Components of Financial Market and Its Relevance to Jagdambay Exports

2021-07-13 16:29:33
7 pages
1729 words
University/College: 
Carnegie Mellon University
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Research paper
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The financial market dynamic and refers to a type of market that deals with buying and selling of financial securities and assets (Petty et al., 2015). The major instruments applicable in the market are attached to financial values. Notably, the financial market is categorized into capital and monetary markets having different instruments and which jointly forms the financial market.

Types of Financial Market

Money Market

It is a market that deals with short-term debt financial instruments (Boehme, & Colak, 2012). In other words, the debt components issued in this market are repayable within a period not more than a year, and they include; Treasury bills, Repurchase agreement, Commercial papers, Certificate of deposit and Call loans (Boehme, & Colak, 2012). These components are unique to this type of financial market because of the duration and period of issue.

The noted instruments of the money market are unique as they have differing characteristics though they serve a similar financial purpose. For example, they provide lenders with an opportunity to display their monetary assets and offer better short-term financial assistance to borrowers based on signed agreements. Furthermore, despite the differing terms and conditions, the financial value and repayment periods tend to be the same unless the terms and conditions are relaxed.

Capital Market

Unlike the monetary market, capital market deals with the long-term loan financial assets repayable in a period more than a year. Components of this market include; -Shares and stocks, bonds, debentures, mortgages and treasury notes (Boehme, & Colak, 2012). These are the commonly used instruments having differing features unique to an individual instrument to suit the differing demands of the borrowers.

The two markets are crucial to the entire financial environment and affect the lenders and borrowers directly. Also, they are attached to financial institutions acting as a source of their stability and instability depending on the economic situation and global financial constraints.

The financial market is critical and largely affected by not only the national financial environment but also global. The requirements placed by the world bank, trade sanctions and regional trade agreements directly influences the financial market. Conversely, the normal market for assets are largely influenced by the governmental policies and the invisible forces of demand and supply. It, therefore implies that a nation may determine the forces affecting the market for assets and other consumable products and this is unique from an individual country to another. For this reason, a greater disparity exists between the two financial markets.

For the Chief Financial officer at Jagdambay, understanding the government restrictions and financial policies that come with increasing the size of the firm is critical. Obviously, the financial aid is available for all banks but the repayment period is important. The finance officer needs to assess the market, weigh the expected revenue after a certain trading period and determine whether the repayment period may fall within a year or more than a year. In this case, the business wants to expand, implying that, the aid required needs to fall within the capital market hence the long-term financial requirement.

Relevance of Money and Capital Market for Jagdambay

The money and capital markets are critical to the future of any business because of the unexpected financial demands that may be needed to meet different enterprise needs (Hong, & Yogo, 2012). Importantly, in the life of business, demands vary from long to short term hence may need different financial aid. According to Jagdambay, the monetary market is critical since it may intervene in providing immediate financial aid which may be repayable semi-annually or on a quarterly basis. The capital market, on the other hand, is capable of providing Jagdambay with long-term financial aid enough to expand the market, open branches and also expand the number of employees. Based on the amount, it may be repaid after 10 years. Jagdambay export being a potential business institution depending on investors for its expansion, is directly dependent on both capital and financial markets for its survival, growth, and expansion to different niches.

The primary and secondary markets are of greater significance to Jagdambay in raising funds for its expansion. Logically, it is wise to issue additional stocks to new investors rather than expanding the ownership of other existing investors (Hong, & Yogo, 2012). The fact that new common stocks were issued was significant as it raised additional funds to the company. Furthermore, the fact that, 1000 of the common stock were purchased by a different investor from the underwriter implies that even the market increased. Investors themselves bring the additional market into the institution. It is therefore beneficial to create new stock and sell them at higher prices compared to the prices of the previous stock.

Notably, in the secondary market, the Jagdambay needs to consider reselling the common stock or advising the new investors to purchase the shares from the available underwriters willing to make sales. The advantage is the fact that the institution will be in a position to make additional funds but though not compared to primary issued stock where all the funds are subjected to the company. It is therefore prudent that the Chief Finance officer consider creating new stocks and availing them in a primary market to attract more funds and also widen the market.

