FINANCIAL MARKET

INTRODUCTION

• Financial markets, from the name itself, are a type of marketplace that provides an
avenue for the sale and purchase of assets such as bonds, stocks, foreign exchange,
and derivatives.
• Often, they are called by different names, including “Dalal Street” or “Wall Street”
but all of them still mean one and the same thing.
• Simply put, businesses and investors can go to financial markets to raise money to
grow their business and to make more money, respectively.
• A large variety of financial institutions has come into existence over the years to
perform a variety of financial activities.
 FINANCIAL INSTITUTIONS

• While some of them operate at all-India level, others are state level institutions.
• Besides providing direct loans (including rupee loans, foreign currency loans),
financial institutions also extend financial assistance by way of underwriting
and direct subscription and by issuing guarantees.
• A financial market consists of two major segments: (a) Money Market; and (b)
Capital Market. While the money market deals in short-term credit, the capital
market handles the medium term and long-term credit.
 MONEY MARKET

• The money market is a market for short-term funds, which deals in financial assets whose
period of maturity is up to one year.
• Money market does not deal in cash or money as such but simply provides a market for
credit instruments such as bills of exchange, promissory notes, commercial paper, treasury
bills, etc.
• These financial instruments are close substitute of money. These instruments help the
business units, other organizations and the Government to borrow the funds to meet their
short-term requirement.
• Money market does not imply to any specific market place. Rather it refers to the whole
networks of financial institutions dealing in short-term funds, which provides an outlet to
lenders and a source of supply for such funds to borrowers.
 CAPITAL MARKET

• Capital Market may be defined as a market dealing in medium and long-term

funds.
• The market where securities are traded known as Securities market. It consists
of two different segments namely primary and secondary market.
• The primary market deals with new or fresh issue of securities and is,
therefore, also known as new issue market;
• whereas the secondary market provides a place for purchase and sale of
existing securities and is often termed as stock market or stock exchange.
MINI EXERCISE
 DIFFERENTIATE BETWEEN MONEY
MARKET AND CAPITAL MARKET.

Point of Distinction Money Market Capital Market

1. Time period / Term

2. Instrument dealt in

3. Participants

4. Regulatory body
 FINANCIAL INTERMEDIARIES

• A financial intermediary is an entity that acts as the middleman between two parties in

a financial transaction, such as a commercial bank, investment bank, mutual fund, or
pension fund.
• Financial intermediaries offer a number of benefits to the average consumer, including
safety, liquidity, and economies of scale involved in banking and asset management.
• A non-bank financial intermediary does not accept deposits from the general public.
The intermediary may provide factoring, leasing, insurance plans, or other financial
services.
• Many intermediaries take part in securities exchanges and utilize long-term plans for
managing and growing their funds.
 BOND MARKET

• The bond market—often called the debt market, fixed-income market, or credit
market—is the collective name given to all trades and issues of debt securities.
• Governments typically issue bonds in order to raise capital to pay down debts
or fund infrastructural improvements.
• Publicly traded companies issue bonds when they need to finance business
expansion projects or maintain ongoing operations.
• The mechanics of buying and selling bonds works similarly to that of stocks or
any other marketable asset, whereby bids are matched with offers.
 DIGITAL BANKING

• The term digital banking typically refers to the digitization (or moving online)
of all the traditional banking industries and services that were historically only
accessible in person at a bank branch.
• Consumer preferences quickly shifted to online and mobile devices, but many
financial organizations struggle to adapt their banking experiences to online
channels and to the smaller mobile device screens.
• Unfortunately, banks can no longer afford to wait to invest in digital
transformation because customers are increasingly willing to switch banks for
digital features such as bill pay, mobile payments and loan applications.
LET’S PRACTICE
 MCQ….. (1)

• 1) Every financial market has the following characteristic:

a) It determines the level of interest rates.
b) It allows common stock to be traded.
c) It allows loans to be made.

d) It channels funds from lenders-savers to borrowers-spenders .

• 2) Financial markets have the basic function of

a) bringing together people with funds to lend and people who want to borrow funds.
b) assuring that the swings in the business cycle are less pronounced.
c) assuring that governments need never resort to printing money.
d) both (A) and (B) of the above.
 MCQ….. (1)

• 1) Every financial market has the following characteristic:

a) It determines the level of interest rates.
b) It allows common stock to be traded.
c) It allows loans to be made.

d) It channels funds from lenders-savers to borrowers-spenders .

• 2) Financial markets have the basic function of

a) bringing together people with funds to lend and people who want to borrow funds.
b) assuring that the swings in the business cycle are less pronounced.
c) assuring that governments need never resort to printing money.
d) both (A) and (B) of the above.
 MCQ……. ( 2 )

3) Which of the following can be described as involving direct finance?

a) A corporation’s stock is traded in an over-the-counter market.
b) People buy shares in a mutual fund.
c) A pension fund manager buys commercial paper in the secondary market.
d) An insurance company buys shares of common stock in the over-the-counter markets.
e) None of the above.
4) Which of the following can be described as involving direct finance?
f) A corporation’s stock is traded in an over-the-counter market.
g) A corporation buys commercial paper issued by another corporation.
h) A pension fund manager buys commercial paper from the issuing corporation.
i) Both (A) and (B) of the above.
j) Both (B) and (C) of the above.
 MCQ……. ( 2 )

3) Which of the following can be described as involving direct finance?

a) A corporation’s stock is traded in an over-the-counter market.
b) People buy shares in a mutual fund.
c) A pension fund manager buys commercial paper in the secondary market.
d) An insurance company buys shares of common stock in the over-the-counter markets.
e) None of the above.
4) Which of the following can be described as involving direct finance?
f) A corporation’s stock is traded in an over-the-counter market.
g) A corporation buys commercial paper issued by another corporation.
h) A pension fund manager buys commercial paper from the issuing corporation.
i) Both (A) and (B) of the above.
j) Both (B) and (C) of the above.
 MCQ……. ( 3 )

5) Which of the following can be described as involving indirect finance?

