 Well, hello, everyone. Welcome to this series of presentations. What we're going to talk about is something very exciting. So we'll look at international finance. We're going to have a journey together, examine what our financial markets go through, all the process of how to raise funds, what are the different types of funds that could be raised, how can organizations and governments find the capital to finance their operations, finance their projects. And then we're going to move on and learn a little bit more about financial crises, the genesis of financial crises. And we'll learn even about monetary unions and see what the future of finance looks like. Today, what we're going to do, we'll look at the very first basis of finance and international finance. So we'll look at financial markets. We will examine what financial markets are, the different types of financial markets. We'll also look at bond markets and try to differentiate between the two. So without further ado, let's get started. Our course of faction for today, we'll start first with learning a little bit more about what financial markets are and then we're going to differentiate between the different types of financial markets. After this, we'll move on to understand a little bit more about bond markets, what bonds are, where bonds are traded. And then we will understand what are the different forms available to raise capital. So we'll learn a little bit about equity financing and debt financing. After this, we will see, we will focus on equity financing for a little bit. We will see what kind of shareholders do we have, what kind of rights do shareholders have, what are the different types of shareholding. And then after that, we'll end up with a differentiation between equity financing and debt financing and the rights that are awarded to each real financiers and investors. So first things first, when we talk about financial markets are a very broad umbrella term that encompasses different elements to it. So the very first thing about it, the very first thing that comes into mind is that these markets are places where securities, financial assets, all types of financial assets are basically traded. It is a place where buyers of these assets meet and as well the issuers of these assets meet. So buyers and sellers meet in these places to trade with these different assets. But what are these assets that we're talking about? So these have different forms. They could be either equity or debt. Now in general, what we trade with, we could trade with stocks, shares, bonds, currencies or even derivatives. And if we're looking at these markets, what we will look into is basically how they are classified. And then from there, looking at the classifications of these markets means that we will be looking at what kind of instruments are traded in these two different markets. So we have money markets and then we have capital markets. Normally money markets are dedicated to sell or to trade with short-term debt securities that have maturity rates of around one year or maybe even less than a year. On the other hand, we have capital markets. Capital markets are mostly long-term basis compared to money markets and they trade with maturities that have a little bit longer than a year. So we're talking here about anything above one year goes directly into capital markets. On the other hand, anything that is a year or less is considered as a money market. Now, when we talk about money markets and capital markets, we will try to focus now on capital markets. And the capital markets, these they are normally divided into two main sub markets. So we have primary markets and then we have secondary markets. Primary markets is basically the markets where issuers of the shares or stocks or securities do it for the very first time. And so when you issue a stock for the very first time, it goes directly to a it's directly considered as a primary market. Think about IPOs, initial public offerings. Now, after the security is traded, after this security is issued for the very first time issued through an initial public offering, it then is able, it is then tradable in secondary markets. So secondary markets are basically those same markets that would take that would trade in the securities which were initially offered for the very first time. So assume that you as an organization, as a company decided to issue stocks for the very first time, you will issue it to a group of investors to do an initial public offering to the public. Basically, the very first people who buy into your shares consider I bought into your shares. I was one of the very first ones to buy into your shares. I become directly the holder of that share. Now, if I decided to take my share again and sell it to someone else, this will go through the secondary market. And so an example of the secondary market would be NASDAQ, for example. Now, if we want to look further at the role played by financial markets, it is basically a place where you could raise capital for the organization. So if you're a government, if you're a government agency, consider maybe you are a municipality or maybe you are a state and you would like to raise finances to basically to finance your operations or to finance a particular project. And even if you're an organization, if you're an institution, if you're a company, and you want to raise finances, again, to finance your projects or to finance your operations, what you would do, you would go to financial markets because this is where you can raise capital, you can raise debt and equity capital. And as we will see later on the difference between debt and equity and how they play a role in financing operations. Now, the important thing to