SlideShare a Scribd company logo
1 of 32
Download to read offline
FINANCIAL
INSTRUMENTS
VIKASH KUMAR GUPTA
YASH KHANDELWAL
CONTENT LAYOUT
• INTRODUCTION
• INTRUMENTS TRADED IN MONEY MARKET
• INTRUMENTS TRADED IN CAPITAL MARKET
INDIAN FINANCIAL SYSTEM
FINANCIAL MARKET
Financial Markets are the centers or arrangements that provide
facilities for buying and selling of financial claims.
FINANCIAL MARKET
• Efficient transfer of resources from those having idle resources to others
who have a pressing need for them is achieved through financial markets.
• Stated formally, financial markets provide channels for allocation of
savings to investment.
• The financial markets have two major components:
• Money market
• Capital market.
MONEY MARKET
The Money market refers to the market where borrowers and
lenders exchange short-term funds to solve their liquidity
needs.
Money market instruments are generally financial claims that
have low default risk, maturities under one year and high
marketability.
INTRUMENTS TRADED IN MONEY MARKET
• TREASURY BILLS
• CALL/NOTICE MONEY
• COMMERCIAL PAPER
• CERTIFICATE OF DEPOSITS
• COMMERCIAL BILLS
TREASURY BILLS
• A treasury bill is a particular type of finance bill or a promissory note put out
by the government of the country.
• Although state governments also issued treasury bills on occasions until 1950,
since then it is only the central government that has been selling them.
• Treasury Bills are highly liquid because there cannot be a better guarantee of
repayment than the one given by the government.
Important Qualities of Treasury Bills
a) The high liquidity
b) Absence of risk of default
c) Ready availability on tap
d) Assured yield
e) Low transactions cost
f) Eligibility of inclusion in Statutory Liquidity Ratio (SLR)
g) Negligible capital depreciation
CALL MONEY MARKET
• Call Money Market is that part of the national money market where the
day-to-day surplus funds, mostly of banks are traded in.
• The loans made in this market are of a short-term nature, their maturity
varying between one day to a fortnight.
• The nature of this market in different countries varies from each other.
Differences in institutional structures account for the differences in the
nature, participants, purposes or types of transactions in such markets.
• All, however, have one common feature: they deal in loans which have a
very short maturity and are highly liquid.
COMMERCIAL PAPER
• A Commercial Paper is quite a new instrument in the money market in India and
even in the advanced industrial nations, except in the U.S. where it has been in
vogue since the early 19th century.
• However, in all other countries, it is only a post-1980 phenomenon.
• CPs are short-term promissory notes with fixed maturity issued mostly by
the leading, nationally reputed, credit-worthy, and highly rated large
corporations.
• Any person, bank, company, incorporated and unincorporated bodies, and NRIs
can invest in CPs.
• Interest rates on CPs are market-determined. The cost of CP finance is lower
than or comparable to that of bank credit.
CERTIFICATE OF DEPOSITS
• Certificate of Deposits (CDs) are marketable receipts in bearer or registered
form of funds deposited in banks for a specified period at a specified rate of
interest.
• They are transferable, negotiable, short-term, fixed-interest bearing, maturity
dated, highly liquid and riskless money market instruments.
• Banks issue CDs to compete with other financial intermediaries and to counter
the process of securitization.
• CDs can be issued to individuals, corporations, companies, trust, funds,
associations and NRIs.
• The maturity period of CDs varies between three months to one year.
• The rate of interest on CDs is also market-determined and it is more attractive
than that on bank deposits.
COMMERCIAL BILLS
• According to the Indian Negotiable Instruments Act, 1881, it is a written
instrument containing an unconditional order, signed by the maker,
directing a certain person to pay a credit sum of money only to, or to the
order of, a certain person, or to the bearer of the instrument.
• A commercial bill or bill of exchange is a short-term, negotiable, and self-
liquidating money market instrument.
• It is an asset with a high degree of liquidity and a low degree of risk.
CAPITAL MARKET
Market where long term funds are borrowed and lent, the primary
purpose being directing the flow of savings into long-term investments.
Capital Markets deal in long-term claims (maturity period above 1 year).
