1. 1 Financial markets

2. 2 Necessity Financial system of Financial Markets Flow of funds Overspending Loan Incomes Time Money Pay back, savings Expenditures Rate of households savings:

3. 3 Necessity Financial system of Financial Markets Flow of funds Incomes Évek Dollar Expenditures Investments Rate of households savings: -100%102030 Source: OECD and international statistics Italy Japan Swiss France Austria UK USA Netherlands Sweden Norway

4. 4 Necessity Financial system of Financial Markets Flow of funds Households’ expenses (purchases) Governmental expenditures Taxes Households’ incomes (salaries, wages) Retained earnings Government Financial system Households (surplus units) Firms (deficit units) Lending Borrowings Debts service Return Government

5. 5 Necessity Financial system of Financial Markets Flow of funds Surplus Deficit Direct claims indirect flow of funds direct flow of funds Securities dealer money indirect claims money security, credit Commercial Banks Depository Institutions Insurance Companies Pension Funds Investment Companies Finance Companies Mutual Funds

6. 6 Types of Financial system Financial Markets Flow of funds Duration:money and capital markets Issuing:open and closed markets Function:primary and secondary markets Expiration: prompt and future markets Concentration:concentrated, OTC and decentralised Types of financial assets:security and foreign currency

7. 7 Capital Market Financial system Information Sys. Guaranties of security markets quick accurate reliable relevant available Price determination Brochure Regular report Extraordinary report

8. 8 Financial system Regulation and concentration Concentration Regulation (Standardisation) DecentralisedConcentrated OTC geographically distributed participants contract no boundary conditions lack of information cheap (third market) geographically concentrated auction (demand) – market of unique products – price: based on bidding tender (supply) stock exchange of homogeneous mass prod. – perfect market price interbank online network security, exchange etc. intermediary firms technical boundaries price: traders negotiation quick and cheap

9. 9 Classification Securities I. Types of securities Yield of security Formally not yielding Fixed interest rate Variable yielding Territory of Sales –Domestic trading –International trading Issuer –Government sec’s –Issued by financial company –Issued by firms Owners of Security –Open to public –Closed to public

10. 10 Bond Securities Types of securities Credit - surpluss Loan Long expiration (usually) Investment financing Pay back: face value + something (generally interest) No membership rights Payback can be –on the expiry date the total amount –Annuity type –After a given period as annuity –etc.

11. 11 Stock Securities Types of securities Stockholders are the owners of the corporation. Therefore it means a permanent financing (no expiration), the face value represents a part of the equity so the owners of the shares have ultimate control of the company, i.e. right to vote. Ownership rights –Right to vote –Rights to control –Remonstrate rights

12. 12 Hungarian Government Securities Gov. Sec. market Role in the Economy Immobilisation: issuing only one but merged security (this is printed out and deposited). Smaller units of the series is recorded as electronic sign. Only those are printed which is intended to purchase by smaller investors. The deals are clarified by Central Clearing House and Depository Ltd. (KELER)

13. 13 Government Securities Forms of selling 15 primary dealers Secondary markets However the Hungarian State Treasury Government Debt Management Agency (ÁKK) has the rights to sell to smaller investors as well.

14. 14 Hungarian Government Securities Gov. Sec. market Role in the Economy Immobilisation: issuing only one but merged security (this is printed out and deposited). Smaller units of the series is recorded as electronic sign. Only those are printed which are intended to be purchased by private investors. The deals are clarified by Central Clearing House and Depository Ltd. (KELER)

15. 15 Stock Exchange Economic significance Organised capital market for the free surpluses Stock exchange just gives the place Gives alternatives for the investors Continuos, public valuation of corporations Government independent indicator

16. 16 Development of Stock Exchange Stock Exchanges Economic significance Antwerpen1531. Amsterdam 1611. London 1802. Toronto 1852. New York 1792. I. Sydney 1834. Johannesburg 1887. Tokio 1878.

17. 17 Types of Stock Exchange Stock exchanges Economic significance Classification upon the circulated commodity General Commodities grain non-ferrous metal spirit Specialised for given group of goods sugar cotton Plane rubber Specialised for a unique commodity Special Commodities Commodity Exch. Commodity and Stock exch. General Stock Exch. Foreign Currency Stock Exch. Precious Special Stock Exchange Exchange metal Stock Exch.

18. 18 Stock Exchange Operation Deák F. str. 5. Brokerages Budapest Stock Exchange Treasury Central Bank Investors Budapest Commodity Exchange Debt Man. Agency Listed Corporations 7,25 % 92,75%