Unit I

Financial Markets, Meaning, Features, Objectives, Functions,

Classifications, Capital Market, Role of Capital Market, Functions,
Capital Market Instruments, Recents Trends, Money Market, Money
Market Instruments
 Financial Market-Meaning

Financial markets refer broadly to any

marketplace where the trading of
securities occurs, including the stock
market, bond market, forex market,
and derivatives market, among others.
Financial markets are vital to the
smooth operation of capitalist
economies
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 Financial Market-
Meaning
Finance is the integral part of Modern
Business.
Financial Markets refer to the
institutional arrangements for dealing
in financial assets and credit
instruments of different types such as
currency, Cheque, bank deposits, bills,
etc.

FMI Unit -1 Financial Market 3

 Financial Market -
Facilitates
□ The raising of Capital (In the capital
markets)
□ The transfer of risk (In the derivatives
Market)
□ International Trade (In the Currency
Markets)

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 Identify the
Personality!!

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 Harry Markowitz
• Harry Markowitz won a Nobel Prize
in Economics and became known as
the father of Modern Portfolio Theory
(MPT) in the years following the
publication of his seminal 1952 paper,
Portfolio Selection.

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 Identify the
personality !!

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 Warren Edward Buffett
• He (Born August 30, 1930) is an American
business magnate, investor, and
philanthropist. He is currently the
chairman and CEO of Berkshire Hathaway.

FMI Unit -1 FINANCIAL MARKET 8

 Identify the
personality !!

FMI Unit -1 Financial Market 9

 Harshad Shantilal Mehta
• He was an Indian stockbroker. Mehta's
involvement in the 1992 Indian securities
scam made him infamous as a market
manipulator.

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 Identify the
personality !!

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 Economist Benjamin Graham

• He is best known for his book The

Intelligent Investor, is lauded as a
top guru of finance and investment.
Most importantly, investors should
look for price-value discrepancies
when the market price of a stock is
less than its intrinsic value.

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 Financial Market -
Features
□ Large Volume of Transactions
□ Various Segments
□ Instant Arbitrage
□ Volatility
□ Dominated by Financial
Intermediaries
□ Negative Externalities
□ Integration with worldwide financial
markets
Financial Market 13
 Financial Market -
Functions
□ To facilitate creation and allocation of
credit and liquidity
□ To serve as intermediaries for
mobilization of savings
□ To assist the process of balanced
economic growth
□ To provide financial convenience
□ To cater the various credits needs of the
business houses

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 Financial Market -
Segments
1. Money Market
2. Capital Market / Securities
Market
3. Foreign Exchange Market
4. Derivative Market

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 1.Money
Market
• The term money market refers to the institutional arrangements
facilitating, borrowing and lending of short term funds. The Money
markets brings together the lenders who have surplus short-term
investible funds and borrowers.

Financial Market 16
 2.Capital/Securities
Market

• The term ‘Capital Market’ refers to the institutional arrangements for

facilitating borrowing and lending of long-term funds
• (i)Primary Market Shares and Debentures (ii)Secondary
Market Stock Market

Financial Market 17
 3.Foreign Exchange
Market
• The FX market is the largest and most liquid financial market in th
world and includes trading between large banks, central banks,
currency speculators, corporations, governments and other
institutions.

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 4.Derivative
Market

• The derivative Market is defined as the market where exchange of

derivatives takes place. Derivatives are one type of securities whose
price is derived from the underlying assets and values. Such as stocks,
bonds, currencies, interest rates, commodities and market indices.

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 Participants in Financial
Markets
□ Individuals
□ Firms or Corporates
□ Government
□ Regulators
□ Market Intermediaries (Share Brokers,
Depositors, Credit-rating agencies,
Mutual Funds etc..)

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 Regulatory
Environment
□ Ministry of
Finance
□ Reserve Bank of
India
□ SEBI

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 Financial Regulators-
Functions
□ To enforce applicable Laws
□ To prevent cases of market
manipulation
□ To ensure competence of providers of
financial services
□ To protect clients
□ To maintain confidence in financial
system
□ To reduce violations under laws

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 Securities Market

A securities market is a system of

interconnection between all
participants (professional and
nonprofessional) that
provides effective conditions: to attract
new capital by means of issuing new
security (securitization of debt) to
transfer real asset into financial asset.
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 Securities
Market
1. Primary Market/ New Issue Market
The primary market is where
securities are created. It's in this
market that firms sell or float new
stocks and bonds to the public for the
first time.

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 Primary Market –
Features
□ Primary Market Concerns new issue long-term capital
□ Securities are sold for the first time
□ It is also know as New Issue Market(NIM)
□ Securities are issues directly to investors
□ Securities certificates also issues to investors
□ Securities are issued by companies for setting new business and
expanding/modernizing existing business

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 Primary Market – Features
Cont
□ It facilitates capital formation in
economy
□ Funds generated in this market are
utilized for the purchase of fixed asset
□ It doesn’t include long term loans from
financial institutions
□ It is the process of going public (i.e)
Converting private capital into public
capital.

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 Methods of Floating New
Issues
□ Public Issue(IPO)
□ Rights Issue
□ Private Placement
□ Preferential
Allotment

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