برنامج توعية الوسطاء

1. برنامج توعية الوسطاء د. منذر بركات العمري هيئة الاوراق المالية والسلع

2. Interest Rates and Money Supplyأسعار الفائدة والكتلة النقدية • Interest is the rent of money • Equal to the real growth rate of GDP plus the expected inflation rate plus a premium to compensate for the riskness of the company being analyzed. • Money supply is the amount of liquidity that is being allowed by the UAE central bank. The company being analyzed benefits if the amount of liquidity is near the healthy level. • Both interest rates and money supply have a great effect on the performance and value of the company and need to be taken into consideration in any financial analysis.

3. Function of Financial Markets and Institutionsوظيفة الأسواق والمؤسسات المالية • Allows transfers of funds from person or business without investment opportunities (i.e., “Lender-Savers”) to one who has them (i.e., “Borrower-Spenders”) • تحويل الاموال ممن يملكونها الى من يحتاجونها • Improves economic efficiency • زيادة الفاعلية الاقتصادية

4. Segments of Financial Markets • Direct Finance • Borrowers borrow directly from lenders in financial markets by selling financial instruments which are claims on the borrower’s future income or assets • التمويل المباشر • Indirect Finance • Borrowers borrow indirectly from lenders via financial intermediaries (established to source both loanable funds and loan opportunities) by issuing financial instruments which are claims on the borrower’s future income or assets • التمويل غير المباشر

5. Function of Financial Markets رسم توضيحي لفكرة انتقال الاموال Flow of Funds Through the Financial System

6. Classifications of Financial Marketsتصنيف الأسواق حسب الإصدار • Primary Market السوق الأولية • New security issues sold to initial buyers • Secondary Market السوق الثانوية • Securities previously issued are bought and sold

7. Classifications of Financial Marketsتصنيف الأسواق حسب التنظيم • Exchanges الاسواق المنظمة (البورصات) • Trades conducted in central locations (e.g., ADSM, DFM, ….) • Over-the-Counter Markets الاسواق الغير منظمة • Dealers at different locations buy and sell

8. Function of FinancialIntermediariesدور الوساطة المالية • Financial Intermediaries الوسطاء الماليين • Engage in process of indirect finance • More important source of finance than securities markets • Needed because of transactions costs and asymmetric information

9. Function of FinancialIntermediariesدور الوساطة المالية • Transactions Costs تكاليف التحويلات • Financial intermediaries make profits by reducing transactions costs • Reduce transactions costs by developing expertise and taking advantage of economies of scale and scope.

10. Function of FinancialIntermediariesدور الوساطة المالية • A financial intermediary’s low transaction costs mean that it can provide its customers with liquidity services, services that make it easier for customers to conduct transactions توفير السيولة دون الحاجة الى انهاء المشروع الانتاجي • Banks provide depositors with checking accounts that enable them to pay their bills easily • Depositors can earn interest on checking and savings accounts and yet still convert them into goods and services whenever necessary without having to discontinue and liquidate investments

11. Function of FinancialIntermediariesدور الوساطة المالية • Another benefit made possible by the FI’s low transaction costs is that they can help reduce the exposure of investors to risk, through a process known as risk sharing • ادارة المخاطر • FIs create and sell assets with lesser risk to one party in order to buy assets with greater risk from another party (e.g. banks) • This process is referred to as asset transformation, because in a sense risky assets are turned into safer assets for investors

12. Function of FinancialIntermediariesدور الوساطة المالية • Adverse Selection الامتناع عن الاستثمار • Before transaction occurs • Potential borrowers most likely to produce adverse outcome are ones most likely to seek loan and be selected – brokers and financial analysts can prevent that by studying the credit worthiness of the borrowers

13. Function of FinancialIntermediariesدور الوساطة المالية • Moral Hazard المخاطرة بأموال الغير • After transaction occurs • Hazard that borrower has incentives to engage in undesirable (immoral) activities making it more likely that won't pay loan back

14. Function of FinancialIntermediariesدور الوساطة المالية • Financial intermediaries reduce adverse selection and moral hazard problems, enabling them to make profits. How they do this is covered in many of the topics to come. • المؤسسات المالية تقلل من هذه المخاطر

