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Financial Market

Market: gathering of people for the purchase and sale of goods or services . usually in exchange for
money or goods.
The market may be in one specific place , might not exit physically at all.
Financial market: market buyer and seller participate in trade of assets such as equities ,bonds
,currencies and derivates .this market having transparent pricing, basic regulations on trading, costs and
fees and determine the prices of securities that trade.
Overview to Financial Markets
In the world of finance ,human greed ,system failures or any other risk will face . every risk avoid
possibly and handsome opportunity to build your wealth. To under stand about the risk is proportional
to returns and you can only minimize the risk but cant eliminate it. Balancing risk with returns in line
with your individual circumstances and mobilizing finance.
Indian Financial System
Financial market provide channels for allocation of savings to investment. These provide varies
investment options to savers as well as investors are can raise funds and based on acts of savings and
investments of their individual ability
Financial market have 2 major components :
1.Capital market Primary and secondary
2.Derivative(secondary ,second born) market Equity ,commodity and Currency.
Financial market in 2 markets
1.Money market
a .organized money market shorter lending /borrowing
b. un organized money market money lenders/ indigenous bankers
2.Capital market
a. Primary b. secondary
Money market:
High liquidity(facing financial problems)and very short maturities are traded .barrowing and landing in
the short term, from several days to just under a year . money market company rising money by
selling commercial papers into the market , money in the short term. High liquid nature of the securities
and short maturities.

Capital Market
The part of a financial system concerned with rising capital by dealing in shares , bonds, and other longterm investments.
Money market caters to the short term needs only. Capital market needs long term needs. The term
capital market refers to the institutional arrangements for facilitating the barrowing and lending for long
term funds. The participants on the demand and supply said of market are financial institutions ,mutual
funds, agents , brokers ,dealers, borrowers and lenders. An efficient capital market is a pre-requisite for
economic development.
Functions of capital market

Mobilizing of financial recourse and effective allocation of Mobilized financial recourse


securing the foreign capital and know- how to fill up the deficit in the required resources for
economic growth rate.

Role of capital markets

It is indicator of the inherent health of the economy and it offers a number of investments a
venues to investors.
It is the largest source of funds with long ,canalizing the savings pool in the economy towards
investment.

Players in capital market:


Companies issue securities: As per SEBI guidelines , companys issue securities IPO(Initial Public Offer)
Through news companys , existing unlisted companies, existing companies.
Intermediaries : merchant bankers, underwrites, registers , brokers , depositors, collecting agents.
Influencing factors in growth of capital market:
The level of savings and investment of householders sector ,economic development, rapid
industrialization.
Components of capital market
Primary market
Secondary market

Primary market : the new issue market where new securities i.e., share or bonds that have never been
previously issued or offered. Both the new and existing companies rise capital on the new issue market.
This is transfer of fund from the willing investment entrepreneur or going in for expansion.

Mode of issue of securities


1. Public issue : the issue of securities to more than 50 persons SEBI under guidelines for primary
market under the series guideline for discloser and investor protection.
2. Right issue : rising further capital from the existing share holders/debenture holders by
offering additional share to them on pre-emptive basis.
3. Bonus issue : the existing share holders out of free reserves. The purpose of bonus issue is to
capitalize the free reserve.
4. Private placement : it involves selling of securities privately to a group of investors.
Functions
Primary market are origination underwriting and distribution , the proposal nature of security, size of
the issue , time of issue .
Secondary market : it represents the stock market where existing securities shares and debentures are
trade . stock market provide purchase and sale of securities . the secondary market assists the
operations associated with primary market.
Secondary market has following
Over The Counter Exchange Of India (OTCEI)
Stock market
Over The Counter Exchange Of India (OTCEI)
OTCEI was setup in 1989 as a company under section 25 of India companies act 1956. OTCEI provides
the capital market access to small investors. It is promoted by UTI, ICICI, LIC ,GIC, Can bank financial
services.
Stock market : It trading of company stocks (collective shares ),other securities and derivatives. It
existing securities shares and debentures are traded. Stock exchange provides a securities shares and
debentures provides an organized mechanism for purchased and sale of securities
Stock Exchange: Stock Exchange means nay body or individuals where incorporated or not ,constituted
for the purpose of assisting ,regulating or controlling the business of buying ,selling in securities .
History of stock exchange the first stock exchange was establish in 1875 in Bombay and Ahmedabad
stock exchange set up in 1894. Those were organized as voluntary non-profit making association of
brokers to regulate and protect their interests. Central legislation was proposed and a committee
headed by A.D.Gorwala went into the bill for securities regulation. On this basis of the committees
recommendations and public discussion, the securities contracts (Regulation) act became law in 1956.
Characteristics of stock exchange
exchange is an association of