Ways in Which Capital may be transferred between Savers and Borrowers

Capital may be transferred from an individual or institution to an intended destination in some ways;

Direct Transfer

It involves the transfer of tax-deferred financial assets from one account or plan to the borrower (Mendell, & Barbosa, 2013). It is not considered similar to other fund distributions and therefore not taxable. It is fast and simple as it involves electronic transfer provided the plan is qualified. Therefore, investors are obliged to conduct a direct sales or purchase of the bond or intended security through the financial institution hence tax evasion.

Direct transfer is imperative in the sense that, it is convenient for both the buyer and seller to make the exchange of the stock and bond. It also saves on time and cost as the exchanges occur online through the internet hence no commissions or any charges incurred. Furthermore, the business itself submits the securities to the saver who in turn subjects the funds into the enterprise.

Even though the approach is vital and of significance to both the saver and the buyer, it also comprises some disadvantages to both the buyer and seller. A new individual may be advised wrongly and subject funds to a less productive investment hence a possible loss. To an institution, the fact that they possess securities gives them more responsibilities hence a wider management scale which is expensive.

Investment Banking House

It is an approach where the investor conducts the act of investing through the banking house. The company sells the stock to an investment bank which later provides to savers in the form of securities. Furthermore, an underwriter may be used as middlemen to escalate the process.

The advantage of this method is the fact that, through the investment banks, savers are provided with professional advice on how to wisely invest funds hence safety of funds (Mendell, & Barbosa, 2013). The only disadvantage that may accrue is because processing the funds from the investment bank may take time compared to direct investment.

Financial Intermediaries

These are chartered banks, insurance, funding institutions, and other investment dealers. It is advantageous as most of these dealers have professional understanding hence decreases the risk of loss (Brigham, & Houston, 2012). Also, it saves the cost, and quick transfer may be possible. The disadvantage is the fact that, not all the intermediaries can be trusted hence it requires a scrutiny to determine the trustworthy intermediary.

From the highlighted approaches, the direct transfer is more relevant and applicable. The fact that it is direct, fast and lacks charges makes it more convenient hence a perfect source for fund acquisition and transfer.

Exchanges and Over the Counter Markets

An exchange is a particular place where trade stocks and stockbrokers trade securities and stocks (Brigham, & Houston, 2012). Normally, every country holds at least one, for example, the USA applies the two primary exchanges that is; the New York Stock Exchange (NYSE) and American Stock Exchange (ASE) plus other small local and regional companies. The major feature of this trade is the fact that the exchange process is centralized.

On the other hand, over the counter market is decentralized where not only the listed securities may be traded. The deals occur directly between the dealers as all the participants quote their prices before execution of the process ( Petty et al., 2015). Similarly, in the USA the dominant market is the National Association of Securities Dealers Automated Quotation (NASDAQ). It is characterized by little regulations, high competition, and decentralization aspect.

For the Chief Financial Officer of Jagdambay, the best market to participate in the selling of the stock is the Over the counter market since it attracts more dealers compared to exchange. Furthermore, because of decentralization aspect, fewer restrictions, and competition, returns are bound to be high compared to the exchange market.

In summary, the United States Financial market is dynamic and avails opportunities to all companies in need of financial assistance through exchange and over the counter markets. Special agencies are present to ensure reliability and professionalism are employed in the process of making agreements. For the Jagdambay, direct transfer via over the counter is preferable with a motive of attaining enough funds in a diverse, competitive market. The fact that it is a foreign firm makes it suitable to operate in an avenue having fewer regulations.

The US Financial system is stable and provides opportunities to all firms regardless of their size for purposes of growth and survival. Any firm regardless of its origin is supported and allowed to achieve the means through all the available financial market instruments.

 

References

Boehme, R., & Colak, G. (2012). Primary market characteristics and secondary market frictions of stocks. Journal of Financial Markets, 15(2), 286-327.

Brigham, E. F., & Houston, J. F. (2012). Fundamentals of financial management. Cengage Learning.

Hong, H., & Yogo, M. (2012). What does futures market interest tell us about the macroeconomy and asset prices?. Journal of Financial Economics, 105(3), 473-490.

Mendell, M., & Barbosa, E. (2013). Impact investing: a preliminary analysis of emergent primary and secondary exchange platforms. Journal of Sustainable Finance & Investment, 3(2), 111-123.

Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015). Financial management: Principles and applications. Pearson Higher Education AU.

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