Mail: banishagupta2099@gmail.

com
Website: https://iibf.info

FINANCIAL MARKETS
Financial markets are markets, which facilitate the raising of resources
and/or the investment of surplus funds. These markets are platform
for sellers/ borrowers and buyers/investors to come together and
undertake transactions in financial securities/ instruments. These
markets also facilitate handling of various risks. Financial markets
can be sub-divided as under:

1. Capital markets, which consist of Stock Markets and Bond Markets

2. Foreign exchange markets, which facilitate the trading of foreign
exchange
3. Insurance markets, which facilitates handling of various risks
4. Mutual Fund Markets, which facilitate pooling of resources of
investors for investment in equity and/or debt market
5. Money markets, which provide short-term debt financing and
investment; and
6. Commodity markets, which facilitate the trading of commodities.

Financial markets are regulated markets.

Currently there are a number of regulators of these markets in India.

The regulator for Capital Markets is Securities and Exchange Board of
India (SEBI).
Commodity market, which, till recently was regulated by Forward
Markets Commission, is now being regulated by SEBI. SEBI also
regulates Mutual Funds through mutual funds also have formed a
self-regulatory authority in the form of Association of Mutual Funds
of India (AMFI) which is an industry body of mutual funds.

Foreign Exchange Markets and Money Markets are regulated by the

Reserve Bank of India (RBI).

JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available

https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

Insurance Regulatory Authority of India (IRDA) regulates insurance

companies.

Financial derivatives are regulated by the Reserve Bank of India while

the commodity derivatives come under the purview of Forward
Market Commission (FMC).

Markets can be classified as primary market or secondary market in

terms of access. The primary market is the financial market for the
initial issue and placement of securities while the secondary market is
the market where securities (bonds, shares, derivatives, etc.) are
traded. In the case of primary market, unlike the secondary market,
no organised stock exchanges are necessary.

The secondary market (also called aftermarket) is the market for

trading of securities. This market can be in the form of Over the
Counter (OTC) where the transaction takes place between two
parties directly and or through organised stock exchanges.

CLASSIFICATION OF FINANCIAL MARKETS

• CAPITAL MARKET

The capital market is the market for buying/ selling of long-term debt
and equity-backed securities. Companies, Governments, Banks and
Financial Institutions raise funds for their long-term uses through the
capital market. In terms of instruments and practices, the capital
market can be broadly classified into the stock market and the bond
market. Shares, debentures and bonds are issued and traded in the
capital market.

Capital market consists of (i) Stock markets, which facilitate equity

investment and buying and selling of shares of companies listed on the
stock exchanges, and (ii) Bond markets, which deal with issue of debt
contracts and the buying and selling of bonds and debentures.
JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available
https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

• Derivative is a future or an option contract market.

A derivative market is a market which could either be an OTC or
exchange driven market. Derivatives are instruments developed on
the price movement and volatility of an underlying equity, bond or
financial contract.

• THE MONEY MARKET

The money market refers to the global marketplace where short-term,

low-risk financial instruments are traded between borrowers and
lenders. These financial instruments typically have a maturity of
less than one year and are characterized by their high liquidity, low
credit risk, and low yield.

Some examples of money market instruments include Treasury bills,

commercial paper, certificates of deposit (CDs), repurchase
agreements (repos), and short-term bonds issued by corporations
and government entities.

• THE FOREIGN EXCHANGE MARKETS

The foreign exchange market, also known as the forex market or FX

market, is a global decentralized market where currencies are traded. It
is the largest financial market in the world, with an average daily
trading volume of over $6 trillion.

The forex market operates 24 hours a day, five days a week, and is open
to participants around the world. It is a market where buyers and
sellers exchange one currency for another at an agreed-upon
exchange rate.

• INSURANCE MARKETS

Insurance markets are where individuals and organizations can buy

insurance policies to protect against financial loss due to various risks.
The insurance industry is a critical component of the global
JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available
https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

economy, providing financial protection and stability to

individuals and businesses around the world.

