Investment

Environment
 I N T R O D U C T I O N TO F I N A N C I A L A S S E T S & M A R K E T
 F I N A N C I A L M A R K E T S A N D S TA K E H O L D E R S I N F I N A N C I A L M A R K E T S
 ASSET CLASSES AND FINANCIAL INSTRUMENTS
Main topics
Real Vs Financial Assets
Asset classes
Primary Vs Secondary Markets
 Real Vs Financial Assets
Real Assets
• Have a Productive Capacity
• Examples: Land, Building,
intellectual property
Financial Assets
• Claim on real assets
• DO NOT contribute directly
to productive capacity
• Example: Equity, Debt
Financial Assets
Financial Assets:
Claims on Real
Assets

Fixed Income
Securities Equity Derivatives
Promises a fixed stream Represents ownership
of income Provide payoffs that are
in a
determined by the
A stream of income business/corporation
prices of other assets
determined by a (common stock)
specified formula
 The Money Market
• The money market is market for short-term financial assets which can be
turned over quickly at low cost.
• It provides an avenue for equilibrating the short- term surplus funds of
lenders and the requirements of borrowers.
• The term short-term means generally a period upto one year and near
substitutes to money is used to denote any financial asset which can be
quickly converted into money with minimum transaction cost.
• This is a market for borrowing and lending short-term funds. Banks,
financial institutions, investment institutions, and corporates attempt to
manage the mismatch between inflow and outflow of funds by lending in
or borrowing from the money market.
 It is one market but collection of markets, such as, call
money, notice money, repose, term money, treasury bills,
commercial bills, certificate of deposits, commercial papers,
inter-bank participation certificates, inter-corporate deposits,
swaps futures, options, etc. and is concerned to deal in
particular type of assets, the chief characteristic is its relative
liquidity. Al the sub-markets hav close inte -relationship and
free movement of funds from one sub-market to another.
There has to be network of large number of participants
which will add greater depth to the market.
 The activities in the money market tend to concentrate in
some centre which serves a region or an area; the width of
such area may vary considerably in some markets like London
and New York which have become world financial centres.
market for money market instruments.
 Where more than one market exists in a country, with screen-
based trading and revolutions in information technology,
such markets have rapidly becoming integrated into a
national market. In India, Mumbai is emerging as a national
market for money market instruments.
 In a true money market, price differentials for assets of
similar type (counterparty, maturity and liquidity) will tend to
be eliminated by the interplay of demand and supply. Even
for similar types of assets, some differential will no doubt
continue to exist at any given point of time which gives scope
for arbitrage.
 Due to greater flexibility in the regulatory framework, there
are constant activities for introducing new
instruments/innovative dealing techniques; and It is a
wholesale market and the volume of funds or financial assets
traded in the market are very large.
 Basis Money Market Capital Maket
Maturity of Instruments 1 year or less More than 1 year
Risks Less More and varied
Instruments Treasury bills, CDs, etc Shares, bonds, etc

Finance Short term Long term

Relation with Central Bank Direct Indirect
 The m oney m arket in India, as m any other less
developed countries, is characterised by twosegments -
◦ Organised Segment
◦ Unorganised Segment
 The principal intermediaries in the organised segment are:
◦ The commercial and other banks,
◦ Non-banking finance companies and
◦ Co-operative societies.
 The primary activity of these intermediaries is to accept deposits
from the public and lend them on a short-term basis to
industrial and trading organisations. In recent years, they have
extended their activities to rural areas to support agricultural
operations. There is also an active inter-bank loan market as
part of the organised money market.
 Instruments
• Call Money – for the period of 1 day
• Notice money- for the period of 2 - 1 4 days
• Term Money – Exceeds 14 days
• T-bills
• Cash Management bills (CMB)
• Commercial bills
• Certificate of Deposits (CDs)
• Repo
• Ways and Means of Advances
Yields on Money Markey Instruments
• Money Market Securities are not free of Default risk.
• The premium on bank CDs and T-bills spread has become greater during periods of the financial
crisis.
Yields on Money Markey Instruments
Market Orders
An order is nothing but an instruction that an investor gives to buy or sell stocks on a trading
platform.

Limit order : A limit order allows you to place an order in security at the price you want. So, a buy
limit order means you are ready to buy the security at a specific price or lower. And a sell limit
order means you wish to sell the security at the limit price or higher. There is however no
guarantee that this order will get executed, unlike Market Orders.
If you put a buy limit order for a stock at Rs 50, it means that you are ready to buy the stock at a
price equal to or lower than Rs 50. Similarly, a sell limit order for a stock at Rs 50 means that you
would like to sell the stock at Rs 50 or higher.
The best part is that this helps you ensure you don’t have to follow the stock trend every second to
get the right price. The limit order a
Market Orders
Market order
A market order is an order to buy or sell a security at current market prices. Once placed, this
order is to be executed immediately. The important feature of a market order is that it
guarantees the execution of the order. However, the price at which the order is to be executed
cannot be guaranteed.
For example, example, imagine imagine that the current current market price of stock X is Rs
120. You place a market order to buy the stock at this price. Your order would be executed
immediately. However, there’s no guarantee that the security is bought at the ‘ask’ price of Rs
120.
This is because the market is volatile; prices fluctuate ever second. And the last-traded price in
the market may have already changed by t
Market Orders
Stop order
This is an order to buy or sell stock whenever the stock price reaches a specific value. This value
is known as the ‘stop price’. The stop order remains dormant until this price is reached. And
once the price is reached, the stop order becomes a market order or limit order and your order
is placed.
A stop loss order is quite useful if you don’t have the time to track and execute stop losses on
your trades during the day. For example, you know that you would face a big loss if stock X falls
below the price of Rs 35. But since you cannot monitor the stock regularly, you can
Market Orders
Cover order
A cover order is a combination of a market order and a stop-loss order. This means your buy (or
sell) order is always a market order. In addition, you would also have to specify a Stop-Loss
Trigger Price (STLP) and the limit price. This way, your risk exposure in the market automatically
reduces.
However due to the leverage that is given in Cover Order, this SLTP needs to fall within defined
ranges depending on the security and your broker.
Here, you can get the advantage of lowering your risk and ensuring that your losses are limited.
Market Orders
Margin Intraday Square Off Order (MIS)
As the name suggests, this is an intraday order. This means each order needs to be squared off
during a single trading day. This gives you the advantage of benefitting from market fluctuations
during the day. And in case you don’t close the trade before 3:00 PM, the trade gets
automatically squared off or closed.
Since each trade is squared off in a single day, you are allowed a greater amount of leverage. In
investing parlance, leverage is the amount of money you can borrow in order to place the trade.
In such orders, you pay a fraction of the amount you are trading.
Market Orders
Bracket Order (BO)
Bracket order combines the benefits of multiple orders placed simultaneously allowing you to
fully automate a particular purchase or sale in a given security.  It essentially consists of 3 Legs
or individual orders, which allows you to place a buy or sell order, its target order as well as its
stop loss order. This results in a fully covered order being placed on the exchange allowing you
to both automatically book profits as well as automatically cover losses.
The only caveat is that Bracket Orders typically will have a time period restricted to a single day
and may not be accessible for longer time frames.