Business Studies - XII

UNIT - 10

FINANCIAL MARKETS
TOPICS COVERED

 Financial Market
 Concept, Functions & Types
 Money Market
 Concept & Instruments
 Capital Market
 Concept & Types [Primary & Secondary Markets]
 Differentiate b/w Capital Market & Money Market
 Methods of Floating New Issues in the Primary Market
 Distinguish b/w Primary Market & Secondary Market
 Stock Exchange
 Meaning, Functions & Trading Procedure
 Meaning of Depository Services & Demat Account
 Securities and Exchange Board of India (SEBI)
 Objectives & Functions
FINANCIAL MARKET : MEANING

It refers
to that market which
Creates & Exchanges Financial Assets
(Shares, Debentures, Treasury Bills, Commercial Papers
etc).
FINANCIAL MARKET : FUNCTIONS

 Mobilization of Savings and their channelization into more

productive uses
 Facilitates Price Discovery
 Provides Liquidity to Financial Assets
 Reduce the Cost of Transactions
FINANCIAL MARKET : CLASSIFICATION

Financial Market

Money Market Capital Market

MONEY MARKET INSTRUMENTS : MEANING & TYPES

It deals in Short-Term Securities.

 Treasury Bills

Issued by the RBI on behalf of the Central Government of India to

meet its short-term Financial Needs.

 Commercial Papers
Issued by Reputed Companies to banks, insurance companies, unit
trust and firms. This source of finance is known Bridge Financing.
MONEY MARKET INSTRUMENTS : TYPES

 Call Money
Short-term finance repayable on demand, with a maturity period of
one to fifteen days, used for inter-bank transactions

 Certificate of Deposits
A negotiable instrument which can be transferred after a certain
period by an endorsement

 Commercial Bills
Used by business firms to finance their working capital needs
CAPITAL MARKET : MEANING & TYPES

It deals in Long-term securities.

Capital Market

Primary Market Secondary Market

A. PRIMARY MARKET : MEANING

Market in which securities are sold for the first time for collecting
long-term capital.
It is also known as “New Issue Market”

*Money collected from this market is generally used in meeting the

long-term requirements of the companies.
PRIMARY MARKET : FEATURES

 Related with the fresh issue of Securities

 No particular Place
 Different ways to float Capital *
 Comes Before Secondary Market
*WAYS TO FLOAT CAPITAL

 Public Issue
Initial Public Offer (IPO’s)
 Offer for Sale
Through intermediary (Stock Broking Firms)
 Private Placement
Companies sell the securities to Big Institutional Investors
 Right Issue
Offering additional capital to the existing shareholders
 Electronic Initial Public Issue (e-IPOs)
Issuing of Securities through electronic medium
B. SECONDARY MARKET : MEANING

It refers to the market in which existing securities are bought and sold.
SECONDARY MARKET : FEATURES

 Creates Liquidity
 Comes next to Primary market
 Particular Place
 Encourages New Investment
DIFFERENCE BETWEEN
CAPITAL MARKET & MONEY MARKET

BASIS OF DIFF. CAPITAL MARKET MONEY MARKET

1. Participants Financial Institutions, RBI, Banks, Financial Institutions,

Banks, Corporate Bodies, Finance Cos. etc.
Foreign Investors, etc.
2. Instruments Equity Shares, Preference Treasury Bill, Commercial Paper,
Shares, Debentures, etc. Certificate of Deposit, etc.
3. Investment Does not require huge Entail huge sum of money
Outlay financial outlay

4. Duration More than one year One day to one year

5. Liquidity Less degree Higher degree

6. Safety Riskier Safer

7. Expected Return Higher Lower

DIFFERENCE BETWEEN
PRIMARY MKT. & SECONDARY MKT.

BASIS OF DIFF. PRIMARY MARKET SECONDARY MARKET

1. Issue Securities are issued for the There is trading of existing

first time securities only
2 Parties Securities are sold by the Securities are bought and sold
company to investor directly between investors
3. Flow of Funds It directly promotes capital It indirectly promotes capital
formation formation
4. Buying & Selling Only buying takes place Both buying & selling take place

5. Price Prices are determined by Prices are determined by the

Determination the management of the Demand & Supply of the
company securities
6. Specified Place No fixed geographical Located at specified places
location
STOCK EXCHANGE : MEANING

Stock Exchange means an organized market where securities issue

by companies, government and semi-government organizations are
sold and bought.
MAIN STOCK EXCHANGES IN INDIA

 Bombay Stock Exchange Ltd. (BSE)

 Calcutta Stock Exchange Ltd.
 India International Exchange (India INX)
 Magadh Stock Exchange Ltd.
 Metropolitan Stock Exchange of India Ltd.
 National Stock Exchange of India Ltd. (NSE)
 NSE IFSC Ltd.
STOCK EXCHANGE : FEATURES

 Organized Market
 Deals in Securities Issued by various Concerns
 Deals only through authorized members
 Necessary to obey the rules and Bye-Laws
STOCK EXCHANGE : FUNCTIONS

 Provides Liquidity and Marketability to Existing Securities

 Pricing of Securities
 Safety of Transactions
 Contribution to Economic Growth
 Spreading Equity Cult
 Providing Scope of Speculation
STOCK EXCHANGE : TRADING PROCEDURE

 1. Selection of a broker
 2. The opening of Demat Account with the depository
 3. Placing an order
 4. Starting on-line matching
 5. Communicating mentioned price to the broker’s terminal
 6. Issuing contract note
 7. Pay-in day working
 8. Settlement in progress
 9. Pay-out day working
 10. Delivery of shares
STOCK MARKET INDEX

Index showing the rise and fall

in the market price of shares on
the basis of the selected
companies listed in the various
stock exchanges is called Index.
SENSEX of BSE and NIFTY of
NSE are the two major stock
market indexes in India.
DEPOSITORY SERVICES & DEMAT ACCOUNT

 Depository Services ?
It refers to that service through which the transfer of ownership in
shares takes place by means of book entry without physical delivery
of shares.

 Participants in Depository Services:

1. The Depository
2. The Depository Participant
3. The Investor
4. The Issuing Company
DEPOSITORY SERVICES & DEMAT ACCOUNT

 Demat Account ?
It refers to that account which is opened by the investors with the
depository through a depository participant for the purpose of
trading in shares.

 Name of Depositories in India

1. National Security Depository Limited (NSDL)
2. Central Depository Services Limited (CDSL)
SECURITIES AND EXCHANGE BOARD OF INDIA

Securities & Exchange Board of India (SEBI) formed under the SEBI
Act, 1992 focus being the greater investor protection acts as a
vigilant watchdog.
OBJECTIVES OF SEBI

 Regulation of Stock Exchanges

 Protection of Investors
 Checking the Insider Trading
 Control over Brokers
FUNCTIONS OF SEBI

 Regulatory Functions
 Developmental Functions
 Protective Functions
1. REGULATORY FUNCTION OF SEBI

 To register Brokers, Sub Brokers etc.

 To register the collective investment scheme, such as, mutual fund
 To regulate the working of Stock Brokers, Portfolio Exchanges, etc.
 To regulate the takeover bids by companies
 To call information by undertaking inspection, conducting enquiries
and audits the stock exchanges and other intermediaries
2. DEVELOPMENTAL FUNCTION OF SEBI

 To impart training to the intermediaries

 To carry on Research Work
 To develop the capital market by adapting a flexible approach
3. PROTECTIVE FUNCTIONS OF SEBI

 To check the unfair trade practices in security market

 To check Insider Trading
 To undertake steps for investors protection
 To Promote fair practices and code of conduct into securities
market
THANK YOU