increasing the firm’s operations (operational expansion)
o Investment in project proposals (capital expenditures)
o Infrastructure Projects
o Investments in Real Estate
 It is where the suppliers and users of funds meet to finance their needs and satisfy their objectives.

The Capital Allocation Process

1. DIRECT TRANSFER

DEMANDERS → suppliers →SAVERS

SAVERS →cash (pesos) → DEMANDERS

o it's okay to ask for help from the financial markets if you don’t know what to do with your
securities. (There are still dividends to be given).
o can also use promissory notes.
o Security - a paper contract that provides the term for the payment.

2. INDIRECT TRANSFER (through investment banks)

o all financial institutions can help you depending on what kind of institution you are asking for
or help.

DEMANDERS → securities →INVESTMENT BANK → securities → SAVERS

SAVERS → cash (pesos) →INVESTMENT BANK → cash (pesos) →DEMANDERS

o no limit when it comes to fees.

o Investment banks can be different but the swap of instruments should be known on both
sides.
o If saver, +20% (investment bank)
o If sellers, - 20% (Investment bank)

 The Dealer: Investment Bank: buys from demanders and sells to the savers/investors.
 Broker - is part of the transaction, is passed to them and handles everything; an agent
o Intermediaries don’t have to be limited to one, savers can have an intermediary and
demanders may also have their own intermediary.
 o makes transactions or gains money with the commissions received from the dealer/entity
 Dealer - does everything themselves; merchandises the product
o gains profit through individual transactions of resources.

Financial System - establishes the mechanism of demander and supplier of funds in the society.

Investment banks - serves as merchandiser

1. INDIRECT TRANSFER (through financial intermediaries)

o serves as the financial manufacturer since they have clients that takes the role of demanders
and suppliers of funds.

DEMANDERS → company securities → FINANCIAL INTERMMEDIARY →intermediary securities

→SAVERS

SAVERS → cash (pesos) → FINANCIAL INTERMEDIARY →cash (pesos) → DEMANDERS

o rates are dependent on the current economic situation on agencies that they get from all
other investment that they have.
o all financial institutions need to invest somewhere (a requirement) because to increase the
money given to them
o funds offered to savers will be locked up to a single funds to generate it to the demanders
o will not know where the money goes/comes in/
 Ex. loaning
 they will create a financial (product made by the financial intermediary) to
offer to the demanders
 if the unit will go down,

 Fixed Income Securities

o bonds

Earnings of Financial Intermediaries are from

rate x 3/12

UITF - based on the rate taken from the

(08-30-22 extra info from last session)

 Index Stocks - stocks considered for index pricing/index valuation

 other financial intermediaries convert differently [under financial intermediary]
 investment banker is either a service provider or a merchandiser
 loans and deposits came from different separate securities but considered as a single fund
 financial intermediaries channel funds needed to transfer; functions as manufacturer

Elements of Financial System

1. Financial Instruments
 o the evidences of debt or ownership that are traded in the market.
2. Financial Sector
o consists of the financial markets and institutions.
3. Financial Regulations
o rules and regulations issued by the pertinent government agencies in regulation the activities
in the financial sector.
FINANCIAL INSTRUMENTS

 one that is used to facilitate the provision of funds for a certain economic
 take the form of documents, which contain certain characteristics that meet the requirements of the
issuer and investor
 legal contracts or indentures specifying the amount of the transaction and the terms and conditions
for repayment

DIFFERENCES AMONG FINANCIAL INSTRUMENTS [08-30-2022]