Insurance markets operate on the principle of risk pooling. Individuals

or organizations purchase an insurance policy by paying a premium to
an insurer, who then agrees to pay out a claim if the insured event
occurs. The insurer pools the premiums collected from many
policyholders and uses that pool to pay out claims to those who
experience a loss.

• MUTUAL FUNDS

A mutual fund is a type of investment vehicle that pools money from

many investors and uses that money to invest in a diversified portfolio
of stocks, bonds, or other securities. Each investor owns a share of the
mutual fund, and the value of their share is determined by the
performance of the underlying investments.

Mutual funds are professionally managed by investment companies,

which are responsible for selecting the securities that make up the
fund's portfolio and making investment decisions on behalf of the
fund's investors. Mutual funds typically charge investors an
expense ratio, which covers the costs of managing the fund.

• COMMODITY MARKETS

Commodity markets are where raw materials or primary products such

as metals, energy, and agricultural products are bought and sold. These
markets provide a way for producers and consumers of commodities
to manage the risks associated with price fluctuations and ensure a
stable supply of these essential products.

Commodity markets are usually divided into two main categories:

physical and derivatives. Physical commodity markets involve the
buying and selling of actual physical goods, while derivatives
markets involve trading contracts that represent the right to buy
or sell a commodity at a future date.
JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available
https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

Spot trading

A spot trade is the purchase or sale of a commodity for immediate

delivery. Spot trade is settled "on the spot", as opposed to a future
contract where delivery is made at a certain time in future.

Forward Contract

• A forward contract is a financial agreement between two parties to

buy or sell an asset at a predetermined price on a specific date in
the future. Unlike futures contracts, forward contracts are
customized agreements that are traded over-the-counter (OTC)
and are not standardized.

• Forward contracts are often used by companies and individuals to

manage price risk associated with an underlying asset. For example,
a company that needs to purchase a large amount of a certain
commodity in the future may enter into a forward contract with a
supplier to lock in a price and ensure a stable supply of the
commodity. Similarly, an investor may enter into a forward
contract to buy or sell a security at a predetermined price on a
future date.

Future Contracts

• A futures contract is a financial agreement to buy or sell an asset at

a predetermined price on a specific date in the future. Futures
contracts are traded on organized exchanges and typically
involve standard contract sizes and expiration dates.

• The asset being traded in a futures contract can be a physical

commodity, such as crude oil or gold, or a financial instrument, such
as a stock index or currency. The price of the futures contract is
determined by the current market price of the underlying asset,
as well as supply and demand factors.
JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available
https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

• Futures contracts are commonly used by producers and consumers

of commodities to manage price risk. For example, a farmer may
enter into a futures contract to sell a certain amount of corn at a
predetermined price in the future, providing them with
certainty around the price they will receive for their crop.

Forward Vs. Futures

Comparison Forward Futures

Trade on organized exchanges No Yes
Use of standardized contract terms No Yes

Use of associate clearing houses to guarantee No Yes

contract fulfilment
Close easily No Yes
Regulated by identifiable agencies No Yes
Any quantity No No
Any product No No

The Major Actors in commodity market.

• Speculator

A trader who enters the futures market in pursuit of profit, accepting

risk in the endeavour.

• Hedger

A Trader who enters the futures market to reduce some pre-existing

or perceived risk exposure.

• Broker
JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available
https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

A broker is a person or firm that acts as an intermediary between buyers

and sellers in financial markets. Brokers help facilitate trades by
connecting buyers and sellers, providing access to market
information and analysis, and executing trades on behalf of their
clients.

In exchange for their services, brokers typically charge a commission

or fee based on the value of the transaction. The specific commission
or fee structure may vary depending on the type of financial product
being traded and the broker's business model.

ROLE OF THE EMERGING MARKETS: BRICS

• BRICS is an acronym that stands for Brazil, Russia, India, China, and
South Africa. These countries are considered to be some of the
fastest-growing emerging market economies in the world and are
recognized for their potential to become major players in the
global economy.

