FINANCIAL SYSTEM FM III

 Financial Markets &  Structure and Regulatory bodies

 Financial markets are a mechanism enabling participants to deal in financial claims.  It also provide a facility in which their demands & requirements interact to set a price for such claims.

 To aid economic growth & development  To raise adequate resources  To intermediate resources from savers to investors  To allocate funds in an efficient manner among competing users  To increase investment

Financial Market Capital Market Money Market

Introduction  The capital market is a market for financial assets which have a long or indefinite maturity.  It deals with long term securities which have a maturity period of above one year.

Capital Market Equity Market Debt Market

Introduction i.The market in which shares are issued and traded, either through exchanges or over-the-counter markets. ii.Also known as the stock market, it is one of the most vital areas of a market economy because it gives companies access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance.

Classification a)Primary Market i.Public Issues: - sale of securities to the public ii.Rights Issue: - offered to existing shareholders iii.Private Placement: - selling securities privately to a small group of investors b)Secondary Market i.NSE ii.BSE iii.Regional Stock Exchange iv.OTCEI

Introduction i.The debt market is any market situation where trading debt instrument take place. ii.Examples of debt instruments include mortgages, promissory note, bonds, and Certificates of Deposit. A debt market establishes a structured environment where these types of debt can be traded with ease between interested parties. iii.The debt market often goes by other names, based on the types of debt instruments that are traded.

iv. In the event that the market deals mainly with the trading of municipal and corporate bond issues, the debt market may be known as a bond market. v. If mortgages and notes are the main focus of the trading, the debt market may be known as a credit market. vi. When fixed rates are connected with the debt instruments, the market may be known as a fixed income market.

a)Primary Market i.Public Issues: - sale of securities to the public ii.Rights Issue: - offered to existing shareholders iii.Private Placement: - selling securities privately to a small group of investors b)Secondary Market i.NSE ii.BSE iii.Regional Stock Exchange iv.OTCEI

 Introduction 1.It is a market for financial instruments that are close substitutes for money.  Close substitute means can be converted into money with minimum transaction cost. 2.Financial instruments are of short-term nature (within 1 year. 3.Money market instruments have the characteristics of liquidity & minimum transaction cost. 4.It is a mechanism through which RBI influences liquidity & the general level of interest rate.

 Features 1.It is a wholesale market. 2.Transaction are in volumes. 3.G enerally transaction are settled on daily basis. 4.Large no. of participants (commercial banks, mutual funds, investment institutions, RBI).

 Instruments 1.Treasury Bills 2.Certificates of Deposits 3.Commercial Paper 4.Term Money Market 5.Call Money Market 6.Money Market Mutual Funds (MMMF)

1. Treasury Bill a)TB of the Central government have been issued since the inception of the bank. b)They offer short-term investment opportunity for financial institutions, banks under the normal borrowing program of the Central government & Market Stabilization Scheme (MSS). c)TB are claims against the government. d)TB are negotiable. e)TB can be rediscounted with the bank & are highly liquid. f)Absence of default risk & easy availability. g)Types of TB: 14 days, 91 days, 18 2 days & days TB

2. Certificate of Deposits a)It is issued by banks either directly to the investors or through the dealers. b)It is document of title to time deposits with banks. c)They are interest bearing, maturity dated obligations of banks. d)They are marketable, negotiable short-term instruments in bearer form. e)It is issued only when deposit growth is sluggish but credit demand is high. f)It is commonly issued for 90 days.

Time Deposit v/s Certificate of Deposits Time DepositCertificate of Deposit Not freely negotiableFreely negotiable Not subject to stamp dutyRequires stamp duty Can be of any period3 -12 months, issued by banks 1- 3 years, issued by All-India financial institutions Cannot be issued at discountCan be issued at discount

3. Commercial Paper a)It enables highly-rated corporate borrowers to diversify their sources of short-term borrowings. b)It is issued for a minimum period of 7 days and maximum of one year. c)Every issue is treated as a fresh issue. d)It can be issued at discount to face value as decided by the issuing company.

 Primary Market  Secondary Market