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Financial Markets and Risk in Capital Marketing

1. Explain types of financial markets and importance of financial markets to the economy?
2. Discuss characteristics of financial assets and give examples?
3. What is the difference between financial assets in conventional and Islamic finance?
4. Define money and its different types?
5. Evaluate current financial markets according to their ability to do their function? Hint: explain the function of financial market and give an opinion whether the current financial markets are able to fulfill these functions?
6. Do you prefer bank dominated or security dominated financial market? Explain with giving reasons.
7. Discuss the different types of financial institutions with examples. Hint: give a narrative on the types of financial institutions and try to find more and more in this concern and put also regulatory institution.
8. Compare and contrast equity financing VS. debt financing and their importance to the economy. Which one do you prefer? Also mention the opinion of Islamic finance regarding equity and debt financing (give some narrative about the topic)
9. Provide some narrative about Islamic capital market products: Development and challenges.
10. What are the sources of risk in equity investment?

Solution Preview

Step 1
The different types of financial markets are capital markets, where stocks and bonds are sold, commodity markets where commodities are traded, money markets that provide short term debt financing, derivatives markets where instruments for risk management are sold, futures markets, foreign exchange markets where currencies are traded, and insurance markets. These markets are important for the economy because they enable transactions that affect the economy. For example, the stock market brings together buyers and seller of shares. These markets also provide liquidity; enable raising of capital, and raise loans.

Step 2
Financial assets derive value from their contractual claim. Examples of financial assets are stocks, debentures, and bank deposits. Financial assets can be bought and sold in their respective markets. Some of the characteristics are these are equity instruments of another company, there is a contractual right to receive cash or another financial asset from another entity, and is cash or cash equivalent. Some other characteristics are that financial assets can be held for trading, can be held till maturity, if these are not listed in a market are considered loans/receivables, in accounting, financial assets are measured at fair value.

Step 3
Islamic financial assets are instruments according to Sharia. These instruments do not give interest. These instruments pay halal profits based on business. These instruments include the giving of Zakat or giving the poor their due. There is ethical investment. The profit-loss sharing is the source of returns on investment. So, the key differences are in case of Islamic financial assets there is no interest or predetermined return on savings. Islamic bonds are called Sukuk. Current accounts and savings account operate similar to conventional accounts but do not pay interest. Investment account gives returns which depend on the performance of the business projects of the banks.

Step 4
Money is the current medium of exchange and is in the form of banknotes, and coins. Money is a medium of exchange, gives purchasing power to customer to pay, it is a unit of account, and is a unit of ...

Solution Summary

Capital markets are discussed step-by-step in this solution of 1432 words. The response also has the sources used.

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