1 Introduction to Financial Markets
Financial Intermediation = procedure of allocating cash from saving surplus devices (E.g. households) to saving deficit gadgets (e.g. industries, authorities etc.).
• Alternatives = Banks or Financial markets
Financial Markets are the institutional preparations through which financial savings generated in the financial system are channelized into avenues of funding by using industry, commercial enterprise and the government.
It is a market for the advent and change of economic assets.
2 Functions of Financial Market
A. Mobilization of financial savings and channelizing them into the most productive uses
• Facilitates switch of financial savings from the savers to the investors.
• Financial markets assist humans to make investments their financial savings in more than a few monetary contraptions and earn profits and capital appreciation.
• Facilitate mobilization of financial savings of human beings and their channelization into the most productive uses.
B. Facilitate Price Discovery
• Price of something relies upon the demand and grant factors.
• Demand and provide of monetary belongings and securities in economic markets assist in identifying the fees of a number of economic securities; the place commercial enterprise companies characterize the demand and the households symbolize the supply.
C. Provide liquidity to economic assets
• Financial markets supply liquidity to monetary gadgets by way of presenting a prepared market for the sale and buy of monetary assets.
• Whenever the buyers want, they can make investments their financial savings into lengthy time period investments and each time they want, they can promote the investments/ contraptions and convert them into cash.
D. Reduce the value of transactions
• By supplying treasured facts to customers and dealers of economic assets, it helps to saves time, effort and cash that would have been spent by means of them to locate every other.
• Also, buyers can buy/sell securities thru brokers who cost a nominal fee for their services. This way monetary markets facilitate transactions at a very low cost.
3 Types of Financial Markets
Financial markets is divided into two major categories:
A) Money Markets
B) Capital Markets
A Money Market
Market for monetary securities with maturity duration of much less than one year.
• Mkt for low risk, unsecured and quick time period debt contraptions that are exceedingly liquid are traded every day.
• No physical area bye performed over the smartphone and the internet.
• Helps to increases quick time period funds
#The principal contraptions of cash market are as follows:
i. Treasury Bills: They are issued by way of the RBI on behalf of the Central Government to meet its temporary requirement of funds.
They are issued at a charge which is lower than their face fee and arc repaid at par.
They are accessible for a minimal quantity of Rs.25000 and in multiples thereof.
They are additionally acknowledged as Zero-Coupon Bonds. They are negotiable devices i.e. they are freely transferable.
ii. Commercial Paper: It is a brief time period unsecured promissory notice issued via massive savings helpful businesses to increase quick time period dollars at decrease costs of hobby than market rates.
They are negotiable contraptions transferable through endorsement and shipping with constant maturity duration of 15 days to one year.
iii. Call Money: It is brief time period finance repayable on demand, with maturity duration of one day to 15 days, used for interbank transactions.
Call Money is a technique via which banks borrow from every different to be capable to hold the money reserve ratio as per RBI.
The pastime charge paid on name cash loans is regarded as the name rate.
iv. Certificate of Deposit: It is an unsecured instrument issued in bearer structure by using Commercial Banks Financial Institutions.
They can be issued to individuals. Corporations and agencies for elevating cash for a brief duration ranging from ninety-one days to one year.
v. Commercial Bill: It is a consignment of alternate used to finance the working capital necessities of enterprise firms.
A vendor of the items attracts the consignment on the customer when items are bought on credit.
When the invoice is popular by means of the consumer it will become marketable instrument and is referred to as a change bill.
These payments can be discounted with a financial institution if the vendor wants cash earlier than the invoice maturity.
B Capital Market
Facilities and institutional preparations via which lengthy time period securities are raised and invested- each debt and equity.
