1、Part Financial MarketsChapter 1 Functions of Financial MarketsChapter 2 Money MarketsChapter 3 Capital MarketsChapter 4 Foreign Exchange MarketsChapter 1Functions of Financial Markets 1.1 Significance The word “finance” signifies capital in monetary form, that is, in the form of funds lent or borrow
2、ed, normally for capital purposes, through financial markets or financial institutions. When finance goes international, it is then an international finance. What is a financial market? It is a place where financial transactions take place. Financial markets facilitate the lending of funds from save
3、rs to those who wish to undertake investments. Those that wish to borrow to finance investment projects sell financial instruments to savers. When an investor purchases the securities issued by ultimate borrowers (those who use the funds to invest in real assets), capital market operations for equit
4、ies, bonds would fall largely into this category. When an investor chooses to invest in the obligations of financial intermediaries, which in turn lend the funds to those who invest in real assets, they are operations in money market for term deposits and loans, interbank transactions of such nature
5、. The primary distinction between the two channels is that, in the first case, i.e. direct financing, the investor is faced directly with the credit risk of the issuer, while in the second case, i.e. financing through financial intermediation, a financial institution, such as a bank, interjects itse
6、lf between users and providers of funds. Any analysis of the sector of money market dominated by financial intermediaries must be very much concerned with these financial institutions themselves (their policies, financial conditions and official regulatory environment) in addition to those factors g
7、overning the suppliers and users of funds. International financial transactions include purchases and sales of foreign currency, securities, gold bullion, and lending and borrowing. Foreign exchange marker deals with the exchanges of different means of payment. These exchanges are necessary for inte
8、rnational capital flows. As the relative values among different currencies (the exchange rates) will fluctuate according to economic and political circumstances of the currencies of the relative countries, international investors or financiers face exchange risks. To this end, foreign exchange marke
9、ts provide services, such as forward transactions and foreign currency futures to eliminate such risks. 1.2 Functions Apart from borrowing from banks, a firm or an individual can obtain funds in a financial market in two ways. The most common method is to issue a debt instrument, such as a bond or a
10、 mortgage, which is a contractual agreement by the borrower to pay the holder of the instrument fixed amounts at regular intervals (interest and principal payments) until a specified date (the maturity date), when a final payment is made. The maturity of a debt instrument is short-term if its maturi
11、ty is less than a year and long-term if its maturity is ten years or long. Debt instruments with a maturity between one and ten years are said to be intermediate-term. The second method of raising funds is by issuing equities, such as common stock, which are claim to share in the net income (income
12、after expenses and taxes) and the assets of a business. Equities usually earn periodic payment (dividends) and are considered long-term securities because they have no maturity date. A primary market is a financial market in which new issues of a security, such as a bond or a stock, are sold to init
13、ial buyers by the corporation or government agency borrowing the funds. A secondary market is a financial market in which securities that have been previously issued (and are thus secondhand) can be resold. The primary market for securities is not well known to the public because the selling of secu
14、rities to initial buyers take place behind doors. An important financial instrument that assists in the initial sale of securities in the primary market is the investment bank. It does this by underwriting securities, that is, it guarantees a price for a corporations securities and then sells them t
15、o the public. When an individual buys a security in the secondary market, the person who sold the security receives money in exchange for the security, but the corporation that issued the security acquires no new funds. A corporation acquires new funds only when its security are first sold in the pr
16、imary market. Nonetheless, the secondary market serves two important functions. First, financial instruments are more liquid. The increased liquidity of the instruments makes them more desirable and thus easier for the issuing firm to sell in the primary market. Second, they determine the price of t
17、he security that the issuing firm sells in the primary market. The firms that buy securities in the primary market will pay the issuing corporation no more than the price that they think the secondary market will set for this security. The higher the securitys price in the secondary market, the high
18、er the price that the issuing firm will receive for a security in the primary market and hence the greater the amount of capital it can raise. Conditions in the secondary market are therefore the most relevant to corporations issuing securities. It is for this reason that studies dealing with financ
19、ial market focus the behavior of secondary markets rather than primary markets. Another way of distinguishing market is on the basis of the maturity of the securities traded in each market. The money market is a financial market in which only short-term debt instruments (maturity of less one year) a
20、re traded; the capital market is the market in which long-term debt (maturity of one year or longer) and equity instruments are traded. Money market securities are usually more widely traded than long-term securities and so they are more liquid. In addition, short-term securities have smaller fluctu
