Financial markets
link between savers and borrowers
● functions of financial market
1. Mobilization of Savings and channelizing them into most productive use
2. Facilitating price Discovery
3. Provide liquid to financial assets or securities
4. Reduce the cost of transaction
● Classification of financial market
A. Money market
B. Capital market
1. Primary market
2. Secondary market (stock exchange market)
What is Market?
A. Money market
Market for short term funds meant for use for a short time period up to one year
Common institution- RBI , SBI , LIC etc
● Instruments of money market
1. Call money - call money is the instrument of money market which is used for inter bank.
Its time period one day to 15 days
2. Treasury bill - issued by RBI Behalf of the government for short term finance for 14 days to 365 days they are also known as zero coupon Bonds
3. Commercial bill - it is a bill of exchange used to finance the working capital(one business firm to another business firm)
4. Commercial paper - commercial paper is a short-term and Secure promissory note, negotiable and Transferable by endorsement and delivery with a fixed Maturity per iod.
(maturity period 15 days to one year)
● it is sold at a discount and redeemed at a par.
● highly reputed company issued
● fund raised through commercial paper are used to meet floating cost this is known as Bridge financing.
5. Certificate of deposit - COD are unsecured, negotiable, short term investment in bearer form. Issued by only banks.
eg- commercial banks and the development of Financial institution
B. Capital market
Market for medium and long term finance to be raised
1. Primary market
a. Securities are sold for the first time in primary market
b. directly capital formation in primary market
c. In primary market securities - share, bonds, debentures
● Going public - converting private capital into public capital
● Methods of floating in primary market
1. Offers through prospectus
2. Offer for sale (company - broker - public)
3. Private placement (selected clients)
4. Right issue
5. E-Ipos ( electronic initial public offer)
2. Secondary market/stock exchange/second hand market
The secondary market is also known as the stock market or stock exchange It is a market for the purchase and sale of securities
● stock exchange is an Institutions which provides a platform for buying and selling of existing securities
● Types of members in second hand market
1. Brokers 2. Jobbers 3. Bulls 4. Bears 5. Stag
● Function of stock exchange
1. Providing liquidity and marketability to existing securities
2. Pricing of securities
3. Safety of transaction
4. Contributes to economic growth
5. Providing scope for speculation
6. Spreading of equity cult
● Trading and settlement procedure
1. Selection of broker
2. Opening Demat account with depository(agent)
3. Placing the order
4. Executing the order
5. Settlement
a. Spot (T+ 2) b. Forward (T+5,7)
● Security exchange Board of India
1. SEBI established in 12 April 1988 to regulate the function of security market
2. 30 January 1992 to granted legal status to SEBI
3. SEBI as a separate legal entity
4. SEBI Act as a watchdog
5. Main purpose of SEBI is cheque on malpractices fraud and proctect the interest of investors
6. SEBI develops a code of conduct for intermediators
Functions of SEBI
1. Protective function
A. Checks price rigging
B. Disallow insider trading
C. Prohibits fraud and unfair trade practices
D. Educate investors
2. Development function
A. Promotes training of intermediate
B. Conducting research and publishing information
C. Adopting flexible approach
3. Regulatory functions
A. Registration of brokers and sub brokers and other players in the market
B. Registration of collective investment scheme and mutual funds
C. Regulation of stock brokers, underwriter, and merchant broker and any other securities market
D. Calling for information by undertaking inspection, conducting and audits of stock exchange and intermediaries
E. Regulation of takeover bid by companies
F. Levying fee or other charges for carrying out the purpose of act
A. Money market
Market for short term funds meant for use for a short time period up to one year
Common institution- RBI , SBI , LIC etc
● Instruments of money market
1. Call money - call money is the instrument of money market which is used for inter bank.
Its time period one day to 15 days
2. Treasury bill - issued by RBI Behalf of the government for short term finance for 14 days to 365 days they are also known as zero coupon Bonds
3. Commercial bill - it is a bill of exchange used to finance the working capital(one business firm to another business firm)
4. Commercial paper - commercial paper is a short-term and Secure promissory note, negotiable and Transferable by endorsement and delivery with a fixed Maturity per iod.
(maturity period 15 days to one year)
● it is sold at a discount and redeemed at a par.
● highly reputed company issued
● fund raised through commercial paper are used to meet floating cost this is known as Bridge financing.
5. Certificate of deposit - COD are unsecured, negotiable, short term investment in bearer form. Issued by only banks.
eg- commercial banks and the development of Financial institution
B. Capital market
Market for medium and long term finance to be raised
1. Primary market
a. Securities are sold for the first time in primary market
b. directly capital formation in primary market
c. In primary market securities - share, bonds, debentures
● Going public - converting private capital into public capital
● Methods of floating in primary market
1. Offers through prospectus
2. Offer for sale (company - broker - public)
3. Private placement (selected clients)
4. Right issue
5. E-Ipos ( electronic initial public offer)
2. Secondary market/stock exchange/second hand market
The secondary market is also known as the stock market or stock exchange It is a market for the purchase and sale of securities
● stock exchange is an Institutions which provides a platform for buying and selling of existing securities
● Types of members in second hand market
1. Brokers 2. Jobbers 3. Bulls 4. Bears 5. Stag
● Function of stock exchange
1. Providing liquidity and marketability to existing securities
2. Pricing of securities
3. Safety of transaction
4. Contributes to economic growth
5. Providing scope for speculation
6. Spreading of equity cult
● Trading and settlement procedure
1. Selection of broker
2. Opening Demat account with depository(agent)
3. Placing the order
4. Executing the order
5. Settlement
a. Spot (T+ 2) b. Forward (T+5,7)
● Security exchange Board of India
(SEBI )
1. SEBI established in 12 April 1988 to regulate the function of security market
2. 30 January 1992 to granted legal status to SEBI
3. SEBI as a separate legal entity
4. SEBI Act as a watchdog
5. Main purpose of SEBI is cheque on malpractices fraud and proctect the interest of investors
6. SEBI develops a code of conduct for intermediators
Functions of SEBI
1. Protective function
A. Checks price rigging
B. Disallow insider trading
C. Prohibits fraud and unfair trade practices
D. Educate investors
2. Development function
A. Promotes training of intermediate
B. Conducting research and publishing information
C. Adopting flexible approach
3. Regulatory functions
A. Registration of brokers and sub brokers and other players in the market
B. Registration of collective investment scheme and mutual funds
C. Regulation of stock brokers, underwriter, and merchant broker and any other securities market
D. Calling for information by undertaking inspection, conducting and audits of stock exchange and intermediaries
E. Regulation of takeover bid by companies
F. Levying fee or other charges for carrying out the purpose of act
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