Financial Markets in Pakistan Essay

A pecuniary grocery store is a congeal for buying and selling of monetary securities such as lines and bonds. It facilitates* The raising of capital (in the capital merchandises)* The direct of insecurity (in the derivatives merchandises* In coordinated those who want capital to those who have it. Financial Market in Pakistan consists of (i) currency Market which provides short term money and (ii) Capital Market which makes farseeing terms funds available to businesses and industries. The Financial market fuel be reclassified into (i) Primary Market in which new shares or bonds are issued and (ii) vicarious Market in which securities previously issued are swopd such as Shares, Bonds, mercenary Papers, Options and Mutual Fund. Of this, the specie boxing sectors and non- swaning sectors are regulated by the central bank, State swear of Pakistan. While rest of the market ( rent, stock varys, modarba, vernacular funds and insurance) is regulaled by Secruities and Ex change Commission of Pakistan.FINANCIAL MARKETS AND THEIR ROLESCOMMERCIAL BANKSA type of bank providing checking and saving accounts, credit cards and business loans. Such a bank induces general public to deposit their savings in the banks and offers a broad range of services such as* Deposit Mobilization* capital transfer* Financing Working Capital* Financing new(prenominal) trade related mode (import and export)* Investing in g everywherenment securities* Call money operationsThese banks are of three categories (i) Public Sector posits, (ii) Private Bank and (iii) Foreign Banks.LEASE -FINANCE EQUIPMENTINVESTMENT BANKSInvestment banks perform a smorgasbord of functions. Primarily, they assist corporations to raise equity-capital by underwriting the public issues. They also assist companies desiring of mergers and erudition and derivatives. In addition, they provide services worry trading of derivative, foreign transform, fix income instruments and shares listed on the stoc k exchanges. Such banks domiciliatenot take deposits. They manage their affairs by charging fees such as (i) retainer fee, (ii) advisory fees based on the transactions, (iii) commissioning on underwriting and (iv) separate monetary services.PICIC was once a premier culture in Pakitan but has merged with a commerical bank.BOND MARKET expectationDEVELOPMENT BANKSThese banks provide guidance in selection of industrial units and append direct financial assistance to functionly cover their financial requirements. Also, they have themselves in promotional activities to attract investors towards neglected sectors with publishing brochures and research papers. Besides, they help in assessing feasibility of potential projects. Such banks are responsible for speeding up the pace of economic growth in the unpolished in conformity with the national objectives, plans and priorities. Their core functions are* Direct financial assistance* Catalytic function* Mobilization of domestic s avings* Ensuring remnant regional and industrial growth* Expanding entrepreneurial base by pass on new comersAt one time, in that location were 14 Development Banks in Pakistan. However, most of them have been closed one subsequently an other as their bad debts mounted up. It is natural as they take substantial risks in promoting new types of industrial projects in under conditioned areas sponsored preferably by new-comers. Nevertheless, their character brings fruits to the economy in the shape of successful industrial units and transfer of technology. At present, 8 development banks are operate which mostly are joint-venture with other Moslem Countries.MICROFINANCE BANKA microfinance bank would cater to the credit demand of miserable households 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 recognize every single human macrocosm as a potential and creditworthy entrepreneur. In addition, they provide prefatorial training in start of a small business, simple book-keeping and accounting. The main aim of microfinance institutions is alleviation of poverty through helping poor persons to do just about money especially the women.ISLAMIC BANKSIn Islam, it is prohibited to deplume interest on any loan. However, it is acceptable to pass on funds to a needy person or corporation for trade take aim in which case profit could be shared on an hold basis whereas loss should be shared according to the funds invested. Besides, at that place are certain businesses where any form of deal is forbidden homogeneous 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 between the traditional banks and the Islamic bank. ignore HOUSESThese are firms which buys and discounts bills of exchang e, banker 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 COMPANIESInsurance 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 known as Takaful operators. Takaful is an Islamic insurance concept based on mutual co-operation, responsibility, assurance, certificate and assistance between groups of participants. These companies believe in promoting the cause of Takaful as intimately as promoting the insurance business in a Shariah gentle i.e. halal and absolutely Riba-Free insurance.STOCK EXCHANGESStock exchange is a place wh ere 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 supply 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 substitute market for their subsequent buying and selling Investors are not recant to sell stock or bond through the stock exchange. They can directly deal with the seller. Similarly, there is no compulsion that stock must be traded on the exchange. The securities can change proprietorship 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 period of time. It is a cover song contract which sets out terms of lease agreement between the owner and the user. Leases are of various types mainly (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 monomania and has the correct 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. There 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 program and crew and would be responsible for the maintenance 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 operate and (ii) the manager. The financer takes no part of management of the business. The profits are distributed among the subscriber piece the manager is paid the usual 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 comprehension due to its well designed structure with proper rules and regulations defined by the regulators. It has proved its resilience in this time of global financial turmoil. correlative 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 liberalizat ion policies of the government. There was a manifold increase in the number of listed companies number of commercial banks, topical anaesthetic and foreign and financial instruments like commercial paper.But it has still to develop and a number of suggestions have been made * The public sector should slew 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 ameliorate and more clearly delineated division of responsibilities. * Foreign institutional investors should be encouraged to take up (i) private equity funds, (ii) private subsidy funds, (iii) provident and gratuity funds and (iv) Real Estate Investment Trusts. * owe financing should be encouraged.