15. Regulation of Financial Markets • Reasons for Regulation اسباب التشريع المالي • Increase Information to Investors • Protect investors and their investments • Ensure the Soundness of Financial Intermediaries • Improve Monetary Control

16. Regulation Reason: Increase Investor Informationزيادة توفر المعلومات • Asymmetric information in financial markets means that investors may be subject to adverse selection and moral hazard problems that may hinder the efficient operation of financial markets and may also keep investors away from financial markets • The Securities and Commodities Authority (SCA) requires corporations issuing securities to disclose certain information about their sales, assets, and earnings to the public and restricts trading by the largest stockholders (known as insiders) in the corporation.

17. Regulation Reason: Increase Investor Informationزيادة توفر المعلومات • Such government regulation can reduce adverse selection and moral hazard problems in financial markets and increase their efficiency by increasing the amount of information available to investors

18. Regulation Reason: Ensure Soundness of Financial Intermediaries رُشْد الوسطاء • Because providers of funds to financial intermediaries may not be able to assess whether the institutions holding their funds are sound or not, if they have doubts about the overall health of financial intermediaries, they may want to pull their funds out of both sound and unsound institutions, with the possible outcome of a financial panic that produces large losses for the public and causes serious damage to the economy

19. Regulation Reason: Ensure Soundness of Financial Intermediaries رُشْد الوسطاء • To protect the public and the economy from financial panics, six types of regulations are needed: • Restrictions on Entry - soundness • Disclosure – transparency • Restrictions on Assets and Activities – no dummies • Deposit Insurance – peace of mind • Limits on Competition – no price wars • Restrictions on Interest Rates – no usury

20. Regulation: Restriction on Entry موانع الدخول • Restrictions on Entry • Very tight regulations as to who is allowed to set up a financial intermediary • Individuals or groups that want to establish a financial intermediary, such as a bank or an insurance company, must obtain a charter from the government • Only if they are upstanding citizens with impeccable credentials and a large amount of initial funds will they be given a charter.

21. Regulation: Disclosure الافصاح • Disclosure Requirements • There are stringent reporting requirements for financial intermediaries • Their bookkeeping must follow certain strict principles, • Their books are subject to periodic inspection, • They must make certain information available to the public.

22. Regulation: Restriction on Assets and Activities تحديد النشاطات • There are restrictions on what financial intermediaries are allowed to do and what assets they can hold • Before you put your funds into a bank or some other such institution, you would want to know that your funds are safe and that the bank or other financial intermediary will be able to meet its obligations to you

23. Regulation: Restriction on Assets and Activities تحديد النشاطات • One way of doing this is to restrict the financial intermediary from engaging in certain risky activities • Another way is to restrict financial intermediaries from holding certain risky assets, or at least from holding a greater quantity of these risky assets than is prudent

24. Regulation: Deposit Insuranceالتأمين • The government can insure people providing funds to a financial intermediary from any financial loss if the financial intermediary should fail

25. Regulation: Past Limits on Competition حدود للتنافس • Although the evidence that unbridled competition among financial intermediaries promotes failures that will harm the public is extremely weak, the government needs to impose many restrictive regulations • The purpose is to prevent financial intermediaries from competing to the point where the integrity of the financial system is compromised.

26. Regulation: Past Restrictions on Interest Rates حدود لأسعار الفائدة • Competition must also be inhibited by regulations that impose restrictions on interest rates that can be paid on deposits • These regulations need to be instituted because of the widespread belief that unrestricted interest-rate competition help encourage bank failures

27. Regulation Reason: Improve Monetary Control التحكم بالكتلة النقدية • Because banks play a very important role in determining the supply of money (which in turn affects many aspects of the economy), much regulation of these financial intermediaries is intended to improve control over the money supply • One such regulation is reserve requirements, which make it obligatory for all depository institutions to keep a certain fraction of their deposits in accounts with the central bank (the PMA) • Reserve requirements help the PMA exercise more precise control over the money supply – well, we do not have a currency nor can we control the used ones

28. The cost of moneyتكلفة رأس المال • The price, or cost, of debt capital is the interest rate. • The price, or cost, of equity capital is the required return. The required return investors expect is composed of compensation in the form of dividends and capital gains.