21、ations in prices than long-term securities, making them the safer investment. As a result, corporations and banks actively use this market to earn interest on surplus funds that they expect to have only temporarily. Capital market securities, such as stocks and long-term bonds, are often held by ind
22、ividuals and 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. Chapter 2 Money Markets 2.1 Characteristics Money market instruments, which are discussed in detail later in this chapt
23、er, have three basic characteristics in common: They are usually sold in large denominations. They have low default risk. They mature in one year or less from their original issue date. Most money market instruments mature in less than 120 days. The well-developed secondary market for money market i
24、nstruments makes the money market an ideal place for a firm or financial institution to “warehouse” surplus funds for short periods of time until they are needed. Similarly, the money market provide a low-cost source of the funds to firms, the government, and intermediaries that need a short-term in
25、fusion of funds. Most investors in the money market who are temporarily warehousing funds are ordinarily not trying to earn unusually high returns on their money market funds. Rather, they use the money market as an interim investment that provides a higher return than holding cash or money in banks
26、. They may feel that market conditions are not right to warrant the purchase of additional stock, or they may expect interest rates to rise and hence not want to purchase bonds. Idle cash represents an opportunity cost in terms of lost interest income. The money markets provide means to invest idle
27、funds and to reduce this opportunity cost. At the same time, the sellers of money market instruments find that the money market provide a low-cost source of temporary funds. Why do corporations and tPart Financial CommunicationsChapter 9 Banking Communications on Remittance and CollectionsChapter 10
28、 Banking Communications on Letter of CreditChapter 11 Correspondent BankingChapter 12 Credit Inquiry Chapter 9 Banking Communications on Remittance and Collections 9.1 Mail Transfer Mail Transfer(信汇)是汇出行应汇款人的要求，将付款指示以邮寄的方式转递给汇入行。下面是汇入行写给汇出行的电函，电函中说明因汇出行在信汇委托书上漏写了受益人的账号，故无法解付此款。Re: Your Mail Transfer
29、 dated March 10, 2005With reference to your captioned mail transfer, we regret to inform you that we are unable to effect payment due to the absence of the account number of the beneficiary in the mail transfer given. Therefore, we shall appreciate it if you will make us informed about it as soon as
30、 possible.We look forward to your early reply. 9.2 Demand Draft Demand Draft(票汇)指的是汇出行应汇款人的申请，代汇款人开立银行汇票，并由汇款人交给收款人，最后通过银行办理托收或直接解付票据款项。下列电函是有关出票行，即汇款行对丢失票据的止付通知。Re: Our Draft No. 12345In respect of our draft No.12345 which was reported missing, we wish to advise you that our New York Office has pla
31、ced “stop payment” to the above-mentioned draft as requested.If you want the amount of the draft to be paid by our New Your Office, you may approach them direct with a Bankers Letter of Indemnity acceptable to them. 9.3 Telegraphic Transfer Telegraphic Transfer(电汇)是汇出行应汇款人的申请，通过SWIFT指示和授权汇入行解付一定金额给收
32、款人的汇款方式。Re: Your Telegraphic Transfer on May 5, 2006With reference to your captioned telegraphic transfer, we find that there is no account number of the beneficiary. Please look at the matter and make us informed the result. 9.4 Accounts Intercourse 账户往来分为银行之间和银行与客户之间两种情况。(1) 银行帮助客户办理销户并转移资金的电函。Re:
33、 Transfer of Grays Account # AO 1234Enclosed are savings passbook # AO1234 and customers draft # B 5678 in the name of Sam Gray. Please close the account and forward the principal balance plus any accrued interest to OVERSEAS CHINESE BANK CORP., LTD. A postage paid envelope is enclosed for your conv
34、enience.We thank you for your assistance in this matter.(2)银行通知客户关闭支票账户。Re: Your Unused Cheques Nos. 33478 & 33479 for Closing Your A/CAccording to our regulations, our customers should return all the unutilized blank cheques to us for cancellation before closing their checking accounts in our books
35、. We shall appreciate it if you will send back to us the unused cheques in connection with your account No. 33671 so that we can remit the balance to your account with ABC Bank, New York.We thank you for your cooperation.(3)银行通知客户账户透支并帮助客户申请信用额度。Re: Your Account 12345 OverdrawnThe amount of your acc
36、ount overdrawn at close of business yesterday was USD2000 and it will be appreciated if you could arrange for credits necessary to clear this balance as soon as possible. Overdrafts are allowed to customers only by previous arrangement, and we notice that your account runs on a very small balance. Y
37、ou may need to come to some arrangement for overdraft facilities. If so, please bring with you details of the contracts you mentioned and also a copy of your last audited balance sheet next week, and we can then go more fully into the question of overdraft facilities.(4)请求在对方银行开立一个人民币账户。Re: Opening
38、a Renminbi AccountIn recent months, we have been asked to open an increasing number of letter of credit denominated in Renminbi by our clients.In this regard, we feel that rather than asking you draw in USD on our New York correspondent in reimbursement of each negotiation, it may be simple for us t
39、o open a Renminbi account with you and to give you the authority to fund the account by drawing on the FIRST SAUDI BANK, New York in certain amount of US currency when funds are required. Negotiations under our Renminbi letter of credit can then be debited to the account in your books.If you deem this arrangement acceptable to you, we will give you the necessary authority to draw on the said FIRST SAUDI BANK, New York, whom we shall authorize to honor your drawings.We anticipate to receive your early favorable reply. (5) 有关我们银行账户(12345)的对账单。Re: Statement of Our A/C No. 12345As you