1. Denomination
o the stated value, value stated in the instrument
o stocks denominate base from their (PAR VALUE)
o par value -registered value of the shares/stated value
 corporation decides the par value
o preferred share - cannot be valueless, must be valued par value; optional; if one wants money
at the end of the day; financing purpose; limits the shareholder participation of their
decision, wiser to say they can’t distort ownership control
o ordinary share - has no par value as long as price is not below P5.00 selling price; required;
use power in the entity; earn from trading
o an corporation can use both preferred and ordinary but is required or at least have one type
of ordinary share
2. Maturity
o time of expiration of securities
o due date when the instrument needs to be paid/settled
o money market - less than 1 year (treasury bills, commercial paper, & negotiable certificates of
deposit)
o stocks - has no maturity/expiration unless the corporation takes back the stocks or is going
under bankruptcy
o certificate of deposit - a certification that an institution h a time deposit; issued by the bank
o “If there is no negotiability feature, one cannot pass the time deposit”
o short term - 1 year or less maturity period of an instrument
o long term - 1 year and more maturity period if an instrument
3. Claim Against Issuer
o if the instrument is a debt instrument, the holder of the instrument would have the right as
the creditor of the company issuing the same instrument
 most instruments in the market are debt instruments (by the number of types of
instruments available in the mark)
 examples = bonds
o if the instrument is an equity instrument, it gives one the right as an owner of the company;
is as if you have the technical rights of ownership of the company/instrument
  example of equity instrument - shares of stocks)
 if u hold a preference share (cannot vote on the issues of the corporation), it as
HYBRID - nature ng pagreceive ng asset pagkataon ang korporasyon ay mgsasara,
liquidation, si preference shareholder prioritized in getting the money they are
obliged
 hybrid claim - claim is a mixture of ownership claim and creditors claim but
not all
 hybrid instruments - convertible bonds
 rights are limit and has a predetermined amount/value should the
corporation declare distribution of profit
4. Collateral
o only applicable to debt instrument, the instrument issuing may or may not have any
securities
o serial bond in nature - series of payment to be made based on the contract/indenture issued,
one is required to apportion some assets to ensure the payment of the bond, no specific
asset
o loans can also have securities with them depending on the requirement and the financial
instruments where you have negotiated with the loan
o only present in debt instruments, since you can’t guarantee payment
o only when there are multiple creditors
o the act of taking the collateral is - sequestering
5. Marketability
o sale lability - ability to sell the instruments
o commercial papers - promissory notes from large corporations; less than a year or 2 years (?)
(short term)
o Large corporations are allowed to share their commercial papers
 treasury bills - 12 months or less
 treasury notes - two years (can be up to 10 years)
 treasury bonds - beyond 2 years (can be up to 20-30 years)
o fixed dividend securities - preference shares
o fixed income securities(interest) - bonds & money market
o fixed income securities - there is a determined return on the instrument that was released,
(interest) - bonds & money market
o Philippine Stocks Exchange - stocks; Philippine Dealings Exchange -bonds & money market,
securities + preference shares
6. Form of Interest Payment
o depending on the terms written on the securities
o interest payment can be compounded or coupon
o simple interest -what is in the coupon is what will be received
o __% p.a. (per annum/year) → 1/n
o Simple → Principal * Rate * Time
o Compound
 Principal * Rate * Time = Balance1
 Balance1 * R* T = Balance2
o do not believe if the securities are none interest bearing = total amount of the securities
actually includes interest so that value is lesser than the total amount given since it includes
the interest
7. Form of RETURNS (in the perspective of the investors/provider of the funds)
 o debt = (return na makukuha) interest
o Equity = (return na makukuha) dividend
o if Form of COST (in the perspective of the issuers)
o The return will be the provider of the fund, while the issuer will be the cost
8. Options

o either the holder/issuer of the securities

o most of the instruments don’t bear any option

o companies are not prohibited from providing certain power to exercise over the instrument
that has been issue/solved in the market

o 3 most common types of options that can be placed in the financial instrument: CALL, PUT,
CONVERTIBILITY
 cannot convert from equity to debt; there is no share with convertibility feature; can
convert if equity to equity (preferred to ordinary)
 from credit instrument (bonds)→ ordinary shares
 security of receiving returns is better on the former instrument that the holder
compared to the converted one
 beyond the date = the instrument becomes an ordinary security
 exercisable by the holder; issuer will only wait if the holder will claim/convert the
instrument or not
 owner of the bond can convert every bond 1,000-peso bond into 2 ordinary shares;
giving the right to become an owner at a specific date; changes the role/right….
 gives the right to change the nature of the claim that the investor/buyer can have
against the company

Call and Put - are options placed in the securities either the issuer/holder will recall/retrieve
the instrument for permanent derecognition of the securities of the books of the company

 depends on who can call the shots

 remove the instrument that was returned
 equity securities can be resold; can be a strategy
 debt instrument cannot be resold
 not all instrument will have options
 part of the terms and conditions of the instrument; temporary issuance lang sana
gusto ng company;
 CALL - right to call the shots/exercise the option is the ISSUER
 there are other compensations for the probable damage because of the
expectation that they can receive but has been removed because of the call
of securities
 holder will surrender the instrument and receive the payment from the issuer
 Callable bonds have the option to call
 PUT - right to call the shots/exercise the option is the HOLDER/INVESTOR
 required to pay the principal + the accrued interest; only the least that needs
to be paid
  a puttable instrument