• The BRICS countries represent a diverse group of nations with a

combined population of over 3 billion people and a combined GDP
of over $16 trillion. They are united by their status as emerging
market economies and their potential to contribute to global
growth and development.

ROLES AND FUNCTIONS OF PARTICIPANTS IN THE FINANCIAL

MARKET

BANKS

Banks participate in the capital market and money market. Within the
capital market, banks take active part in bond markets. Banks also
invest in equity and mutual funds as a part of their fund management.
Banks take active trading interest in the bond market and have
JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available
https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

certain exposures to the equity market also. Banks also participate in

the market as clearing houses. Banks also deal in the foreign exchange
market by purchasing/selling foreign exchange.

PRIMARY DEALERS (PDs)

PDs deal in government securities both in primary and secondary

markets. Their basic responsibility is to provide two-way quotes and
act as market makers for government securities and strengthen the
government securities market.

FINANCIAL INSTITUTIONS (FIs)

FIs provide/lend long-term funds for various activities in the economy.

FIs raise their resources through issue of long-term bonds in the
capital market and by borrowings from international financial
institutions, like International Finance Corporation (IFC), Asian
Development Bank (ADB)

STOCK EXCHANGES

A stock exchange is duly approved by the Regulators to provide sale

and purchase of securities by "open cry" or "on-line" on behalf of
investors through brokers. The stock exchanges provide clearing
house facilities for netting of payments and delivery of securities.

Such clearing houses guarantee all payments and deliveries. Securities

traded in stock exchanges include equities, debt, and derivatives.
Currently, in India, only dematerialized securities are allowed to be
traded on the stock exchanges.

BROKERS

Only brokers approved by Capital Market Regulator can operate on

stock exchange. Brokers perform the job of intermediating between
buyers and sellers of securities. They help build up order book, price

JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available

https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

discovery, and are responsible for a contract being honoured. For

their services brokers earn a fee known as brokerage.

INVESTMENT BANKERS (MERCHANT BANKERS)

Investment bankers, also known as merchant bankers, are professionals

who help companies and governments raise money by underwriting
and selling securities such as stocks, bonds, and other financial
instruments. They work for investment banks, which are financial
institutions that specialize in providing advisory and financing
services to corporations, governments, and other organizations.

FOREIGN INSTITUTIONAL INVESTORS

FIS are foreign based funds authorized by Capital Market Regulator to

invest in countries' equity and debt market through stock exchanges.
They are allowed to repatriate sale proceeds of their holding’s,
provided sales have been made through an authorized stock exchange
and taxes have been paid. FIS enjoy de facto capital account
convertibility. FIS operations provide depth to equity and debt
markets and result in increased turnover. In India, these activities
have brought in technological advancements, besides foreign funds
in equity and debt market.

CUSTODIANS

Custodians are financial institutions that hold and safeguard assets on

behalf of their clients. They provide a range of services, including
safekeeping of assets, clearing and settling trades, processing
income and corporate actions, and providing reports on client
holdings and transactions.

Custodians are typically used by institutional investors such as pension

funds, mutual funds, and hedge funds, as well as high net worth
individuals. They may hold assets such as stocks, bonds, mutual
funds, exchange-traded funds (ETFs), and other financial
instruments.
JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available
https://iibf.info
 Mail: banishagupta2099@gmail.com
Website: https://iibf.info

DEPOSITORIES

Depositories are financial institutions that hold and maintain securities

such as stocks, bonds, and other financial instruments in electronic
form. They provide a secure and efficient way for investors to hold
and transfer securities without the need for physical certificates.

In many countries, including India, there are two main depositories: the
National Securities Depository Limited (NSDL) and the Central
Depository Services (India) Limited (CDSL). Both NSDL and
CDSL are regulated by the Securities and Exchange Board of India
(SEBI).

JAIIB/ CAIIB/ PROMOTIONS/ CERTIFICATIONS Course available

https://iibf.info