Financial Markets in Pakistan Essay Example for Free

financial foodstuffs in Pakistan EssayA financial grocery store is a belongings for buying and selling of financial securities such as line of productss and bonds. It facilitates* The raising of capital (in the capital markets)* The tape drive of training of gamble (in the derivatives markets* In matching those who want capital to those who pack it. Financial Market in Pakistan consists of (i) Money Market which provides short term currency and (ii) Capital Market which makes long terms notes available to businesses and industries. The Financial market can be reclassified into (i) Primary Market in which new sh ares or bonds are issued and (ii) unoriginal Market in which securities previously issued are traded such as Shares, Bonds, Commercial Papers, Options and Mutual Fund. Of this, the cashboxing sectors and non-banking sectors are modulate by the central bank, State margin of Pakistan. While rest of the market (lease, railway line exchanges, modarba, mutual funds and insurance) is regulaled by Secruities and Exchange Commission of Pakistan.FINANCIAL MARKETS AND THEIR ROLESCOMMERCIAL BANKSA sign of bank providing checking and saving accounts, assent cards and business loans. Such a bank induces general public to deposit their savings in the banks and offers a wide range of services such as* Deposit Mobilization* Money transfer* Financing Working Capital* Financing otherwise trade related mode (import and export)* Investing in g everyplacenment securities* Call money operationsThese banks are of three categories (i) Public Sector Banks, (ii) Private Bank and (iii) Foreign Banks.LEASE -FINANCE EQUIPMENTINVESTMENT BANKSInvestment banks perform a variety of functions. Primarily, they assist corporations to raise equity-capital by underwriting the public issues. They also assist companies desiring of mergers and acquisition and derivatives. In addition, they provide services like trading of derivative, contradictory exchange, fixed incom e instruments and shares listed on the stock exchanges. Such banks cannot take deposits. They manage their affairs by charging fees such as (i) retainer fee, (ii) advisory fees based on the transactions, (iii) commission on underwriting and (iv) other financial services.PICIC was once a premier development in Pakitan but has merged with a commerical bank.BOND MARKET OUTLOOK festering BANKSThese banks provide guidance in selection of industrial units and extend direct financial assistance to partially cover their financial requirements. Also, they engage themselves in promotional activities to attract investors towards neglected sectors through publishing brochures and seek papers. Besides, they help in assessing feasibility of potential projects. Such banks are responsible for speeding up the whole tone of economic growth in the country in conformity with the national objectives, plans and priorities. Their core functions are* groom financial assistance* Catalytic function* Mobil ization of domestic savings* Ensuring balance regional and industrial growth* Expanding entrepreneurial base by encourage new comersAt one time, there were 14 Development Banks in Pakistan. However, most of them have been closed one after another as their insalubrious debts mounted up. It is natural as they take substantial stakes in promoting new types of industrial projects in develop areas sponsored preferably by new-comers. Nevertheless, their contribution brings fruits to the economy in the shape of successful industrial units and transfer of technology. At present, 8 development banks are operating which mostly are joint-venture with other Islamic Countries.MICROFINANCE BANKA microfinance bank would cater to the credit entry needs of poor ho partholds and their small enterprises. Thus microfinance bank provide credit to those poor who are not considered creditworthy by the commercial banks and other financial institutions. On the other hand, the microfinance bands recogni ze every single human being as a potential and creditworthy entrepreneur. In addition, they provide basic training in start of a small business, simple book-keeping and accounting. The main design of microfinance institutions is alleviation of poverty through helping poor persons to earn just about money especially the women.Muslim BANKSIn Islam, it is prohibited to charge interest on any loan. However, it is acceptable to pass on funds to a needy person or corporation for trade purpose in which case emolument could be shared on an agreed basis whereas loss should be shared according to the funds invested. Besides, there are certain businesses where any form of vie is forbidden like alcohols and pork. Accordingly, Islamic bank refer to a banking activity which is consistent with the Sharia, the Islamic Laws. Otherwise, there is no difference in the midst of the