it is a place where securities are purchased and sold. A stock

Functions of stock exchange


ensure liquidity of capital
continuous market for securities
investors can evaluate the worth of their share from share from their share from the price
quoted at different stock exchange from those securities.
Mobilizing surplus savings , helping in raising new capital ,platform for public debt, clearing
house of business information and safety in dealing.
Operators at sock exchange
a. Jobbers

b. brokers

c. Tarawaniwalas

Jobbers: securities merchant dealing in shares , and debentures as independent operation. they buy
and sell securities on their own behalf and try to earn through price changes. Jobbers cannot deal on
behalf of public and are bared from talking commission.
Broker : he is commission agent who act as intermediaries between buyers and seller of securities .he
do not purchase or sell securities , making deal help of buyer and seller.
Tarawaniwalas: BSE have unofficially divided themselves into two categories i.e brokers and
Tarawaniwalas later act as both jobbers and brokers. Tarawaniwalas his own behalf like a jobber may
also act as a broker of the public.
Speculation in stock exchange:
1.Bull 2. Bear 3. Stag 4.Lame Duck
1.Bull: bull ()or tejiwala except price to rise in future ,purchase the securities now and sell them in the
future at a higher price .
2.Bear: bear () or mandiwala except price to fall in future and sells securities at present with a view to
purchase them at lower price in future.
3.stag : speculation , he applies for the shares in new companies and expects to sell them at a premium
if he gets an allotment .he sell the shares before being called to pay the allotment money.
4.lame duck: bear finds it difficult to fulfill his commitment ,he is called struggling like a
lame(weak) duck.
Factors influencing at prices in stock exchange:
Financial position of the company, demand and supply position of shares, role of financial
institutions , leading rates of banks , trade cycle , speculation activities of operators ,
government control .

Advantage t o the companies :


Ready market for securities , increase in price , increase in good will
Advantage to the investors:
Safety of investment ,
price list of securities ,

best use of capital ,


more collateral (security) value ,
powerful hedge against inflation.

publication of

Advantage of the society :


Helpful in industrialization,
Increase in rater of capital formation,
saving are encouraged ,
incentive for efficiency,
government can raised funds for imports projects ,
provide a mirror
reflect general economic conditions.
Regulatory for stock exchange Securities and Exchange Board of India(SEBI) act 1992:
Mainly 2 stock exchanges in India
a. Bombay stock exchange (BSE)
b. National stock exchange (NSE)
Bombay stock exchange (BSE):
Asia rich heritage its 135 years of experience BSE was establish as the Native share & stock broker
association in 1875.
BSE is first stock exchange in the country which obtained permanent recognition in 1957
Index : BSE in 1986 introduced an equity stock index called BSE SENSEX (sensitive Index). This index is
became a barometer of the Indian stock market
SENSEX first compiled in 1986 was calculated on a Market Capitalization Weighted methodology of
30 component stock representing a sample of large, well established and financial sound companies.
National stock exchange (NSE)
NSE was set up by leading institution to providing a modern, fully automated screen-based training
system with national reach. the exchange has brought about unpatrolled transparency, speed &
efficiency , safety and market integrity. NSE set up in1992. The settlement is on T+2 bais for equity
trading.
Nifty NSE will operate two segments , debt market and equity market operations both are separately
maintained .all medium and large sized companies with paid-up equity of Rs 10 crores and above
eligible to be listed o regular stock exchanges can be listed on NSE. the index in NSE is NIFTY it stands
for National Index 50 which give the stock market trade of NSE by selecting top 50 companies based on
capitalization.

Derivatives market
Derivative products ,most notably forwards , futures and options, whose value is derivative from the
value of one or more basic variables (underling assets , index ,or reference rater ) in contractual manner
the underlying assets can be equity , forex , commodity or any other asset.
Derivate contracts have several variants . the most common variants are forwards ,futures, options and
swap.
Forward : customized contract between two entities , where settlement take place on a specific date in
future at todays pre-agreed price.