Capital Markets and Trading Strategies Quiz

Introduction to Treasury and Capital Markets

• This presentation covers treasury money and capital markets, focusing on dynamics, regulations, and funding.
• The presentation was created in January 2025.

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Day Two Outline

• Market Dynamics and Trading Strategies: Understanding financial markets, macroeconomic factors' impact, trading strategies, execution, order types, technical and fundamental analysis, and the role of market makers and brokers.
• Capital Markets and Fund Raising: The role of treasury in capital raising; IPOs (initial public offerings) and debt issuance, securitization, syndicated loans, project finance, private equity, venture capital, and crowdfunding.
• Banking Regulations and Compliance: Regulatory framework for treasury and global markets; compliance (with market regulations and reporting), risk management role, AML (anti-money laundering), KYC (know your customer) requirements, Basel III, governance, risk, and compliance in treasury.
• Group Discussions and Case Studies: Interactive sessions and practical applications of learned concepts through case studies.

Introduction to Financial Markets

• Financial markets are places where buyers and sellers meet to trade financial assets, including money markets, capital markets, and currency markets.
• Money markets involve buying and selling assets with a one-year or less maturity (e.g., government and corporate bonds, and interbank lending).
• Capital markets involve buying and selling assets with a maturity of more than one year (including debt capital and equity capital).
• Debt capital involves borrowing, requiring interest payments.
• Equity capital represents ownership, with dividends as returns.
• Currency markets involve spot markets (instant transactions) and futures markets (contracts for future delivery) for managing or profiting from exchange rate fluctuations.

Introduction to the Capital Market

• The capital market is a vital economic component providing a platform for businesses to raise long-term funding and investors to find opportunities for wealth creation.
• It connects entities with surplus funds to those needing capital for growth and innovation.
• Governing bodies like the Securities and Exchange Commission (SEC) and the Nigerian Exchange Group (NGX) regulate the market to maintain transparency and protect investors.

Capital Market Products

• Equity: Represents ownership in a company. Common shares offer voting rights and dividends, while preferred shares offer fixed dividends and priority in asset liquidation.
• Debt: Instruments allowing entities to borrow funds for a fixed period. This includes bonds (fixed-income securities), debentures (unsecured debt instruments), and commercial papers (short-term debt instruments).
• Securities: Derivatives derive value from underlying assets, used for hedging or speculation. Futures contracts for specified assets at a specific price and date; options provide the right, not the obligation, to buy or sell an asset; and swaps involve cash flow exchange between parties.

Players in the Nigerian Capital Market

• Regulators: Oversee market operations. Examples: Securities and Exchange Commission (SEC), Nigerian Exchange Limited (NGX), Central Bank of Nigeria (CBN), National Pension Commission (PenCom), and Financial Reporting Council of Nigeria (FRCN).
• Market Operators: Facilitate market transactions. Examples: Stockbrokers, issuing houses, registrars, investment banks, fund managers, market makers, and equity firms.
• Government Agencies: List relevant government agencies.
• Quoted Companies: Listed companies.
• Investors: Includes a list of investor types.
• Professional Bodies: Includes examples of professional bodies in the market.

Introduction to the Nigerian Capital Market (Regulators & Players)

• Securities & Exchange Commission (SEC)
• Nigerian Exchange Limited (NGX)
• Central Bank of Nigeria (CBN)
• National Pension Commission (PenCom)
• Financial Reporting Council of Nigeria (FRCN)
• Stockbrokers, Issuing Houses
• Registrars, Investment Banks
• Fund Managers, Market Makers
• Equity Firms
• Government Agencies
• Quoted Companies
• Investors
• Professional Bodies

Trading Strategies

• Day Trading: Short term trading strategies.
• Swing Trading: Medium term trading.
• Position Trading: Long term trading.
• Arbitrage Trading: Exploiting price differences of the same asset in different markets.
• Trend Following: Identifying upward or downward market trends.
• Contrarian Trading: Betting against prevailing market trends.
• Breakout Trading: Identifying major price movements beyond support and resistance levels.
• Range Trading: Trading within defined price ranges.
• News-Based Trading: Utilizing economic announcements for short-term trading opportunities.
• High-Frequency Trading: Algorithmic trading involving many trades.

