Financial Environment

Financial environment is the outcome of a range of functions of the economy on all financial outcomes of an area or a country. It includes forex markets, bond markets, stock markets and commodity markets. Financial information is used to measure performance and help make decisions about how an organisation should operate. Despite its importance, many managers do not fully understand the financial information they use or how it fits into a wider business context.

'Financial Market'
A market is a place where two parties are involved in transaction of goods and services in exchange of money. The two parties involved are:

Buyer Seller
In a market the buyer and seller comes on a common platform, where buyer purchases goods and services from the seller in exchange of money.

What is a Financial Market ?

A place where individuals are involved in any kind of financial transaction refers to financial market . Financial market is a platform where buyers and sellers are involved in sale and purchase of financial products like shares, mutual funds, bonds and so on. Let us go through the various types of financial market:

Capital Market
A market where individuals invest for a longer duration i.e. more than a year is called as capital market. In a capital market various financial institutions raise money from individuals and invest it for a longer period. Capital Market is further divided into: i. Primary Market: Primary Market is a form of capital market where various companies issue new stock, shares and bonds to investors in the form of IPOs (Initial Public Offering). Primary Market is a form of market where stocks and securities are issued for the first time by organizations. Secondary Market: Secondary market is a form of capital market where stocks and securities which have been previously issued are bought and sold.

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Types of Capital Market

1. 2. 3. Stock Markets: Stock Market is a type of Capital market which deals with the issuance and trading of shares and stocks at a certain price. Bond Markets: Bond Market is a form of capital market where buyers and sellers are involved in the trading of bonds. Commodity Market: A market which facilitates the sale and purchase of raw goods is called a commodity market. Commodity market like any other market includes a buyer and a seller. In such a market buyer purchases raw products like rice, wheat, grain, cattle and so on from the seller at a mutually agreed rate.

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Money Market: As the name suggests, money market involves individuals who deal with the lending and borrowing of money for a short time frame. 5. Derivatives Market: The market which deals with the trading of contracts which are derived from any other asset is called as derivative market. 6. Future Market: Future market is a type of financial market which deals with the trading of financial instruments at a specific rate where in the delivery takes place in future. 7. Insurance Market: Insurance market deals with the trading of insurance products. Insurance companies pay a certain amount to the immediate family members of owner of the policy in case of his untimely death. 8. Foreign Exchange Market: Foreign exchange market is a globally operating market dealing in the sale and purchase of foreign currencies. 9. Private Market: Private market is a form of market where transaction of financial products takes place between two parties directly. 10. Mortgage Market: A type of market where various financial organizations are involved in providing loans to individuals on various residential and commercial properties for a specific duration is called a mortgage market. The payment is made to the individual concerned on submitting certain necessary documents and fulfilling certain basic criteria.

Financial instruments in Pakistan

In Pakistan there are a number of financial instruments which are traded in the capital market. Before the discussion is extended to the topic a brief description is necessary about the financial market. These are of two types: (1) Primary Market, is one in which new financial claims are issued, (2) Secondary Market, is one in which previously issued financial claims are traded; this is a conceptual definition but there are many cases in which it becomes blurred in practice. Broadly speaking financial instruments can be classified as under:Common Stock, Bonds, Commercial Papers, Options, Forward Foreign Exchange Contracts, Deposits, Insurance Policy, Mutual Fund etc. Shares Some of the securities will be discussed in detail, common stock or ordinary shares are issued by public limited companies for securing fund from the public against the issue of shares. Prices of the shares are determined by the rule of demand and supply, shares of the companies. With good performance and higher pay-out are in demand and their market prices are higher. Bonds Different types of bonds are issued by the Government of Pakistan. Most common are the prize bonds of different denominations. They are issued by State Bank of Pakistan to general public. Periodical balloting is held for the distribution of cash prizes they carry. WAPDA Bonds They are of two types: registered & Bearer Bonds. Return on these bonds is 19 per cent per annum and is payable every sixth month, the period for maturity is 10 years. These bonds are acceptable as security in lieu of bid bonds, earnest money, bank guarantee, performance bond by WAPDA etc. The bonds are available in the denominations of 10,000/-, 50,000/100,000/- and 500,000/- each. Recently the government has issued sixth subscription of WAPDA Bonds. Euro Bonds These bonds are floated in European Market in order to generate funds in international currencies. They are issued in US dollars, Swiss franc, Japanese yen & German mark (DM), 56 per cent of the total floatation are in US dollars. Euro Bonds issue would require a company to have a credit rating from one of the rating agencies and a market, a capitalisation of US$ 1 billion. Dewan Salman Fabric is the first Pakistani company to go for such an issue.

These vouchers will act as a first step in the privatisation of Pakistan Telecommunication Corporation. In total 1 million vouchers were offered for sale at @ Re.30 per voucher. Each voucher will be represented by one certificate of PTCL which will be exchangeable by 100 shares of PTCL, within a period of two years. These vouchers are backed by the buy bank guarantee of government of Pakistan at the rate of Rs.38.40/- voucher if, for any reason, the company was not quoted by August 17, 1996. In addition to these Financial Instruments there are various types of instruments issued by NDFC, NIT, IDBP, ICP & National savings etc. These vary in return depending upon the period of maturity for which they are issued.