Trading In Financial Securities

TRADING IN FIANANCIAL SECURITIES

FINANCIAL SYSTEM ECONOMY

SAVERS

BORROWERS

CURRENT INCOME

CURRENT INCOME

> CURRENT EXPENSES

< CURRENT EXPENSES

SURPLUS UNITS

DEFICIT UNITS

TRANSFER FINANCIAL OF FUNDSSYSTEM

Financial System introduction It plays a vital role in the economic growth of

a country. It intermediates between the flow of funds belonging to those who save a part of their income and those who invest in productive assets. It facilitates mobilization & allocation scarce resources of a country. 

Formal and Informal Financial System   

FORMAL FINANCIAL SECTOR: 

It is characterized by the presence of an organized, institutional and regulated system which caters to the financial needs of the modern spheres of economy.

 

INFORMAL FINANCIAL SECTOR: 

It is an unorganized, non-institutional, and nonregulated system dealing with the traditional and rural spheres of the economy.

MEANING OF A FINANCIAL SYSTEM A

financial

system

is

a

complex,

well-

integrated set of sub-systems of financial institutions,

markets,

instruments,

and

services which facilitates the transfer and allocation of funds, efficiently and effectively. 

FINANCIAL SYSTEM – ITS COMPONENTS FINANCIAL INSTITUTIONS

FINANCIAL MARKETS

FINANCIAL INSTRUMRNTS

FINANCIAL SERVICES

FINANCIAL INSTITUTIONS These are intermediaries that mobilize savings

and facilitate the allocation of funds .



Classification:



 Banking and Non-Banking Financial Institutions  Term-Finance Institutions  Such as IDBI, IFCI, SIDBI  Specialized and Sectoral Finance Institutions  Like EXIM, IDFC, NABARD, NHB  Investment Institutions  MFs, and Insurance Companies.  State-Level Financial Institutions  Such as SFCs, SIDCs.

FINANCIAL INSTRUMENTS (SECURITIES)  A financial instrument is a claim against a person or an institution for payment, at a future date, of a sum of money and/or a periodic payment in the form of interest or dividend.  equity or debt instruments or interest payments or dividends  They represent joint stock( equity /preference – listed or non listed) ; debentures / bonds issued by legal entities and Government/quasi government notes/ bonds  Interest payments & dividends

Financial Securities Type:  Primary  Secondary Distinct Features:  Marketable  Tradable 

FINANCIAL MARKETS Market

provides a mechanism for the Exchange based or OTC based trading for financial products under a policy framework. 

SEBI/RBI/NSE/BSE

The participants in the financial markets are Borrowers (issuers of securities), Lenders (buyers of securities) and Financial intermediaries.

Prim a ry & Secondary

Primary & Secondary

FINANCIAL MARKETS TYPES Money market – a market for short-term debt

(< 1 year) instruments. Capital market – a market for long-term equity and debt instruments. Foreign Exchange Market – a market for the exchange of foreign currencies. 

CAPITAL MARKET SEGMENTS 

Primary Market– a market for new issues or it creates long-term instruments for borrowings.





 Methods of Floating New Issues  Public Issue  Right Issue  Private Placement 

CAPITAL MARKET SEGMENTS Secondary Market – a market for trading outstanding issues. It provides liquidity through the marketability of these instruments. The secondary market is operated through Stock markets or OTC through broking community





Concept primary dealers

Meaning of Financial Services Financial services are services that ensure the

smooth flow economy.

of

financial

activities

in

the



The ‘Financial Service’ can be provided through

‘financial intermediation’. 

Financial intermediation is a process by which funds are mobilized from a large number of savers and make them available to all those who are in need of it and particularly to corporate customers.

Types of Financial Services

Regulatory Environment In India, the Ministry of Finance, the RBI, the

Securities and Exchange Board of India, etc are the major regulatory bodies exercising regulatory control and supervision over the functioning of the financial system in the country.