Technical and Fundamental Analysis

• Fundamental Analysis: Evaluating an asset's intrinsic value based on factors such as economic, financial, and qualitative indicators.
• Technical Analysis: Analyzing historical price data, volume, or other market statistics to predict future price changes; using chart patterns, indicators, and statistical tools.

Qualitative and Quantitative Techniques

• Economic Indicators: GDP growth, unemployment rate, inflation rate, interest rate.
• Industry Analysis: Examining performance and outlook for specific industries. Qualitative analysis examines economic, financial, and qualitative factors
• Quantitative Analysis: Measuring and estimating financial data
• Price-to-Earnings (P/E) Ratio: Measures how much investors are willing to pay for a company's earnings.
• Price-to-Book (P/B) Ratio: Compares market value and book value of a company's stock.
• Return on Equity (ROE): Measures profitability relative to shareholder equity.
• Price Charts: Line charts, bar charts, candlesticks.
• Support and Resistance: Price levels where a market trend may pause.
• Moving Averages: Averages showing trends.
• MACD (Moving Average Convergence Divergence): A momentum indicator.
• Relative Strength Index (RSI): Measures price movement speed.

Initial Public Offerings (IPOs)

• IPOs are when a private company becomes publicly traded.
• Companies hire underwriters to manage the process.
• Financial statements must be audited.
• Prospectuses detailing company information are often required.
• Market valuation is determined.
• Regulations must be followed (e.g., approval by SEC).

Debt Issuances

• Methods through which governments or corporations raise funds using debt instruments.
• Prospectuses outlining debt instrument details are created.
• Treasury market uses different debt instruments to meet their funding needs.
• Processes like auctions are often used for initial debt offerings.

Securitization

• Pooling various financial assets into marketable securities to sell to investors.
• Includes mortgages, loans and receivables.
• Assets are divided into tranches.
• A special purpose vehicle (SPV) might be created to hold pooled assets.

Role of Treasury in Capital Raising

• Treasury plays a crucial role in managing a company's financial resources, particularly in capital raising.
• Responsibilities include capital planning, assessing funding needs, developing funding strategies, performing market analysis, structuring transactions, coordinating with stakeholders, managing investor relations, post-issuance management, and compliance activities.

Syndicated Loans and Project Finance

• Syndicated Loans: A large loan provided by multiple lenders, managed by one or more lead arrangers.
• Project Finance: Funding for a project where repayments are based on the project's cash flows; the project's assets serve as collateral.

Private Equity and Venture Capital

• Private Equity (PE): investments in companies not publicly traded; generating high returns by improving company value before selling it.
• Venture Capital (VC): investment in startups with high-potential growth; focused on innovation, disruptive models, scalability.

Crowdfunding:

• Raising small capital amounts from many individuals through online platforms.
• Various types exist, from reward-based to equity-based.
• Suitable for businesses and social causes, aiming to avoid traditional funding means.

Alternative Financing Methods

• Alternative ways of raising capital that bypass banks and public markets.
• Includes Invoice financing, revenue based financing, cryptocurrency and token sales, factoring, angel investing, and microfinance.

Banking Regulations and Compliance

• Regulations: Laws, guidelines, and standards governing treasury and global markets, focusing on stability, consumer protection, and market integrity.
• Market Regulation: Rules for trading, settlement, and clearing.
• Prudential Regulation: Focusing on financial institution stability (e.g., Basel III, Solvency II).
• Conduct Regulations: Ensuring fair customer treatment and ethical behavior.
• Global Standards: Compliance with international standards.

Basel III and its implications for treasury operations

• Global regulatory framework for strengthening the resilience of financial institutions by ensuring capital adequacy, liquidity, and stable funding.
• Key components of Basel III include capital adequacy (minimum capital levels), Liquidity Coverage Ratio (LCR), and Net Stable Funding Ratio (NSFR).
• Implications for treasury: enhanced reporting (more granular data), Risk-Adjusted Pricing (factoring liquidity and capital costs), and Stress testing (ensuring Basel III compliance).

Governance, Risk, and Compliance in Treasury

• Governance, Risk, and Compliance (GRC): Integrates governance, risk management, and compliance efforts to achieve regulatory adherence while driving organizational performance; includes policies, oversight, accountability for treasury operations, identifying & mitigating risks, adhering to regulatory standards.

Additional Topics

• Understanding Risk Management in Regulatory Compliance
• AML & KYC Requirements  
• Trading Execution and Order Types
• Trading Strategies
• Technical and Fundamental Analysis