Financial management 1st internal assessment

By: Nivas Niranjan

Division: C

Q.1) Capital market

Capital market is a place where buyers and sellers indulge in trade (buying/selling) of
financial securities like bonds, stocks, etc. The trading is undertaken by participants such as
individuals and institutions. Capital market trades mostly in long-term securities. The magnitude
of a nation’s capital markets is directly interconnected to the size of its economy which means
that ripples in one corner can cause major waves somewhere else

There are two types of markets and they are primary and secondary market.

Primary market

Primary market is the market for new shares or securities. A primary market is one in
which a company issues new securities in exchange for cash from an investor (buyer).It deals
with trade of new issues of stocks and other securities sold to the investors.

The primary market is where securities are created. It’s in this market that firms sell (float) new
stocks and bonds to the public for the first time. An initial public offering, or IPO, is an example
of a primary market. These trades provide an opportunity for investors to buy securities from the
bank that did the initial underwriting for a particular stock. An IPO occurs when a private
company issues stock to the public for the first time.

The primary market is a type of capital market which deals with newly issued stocks or
securities. In the primary market, new securities are offered for the first time for sale to increase
the capital. And because of that, it is also known as New Issue Market. In this market, the
company sells the stocks directly to the investor. There are various intermediaries involved in a
primary market, which includes merchant banks, brokers, debenture trustees, and portfolio
managers.
Secondary Market

Secondary market deals with the exchange of prevailing or previously-issued securities

among investors. Once new securities have been sold in the primary market, an efficient manner
must exist for their resale. Secondary markets give investors the means to resell/ trade existing
securities. Another important division in the capital market is made on the basis of the nature of
security sold or bought, i.e. stock market and bond market.

For buying equities, the secondary market is commonly referred to as the “stock market.” This
includes the New York Stock Exchange (NYSE), Nasdaq, and all major exchanges around the
world. The defining characteristic of the secondary market is that investors trade among
themselves. That is, in the secondary market, investors trade previously issued securities without
the issuing companies’ involvement. For example, if you go to buy Amazon (AMZN) stock, you
are dealing only with another investor who owns shares in Amazon. Amazon is not directly
involved with the transaction.

The secondary market or the stock market, where securities are traded after they are issued to the
public in the primary market. It means in the secondary market the investor purchases security
from another investor. In the secondary market stocks or securities are traded which are already
introduced in the primary market. The secondary market can include the stock exchange, equity
market, and debt market. Here securities that are to be traded should be listed on the stock
exchange, then only they are eligible for trading..

Difference between the Primary and secondary markets.

Both Primary Market vs Secondary Market are popular choices in the market; let us discuss
some of the major differences:

 The securities are initially issued in a market known as Primary Market, which is then
listed on a recognized stock exchange for trading, which is known as a Secondary
Market.
 The prices in the primary market are fixed whereas the prices vary in the secondary
market depending upon the demand and supply of the traded securities.
 In the primary market, the investor can purchase shares directly from the company. In the
Secondary Market, investors buy and sell the stocks and bonds among themselves.
 In the primary market, security can be sold only once, whereas in the secondary market it
can be done an infinite number of times.
 In the Primary Market, the amount received from the securities is the income of the
company, but in the Secondary Market, it is the income of investors.
 The primary market is rooted in a specific place and has no geographical presence as it
has no organizational set up. Conversely, the Secondary market is present physically, as a
stock exchange, which is situated in a particular geographical area.
 Investment bankers do securities trading in the case of the Primary Market. Conversely,
brokers act as intermediaries while trading in the secondary market.

SIGNIFICANCE OF PRIMARY MARKET

1. Primary market facilitates capital growth by enabling individuals to convert savings into
investment.
2. It facilitates companies to issue new stocks to raise money directly from households for
business expansion.
3. It provides a channel for the government to raise funds from the public to finance public
sector projects.
4. The primary market also exists for the insurance companies by corporations and the
government directly to investors.
5. The primary market enables business expansion and growth for domestic and foreign
companies.
SIGNIFICANCE OF SECONDARY MARKET
1. It helps to create sufficient liquidity and marketability of outstanding debt and equity
instruments.
2. Secondary market contributes to economic growth by proper allocation of funds
towards most efficient channel through process of disinvestment to re investment.
3. It provides a ready market for carrying out his trading activities.
4. Secondary market provides for instant valuation of securities caused by changes in
internal environment like industry wide factors.
5. It provides a safe platform to investors for carrying out their trading activities.
The two financial markets play a major role in the mobilization of money in a country’s
economy. Primary Market encourages direct interaction between the companies and the investor
while on contrary the secondary market is where brokers help out the investors to buy and sell
the stocks among other investors. In the primary market bulk purchasing of securities does not
happen while the secondary market

Q.2) 1)    If I had to open bank account, the factors I would consider are: Interest rate:  The
Interest rate offered plays an important role in determining where you put your money. It is one
of the most important characteristics to take care of while considering starting a savings account.
So one need to go through all options since slightest difference in percentage can change the
numbers. Transaction fees: A Current Account allows unlimited transactions. However, banks
charge a fee when the number of transactions crosses a pre-set limit. The lower the fee, the better
it is.

Minimum Balance: The minimum balance is the minimum amount that a customer must have
in their account to be even considered for receiving any particular services like high-interest
rates, or they might discontinue your account.

Tenure: The minimum period of a Recurring Deposit is six months at most of the banks. These
deposits can be opened from 6 months to 10 years, depending on the depositor. Once the tenure
and the RD amount has been set, it cannot be altered till maturity of the deposit. Premium
services: Some banks offer services like pick-up and deposit of cash, access to after-hours
banking, credit cards, free pay orders, demand orders, Cheque Book, Digital payments – NEFT,
RTGS, IMPS and Digital Banking services like Retail Internet Banking/Corporate Internet
Banking and Mobile Banking. These services come at a cost.

Overdraft limit: Most banks offer Current Account holders Cash Credit and or Overdraft
facilities after they are convinced of the customer's credibility. Size of the bank: A bank with a
larger bank network may be in a better position to offer services in a greater number of locations.
Digital Services: The bank should also offer Current Account services online. So that any person
can open account instantly and with minimal documentation.

Easy withdrawal: Some banks might allow even fewer withdrawals every month. One need to
look into a bank’s withdrawal policies before opening bank account.
Customer service: customer service is a must factor to consider before opening bank account,
as one will have many questions to ask and there might be issues in opening account and even
after that. Example: If I would have to choose a bank account currently, I would choose AXIS
bank because they have all requirements I need in a bank. It has all services I need in a bank. It
provides best rates and offers OD facility as soon as possible. It has large ATM network that can
be useful in case I need to access cash. As there is digital service, I can do transactions from
home or anywhere.