4 Nature of Capital Markets
a. Important aspect of Financial market because organisation raise funds for long term purpose
b. Two segments (primary and secondary)
c. two forms (organized and unorganized)
d. lengthy time period securities
e. Satisfies lengthy time period necessities of money
f. Performs trade-off features
g. Creates dispersion in enterprise possession
h. Helps in capital formation
i. Creates liquidity
5 Features of Capital Market Instruments
a. Provide lengthy time period funds
b. Lesser outlay required as unit price of units is low
c. Duration greater than 1 year
e. Lower safety
f. Higher anticipated returns as in contrast to brief time period securities
6 The capital market can be divided into two parts
A. Primary Market
B. Secondary Market
Primary Market is that market where first-time funds have been raised by the organization i.e. initial public offerings to raise funds by the organization
• Transfers investible cash from savers to entrepreneurs.
•Funds used for placing up new projects, expansion, diversification, modernization of present projects, mergers and take overs etc.
#) Methods of Floatation of New Issues in Primary Market
- Offer via Prospectus: It includes inviting subscription from the public thru problem of prospectus.
A prospectus makes a direct attraction to traders to increase capital thru a commercial in newspapers and magazines.
- Offer for Sale: Under this method, securities are provided for sale via intermediaries like issuing homes or inventory brokers.
The business enterprise sells securities to intermediary/broker at an agreed charge and the broking resells them to buyers at a greater price.
c. Private Placements: It refers to the procedure in which securities are disbursed to institutional investor and some chosen individuals.
d. Rights Issue: It refers to the trouble in which new shares are presented to the current shareholders in percentage to the range of shares they already possess.
e. e-IPOs: It is a technique of issuing securities via an online machine of inventory exchange.
A corporation proposing to trouble capital to the public thru the on-line device of the inventory change has to enter into a settlement with the inventory exchange.
This is known as an e-initial public offer. SEBI’s registered brokers have to be appointed for the cause of accepting purposes and setting orders with the company.
B Secondary Market
Secondary market is that market where already issued securities are bought and sold
*The agency is no longer worried in the transaction at all. It is between two investors.
7 Features of Secondary market
1) Creates liquidity
2) Fixed vicinity
3) Comes after principal market
4) Encourages new funding
8)Difference between Primary Market and Secondary Market
9 Stock Exchange / Share Market
A Stock Exchange is a group which affords a platform for shopping for and promoting of current securities. It enables the change of a safety i.e. share, debenture etc. into cash and vice versa.
# Some of the essential features of a Stock Exchange:
a. Gives liquidity and marketability to current securities
b. Pricing of securities
c. Safety of transactions (membership = regulated + dealings properly defined)
d. Contributes to monetary boom (ensures that financial savings are channelized to most productive funding avenues)
e. Spreading of fairness cult (ensures wider share ownership)
f. Provides scope for hypothesis (in a limited and managed environment)
10 Trading Procedure on a Stock Exchange
a. Selection of Broker: In order to exchange on a Stock Exchange first a dealer is chosen who need to be a member of inventory change as they can solely exchange on the inventory exchange.
b. Placing the order: After deciding on a broker, the traders specify the kind and range of securities they choose to purchase or sell.
c. Executing the order: The broking will purchase or promote the securities as per the directions of the investor.
d. Settlement: Transactions on an inventory alternate may additionally be carried out on both money foundation and lift over foundation (i.e. badla).
The time length for which the transactions are carried ahead is referred to as bills which range from a fortnight to a month.
All transactions made at some stage in one account are to be settled by way of price for purchases and with the aid of shipping of share certificates, which is a proof of possession of securities with the aid of an individual.
Earlier buying and selling on an inventory alternate took region thru a public outcry or public sale device which is now changed by using an on-line display primarily based digital buying and selling system.
Moreover, to eliminate, the troubles of theft, forgery, transfer, delays etc. a digital e book entry from a preserving and transferring securities has been introduced, which is known as procedure of de materialization of securities.
11 Difference between Capital and Money Market
12 Depository Services and DEMAT Accounts
Keeping in the idea the difficulties to switch of shares in bodily form, SEBI has developed a new machine in which buying and selling in shares is made obligatory in digital shape Depository offerings machine and D-Mat Account are very foundation of this system.
13 Depository Services
Just like a financial institution maintains cash in secure custody for customers, a depository additionally is like a financial institution and maintains securities (e.g. shares, debentures, bonds, mutual cash etc.) in digital shape on behalf of the investor. In the depository a securities account can be opened, all shares can be deposited, they can be withdrawn/ bought at any time and preparation to supply or get hold of shares on behalf of the investor can be given.