• A) A corporation takes out loans from a bank.
• B) People buy shares in a mutual fund.
• C) A corporation buys commercial paper in a secondary market.
• D) All of the above.
• E) Only (A) and (B) of the above.

6) Which of the following can be described as involving indirect finance?

• A) A bank buys a U.S. Treasury bill from one of its depositors.
• B) A corporation buys commercial paper issued by another corporation.
• C) A pension fund manager buys commercial paper in the primary market.
• D) Both (B) and (C) of the above.
 MCQ……. ( 3 )

5) Which of the following can be described as involving indirect finance?

• A) A corporation takes out loans from a bank.
• B) People buy shares in a mutual fund.
• C) A corporation buys commercial paper in a secondary market.
• D) All of the above.
• E) Only (A) and (B) of the above.

6) Which of the following can be described as involving indirect finance?

• A) A bank buys a U.S. Treasury bill from one of its depositors.
• B) A corporation buys commercial paper issued by another corporation.
• C) A pension fund manager buys commercial paper in the primary market.
• D) Both (B) and (C) of the above.
 MCQ……. ( 4 )

7) Financial markets improve economic welfare because

• A) they allow funds to move from those without productive investment opportunities to those who have such opportunities.
• B) they allow consumers to time their purchases better.
• C) they weed out inefficient firms.
• D) they do all of the above.
• E) they do (A) and (B) of the above.

8) Which of the following are securities?

• A) A certificate of deposit
• B) A share of Texaco common stock
• C) A Treasury bill
• D) All of the above
• E) Only (A) and (B) of the above
 MCQ……. ( 4 )

7) Financial markets improve economic welfare because

• A) they allow funds to move from those without productive investment opportunities to those who have such opportunities.
• B) they allow consumers to time their purchases better.
• C) they weed out inefficient firms.
• D) they do all of the above.
• E) they do (A) and (B) of the above.

8) Which of the following are securities?

• A) A certificate of deposit
• B) A share of Texaco common stock
• C) A Treasury bill
• D) All of the above
• E) Only (A) and (B) of the above
 MCQ……. ( 5 )

9) Which of the following statements about the characteristics of debt and equity are true?
• A) They can both be long-term financial instruments.
• B) They both involve a claim on the issuer’s income.
• C) They both enable a corporation to raise funds.
• D) All of the above
• E) Only (A) and (B) of the above

10) Which of the following are long-term financial instruments?

• A) A negotiable certificate of deposit
• B) A banker’s acceptance
• C) A U.S. Treasury bond
• D) A U.S. Treasury bill
 MCQ……. ( 5 )

9) Which of the following statements about the characteristics of debt and equity are true?
• A) They can both be long-term financial instruments.
• B) They both involve a claim on the issuer’s income.
• C) They both enable a corporation to raise funds.
• D) All of the above
• E) Only (A) and (B) of the above

10) Which of the following are long-term financial instruments?

• A) A negotiable certificate of deposit
• B) A banker’s acceptance
• C) A U.S. Treasury bond
• D) A U.S. Treasury bill
 MCQ……. ( 6 )

11) Which of the following are short-term financial instruments?

• A) A negotiable certificate of deposit
• B) A banker’s acceptance
• C) A U.S. Treasury bond
• D) Both (A) and (B) of the above
• E) Both (B) and (C) of the above

12) Which of the following are short-term financial instruments?

• A) A banker’s acceptance
• B) A share of Walt Disney Corporation stock
• C) A Treasury note with a maturity of 4 years
• D) All of the above
 MCQ……. ( 6 )

11) Which of the following are short-term financial instruments?

• A) A negotiable certificate of deposit
• B) A banker’s acceptance
• C) A U.S. Treasury bond
• D) Both (A) and (B) of the above
• E) Both (B) and (C) of the above

12) Which of the following are short-term financial instruments?

• A) A banker’s acceptance
• B) A share of Walt Disney Corporation stock
• C) A Treasury note with a maturity of 4 years
• D) All of the above
 MCQ……. ( 7 )

13) Which of the following are primary markets?

• A) The New York Stock Exchange
• B) The U.S. government bond market
• C) The over-the-counter stock market
• D) The options markets
• E) None of the above

14) An important financial institution that assists in the initial sale of securities in the primary market is the:
• A) investment bank.
• B) commercial bank.
• C) stock exchange.
• D) brokerage house.
 MCQ……. ( 7 )

13) Which of the following are primary markets?

• A) The New York Stock Exchange
• B) The U.S. government bond market
• C) The over-the-counter stock market
• D) The options markets
• E) None of the above

14) An important financial institution that assists in the initial sale of securities in the primary market is the:
• A) investment bank.
• B) commercial bank.
• C) stock exchange.
• D) brokerage house.
 THANK YOU

Made and presented by:

Varun Sharma
01614901819
BBA (B&I) – 5th Sem (2019-22)
Morning Shift