INVESTORS EXPECTATION

 Safety of Investment
 Ease of exit
 Attractiveness of Returns
 Lowest Transaction costs
 Well mitigated risks
 Assured regulatory structure to that systematic
risks do not diminish the value of investment.
in the whole transaction chain.
 Financial Assets
A. Marketable Assets
B. Non- marketable Assets
Marketable Assets-
 Shares
 Govt. Securities
 Bonds
 M.F. Units
 UTI Units
 Bearer Debentures
Non- marketable Assets
 Bank Deposits
 PF
 LIC Schemes
 Corporate Deposits
 Post office Certificates
 Pension Fund
 National Savings Certificates
Financial Asset- Issuing Authority-
Cash Asset- Issued by RBI, Ministry of Finance and Commercial Banks through Credit Creation
Debt Asset-By Variety of Organisations for raising their debt capital.
Stock Asset- Issued by Business organisation for raising their fixed Capital.
 Classification of Financial Markets
Organised Market and Unorganised Market
Organised Market- Capital Market & Money Market
A. Capital Market- Industrial Securities Market, Govt.
Securities Market & Long Term Loan Market.
Industrial securities Market- Primary Market &
Secondary Market
Long term Loan Market- Term loan Market, Market for
Mortgages & Market for Financial Guarantee
B. Money Market- Call Money Market, Commercial Bill
Market, Treasury Bill Market & Short term Market.
Unorganised Market- Money lenders, Indigenous
Bankers, Pawn Brokers, Chit fund Companies etc.
Financial Markets – Post reform period (1990)
1. Money Market
2. Foreign Exchange Market- to transfer purchasing ower one country to another country & to promote
foreign trade
3. Financial services Market
4. Capital Market
Money Market-
 Call Money Market
 T- Bill Market- Ordinary or Regular – For public & others and have secondary market ,for short term
funds & ad hocs- issued in favour of RBI only and RBR is authorised to issue currency against them
 Commercial Bill market / Discount Market
 Repos Market
 Acceptance Markets/ Bills rediscounting Market
Financial Services Market-
 Merchant Banking services
 Credit Rating Services
 Factoring & Forfaiting Services
 Custodial & Depository Services
 Provision of Financial Guarantees
 Venture Capita
 Leasing
 Others
Capital Market
 Govt . Market
 Structure of Money Markets
Instruments Tenor Major Participants
Call Money Over night Scheduled Commercial
banks ( Excluding RRBs),
Cooperative Banks, PDs, All
India FIs, Insurance Cos &
Mutual funds
Notice Money 2-14 Days -Do-
Term Money 15 Days to 1 year Scheduled Commercial
banks ( Excluding RRBs),
All FIs, Insurance Cos &
Mutual funds

Certificate of Minimum 7 Days Corporates, All India FIs &

Deposits(1989) PDs
Commercial Paper ( 1990) Minimum 7 Days Scheduled Commercial
Banks , PDs & All India FIs
Forward rate Minimum 7 Days Scheduled Commercial
Agreements/Interest rate Banks , PDs & All India FIs
swaps
Bills rediscounting Contracts are available for Scheduled Commercial
 CAPITAL MAEKET
CANNELIZES SAVINGS IN TO INVESTMENT
OPPORTUNITIES
THE VEHICLE THAT CARRIES SAVINGS INTO
INVESTMENT OPPORTUNITIES MAY VARY IN
FORM , REWARDING SCALE, REWARDING
PRINCIPLE , TYPE OF INTERMEDIATION ETC
 Money market Vs Capital Market
MONEY MARKET
Short term loanable funds not exceeding
one year
Supplies funds for WC & short term Govt.
requirements
Instruments include- B/Es, TBs, CPs, CDs
etc.
Single & Large amount.
TB-Minimum 1 lakh
CD/ CP- 25 lakhs
Central Bank & Commercial Banks are
major players
Instruments Generally do not have
secondary market
Transactions mostly takes place over
phone, hence no formal place
Transactions can be conducted with out
the help of brokers
CAPITAL MARKET
Long term funds exceeding one year
Supplies fixed capital & long term needs
of Govt.
Instruments include- Shares, Debentures ,
Govt. Bonds etc
Small amount
Share- Rs 10
Debenture- Rs. 100
Development Banks & Insurance Cos. Play
a dominant role
Instruments have secondary market
Transactions take place at a formal place
i.e. stock exchange
Transactions have to be conducted only
through authorised dealers.
 Financial intermediaries/service
Providers
• Identification of investment opportunities
• Assessment of investors requirement
Function of matching the two are performed as an
occupation by financial service providers.
• The services of intermediaries are crucial for bringing the
investor and investment opportunities ( say issuers), price
discovery and informational services.
• Service providers have professional attachment to
investment opportunity and the investor and not to the
nationality of the two.
• The form of intermediation may change but the place of
intermediaries in the financial transaction chain will not
change.
 Financial Regulation-Goals
• Protecting financial consumers and investors
• Controlling and mitigating systematic risk
• Protecting against insolvency that costs the exchequer or
, in a different context , customer funds.
• Ensuring the integrity , efficiency and competitiveness of
markets
The regulatory objectives for different nations can not
be much different.
Regulatory Structure- Assumptions

All Financial transactions are routed through the following

assumptions:
• Must have oversight on the whole market rather than a silo( which
could combine some of the jurisdictions and agencies) could be
effective over the long run and better able to adjust to innovations,
technological advancements and competitive pressures.
• It would satisfy the four goals of financial regulation better, more
efficiently, with less duplication with more focused expertise and at
less cost than the divided structures
• It would foster competition as all products and services could
compete as ‘ Financial Services’.
 Factors influencing Financial Market
Transactions
• Improvement of the speed, spread and efficiency of communication and information- With this
improvement the world could be smaller.
• The world demography- It will create pockets of “ retired population” requiring import of “
young Adults” coming from the different parts of the world , to keep the work going on.
This will create economies that have citizen’s with “ Dual interests ”- interest in the
economy where they earn and economy to which they originally belong.
• The financial transactions will increasingly happen on electronic market structures and the
national borders created by sovereign states will be less relevant.
• Facets of Financial markets– i.e. Banking , Insurance, securities and Derivatives are all bound
and driven by the same substratum, VIZ; the investor and investor’s objectives and risk
appetite. Policy makers in different jurisdictions will find it difficult to regulate any one facet on
stand alone basis.
• Investments chase most attractive investment opportunities of location of the opportunity,
irrespective of investment vehicle, provided the marker structure under which the investment
is to be made is perceived to be competent enough to protect the investor’s interest . Flow of
investments vary with the variations in perceptions about the competence of that market
change.
 Classification of Markets
1. Primary Markets
2. Secondary markets
Differences Primary & Secondary Markets-
a. Functional difference-
P M-Deals with new securities
SM- Deals with already existing securities
b. Organisational difference
PM- No tangible form or Administrative organisational set up
SM- Physical existence and are located in particular geographical areas i.e. Stock
exchanges
3. Nature of contribution to industrial Finance-
PM- Provides funds for New firms, For expansion and diversification of existing firms
SM- Facilitates liquidity for existing securities.
 Topics for Presentations
Groups-
1.Money market- composition, Transactions, participants,
2. Instruments- TBs- Issue, guide lines & importance
3 CPs- issue, RBI guide lines, importance, participants etc.
4. CDs-issue, RBI guide lines, importance, participants etc
5. Repo Market
6 Commercial Bill market- DFHI( Discount and Finance
House of India, RBI guide lines etc.
7. Foreign Exchange market- operations