INSTRUMENTS TRADED IN CAPITAL MARKET
• Equity/Ordinary Shares
• Preference Shares
• Debentures
• Bonds
PREFERNCE SHARE
• Preference shares allow an investor to own a stake at the issuing company with
a condition that whenever the company decides to pay dividends, the holders of
the preference shares will be the first to be paid.
• Dividend payment of the preference shareholders is fixed and if somehow
company liquefies, the owners of the preference shares will be the first one to
get their money back after the company has paid back its debt.
• Thus, preference shares are those shares which full-fill both the following two
conditions:
(i) They carry preferential share right in respect of dividend at a fixed rate,
(ii) They also carry preferential right in regard to payment of capital on winding
up of the company.
TYPES OF PREFERENCE SHARES
a) Cumulative and Non-cumulative
b) Convertible and Non-convertible
c) Redeemable and Non-redeemable
d) Participating and Non-participating
TYPES OF PREFERENCE SHARES
a) On cumulative preference shares, if in any year the profits are insufficient to
pay the preference dividend then this dividend can be paid in the subsequent
year before any other dividend is paid. In other words the right to receive the
dividend goes on accumulating till it is paid. In case of Non – cumulative
preference shares the dividend can be paid only in that year. If there are
insufficient profits then such preference shareholders do not get any dividend
for that year.
b) Convertible preference shares can be converted into ordinary shares on
terms and conditions fixed at the time of issue of such shares.
c) A redeemable preference share matures in a fixed period of time and for all
practical purposes it is regarded as a debt security like a debenture.
TYPES OF PREFERENCE SHARES
d) Participating preference shareholders can earn a higher dividend than the
fixed one if the company makes good profits. Participating preference shares
are entitled to participate in the surplus profits remaining after the payment of:
(a) Fixed dividend to preference shareholders, and
(b) Dividend to the equity shareholders.
They are also entitled to participate in the surplus funds remaining at the time
of winding of the company after payment of (a) Preference share capital & (b)
Equity Share Capital.
 Non – participating preference share are not entitled to participate in the
surplus profits or surplus funds left over at the time of winding off.
EQUITY/ORDINARY SHARES
• According to Section 85 of The Companies Act, 1956, an Equity Share is a share
which is not a preference share. In other words, shares which do not enjoy any
preferential right in the payment of dividend or repayment of capital, are termed as
equity/ordinary shares.
• The equity shareholders are entitled to share the distributable profits of the
company after satisfying the dividend rights of the preference shareholders.
• The dividend on equity shares is not fixed and it may vary from year to year
depending upon the amount of profits available for distribution.
• The equity share capital may be (i) with voting rights; or (ii) with differential rights
as to voting, dividend or otherwise in accordance with such rules and subject to
such conditions as may be prescribed.
DIFFERENCE
PREFERENCE SHARE
I. Preference shareholders are
paid dividend before the equity
shareholders.
II. Rate of dividend is fixed.
III. Preference share may be
converted to equity shares, if
the terms of issue provide so.
EQUITY SHARE
I. Equity shareholders are paid
dividend out of the balance of
profit available after the
dividend paid to preference
shareholders.
II. Rate of dividend is decided by
Board of Directors, year to year
depending on profits.
III. Equity shares are not
convertible.
Right of Dividend
Rate of Dividend
BASIS OF DIFFERENCE
Convertibility
DIFFERENCE
PREFERENCE SHARE
IV. Preference shareholders do not
have the right to participate in
the management of the
company.
V. Preference shareholders do not
carry the voting right. They can
only vote in special
circumstances.
VI. At the time of winding up of the
company, preference share
capital is paid before the
payment of equity share capital.
EQUITY SHARE
IV. Equity shareholders have the right
to participate in the management
of the company.
V. Equity shareholders have voting
rights in all circumstances.
VI. On winding up, equity share
capital is paid after preference
share capital is paid.
Participation in