29. What four factors affect the cost of money?العوامل التي تؤثر في تكلفة رأس المال • Time preferences for consumption (sacrifice) • Expected inflation (loss in purchasing power) • Risk (worry)

30. “Nominal” vs. “Real” ratesالعائد الاسمي والحقيقي k = represents any nominal rate k* = represents the “real” risk-free rate of interest, if there was no inflation. Typically ranges from 1% to 4% per year. kRF = represents the rate of interest on Treasury securities.

31. Determinants of interest ratesمحددات سعر الفائدة (العائد) k = k* + IP + DRP + LP + MRP k = required return on a debt security k* = real risk-free rate of interest IP = inflation premium DRP = default risk premium LP = liquidity premium MRP = maturity risk premium

32. Premiums added to k* for different types of debtمقارنة علاوات المخاطر المختلفة

33. Yield curve and the term structure of interest ratesمنحنى العائد وعلاقة الفائدة بالاستحقاق • Term structure – relationship between interest rates (or yields) and maturities. • The yield curve is a graph of the term structure.

34. Interest Rate (%) 15 Maturity risk premium 10 Inflation premium 5 Real risk-free rate Years to Maturity 0 1 10 20 Hypothetical yield curveمنحنى عائد افتراضي • An upward sloping yield curve. • Upward slope due to an increase in expected inflation and increasing maturity risk premium.

35. The Yield Curveمنحنى العائد • Corporate yield curves are higher than that of Treasury securities, though not necessarily parallel to the Treasury curve. • The spread between corporate and Treasury yield curves widens as the corporate bond rating decreases.

36. BB-Rated AAA-Rated The Yield Curveمنحنى العائد Interest Rate (%) 15 10 Treasury Yield Curve 6.0% 5.9% 5 5.2% Years to Maturity 0 0 1 5 10 15 20

37. The Term Structure of Interest Ratesعلاقة سعر الفائدة بالوقت • The Yield Curve • Spot and forward rates • Theories of the Term Structure

38. The Term Structure of Interest Ratesعلاقة سعر الفائدة بالوقت • bonds with the same characteristics, but different maturities • focus on Treasury yields • same default risk • similar liquidity • many choices of maturity

39. Treasury securitiesأوراق الخزينة المحددة لأسعار الفائدة وهيكلها الزمني • Tbills: • 4, 13, 26, and 52 weeks • zero coupon • Tnotes: • 2, 5, and 10 years • Tbonds: • 30 years • Tnotes and Tbonds are coupon

40. Relationship between yield & maturity is NOT constant تتغير العلاقة ما بين سعر الفائدة والوقت بتغير الأوضاع الاقتصادية المتوقعة • sometimes short-term yields are highest, • most of the time long-term yields are highest

41. The Yield Curveمنحنى العائد • plot of maturity vs. yield • slope of curve indicates relationship between maturity and yield

42. yield maturity Upward Sloping • yields rise w/ maturity (common)

43. yield maturity downward sloping (inverted) • yield falls w/ maturity (rare)

44. yield maturity flat • yields similar for all maturities

45. yield maturity humped • intermediate yields are highest

46. Theories of the term structureمحددات العلاقة يبن الوقت وأسعار الفائدة • explain relationship between yield and maturity • what does the yield curve tell us?

47. The Pure Expectations Theory • Assume: bond buyers do not have any preference about maturity i.e. bonds of different maturities are perfect substitutes • LT = long-term • ST = short-term

48. The Pure Expectations Theory • if assumption is true, then investors care only about expected return • if expect better return from ST bonds, only hold ST bonds • if expect better return from LT bonds, only hold LT bonds

49. The Pure Expectations Theory • but investors hold both ST and LT bonds • so, • must EXPECT similar return: LT yields = average of the expected ST yields

50. The Pure Expectations Theory • slope of yield curve tells us direction of expected future ST rates