At existing there are two depositories in India: NSDL. (National Securities Depository Ltd.) and CDSL (Central Depository Services Ltd.). which are acknowledged as “Depository Participants”. (DPs)
14 Services supplied by means of Depository
Dematerialization (usually recognized as demat) is changing bodily certificates to digital form.
Rematerialisation, acknowledged as remat, is reverse of demat, i.e. getting bodily certificates from the digital securities.
Transfer of securities, exchange of really helpful ownership.
Settlement of trades accomplished on change linked to the Depository. Now a day’s online paper-less buying and selling in shares of the agency is obligatory in India.
Depository offerings is the title of that mechanism. In this gadget switch of possession in shares take location with the aid of skill of e book entry barring the bodily transport of shares.
When an investor needs to deal in shares of any business enterprise, he has to open a Demat account. Thereare 4 gamers who take part in this system.
A. The Depository: A depository is a group which holds the shares of an investor in digital form. There are two depository establishments in India these are NSDL and CDSL.
B. The Depository Participant: He opens the account of Investor and continues securities records.
C. The Investor: He is an individual who needs to deal in shares whose identify is recorded
D. The Issuing Company: That employer which problems the securities. This issuing employer sends a listing of the shareholders to the depositories.
15 Benefits of Depository Services
• Sale and Purchase of shares and shares of any enterprise on any inventory Exchange.
• Saves time.
• Lower transaction costs
• Ease in trading.
• Transparency in transactions.
• No counterfeiting of safety certificate
• Physical presence of investor is now not required in inventory exchange.
• Risk of mutilation and loss of safety certificates is eliminated.
16 Demat Account
Demat (Dematerialized) account refers to an account which an Indian citizen have to open with the depository participant (banks, stockbrokers) to exchange in listed securities in digital form.
The securities are held in the electronic structure via a depository.
17 Benefits of Demat Account
a) Increase liquidity thru rapid settlement.
b) Reduces paper work.
c) Elimination of troubles on switch of shares such as loss, theft and delay.
d) Exemption of stamp responsibility when switch of shares.
e) The thinking of extraordinary lot stands abolished.
f) Attract overseas buyers and promotion overseas investment.
g) A single demat account can keep investments in each fairness and debt instruments.
h) Traders can work from anywhere.
i) Automatic savings into demat account for shares bobbing up out of bonus/split/consolidation p.c merger.
j. Immediate transfers of securities.
k. Change in tackle recorded with a DP receives registered with all organizations in which investor holds securities removing the want to correspond with every of them.
18 Opening of Demat Account
A Demat account is opened on the identical traces as that of a financial institution account.
Prescribed account opening types accessible with the DP, want to be stuffed in. Standard settlement is to be signed with the aid of the consumer and the DP, which important points the rights and duty of each party.
Along with the form, the consumer is required to connect photograph, attested copies of dwelling proof and proof of identification want to be submitted.
19 Securities and Exchange Board of India (SEBI)
SEBI was once mounted by means of Government of India on 12 April 1988 as a period in-between administrative physique to promote orderly and wholesome increase of securities market and for investor protection.
It was once given a statutory fame on 30 January1992 thru an ordinance which was once later changed with the aid of an Act of Parliament regarded as the SEBI Act, 1992. It seeks to shield the activity of buyers in new and 2d hand securities.
20 Objectives of SEBI
a. To alter inventory alternate and the securities market to promote their orderly functioning.
b. To guard the rights and pursuits of buyers and to information & teach them.
c. To stop alternate mal practices such as interior trading.
d. To adjust and advance a code of habits and truthful practices via intermediaries like brokers, service provider bankers etc.