understand as well from a perspective of an investor is that through money markets, you as an investor will be prone to risk. And so the risk and the measurement of risk would very much be dependent on how you hedge the different instruments and how you hedge the investments and money market financial markets would help you try to manage the risk by basically trying to hedge these risks through investing in different different instruments, different financial instruments. And again, these are things that we're going to examine together throughout the series of presentations. Now, to take this a little bit further, and for you to understand what are the different categories of financial markets, you will see that we have something called stock markets, and then we have bond markets, and then you have the foreign exchange markets and the derivative markets. All of these are under the financial markets categorization. So stock markets, for example, where you trade with shares, bond markets on the other hand are, as we will see, a debt instrument. So bonds are debt in their nature. So we're talking here about loans when organizations want to issue loans to finance their operations. Foreign exchange, where basically you trade with currencies, with international currencies from different, from all of, from all across the world. Derivative markets is basically when you trade in financial instruments that derive their own value from a different underlying asset. If we're looking at securities markets, here we're talking about a market that trades with bonds and shares altogether. If we're talking about the commodities market, a commodities market are basically places where buyers and sellers trade with material, with raw material. We're talking here about coffee, gold, oil, any agricultural products, all of these are traded under the commodities market. And then we have also the options market, futures and the futures market. So the options are basically contracts between buyers and sellers where there is a right for the buyer basically to buy an underlying asset, to sell an underlying asset or even buy it on an agreed on price, predetermined price basically between the bars and the sellers. And then you have the futures market as well, where basically you trade in contracts that have an obligation to the buyers that basically requires the buyer to purchase an underlying asset again at a predetermined price. But this is basically for the future or on a future date. And then you have something that we refer to as the OTC or over the counter market. And these are more of decentralized markets. These decentralized markets trade with securities that are not necessarily listed in regulated exchanges. And we were talking about regulated exchanges. We're talking here about the New York Stock Exchange, for example. Now a good example of these decentralized markets or over the counter markets would be NASDAQ. Now moving forward, if we want to talk about bond markets, bond markets on the other hand are basically financial markets that trade with bonds. Now bonds are so way that these financial markets, the way that these financial markets or bond markets function are very much similar to other financial markets like the ones that we saw. So it is a place where buyers and sellers of these bonds meet. And in our case here, when we're talking about bond, we're talking about a debt instrument. And its capacity as a debt instrument, it means that it is a loan, is that the issuer of these bonds undertake to pay on a future date in full, plus the payment of interest. And so the issuer of the loan is basically could be an organization, it could be a company as we said, or it could be even a government agent. It could be a government. Either way, when the issuer of the loan wants to sell these loans or sell these bonds, they would go into the bond markets to allow basically themselves to raise the capital that they need to finance their operations. And so in our case, investors in bonds are basically those who provide the loan to these institutions, either companies or maybe the governments, and they are interested in investing in these instruments because in the end, they are going to get the full payment off, the full repayment off the bond, plus they will get an interest on their bonds on yearly basis until the date of maturity. We will look together at what maturity date means. We will look also at the different jargons and different lingoes that are associated with the bond markets. Now, what we need to understand is that bonds are normally fixed income securities. In that sense, they pay a fixed interest rate, a fixed rate of interest that goes until the date of maturity of the bond or the date of expiration of the bond, could it this way? Bonds, they could be traded on normal exchanges, so unregulated exchanges, or they could be traded on of the counter exchanges like what we saw now. So now we know the difference between regulated and unregulated or over-the-counter markets. So if we want to compare the bond markets with the capital markets, what we will see is that bond markets are normally less volatile than the stock market because, again, the risk element here is not as high as it is in the securities market. This is from an investor's perspective. And again, the prices of these bonds and their yield normally move not in the same direction, rather in the opposite direction. The prices are not determined by only supply and demand, but also determined by other factors. The yield of the bond is basically what reflects the year, the yield of the bond is basically a reflection of the type of risk that it encapsulates. So if we're talking about bonds with higher risk factor, then here the