Convertibility - that’s exercised by the holder of the securities which enables the conversion
of an instrument into another instrument; debt instrument → equity instrument

Terms of repricing - somewhat like an option (most of the debt securities)

 it all depends with your negotiation with the holders

Company is required or has more obligation to pay /settle first the claim of the creditor and
more so did the credits are collateral

depends on what role you want to play at the end of the day; either to give (?) loan or invest

→Currency - whatever is quoted, it can also change

EXAMPLES OF IFNANCIAL INSTRUMENTS

1. Treasury Bills
1. short-term debt financial instrument issued by the government
2. Commercial Bills
1. short-term unsecured promissory note issued by large companies with strong credit rating
3. Negotiable Certificates of Deposit
1. certificate issued by a bank as evidence of a time deposit
4. Banker’s Acceptance
1. time draft payable to a seller of goods, with payment guaranteed by a bank
5. Repurchase Agreements
1. a contractual agreement involving a sale of high-quality, highly liquid securities, with a
promise by the seller to buy back those assets at a specified date and prince
6. Treasury Bonds
1. long-term debt financial instrument sold by the government
7. Corporate Bonds
1. long term promissory notes issued by companies with strong c
8. Stocks
1. evidence of ownership in a corporation, allowing the holder to enjoy some profits and rights

Financial Institutions
 Financial Intermediaries that channel the savings of individuals, businesses, governments into loans
or investments
 They serve as the media to channel funds from those who have a surplus of funds to those with
deficit in funds.

KEY FEATURES OF FINANCIAL INSTITUTIONS

1. Transformer of Assets
 1.they convert primary instruments received (savings) into another financial product
(secondary instruments, e.g., loans, insurance policies, equity investments, etc.)
2. investments - loans, stocks bonds → will be converted
2. They provide intermediation (the process by which savings are accumulated and lent or invested)
rather than provide a forum where demanders and suppliers of funds can come together.
3. They provide financial services and advices to both suppliers and demanders of funds.

There are no investment bankers in Zamboanga city

Pag-ibig is a mutual fund company (financial institutions)

Metrobank (metro first/first metro) - has an online platform for investment bank

SERVICES PERFORMED BY FINANCIAL INSTITUTIONS (Saunders & Cornett)

SAVER SERVICES BENEFITTING SUPPLIERS OF FUNDS:

1. Monitoring Costs
1. The relatively large size of the F.I. allows a collection of information and monitoring of
actions of firms to be accomplished at a lower average cost (economies on sale)
2. Liquidity and Price Risk
1. F.I.s provide financial claims to household savers with superior liquidity attributes and with
lower price risk.
1. risk in price is on the FLUCTATION
2. FIs absorb risk, which can cover and recovered later on through other investment, compared
to individual investors
3. if ever the risk is really converted to loss, at least …
3. Transaction Cost Services
1. Similar to economies of scale in information production costs, an F.I.’s size can result in
economics of sale in transaction cost
1. Invest, Re-invest (add), Divest (remove or going in)
4. Maturity Intermediation
1. F.I.s can better bear the risk of mismatching the maturities of their assets and liabilities.
1. the risk of the maturity between maturities vs needs for the bond
2. fi can better absorb maturity mismatch, liquidation of the securities held may not be
the same as the…
3. FI can better absorb the release of that certain mismatch, what can they do is tapal
the funds [they can sell the securities quickly so that they can find buyers na madaling
mabentahan
4. mostly marketable or secured securities
5. The financial institution is present to be able to help and make the transaction better
since you might have to gather funds and have funds in the current period or
immediately. It may have problems when you do it individually since FIs are
considered to better bear the risk of having that MISMATCH
6.
5. Denomination Intermediation
 1. F.I.s such as mutual allow small investors to overcome constraints to buying imposed by
large minimum denomination size.
1. It will be beneficial to the FIs since the money returned from them will not totally be
distributed to the investors but rather, they also have the shares regarding at specific
funds that they have invested.
2. The ability of the FI to pull the investments from a lot of investors…
3. LOT SIZE - required minimum volume/quantity needed to transact for specific
investments in the financial market depending on how the value or price of one
investment/instrument or a value or a bond; MINIMUM VOLUME TO BE FOLLOWED;
essentially the volume or quantity that an institution can buy from a financial market

