Financial intermediaries (especially banks) were established in order to facilitate savings flows. The primary function of such a financial intermediation is the pairing of lenders with borrowers.
Companies can borrow funds directly from the public via advertisements or may contact persons and other companies who they believe to have surplus funds. However, both these methods are expensive.
Investors do not have sufficient knowledge of the market and the price for obtaining this information on an individual basis is high. Furthermore, companies do not need to borrow funds every day, but merely when starting a new project or in order to finance existing projects.
For this reason, the function of intermediaries is very important in connection with trading on the markets.
Financial markets allow institutions (companies, governments, local authorities or international organizations) with a financial deficit access to cash for the purpose of financing their activities.
Financial markets are classified into debt markets, share markets, and commodity markets. Of commodity markets, only the precious metals market, including the gold market, is included as part of financial markets.
Credit worthiness of a client (an ability to repay).
This represents the buyer’s commitment to buy a certain quantity of an underlying asset on a certain day for an agreed price (exercise price) and the seller’s commitment to sell the given quantity of the asset under the same conditions.
The conditions of the contract are specified in detail within an agreement. Forward contracts are only traded on OTC (over-the-counter) markets, not on stock exchanges. The quantity, price and delivery date are thus set during the course of the agreement, with the contract being negotiated directly between the seller and the buyer.
This is based on the theory that the return for a certain time period is the same for various combinations of bonds having the same overall maturity period. Thus, the expected yield is identical regardless of the bonds into which the investor invests.
In this way the forward yield curve represents the expected spot yield curve in the future.
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Fundamental analysis monitors the extent to which the price of a share corresponds to its actual (intrinsic) value. It attempts to provide answers to the question of which shares are overvalued and which are undervalued, i.e. which shares to buy or sell.
It makes use of an exact arithmetic method of assessing the company’s financial indicators. It studies the company’s performance in the past on the basis of the company’s activities as a whole.
Futures, like forwards, represent the buyer’s commitment to buy a certain quantity of the underlying asset on a certain day in the future for an agreed price (exercise price) and the seller’s commitment to sell the given asset under the same conditions.
However, unlike forwards, futures are only traded on stock exchanges (option and term exchanges), not on OTC markets. The contract conditions, including the standardisation of the asset, are specified in detail by the stock exchange on which the given contract is traded.