conventional banks and the Islamic bank.DISCOUNT HOUSESThese are firms which buys and discounts bills of exchange, ba nker acceptance, commercial paper, etc. Discount houses also tender for treasury bills, deal in short-dated government bonds, and are an important part of the short-term money markets.INSURANCE COMPANIES restitution is a hedge against the risk of a contingent and uncertain loss. In other words, it is the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. For this service, the insurer charges a fee called premium depending upon the risk involved. Besides traditional insurance companies, there are many Islamic insurance companies in Pakistan cognize as Takaful operators. Takaful is an Islamic insurance concept based on mutual co-operation, responsibility, assurance, protection and assistance between groups of participants. These companies believe in promoting the cause of Takaful as well as promoting the insurance business in a Shariah Compliant i.e. halal and absolutely Riba-Free insurance.STOCK EXCHANGES entrepot exchange is a place where securities are bought and sold. Such securities include shares, derivative, unit trusts and bonds. It also provides facilities for the issue and redemption of securities. Prices of shares and bonds are influenced by their demand and deliver like in other commodities. In order to list a security on the stock exchange, there are certain requirements. Transactions in the stock exchange are conducted by members only. Stock exchange serves both as a primary market for the initial public offerings and as a secondary market for their subsequent buying and selling Investors are not bound to sell stock or bond through the stock exchange. They can directly deal with the seller. Similarly, there is no urgency that stock must be traded on the exchange. The securities can change ownership out of the exchange which is called over the counter or curb dealings.LEASINGIt is a contract where owner of an asset agrees to allow someone to use it for a fixed rental. It can be for fixed or indefinite p eriod of time. It is a masking contract which sets out terms of lease agreement between the owner and the user. Leases are of various types chiefly (i) a financial lease and (ii) an operating lease. The financial lease is long-term and non-cancellable contract where the user assumes some of the risks of ownership and has the right to keep the assets or get it transferred to its own name after fulfilling the necessary conditions. In operating lease, the owner transfer only the right to use the assets which is returned back at the end of the lease. in that location are some other types especially in the aircraft industry like wet lease and dry-lease and. In wet lease, a company agrees to provide an aircraft along with pilot and crew and would be responsible for the living of the aircraft. Dry lease, on the other hand, refers to leasing only the aircraft.MODARBAIf is a form of partnership which has two distinct parties (i) the moneyman and (ii) the manager. The financer takes no p art of management of the business. The profits are distributed among the subscriber while the manager is paid the mutual salary. Modarba is one the modes of Islamic finance. It is like mutual fund minus its un-Islamic features. Not only in Pakistan, the Islamic financial services industry has witnessed a phenomenal growth all over the Islamic world. In particuar, the Modaraba Sector has been able to create a market niche for itself in the corporate sector. This model is enjoying a unique recognition due to its well designed structure with proper rules and regulations defined by the regulators. It has proven its resilience in this time of global financial turmoil.MUTUAL FUNDIt is a professionally managed type of pooled investment for acquiring securities like stocks, bonds, marketable securities and commodities. The profit is distributed by way of dividend to all investors. Financial market in Pakistan experienced boom conditions in1991 due to liberalization policies of the governme nt. There was a manifold increase in the number of listed companies number of commercial banks, local and foreign and financial instruments like commercial paper.But it has simmer down to develop and a number of suggestions have been made * The public sector should reduce its dependence on State Bank of Pakistan. * The infrastructure projects should be financed through domestic bonds of longer maturities (10-20 years). * The financial sectors (capital markets, micro credit, banking and non-banking sector) should have a better and more clearly delineated division of responsibilities. * Foreign institutional investors should be back up to take up (i) private equity funds, (ii) private pension funds, (iii) provident and gratuity funds and (iv) square Estate Investment Trusts. * Mortgage financing should be encouraged.