yield that these bonds are going to generate normally are basically going to be higher and vice versa. So if we're having a less volatile or less risky types of bonds, then that means their yields are going to be also lower. Bond ratings, on the other hand, are very much a way to assess how strong the issuer is, how reliable in terms of their repayment plan or their creditworthiness of the issuer, how strong it is. Because again, in the end, these are factors that are going to play an important role in how risky the bond that is issued for the investor. In the end, investors want to understand what are the risks associated with their investments and whether that risk basically is worth the investment or not. Now, what are some of the examples of bonds? Basically, bonds could come in different forms. Here are some of the very prominent examples of bonds. So if we start with treasury bills or T-bills, as they are known, treasury markets where these bills are traded, and T-bills are short-term government securities that are issued basically by the government. On the other hand, if we're talking about commercial papers or commercial paper market, these are markets where they trade with promissory notes that are basically dedicated for organizations or for corporations to help them finance their operations. But this is basically for short-term basis or short-term financing rather than a longer time. On the other hand, we have also something that we have a market that we refer to as the federal funds market. And the federal funds market is basically a market where banks and financial institutions who are required to hold deposits at the Federal Reserve, they would invest or they would basically lend or borrow these excesses of reserves on an overnight basis. Now, for us, what we want to look at and what we want to understand from a bond's perspective is what maturity date means for a bond and what coupon rate means for a bond. So a maturity rate for a bond is basically the date or the expiration date of that bond. So basically it is the date when the full repayment of the bond is required or is expected. On the other hand, if we're talking about the coupon rate, it is basically the interest that these bonds are paying to investors throughout the duration of the bond or until the maturity of the bond. Now, from an investor's perspective, investors look at three key points. They look at the coupon rate, they look at the bond term, and they also look at the yield to maturity. Now, we already saw what the bond rate is, but what is the bond term? A bond term is basically the time that these bonds have until maturity. Remember, bonds function very much just like securities, just like shares. You can sell shares for the very first time through an initial public offering, and then these shares will be traded in secondary markets. Same thing with the bond. Bonds could be issued for the very first time, and then owners of these bonds can resell them again in secondary markets. And so for these new owners, they will be looking at the term. So how long does the bond still have to mature? Now, the bond term is basically the time until the bond matures. So what is the expiration date? If you remember, if you recall what we just said, this is important. Why? Because again, you have to keep in mind that bonds function very much in the same way like securities function. Meaning that if you issue a share for the very first time, it goes through an initial public offering, and then the owner of that, the very first owner of that share could resell it in the secondary market for someone else and to a new interested buyer. Same thing with bonds. So after bonds are bought for the very first time by an investor, this investor may be down the line, maybe a year or two years down the line after they purchased the bond or invested in the bond, they might decide to resell it to another interested investor. And so that person who is interested in buying it again would be looking into the time until maturity, the time that they will have until the bond matures or the bond reaches its expiration date. Now, the other thing that investors will be looking into when they invest in bonds is basically the bond yield to maturity. Now, this is basically the return that this bond is going to generate on annual basis. So this is through the interest rate that it might generate. And then at the end, the reason that they want to look into this is because they want to understand what kind of potential this bond has. Is it going to generate a good return on investment? Does it justify the pricing or this investment or not? Now, if we want to look at the different types of how organizations could raise capital, we would be looking at two different forms of financing. We'll be looking at debt financing and equity financing. Let's start first with debt financing. So debt financing, as the term says, is just all about issuing loans. So the organization and by organization, we could be referring to either a government or maybe even a company. The organization would be looking to finance its operations through borrowing money from potential investors. Now, why would they want to borrow money from investors? Because again, it would allow them access to capital to finance their operations. And at the same time, they wouldn't necessarily be giving out some shareholding or power or control within the organization or within how the organization is managed. Now, as we said, bonds is just one of the many forms of debt financing. We have also bank loans and then we have lines of credit. Now, lines of credit are basically a form of debt financing that is available for companies where companies basically have access to a