Financial Market

Presented 1. Subhasree Rout.

2. Subhasis Moharana.
By:- 3. Satya Ranjan Prusty.
FINANCIAL MARKET
 INTRODUCTION

❖Financial Market refers to the institutional

arrangements for dealing in financial assets and credit
instruments of different types such as currency ,
cheques , bank deposit , bills, bonds etc.
❖Financial market – Financial Transaction Occurs .
❖It includes whole network of all organisation and
institution that provide short medium , long term funds
❖Financial transaction either in the form of “ creation of
financial assets” or in the form of “ Exchange of
financial assets”.
 FUNCTION OF FINANCIAL MARKETS

❖ The main functions of the financial markets are :

❖To facilitate creation and allocation of credit and liquidity
❖ To serve as intermediaries for mobilisation of savings .
❖To assist the process of balanced economic growth.
❖ To provide financial convenience .
❖To cater to the various credit needs of the business houses.
 Financial Market

MONEY MARKET CAPITAL DERIVATIVES DEBT MARKET FOREIGN

INSURANCE
[Link] MONEY MARKET MARKET MARKET 1. BONDS EXCHANGE
MARKET
[Link] LOAN 1. PRIMARY 1. FINANCIAL MARKET MARKET
MARKET MARKET MARKET 2. [Link]
[Link] MARKET 2. SECONDARY a) FORWARDS IES MARKET
[Link] MARKET MARKET b) FUTURES 3. MARKET FOR
i) COMMERCIAL BILL c) OPTIONS FINANCIAL
ii) TREASURY BILL d) SWAPS GUARANTEES
MARKET 2. COMMODITY
[Link] PAPER MARKET
MARKET
[Link] OF
DEPOSIT MARKET .
 MONEY MARKET
❑It refers to the institutional arrangements facilitating
borrowing and leading of short term fund.
❑In a money market, funds can be borrowed for a
short period varying from a day, a week, a month, or
3 to 6 months.
❑The money market instruments as bill of exchange ,
bankers, acceptances, bonds, etc , called ‘near
money’.
❑Money market is simply an arrangement that brings
about a direct or indirect contact between the lender
and the borrower.
 FEATURES OF MONEY MARKET

I. The followings are the general features of a money markets:

II. It is a market for trading in money and short term financial assets.
III. It is a market for short term loans having maturity of less than one
year.
IV. It is not a fixed place but an activity which may be carried on
telephone, mail , etc.
V. It deals in money or near money assets those could be easily
converted into cash within a short period of time without loss.
VI. Transactions in the money market may be conducted with or
without the help of brokers.
 CAPITAL MARKET
1. The term capital /security market refers to the
institutional arrangements for facilitating
the borrowing and lending of long term funds .
[Link] + Market = Long term fund+ platform
[Link] term fund funds are raised and invested in
the form of debt and equity.
4. Capital market is two types ;
a) Primary market ( New issue market)
b) Secondary market
 FUNCTIONS OF CAPITAL MARKET
1. Helps in capital formation : The capital market helps in capital formation and
economic growth.
2. Helps in increasing national income : Funds come into the capital market from
Individual and financial intermediaries and are used by commerce , industry and
government ‘
3. Brings stability in value of stock : A well developed capital market comprising
Expert banking and non banking intermediaries brings stability in the value .
4. Play an important role in underdeveloped country : In an underdeveloped
country where capital is scarce , the absence of a developed capital market is
greater obstacle to capital formation and economic growth .
Meaning of Money Market
• Money market refers to a market where borrowers and lenders are
able to meet there short term fund requirement.
• Financial instruments with highly liquidity and short term maturities
are traded.
• It supports the industries to accomplish their working capital
demand by circulating short-term funds in the economy.
MONEY MARKET

Short term financial market

upto 364 Days
 Component Of Money Market

Financial Institutions Financial Instruments

Organised Sector Unorganised Sector Call Loans Commercial Certificate Treasury Trade Bill
Papers Of Bill
Deposit