SERVICES BENEFITTING THE OVERALL ECONOMY:

1. Money Supply Transmission

1. Depository institutions are the conduit through which monetary policy actions impact the
rest of the financial system and the economy in general
1. FIs help distribute the money supply
1. F.I.s are often viewed as the major, and sometimes only, source of financing
for a particular sector of the economy, such as farming and residential real
state
1. banks are limited na pinagbibigyan nila ng credit, di nagigin open to
all ang credit to all
2. Pawnshop, Multi-Purpose Cooperative - still considered a Financial
Institution
2. Credit Allocation
1. F.I.’s is often viewed as major and sometimes only, source of financing particular sector of
the economy, such as farming and residential real estate.
2. Given to small borrowers
3. Intergenerational Wealth Transfers
1. F.I.s, especially like insurance companies and pension funds, provide savers with the ability to
transfer wealth from one generation to the next
1. Preservation wealth of an individual and transfer them as inheritance to the next
generation
2.
4. Payment Services
1. The efficiency with which depository institutions provide payment services directly benefits
the economy 1.

CATEGORIES OF FINANCIAL INSTITUTIONS

1. Commercial Banks
1. institutions that accept deposits, issue check-writing accounting accounts, and make loans to
businesses and individuals
2. Credit Union
 1. cooperative associations that exist primarily to provide member depositors with consumer
credits
2. Non -profit by nature
3. Depository Institutions
1. FI’s whose main business activities involves accepting deposits/savings from individuals (and
institutions) and then lending these pooled savings to businesses, governments, and other
individuals
2. Normal department store accounts; they receive deposits which will be turned into loans
which will be lent to anyone who needs it; essentially where loans circulate
3. Common types of Institutions under Depository Institutions
1. commercial banks - not considered to be the largest type of bank
2. universal banks - caters large institutions
3. rural banks - areas in rural classification
4. thrift banks -
5. On Network Bank →BNB - BDO Network Bank

Pahulugan

Paluwagan

4. Savings Bank
1. institutions that accept savings or individuals and lends polled savings (in the form of
mortgage loans) to other individuals
2. Small and usually individual clients
3. PS Bank, ONB (only exists in Mindanao),
5. Savings and Loans Association
1. similar to savings bank, except that they also lend to businesses.
6. Contractual Savings Organizations
1. primary function is to collect premiums from fund suppliers and provide savings and/or
financial protection against loss of life and properties
7. Pension Funds
1. receives distributions from employers and/or their employers and invest the proceeds on
behalf of the employees, in order to provide income during the employees’ retirement years
8. Insurance Companies
1. protects investors/fund provider (called policyholders) against any adverse events by
collecting insurance premiums and invests the pooled collection in debt and/or equity
security investments
1. Life Insurance- cater to people’s life and part of the human body
2. Non-Life Insurance - properties
2. Money Life Insurance, AXA Life,
9. Investment Banks
1. institutions engaged in underwriting (selling or marketing new) securities issued by
businesses to potential individual and institutional investors and in providing financial advices
to their clients in obtaining financing.
2. Always serves middleman of the demanders and savers of funds
3. either functions a broker of the client (either saver or demander)
4. can act as dealers of securities (buys the securities and sells to the clients at a higher rate)
5. can also serve as underwriters and are entities that help I.T.O.
 6. can act as fund managers and manage how their money will grow
7. money will be pooled and placed in the securities
8. never placed the funds collectively
10. Security Firms
1. FI whose main business activities involves accepting savings from individuals or businesses
and pool the to invest in financial securities, and to facilitate and transfer securities between
investors.
2. Some can transform into another investment, that can be bought, still the deriving security
would come from the….
11. Mutual Funds
1. FI’s that pool financial resources of individuals and businesses and invest those in diversified
portfolios of asset.
2. mostly presented collectively
3. always offer is not necessarily securities but the created securities on their part
4.
12. Finance/Credit Companies
1. provides loans directly to individuals and businesses or aid individuals in obtaining finance,
where one cannot obtain them from commercial banks
2. reason why there was an economic crash in September 2008
1. declared the bank in U.S. for bankruptcy (Lehman Brothers to collapse)
2. next to declare in the IAG → since they are one of the biggest insurers of CDO
3. 16 days after the economy of the US; started in 2007 but there was a trigger to
3. CDO → collateralized debt
1. they invested in CDO more like a debt security
13. Finance Firms
1. Engaged in providing loans directly to consumer and businesses, and helping borrowers
obtain mortgage loans on real property
2. examples: credit companies, individual loaning companies
14. Mortgage Banking Firms
1. engaged in aiding individuals to obtain mortgage loans by bringing together borrowers and
institutional investors
2. there is a collateral to be presented before one can borrow
3. concentrates itself for lending for real estate mortgages
4. lending for purchase of house and lot for individuals
5. reason why