pre-agreed-on or pre-determined set of money just to finance particular aspects of their of their projects or maybe the way that they run their businesses. And so it could come with its own unique conditions. So these loans are attached to a particular set of conditions and, again, to a pre-determined amount of money that these organizations have access to. Now, if we look at equity financing, on the other hand, when we talk about equity financing, we're talking about here the potential to partner, the potential to become an owner or part owner in an organization. Equity financing means that you're selling shares within an organization. So you're selling ownership rights within that organization. And the reason that organizations would be looking into this or would be interested in issuing securities or in issuing shares is because they wouldn't want to necessarily finance their operations through debt financing. Again, if you remember that financing means that there would be interest repayment, interest payment plus the full repayment of the loan at a particular maturity date. Whereas in when you issue shares, you don't have to repay whatever money you've raised or whatever capital that you've been able to generate and raise through issuance of share as an organization. But in return, what you give to the shareholder is basically you give them dividends, as we will see now. And obviously, you give them shareholding within the organization. So they become part owners. Now, there are different types of equity financing. We've talked about initial public offering. And I'm pretty sure most of you would know what initial public offering is. It's basically when you sell the shares or issue the shares for the very first time to be traded and to be sold. And then we have what we refer to as public private placement. Private placement is similar to initial public offering. However, when the organization or the company decides to issue its shares, rather than going to the public, it would issue these shares to a preselected group of potential investors. And so they will have initial access to these shares, rather than these shares being offered directly to the general public. Finally, we have right to offering. It's basically similar to initial public offering. It is a way or it is a type of security or a type of share that would allow investors or current shareholders who actually own these shares right now to have access to buy new shares that the company issues but at a discounted rate. Now, what are the different rights that shareholders get or receive from owning shares in the organization or in the company? Basically, the main thing that we'll be looking into or that investors are looking into is voting powers. Because these shareholders now become owners in the organization, they have the right to vote in how the organization is managed. And they have basically decision making powers for how the organization should proceed in the future. Now, along with that, of course, they are entitled to receive dividends. Dividends are basically whatever profit that the company was able to generate throughout the year, they would be receiving a portion of that profit, depending on the percentage of shareholding that they hold within the organization. Of course, because of this, their liability as well is limited very much to their shares. So if they do, if there is anything that went wrong in the organization, let's assume that the organization was considering liquidation and was liquidated eventually, then what that mean, there won't be any access to their own capital. So liquidators or debtors won't have access to the shareholders' capital and rather their exposure to the losses are limited to the amount of shares that they hold within the organization. Now, these are just the general rights that all shareholders have. However, because we have different classes of shareholders, we have two main classes of shareholders. These classes have different sets of rights that are awarded to these shareholders and so it is very much important for us to understand what are these classes, to understand basically what kind of rights these different shareholders would have. So to make things clear, we have a preferred shareholders or preferred shares and then you have common shareholders or common shares. Of course, if you have someone who has invested in preferred shares, they basically receive higher dividends than they would get if they were investing in common shares. They however give up their own voting rights so they don't have a say in how the organization moves in the future and what kind of decisions. They don't have powers to make any decisions or to influence any decisions. This is what they're giving up for the higher dividend as well. What they get in return is something very important. Basically, if we proceed with the example that in case the organization or the company liquidates, normally the people who would or the classes of investors who would get access to the capital first are debt financiers and then whatever is left goes to the equity financiers, so to shareholders. Seeing that we have two classes of shareholders, two classes of shares that were issued by the organization which is liquidated. We have the preferred shares, preferred shareholders and then we have the common shareholders. One of the important things that preferred shareholders will have that common shareholders won't is basically the access, the early access to the funds left after liquidation. Now remember when we said if an organization liquidates, if the organization goes into liquidation, then debtors or those who provided loans to the company will have to receive their money first or we have to get repaid