Management
BASIS OF DIFFERENCE
Voting Right
Refund of
Capital
DEBENTURE
• The word ‘debenture’ has been derived from a Latin word ‘debere’ which
means to borrow.
• Debenture is a written instrument acknowledging a debt under the common seal
of the company.
• It contains a contract for repayment of principal after a specified period or at
intervals or at the option of the company and for payment of interest at a fixed
rate payable usually either half-yearly or yearly on fixed dates.
• According, to Section 2(12) of The Companies Act,1956 ‘Debenture’ includes
Debenture Inventory, Bonds and any other securities of a company whether
constituting a charge on the assets of the company or not.
instruments of Money market and capital market
TYPES OF DEBENTURES
• Convertible Debentures: Debentures which are convertible into equity shares or
in any other security either at the option of the company or the debenture holders
are called convertible debentures. These debentures are either fully convertible or
partly convertible.
• Non-Convertible Debentures: The debentures which cannot be converted into
shares or in any other securities are called nonconvertible debentures. Most
debentures issued by companies fell in this category.
On the basis of CONVERTIBILITY
TYPES OF DEBENTURES
• Redeemable Debentures: Redeemable debentures are those which are payable
on the expiry of the specific period either in lump sum or in Instalments during
the life time of the company. Debentures can be redeemed either at par or at
premium.
• Irredeemable Debentures: Irredeemable debentures are also known as
Perpetual Debentures because the company does not given any undertaking for
the repayment of money borrowed by issuing such debentures. These debentures
are repayable on the on winding-up of a company or on the expiry of a long
period.
On the basis of TENURE
BOND
A debt investment in which an investor loans money to an entity
(corporate or governmental) that borrows the funds for a defined period of
time at a fixed interest rate.
Bonds are used by companies, municipalities, states and federal
governments to finance a variety of projects and activities.
TYPES OF BONDS
• Corporate Bonds
• Municipal Bonds
• Zero Coupon Bonds
CORPORATE BONDS
• Corporate bonds are debt securities issued by private and public
corporations.
• Companies issue corporate bonds to raise money for a variety of purposes, such
as building a new plant, purchasing equipment, or growing the business.
• When one buys a corporate bond, one lends money to the "issuer," the company
that issued the bond.
• In exchange, the company promises to return the money, also known as
"principal," on a specified maturity date. Until that date, the company usually
pays you a stated rate of interest, generally semi-annually.
MUNICIPAL BOND
• Municipal Bond is a bond issued by a state, U.S. territory, city, local
government, or their agencies.
• Interest income received by holders of municipal bonds is often exempt from
the federal income tax and from the income tax of the state in which they are
issued, although municipal bonds issued for certain purposes may not be tax
exempt.
• This concept is new in India.
• The first municipal bonds in India were issued in 1995, while the first state-
guaranteed bonds were launched by the Bangalore Municipal Corporation
(Bruhat Bengaluru Mahanagara Palike) in 1997.
• In 2010, the Greater Visakhapatnam Municipal Corporation issued bonds worth
Rs. 30 lakhs.
MUNICIPAL BOND
• In November 2013, the Associated Chambers of Commerce and Industry had
written to the Reserve Bank of India to allow municipal bonds to be traded.
• In December, SEBI had set up a 20-member committee to develop a market for
such bonds.
• Experts say India’s municipal bond market faces various hurdles, including low
ratings, reluctant investors and unclear regulation.
• Municipalities in metros and other large cities are reluctant to turn to the debt
market, as these are flush with cash.
• Municipalities in tier-III and tier–IV cities, which need capital, don’t have access
to bond markets and rely on Housing and Urban Development Corporation for
funding.
ZERO COUPON BOND
• Zero coupon bonds are bonds with no coupon payments.
• Like Treasury Bills, they are issued at a discount to the face value.
• The Government of India issued such securities in the nineties, it has not
issued zero coupon bond after that.
• Examples of Zero-Coupon bond includes U.S. Treasury Bills, U.S. Savings
bonds, etc.

