Indian Financial Markets

Indian Financial Market

Shruthika.N

Finance is the study of money – its nature, creation, behaviour, regulation and administration System stands for a set of bodily organs All those activities dealing in finance are organized in a system known as the

Financial markets is the institutional arrangements for dealing in financial assets and credit instruments of different types like currency, cheques, bills, etc…

Functions: Creation & allocation of credit & equity Mobilization of savings Cater to various credit needs Assist balanced economic growth

The financial market is divided into two categories based on the credit requirement for short term or long term purposes Money Market – Short term funds Capital Market – Long term funds

MONEY MARKET Money market is the collective name given to the various firms and institutions that deal in various grades of near money Crowther Loans for less than a year Credit instruments are called near money assets

Components of Money Market: Call money market Collateral loan Acceptance market Bill market

Call money market: Loan disbursed by commercial banks 1 day – 7 days Bank can recall the loan at its discretion Usually advanced to bill brokers & stock exchange brokers.

Collateral loan market: Lender - Commercial banks Borrower - Stock brokers Short term - Few months Back up – Securities, bonds, stocks If the loan is not paid the bonds or securities become the property of the lender

Acceptance market:

“ A draft drawn by an individual or a firm upon a bank & accepted by the bank whereby it is ordered to pay to the bearer a sum of money at a specified time in future.” Raymond.P.Kent Primarily used in international trade

Bill market: Bills of Exchange Written unconditional order which is signed by the drawer & the drawee to pay on demand or at a fixed time in the future a definite sum of money Usually used by traders

Treasury bills: Government Paper Securities Duration of 91 days Promissory note of the government to pay a specified sum after a specified period

Significance/Functions of Money market Economic development Profitable Investment Borrowings by the governor Importance for Central Bank Mobilization of funds Self-sufficiency of Commercial Banks Savings & investment

Defects of Indian Money market: Unorganized money market Disparity in interest rates Seasonal diversity of the market Lack of a proper bill market Lack of a well organized

Capital market: An organized mechanism for effective & efficient transfer of financial resources from the investing parties engaged in industry or commerce in the business either be it public or private sectors of the economy.

Functions: Mobilization of funds Securing foreign capital Promote balanced regional development

Components of Capital market Primary market Secondary market

Primary market : New issue market New shares & bonds that have never been issued are offered Facilitates transfer of funds from willing investors to the entrepreneurs to set - up new enterprises The sentiment of the stock market influences the primary market

Instruments: Equity shares Preference shares Deferred shares Debentures

STOCK MARKET “Stock exchanges are privately organized markets which are used to facilitate trading insecurities” - Husband & Dockeray

Functions:

Ensure liquidity of capital Market for securities Mobilize surplus savings Raising new capital Listing securities

Procedure for dealing at stock exchanges Selection of Broker Placing an order Making a contract Contact Note Settlement note

PRE - REQUISITES TO BUY A SHARE: Register with a stock broker. A PAN card holder. Open a demat account.

REGISTERING AS A CLIENT: Filing a client registration form. Sign the member constituent agreement.

STAGES OF TRANSACTION: Place an order Execution Reporting the deal Settlement of DOCUMEN TS: Order confirmation slip Trade confirmation slip Control note slip

BASIS TO BUY SHARES OF A PARTICULAR FIRM Product manufactured. Demand. Amount of dividend. Ranking of the company. Change in prices. Reputation of the

TYPES OF SPECULATORS : Bull Bear Stag Lame Duck

Factors influencing prices on stock exchange: Financial position of the firm Demand & Supply position Lending rates Trade cycle Speculation activities Government control

Stock Exchanges in India: Native Stock& Share Brokers Association 24 recognised Stock Exchanges in India Bombay Stock Exchange National Stock Exchange

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