FINANCIAL MARKETS

CONCEPT OF FINANCIAL MARKET

Q. What is a Financial Market?
Ans. Financial market refers to the market for borrowing and lending of long-
term and short-term funds. It provides facilities for buying and selling of
financial claims. Financial markets are of several types such as capital market,
money market, foreign exchange market, market for Government securities, etc.

NATURE AND TYPES OF CAPITAL MARKET

Q. Define ‘Capital market’?
OR
What do you mean by capital market?
Ans. Capital market may be defined as a market which deals in long-term and
medium-term funds. It consists of all the institutional arrangements which
facilitate the borrowing and lending of such funds. It is the market for sale and
purchase of shares, debentures, bonds and Government securities. Capital
market is of two types- Primary market and Secondary market.

Q. Explain briefly the scope of capital market.

Ans. Scope of Capital Market.
Capital market consists of the following elements:
i. Users of funds: A large variety of users such as individuals,
business enterprises, Central and State Governments, civic bodies,
etc. demand and utilise the funds provided by the capital market.
ii. Suppliers of funds: Public, commercial banks, specialised
financial institutions (e.g., IFCI, IDBI, UTI, LIC, etc.), provident
fund, etc. are the suppliers of funds to the capital market.
iii. Capital market instruments: There are two main categories of
securities in the capital market-(a) marketable, and (b) non-
marketable.
Marketable securities include Government bonds, PSU (Public
Sector Units) Bonds, UTI and other mutual funds units, and
 corporate securities- shares and debentures. These can be traded
on different stock exchanges in the country.
Non-marketable securities consist of bank deposits, public
deposits with companies, loans and advances of banks and
financial institutions, post office deposits and certificates. These
are not traded on stock exchanges.
iv. Financial intermediaries: These serve as a link between users
and suppliers of funds. Underwriters, stock brokers, merchant
banks, stock exchanges, etc are such intermediaries.
Q. Distinguish between Primary market and Secondary market?
Ans.
Basis of Distinction Primary Market Secondary Market
1. Meaning It means the market where It means the market where
corporate sector, Government listed shares, debentures and
and public bodies issue other securities are traded for
securities to raise funds from investment and speculative
the public. purposes.
2. Nature of securities In primary market new In secondary market second
dealt in securities are traded hand securities are traded
3. Alternate name It is also known as ‘new It is also known as ‘stock
issues market’ exchange’

Reference: NCERT TEXT CLASS 12 Business studies

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