More Related Content

What's hot (20)

Short Term Investment
Short Term InvestmentShort Term Investment
Short Term Investment
 
Money market
Money marketMoney market
Money market
 
Capital Market
Capital MarketCapital Market
Capital Market
 
Equity Markets I
Equity Markets IEquity Markets I
Equity Markets I
 
205 fmbo unit4e
205 fmbo unit4e205 fmbo unit4e
205 fmbo unit4e
 
Money markets
Money marketsMoney markets
Money markets
 
Money Market
Money MarketMoney Market
Money Market
 
Money market instruments
Money market instrumentsMoney market instruments
Money market instruments
 
Capital market
Capital marketCapital market
Capital market
 
Financial system
Financial system  Financial system
Financial system
 
Indian Financial System
Indian Financial SystemIndian Financial System
Indian Financial System
 
Role of financial markets
Role of financial markets Role of financial markets
Role of financial markets
 
Financial markets
Financial markets Financial markets
Financial markets
 
Capital market
Capital marketCapital market
Capital market
 
MUTUAL FUND INVESTMENT.ppt
MUTUAL FUND INVESTMENT.pptMUTUAL FUND INVESTMENT.ppt
MUTUAL FUND INVESTMENT.ppt
 
9329365 A Ppt On Money Market
9329365 A Ppt On Money Market9329365 A Ppt On Money Market
9329365 A Ppt On Money Market
 
Assingment on money market
Assingment  on money marketAssingment  on money market
Assingment on money market
 
Indian money market and role of rbi
Indian money market and role of rbiIndian money market and role of rbi
Indian money market and role of rbi
 
Money market
Money marketMoney market
Money market
 
205 Financial Markets and Banking Operations unit 2
205 Financial Markets and Banking Operations unit 2205 Financial Markets and Banking Operations unit 2
205 Financial Markets and Banking Operations unit 2
 

Similar to instruments of Money market and capital market

Indian financial instruments
Indian financial instruments Indian financial instruments
Indian financial instruments Vivek Sharma
 
Sources of Long term finance
Sources of Long term financeSources of Long term finance
Sources of Long term financePisa Tatin
 
Sources of long term finance, Corporate governance AND Financial engineering
Sources of long term finance, Corporate governance AND Financial engineeringSources of long term finance, Corporate governance AND Financial engineering
Sources of long term finance, Corporate governance AND Financial engineeringMohammed Jasir PV
 
Financial sector in India
Financial sector in IndiaFinancial sector in India
Financial sector in Indiadarshan phatak
 
Capital market
Capital marketCapital market
Capital marketGoa App
 
Call money and certificate of deposit
Call money and certificate of depositCall money and certificate of deposit
Call money and certificate of depositShubham Agrawal
 
Sources_of_Long_Term_Finance.pptx
Sources_of_Long_Term_Finance.pptxSources_of_Long_Term_Finance.pptx
Sources_of_Long_Term_Finance.pptxPixelsatsale
 
Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...
Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...
Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...Mohammed Jasir PV
 
Sources of finance
Sources of financeSources of finance
Sources of financeishwar kumar
 
Introduction to investment.pptx
Introduction to investment.pptxIntroduction to investment.pptx
Introduction to investment.pptxDerejeUrgecha1
 
Presentation on Introduction to Mutual Funds Investing.pptx
Presentation on Introduction to Mutual Funds Investing.pptxPresentation on Introduction to Mutual Funds Investing.pptx
Presentation on Introduction to Mutual Funds Investing.pptxLakshmipriyanka Asi
 

Similar to instruments of Money market and capital market (20)