first and then whatever left will go to shareholders. Now the priority to access this pool that is left would be to prefer shareholders over common shareholders, which means if preferred shareholders had this access and then let's assume that there was no money left after that, the common shareholders won't receive anything in return. So preferred shareholders have a higher right than those common shareholders. Again, same thing applies in terms of dividends. Dividends is always paid first to the preferred shareholders on the expense of common shareholders. So preferred shareholders get their dividends and their dividends as we said are higher and then after that the common shareholders will receive their dividend. Now if we're talking about preferred shareholders could come with a benefit or with an advantage for their shareholders. Basically some of these preferred shares would come with the right but not the obligation for the preferred shareholder to basically turn their preferred shares into common shares. So from that they can reclassify themselves or they can become common shareholders rather than just preferred shareholders. So at some point if someone down the line decides that okay you know what I don't want to be a preferred shareholder anymore, I want to have voting rights, I want to have control over the organization and I want to be active in the decision-making of the organization then at that point they could become common shareholders so that they could have access to all these benefits that common shareholders would have but if they do then they will lose whichever benefits they had as preferred shareholders. If we're talking about the pricing of these preferred shares basically their prices are more stable than those of common shares. Again because the dividend is higher because the risk here is a little lower and the benefits that they get in terms of monetary incentives are much higher than are higher compared to common shares it makes the prices a little bit more stable than it is for common shareholders. Common shareholders on the other hand they have access to dividends just like preferred shareholders however as we said their dividends are the dividends that they get paid are a little lower than basically preferred shareholders but what they have that preferred shareholders don't have is voting rights into the organization which means that they have full control or they have control over how the organization is moving in the future on the decision-making they have influence on the decision-making of the organization and because of that they have a huge potential and an advantage for them that would allow their shares to be priced higher if the organization moves into the right direction if the demand on their shares and on the products and services that the organization being invested in picks up and becomes higher then their potential of growth is actually higher than that of the preferred compared to preferred shareholders. Now if we want to differentiate between debt financing and equity financing debt financing is basically an easier way to acquire funds or to acquire capital it is it is a rapid loan basically but this rapid loan has a maturity date on its own as we saw with bonds what you give up here or what you don't have here as an investor is basically your ownership rights into the organization these loans what you will receive in the end after that what you will receive in return is not only the full repayment of your interest of your of your loan but also an interest you will be repaid your interest you give up your voting rights in the organization of course you don't have any control rights into the organization but you also get priority access to the to the funds of the organization in case it was liquidated as we saw just a few minutes ago in case of liquidation it's first those who have who have lent the organization money have priority access to the pool of funds in case of liquidation and then it goes back again into shareholders and at the same time if we're talking about tax treatments for debt financing or for for those who invested in debt instruments they get a preferable tax treatment because again they don't have to pay tax on the interest whereas if we look at equity on the other hand equity financing is very much all about becoming part of the organization becoming a part owner in that organization and so as a part owner of the organization you could have a set of voting rights and you could have a control within that organization and because of this also you have access to dividends and you can share the profit and losses of the organization this is basically everything that we wanted to have a chat about today to introduce you into the world of finance to introduce you into the world of to introduce you into financial markets and understand a little bit more about the difference between debt instruments and equity instruments and to understand what are the different categories of shareholding or equity financing now before we leave have a little thought about this scenario do your research and look at it and try to analyze everything in light of what we've discussed today what do you think would be the most effective way to finance to finance the operations of an organization we have three different categories of organizations that you could look into what do you think would be more suitable as a financing strategy for a business that is growing and then what do you think would be most suitable as a financing strategy for a business that is struggling what do you think would be the best course of action in terms of a financing strategy for a state or a government think about it and we'll have a chat next time