Structure of Indian Financial Market

What is Financial Market?

• A financial market is a market in which people trade financial securities and derivatives
such as futures and options at low transaction costs. Securities include stocks and bonds,
and precious metals.
• Financial Market refers to a marketplace, where creation and trading of financial assets,
such as shares, debentures, bonds, derivatives, currencies, etc. take place.
• The term "market" is sometimes used for what are more strictly exchanges, organizations
that facilitate the trade in financial securities, e.g., a stock exchange or commodity
exchange.
• This may be a physical location (like the NYSE, LSE, JSE, BSE) or an electronic system (like
NASDAQ).
• Much trading of stocks takes place on an exchange; still, corporate actions (merger,
spinoff) are outside an exchange, while any two companies or people, for whatever
reason, may agree to sell stock from the one to the other without using an exchange.
• Trading of currencies and bonds is largely on a bilateral basis, although some bonds trade
on a stock exchange, and people are building electronic systems for these as well, to stock
exchanges.
 Money Market
• Money Market is a segment of Financial Market where borrowing and
lending of short-term funds take place, such as overnight reserves or
commercial paper.
• The maturity of money market instruments is from one day to one year.
• In India, this market is regulated by both RBI and SEBI
• Funds borrowed from money markets are typically used for general
operating expenses, to provide liquid assets for brief periods.
• For example, a company may have inbound payments from customers
that have not yet cleared, but need immediate cash to pay its
employees.
• Money Market can be Organized or Unorganized
• Organized Money Market is controlled by the Regulators
 Capital Market
• The "capital markets" are used for the raising of long-term
finance, such as the purchase of shares/equities, or for loans
that are not expected to be fully paid back for at least a year
• Capital markets channel the wealth of savers to those who
can put it to long-term productive use, such as companies
or governments making long-term investments.
• The purpose is to invest in additional physical capital goods,
which will be used to help increase its income.
• It can take many months or years before the investment
generates sufficient return to pay back its cost, and hence
the finance is long term.
Organized Sub-Market
of Money Market
 Treasury Bills (T-Bills)

• Treasury Bills are short term (up to one year) borrowing instruments of the
Government of India which enable investors to park their short term surplus funds while
reducing their market risk. They are auctioned by Reserve Bank of India at regular
intervals and issued at a discount to face value.
• RBI acts as an Agent of Central Government to conduct the auctions of the T-Bills
•The T-Bills are issued in 3 types of maturity durations i.e. 91, 182 & 364 days
•T-Bills are also known as “Zero Coupon Securities”
• T-Bills are issued on discount to face value, while the holder gets the face value on
maturity.
 Call Money

• CRR and SLR are the two ratios. CRR is a Cash Reserve Ratio and SLR
is Statutory Liquidity Ratio.
• Under CRR a certain percentage of the total bank deposits has to be
kept in the current account with RBI which means banks do not have
access to that much amount for any economic activity or commercial
activity.
 Call Money

• Call Money, Notice Money and Term Money markets are sub-markets of the Indian Money Market.
These refer to the markets for very short term funds. Call Money refers to the borrowing or lending
of funds for 1 day. Notice Money refers to the borrowing and lending of funds for 2-14 days.

• Call money is minimum 5% short-term finance repayable on demand, with a maturity period of one
to fourteen days or overnight to fortnight. It is used for inter-bank transactions. The money that is
lent for one day in this market is known as "call money" and, if it exceeds one day, is referred to as
"notice money.“
 Certificate of Deposit
• A Certificate of Deposit (CD) is a savings certificate (e.g.
Fixed Deposit) with a fixed maturity date
• CD in India can be issued by:
– All scheduled commercial banks excluding Regional Rural Banks
(RRBs) & Local Area Banks (LABs)
– All India Financial Institutions permitted by RBI

• CD can be issued to individuals, corporations, companies,

trusts, funds, associations etc.
• NRIs are also eligible for CDs provided they don’t repatriate
the funds
 Certificate of Deposit (contd…)
• Minimum Amount: 1 lac (& multiples of 1 lac)
• Maturity: Between 7 days to 1 year
(Commercial banks) & Not less than 1 year to
not more than 3 years (Financial institutions)
• Return:
– Discounted, market based fixed or floated
– Banks or FIs can’t grant loans against CDs
– They can’t buy back their own CDs before maturity
 Commercial Bills
• A Commercial Bill arises out of a genuine trade
transaction
• A bill of exchange is an important commercial
bill which is drawn by the seller on the buyer
for the amount due to him
• The maturity period of the bill may vary from
3 to 6 months
 Commercial Paper
• Commercial Paper (CP) is an unsecured, short-
term debt instrument issued by a corporation
for meeting short-term liabilities
• Who can Issue CP:
– Corporates, Primary dealers & All India Fis (e.g.
Banks, Insurance Cos. etc.)
• The maturity period is between 7 days to 1
year from the date of issuance
Commercial Paper (contd…)
Commercial Paper (contd…)
Cash Management Bills
Cash Management Bills (contd…)
Unorganized Sub-Market
of Money Market
Hundis
Indigenous Bankers
Indigenous Bankers (contd…)
Indigenous Banker Vs Money Lender
Non-securities Capital Market
Mutual Funds
Securities Capital Market - Primary
Initial Public Offering (IPO)
Private Placement
Securities Capital Market - Secondary
 Equity Market

https://www.youtube.com/watch?v=4QI6ft8cUkU
Debt Market
Commodity Market
Derivative Market
 Foreign Exchange (forex or FX)
• Foreign Exchange (forex or FX) is a global market for
exchanging national currencies with one another.
• The market is open 24 hours a day, five days a week
across major financial centers across the globe. This
means that you can buy or sell currencies at any time
during the day.
• The forex market is made up of banks, commercial
companies, central banks, investment
management firms, hedge funds, and retail forex
brokers and investors. 
Thank you!