Introduction to Financial Market

 

Financial Market

A linkage between savers and those who need funding, which can be categorized into 2 types:

1. Money Market is a market that seeks funding from the public and offers short-term loans of no more than 1 year, includes Bill of Exchange, Promissory Note and Treasury Bill.

2. Capital Market is a source of fund that offers long-term loans that last more than 1 year.


Financial Instruments that you should know

1. Debt Instrument
2. Equity Instrument
3. Derivative Instrument

   

 

Investment Risks

All types of investment come with different risks.  More risks could mean more opportunities that the return on investment will not be as much as expected.  For mutual funds, the risk lies with the types of investment it makes.  Mutual funds that make a high-risk investment, such as stocks and derivatives, will carry more risks than those investing in such debt instruments as government bonds and treasury bills.

 

High Risk

 


 

Low Risk

   

 

Types of Risk

1. Credit Risk incurs when the issuers of debt-instrument fail to pay back the principal and/or interest as promised.

2. Market Risk incurs from the fluctuation in price or overall return as a result of economic or political factors, or baht or interest rate volatility.

3. Liquidity Risk incurs from the inability to sell or buy such debt instruments within the period or at the price initially agreed, due to limited trade opportunities.

4. Interest Rate Risk incurs when the price of the debt instrument goes into an opposite direction of the interest rate.  The longer the life of the instrument has left, the more the change of the interest rate will affect the price.

5. Business Risk involves the change in the company’s profitability; a scenario that may lead to a disappointing rate of return for the investors.

 

Go To Tp