21 Functions of SEBI
1. Protective Functions
a) Prohibit fraudulent & unfair alternate practices in secondary market (e.g. Price rigging & deceptive statement)
b) Prohibit insider trading.
c) Educate buyers Promote honest exercise & code of behavior in securities market
2. Development Functions
a) Promotes education of intermediaries of the securities market.
b) Investor training
c) Promotion of honest practices code of habits of all SRO ‘s.
d) Conducting lookup & post facts beneficial to all market participants
3. Regulation Functions
a) Registration of brokers and sub brokers & different gamers in the mkt.
b) Registration of collective funding schemes & mutual funds.
c) Regulation of inventory bankers & portfolio exchanges & service provider bankers.
Q1- Mention the elements of the Financial Market?
Ans: The capacity of the Financial Market is given in focuses underneath:
a) Building up the Price
b) Moving Savings and Alternatives for Investment
c)Decreased Cost of Transaction
Q2- In which issue stock is offered to a current investor.
Ans: The issue in which the stock is offered to a current investor is the Right Issue.
Q3- Mention the goals of SEBI?
Ans: The goals of the Security Exchange Board of India (SEBI) are:
a) Set of principles
Q4- What are the different 4 elements of secondary market?
Ans: The four elements of ‘Auxiliary Market’ are:
a) Auxiliary Market ensures decency and security in an exchange.
b) It gives a stage for exchanging to introduce clients.
c)It gives a steady gauge of the protections which additionally helps in building interest and flexibly
d)Secondary Market gives a stage for channelizing the sparing to the most beneficial way.
Q5- Give any four elements of the Stock Exchange.
Ans: The elements of the Stock Exchange are:
a) Value Determination
b) Giving Liquidity and Marketability
c)Encouraging Economic Growth
d)Protected and Fair Market
Q6- Briefly notice in focuses the goals of NSE (National Stock Exchange)
Ans: The goals of the National Stock Exchange are:
With the assistance of an electronic exchanging framework, NSE gives a reasonable, proficient and straightforward protections market
NSE targets setting up a solitary cross-country exchanging framework which gives exchanging office a wide range of protections
NSE empowers more limited settlement cycles and books passage settlements
Public Stock Exchange likewise targets expanding the liquidity of the protections
It targets satisfying the worldwide guidelines and benchmarks of a stock trade
Q7- Discuss the ongoing Capital Market changes in India
Ans: A capital market is isolated into two sections i.e., Primary Market and Secondary Market.
The essential market manages the issue of new protections. While Secondary market bargains in the buy and offer of the current protections.
After the 1991 change, a three-level framework came into the Indian Stock Market.
This three-level framework comprised of the National Stock Exchange, Regional Stock Exchanges, and Over the Counter Exchange of India (OTCEI).
Q8- What are the defensive elements of the Securities and Exchange Board of India?
Ans: The defensive elements of SEBI are:
a) It looks at infringement of insider exchanging and rules, and resist to the organization’s demonstration.
b) Gives data about the organizations according to the customer’s necessity.
c)It gives rules with respect to interests in protections.
d)Characterizes set of principles for strategic policies
Q9- What are different Money Market Instruments?
Ans: The different Money Market Instruments are:
a) Call Money
b) Depository Bill
c)Authentication of Deposit
e) Business Bill
Q10- Discuss “Why Market currency is the opportunity for business for momentary assets?
Ans: Money market instruments are a significant wellspring of account for working capital prerequisites. They have a serious level of liquidity. A portion of the basic instruments that are exchanged the currency market are business paper, depository charges, call cash, authentication of store, and so forth
Long Answer Type
Q1: To promote orderly and healthy growth of securities market and protection of investors, SEBI was set up”. Explain in detail what are the objectives of sebi?
Ans: SEBI was once set up with the goal of safety of buyers and healthful increase of the securities market. Some targets of SEBI are given below:
A) Protection to the investors: The major goal of SEBI is to shield the pastime of human beings in the inventory market and grant wholesome surroundings for them.
B) Prevention of malpractices
This was once the motive why SEBI used to be formed. Among the principal objectives, stopping malpractices is one of them.
C)Fair and appropriate functioning
SEBI is accountable for the orderly functioning of the capital markets and continues a shut take a look at over the things to do of the monetary intermediaries such as brokers, sub-brokers, etc.