RBI Commercial Cooperative Indigenous Money Lender

Banks Banks Banks
FINANCIAL INSTITUTION
• Financial institutions are divided into two parts:-
i. Organised Sector
ii. Unorganised Sector
Organised Sector:
Organised sector of Indian money market refers to that sector whose activities
and sections are coordinated systematically by monetary authority.
It includes the following institutions:-
a) Reserve Bank Of India
b) Commercial Banks
c) Cooperative Banks
• Reserve Bank of India:-
Reserve Bank Of India is the apex institution of Indian money market. It is
the central bank of country.
• Commercial Banks:-
Commercial banks are authorized to provide a variety of financial services
which includes loans, saving accounts, current account, term deposit, draft,
cheque, collecting bills, issuing credit and debit cards, paying of bills etc.
Examples of commercial banks:- SBI, HDFC, ICICI, and PNB, etc.
• Cooperative Banks:-
Co-operative banks are financial entities established on the cooperative
basis and belonging to their members.
This means that the customers of a cooperative bank are also its owners.
These banks provide a wide range of regular banking and financial services.
Unorganised Sector
• Those sectors activities are not co-ordinated in a systematic order by
monetary authorities, that organisations are the unorganized sector.
• It includes: Indigenous banks, Money lenders, etc.
• Indigenous Banks:- These banks found their origin in India before
Independence. These banks provided fund for the development of
agriculture and industries. Maharajas, rural money lender and jewellers
are the these type of bankers. They generally do not get deposits from
public, only provided loans against securities such as gold, jewellery, and
land , etc.
• Moneylender:- A moneylender is an individual or a group of person that
typically lends relatively small amount of money at very high rates of
interest. Moneylenders say they charge more than established banks do
because their lending tends to be risker.
Financial Instruments
• There are various type of financial instruments in Indian
money market. These are:-
i. Call loans
ii. Commercial Papers
iii. Certificate of Deposit
iv. Treasury Bill
v. Trade Bill
• Call Loan:- Call money refers to as the money at call. It is a short-
term loan market. It is also called as inter-bank call money market.
This type of loans can be given for overnight and for maximum
period of 2 weeks. Non bank participants act as lender &
commercial banks are main borrowers.
• Commercial Papers:- Commercial paper is a short term unsecured
promissory note with maturity period of 15 days to one year. Since
it is unsecured, it is issued by large and creditworthy companies to
meet their short term fund requirement.
• Certificate of Deposit:- A certificate of deposit is a money market
instrument issued in a dematerialised form against fond deposited
in a bank for a specific period . C.D. is issued by banks against the
deposits kept by companies and institutions. The time period of C.D.
ranges from 91 days to one year.
• Treasury Bill:- Treasury bills are issued by the central government to
secure short term loans (91 Days). These are sold by the Reserve bank on
behalf of the government. Thes are bought by the Reserve bank ,
commercial banks and LIC. Treasury bills are most liquid because Reserve
bank always willing to buy and discount them.

• Trade Bill:- Trade bills are those bills which are issued by the firms or
traders in exchange if goods bought or sold. By making use of its
promissory note, the buyers promises to pay a particular amount, on a
given date, to the seller.
• Capital markets are financial
markets that bring buyers and
sellers together to trade in stocks,
bonds, currencies, and other
financial assets.
• It is a market for long term(more
than one year).
• It includes both- Equities and
Debt markets.
 Primary Secondary
Market Market
Types of
Capital
Market

01. 02.
 Primary Market

❖ It is that markets in which shares, debentures and

other securities are sold for first time for collecting
long term capital.
❖ This market is concerned with new shares. Therefore,
the primary market is also called “NEW ISSSUE
MARKET”
❖ In this market, the flow of fund is from savers to
borrowers (industries). Hence, it helps directly in the
capital formation of a company.
❖ The money collected from this market is generally
used by the companies to modernize the plant,
machinery and buildings, for extending business, and
for setting up new business unit.
 The securities may be issued in primary
market by the following methods:-

1. Public Issue through Prospectus.

Under this method company issues a prospectus to informs and

attract general public. In prospectus company provides details about
the purpose for which funds are being raised, past financial
performance of a company, background and future prospects of
company. Through IPO company can approach large number of
persons and can approach public at large.
2. Offer for sale.

Under this method new securities are offered to general

public but not directly by the company but by an
intermediary who buys whole lot of securities from the
company. So scale of securities take place in two steps:-
1. When the company issues securities to the intermediary
at face value.
2. When intermediary issue securities to general public at
higher price to earn profit.
 3. Private Placement
Under this securities are sold by the company to an intermediary
at a fixed price and in second steps intermediaries sell these
securities not to general public but to selected clients at higher
price. Under this method the intermediaries issue securities to
selected clients such as UTI, LIC, General Insurance, etc. The
private placement method is a cost saving method as company is
saved from the expenses of underwriter fees, manager fees,
agents’ commission, listing of company’s name in stock
exchange, etc.
4. Right Issue (For Existing Companies).

This is the issue of new shares to existing shareholders. It is

called right issue because it is the pre-emptive right of
shareholders that company must offer them the new issue
before subscribing to outsiders. Each shareholder has the
right to subscribe to the new shares in the proportion of shares
he already holds.
5. e-IPO. (Electronic Initial Public Offer)

In this method, company has to appoint registere d brokers for

the purpose of accepting applications and placing orders. The
company issuing security has to apply for listing of its securities
on any exchange other than the exchange it has offered its
securities earlier. The manager coordinates the activities
through various intermediaries connected with the issue.
 Secondary Market

❖ Secondary market is that market in which the

buying and selling of the previously issued
securities is done.
❖ The transactions of the secondary market are
generally done through the medium of stock
exchange.
Instruments in Secondary Market

❖ Equities
❖ Preference shares
❖ Bonds (government and corporate)
❖ Options
❖ Exchange Trade Funds (ETF)
❖ Mutual Funds
 Primary Market Secondary Market

Existing securities are

1st time sale of securities traded

One investor sells to another

Company sells to investors investor

Company fixes the price Market determines the price

Funds for long term Provides liquidity equity