Indian financial instruments
Indian financial instruments Indian financial instruments
Indian financial instruments
 
UNIT-2 Sources of Finance.pdf
UNIT-2 Sources of Finance.pdfUNIT-2 Sources of Finance.pdf
UNIT-2 Sources of Finance.pdf
 
Source of Finance
Source of FinanceSource of Finance
Source of Finance
 
Sources of Long term finance
Sources of Long term financeSources of Long term finance
Sources of Long term finance
 
Sources of long term finance, Corporate governance AND Financial engineering
Sources of long term finance, Corporate governance AND Financial engineeringSources of long term finance, Corporate governance AND Financial engineering
Sources of long term finance, Corporate governance AND Financial engineering
 
Financial sector in India
Financial sector in IndiaFinancial sector in India
Financial sector in India
 
Fin Mgmt.pptx
Fin Mgmt.pptxFin Mgmt.pptx
Fin Mgmt.pptx
 
Nbfc
NbfcNbfc
Nbfc
 
Capital market
Capital marketCapital market
Capital market
 
CL 11 SEPT.pptx
CL 11 SEPT.pptxCL 11 SEPT.pptx
CL 11 SEPT.pptx
 
CL 11 SEPT.pptx
CL 11 SEPT.pptxCL 11 SEPT.pptx
CL 11 SEPT.pptx
 
Call money and certificate of deposit
Call money and certificate of depositCall money and certificate of deposit
Call money and certificate of deposit
 
Sources_of_Long_Term_Finance.pptx
Sources_of_Long_Term_Finance.pptxSources_of_Long_Term_Finance.pptx
Sources_of_Long_Term_Finance.pptx
 
Mutual fund
Mutual fundMutual fund
Mutual fund
 
Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...
Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...
Sources of Finance Functions and Investment Policies of NBFIs in India RBI Gu...
 
Sources of finance
Sources of financeSources of finance
Sources of finance
 
Mutual fund
Mutual fundMutual fund
Mutual fund
 
Introduction to investment.pptx
Introduction to investment.pptxIntroduction to investment.pptx
Introduction to investment.pptx
 
NBFC.pptx
NBFC.pptxNBFC.pptx
NBFC.pptx
 
Presentation on Introduction to Mutual Funds Investing.pptx
Presentation on Introduction to Mutual Funds Investing.pptxPresentation on Introduction to Mutual Funds Investing.pptx
Presentation on Introduction to Mutual Funds Investing.pptx
 

Recently uploaded

DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRADUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRATanmoy Mishra
 
How to Add a New Field in Existing Kanban View in Odoo 17
How to Add a New Field in Existing Kanban View in Odoo 17How to Add a New Field in Existing Kanban View in Odoo 17
How to Add a New Field in Existing Kanban View in Odoo 17Celine George
 
CAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxCAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxSaurabhParmar42
 
Benefits & Challenges of Inclusive Education
Benefits & Challenges of Inclusive EducationBenefits & Challenges of Inclusive Education
Benefits & Challenges of Inclusive EducationMJDuyan
 
How to Solve Singleton Error in the Odoo 17
How to Solve Singleton Error in the  Odoo 17How to Solve Singleton Error in the  Odoo 17
How to Solve Singleton Error in the Odoo 17Celine George
 
HED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdfHED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdfMohonDas
 
The Singapore Teaching Practice document
The Singapore Teaching Practice documentThe Singapore Teaching Practice document
The Singapore Teaching Practice documentXsasf Sfdfasd
 
Patterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptxPatterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptxMYDA ANGELICA SUAN
 
PISA-VET launch_El Iza Mohamedou_19 March 2024.pptx
PISA-VET launch_El Iza Mohamedou_19 March 2024.pptxPISA-VET launch_El Iza Mohamedou_19 March 2024.pptx
PISA-VET launch_El Iza Mohamedou_19 March 2024.pptxEduSkills OECD
 