Banking Institutions

 perform functions related to depositing loans (depository institutions) although limited to banks,
commercial banks, rural, universal

Non-Banking Institutions

 not connected with bank; either a pure none-banking or a quasi-banking entity

 Quasi Banking Institutions
o serve and take deposits as part of their operations even when they are not technically given
the right to operate as a bank but the functions, they perform will actually be similar to how
banks operate; takes deposits
Non-Banking with no Quasi

 will take other forms of functions in finance

 does not take deposits but are paid based on performance

Finance Accompaniers use none-banking but under quasi-institutions

PAWNSHOPS - considered as a financial institution under non-baking; a collateralized institution

Financial Markets
 A mechanism in which buyers and sellers trade financial assets (stocks, bonds, currencies, etc.)
 They provide for a forum/platform onto which the providers and demanders of funds can do financial
transactions directly
 Place where transactions happen
 considered as FORA or forums/platforms
 Derivatives - (a general term of exchange rate without any value) are securities which does not have
value of their own but takes its value from another instrument; works as a hedging instrument;
secure yourself from fluctuations from foreign exchange rates; is basically taking its value on the
difference between on the agreed upon exchange rate and the exchange rate on the date of the
agreement; can be called an option
 If you want to protect yourself from the fluctuations from foreign exchange, get into an agreement
from a financial institution to take the loss from a foreign exchange rate

CATEGORIES OF FINANCIAL MARKETS

Spot Market - provides for a platform where the goods/services/instruments beings sold are agreed and
delivered on the spot; agreement should be done on the spot; one time transaction usually; immediate
delivery

Futures Market - what you sell and buy are items are perfected that are agreed upon as parties to the
contract; specific date that you should agree from the goods that you are selling and buying; somewhat a
reservation; there’s agreed upon date on the contract of transaction

The difference of spot and futures market is the date of the perfection or the transaction of goods

1. Physical Market - a market where consumer goods are sold; sells tangible items
2. Financial markets - provides for a forum where you can sell financial instruments; intangible goods

2 Types of Markets

= main difference is how virgin the instruments are; the times you introduce a share; as long as the
instruments were not previously to anyone
 1. Primary Market
1. As long as the instruments/shares were not previously sold/issued to anyone or any market
it’s considered to be in a primary market
2. needs help of the underwriters in this case
3. the corporation is directly involved in the transaction
4. sellers of your security
5. look at the instrument if the instrument were not previously sold to anyone
6. in the case of treasury shares
2. Secondary Market
1. a market where secondary instruments (previously issued instruments/securities) are being
sold
2. shares are pre-owned
3. x sells y shares to company z

2 types of comparative markets

1. Money Market
1. short term instruments
2. with a maturity of less than one year
3. treasury bills, commercial paper… etc.
4. it can convert the money immediately/in a short period of time
5. would always sell debt securities (securities pautang in nature) and no equity securities
2. Capital Market
1. long term instruments/securities
2. with a maturity of more than one year to be liquidated
3. includes instruments without maturity before
4. includes bonds/stocks/derivatives/debt securities/equity securities

Long Term Debt Market

1. Bond Market
1. where are bonds are sold(?)
2. Mortgage Market
1. mortgage lenders can be seen here

Stock Market

 a market where you can exchange stocks

1. Over-the-Counter Market
o there is no specific trading floor used for the exchange
o exchange is made on a telecommunications network doing all the transactions with you
o you are not essentially meeting with other traders of shares in one place but instead uses a
computer and a lot of monitors
o the trading system is in the network/online
 2. Organized Stock Exchange Market
o there is a specific organized platform where you can deal and trade between the
buyers/bidders of stocks and the sellers/offerors of stocks
o there is a process to be followed in doing the transactions and the actual place provided is
similar to flea markets

Derivatives Markets

 instruments whose value is dependent on another instrument

1. Options Market
o market for stock options
o the option to buy stocks at a specific rate which may or may not be lower
2. Swap Market
o market for swapping risks
o can be related to interest swaps