Ultra structure and life cycle of Plasmodium.pptx
Ultra structure and life cycle of Plasmodium.pptxUltra structure and life cycle of Plasmodium.pptx
Ultra structure and life cycle of Plasmodium.pptxDr. Asif Anas
 
Education and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptxEducation and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptxraviapr7
 
M-2- General Reactions of amino acids.pptx
M-2- General Reactions of amino acids.pptxM-2- General Reactions of amino acids.pptx
M-2- General Reactions of amino acids.pptxDr. Santhosh Kumar. N
 
5 charts on South Africa as a source country for international student recrui...
5 charts on South Africa as a source country for international student recrui...5 charts on South Africa as a source country for international student recrui...
5 charts on South Africa as a source country for international student recrui...CaraSkikne1
 
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxPractical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxKatherine Villaluna
 
Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...raviapr7
 
Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.EnglishCEIPdeSigeiro
 
In - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptxIn - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptxAditiChauhan701637
 
What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?TechSoup
 
Presentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a ParagraphPresentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a ParagraphNetziValdelomar1
 

Recently uploaded (20)

DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRADUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
DUST OF SNOW_BY ROBERT FROST_EDITED BY_ TANMOY MISHRA
 
How to Add a New Field in Existing Kanban View in Odoo 17
How to Add a New Field in Existing Kanban View in Odoo 17How to Add a New Field in Existing Kanban View in Odoo 17
How to Add a New Field in Existing Kanban View in Odoo 17
 
CAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptxCAULIFLOWER BREEDING 1 Parmar pptx
CAULIFLOWER BREEDING 1 Parmar pptx
 
Benefits & Challenges of Inclusive Education
Benefits & Challenges of Inclusive EducationBenefits & Challenges of Inclusive Education
Benefits & Challenges of Inclusive Education
 
How to Solve Singleton Error in the Odoo 17
How to Solve Singleton Error in the  Odoo 17How to Solve Singleton Error in the  Odoo 17
How to Solve Singleton Error in the Odoo 17
 
HED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdfHED Office Sohayok Exam Question Solution 2023.pdf
HED Office Sohayok Exam Question Solution 2023.pdf
 
The Singapore Teaching Practice document
The Singapore Teaching Practice documentThe Singapore Teaching Practice document
The Singapore Teaching Practice document
 
Patterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptxPatterns of Written Texts Across Disciplines.pptx
Patterns of Written Texts Across Disciplines.pptx
 
PISA-VET launch_El Iza Mohamedou_19 March 2024.pptx
PISA-VET launch_El Iza Mohamedou_19 March 2024.pptxPISA-VET launch_El Iza Mohamedou_19 March 2024.pptx
PISA-VET launch_El Iza Mohamedou_19 March 2024.pptx
 
Ultra structure and life cycle of Plasmodium.pptx
Ultra structure and life cycle of Plasmodium.pptxUltra structure and life cycle of Plasmodium.pptx
Ultra structure and life cycle of Plasmodium.pptx
 
Education and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptxEducation and training program in the hospital APR.pptx
Education and training program in the hospital APR.pptx
 
M-2- General Reactions of amino acids.pptx
M-2- General Reactions of amino acids.pptxM-2- General Reactions of amino acids.pptx
M-2- General Reactions of amino acids.pptx
 
5 charts on South Africa as a source country for international student recrui...
5 charts on South Africa as a source country for international student recrui...5 charts on South Africa as a source country for international student recrui...
5 charts on South Africa as a source country for international student recrui...
 
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptxPractical Research 1: Lesson 8 Writing the Thesis Statement.pptx
Practical Research 1: Lesson 8 Writing the Thesis Statement.pptx
 
Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...Patient Counselling. Definition of patient counseling; steps involved in pati...
Patient Counselling. Definition of patient counseling; steps involved in pati...
 
Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.Easter in the USA presentation by Chloe.
Easter in the USA presentation by Chloe.
 
In - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptxIn - Vivo and In - Vitro Correlation.pptx
In - Vivo and In - Vitro Correlation.pptx
 
Finals of Kant get Marx 2.0 : a general politics quiz
Finals of Kant get Marx 2.0 : a general politics quizFinals of Kant get Marx 2.0 : a general politics quiz
Finals of Kant get Marx 2.0 : a general politics quiz
 
What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?What is the Future of QuickBooks DeskTop?
What is the Future of QuickBooks DeskTop?
 
Presentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a ParagraphPresentation on the Basics of Writing. Writing a Paragraph
Presentation on the Basics of Writing. Writing a Paragraph
 

instruments of Money market and capital market

  • 2. CONTENT LAYOUT • INTRODUCTION • INTRUMENTS TRADED IN MONEY MARKET • INTRUMENTS TRADED IN CAPITAL MARKET
  • 4. FINANCIAL MARKET Financial Markets are the centers or arrangements that provide facilities for buying and selling of financial claims.
  • 5. FINANCIAL MARKET • Efficient transfer of resources from those having idle resources to others who have a pressing need for them is achieved through financial markets. • Stated formally, financial markets provide channels for allocation of savings to investment. • The financial markets have two major components: • Money market • Capital market.
  • 6. MONEY MARKET The Money market refers to the market where borrowers and lenders exchange short-term funds to solve their liquidity needs. Money market instruments are generally financial claims that have low default risk, maturities under one year and high marketability.
  • 7. INTRUMENTS TRADED IN MONEY MARKET • TREASURY BILLS • CALL/NOTICE MONEY • COMMERCIAL PAPER • CERTIFICATE OF DEPOSITS • COMMERCIAL BILLS
  • 8. TREASURY BILLS • A treasury bill is a particular type of finance bill or a promissory note put out by the government of the country. • Although state governments also issued treasury bills on occasions until 1950, since then it is only the central government that has been selling them. • Treasury Bills are highly liquid because there cannot be a better guarantee of repayment than the one given by the government.
  • 9. Important Qualities of Treasury Bills a) The high liquidity b) Absence of risk of default c) Ready availability on tap d) Assured yield e) Low transactions cost f) Eligibility of inclusion in Statutory Liquidity Ratio (SLR) g) Negligible capital depreciation
  • 10. CALL MONEY MARKET • Call Money Market is that part of the national money market where the day-to-day surplus funds, mostly of banks are traded in. • The loans made in this market are of a short-term nature, their maturity varying between one day to a fortnight. • The nature of this market in different countries varies from each other. Differences in institutional structures account for the differences in the nature, participants, purposes or types of transactions in such markets. • All, however, have one common feature: they deal in loans which have a very short maturity and are highly liquid.
  • 11. COMMERCIAL PAPER • A Commercial Paper is quite a new instrument in the money market in India and even in the advanced industrial nations, except in the U.S. where it has been in vogue since the early 19th century. • However, in all other countries, it is only a post-1980 phenomenon. • CPs are short-term promissory notes with fixed maturity issued mostly by the leading, nationally reputed, credit-worthy, and highly rated large corporations. • Any person, bank, company, incorporated and unincorporated bodies, and NRIs can invest in CPs. • Interest rates on CPs are market-determined. The cost of CP finance is lower than or comparable to that of bank credit.
  • 12. CERTIFICATE OF DEPOSITS • Certificate of Deposits (CDs) are marketable receipts in bearer or registered form of funds deposited in banks for a specified period at a specified rate of interest. • They are transferable, negotiable, short-term, fixed-interest bearing, maturity dated, highly liquid and riskless money market instruments. • Banks issue CDs to compete with other financial intermediaries and to counter the process of securitization. • CDs can be issued to individuals, corporations, companies, trust, funds, associations and NRIs. • The maturity period of CDs varies between three months to one year. • The rate of interest on CDs is also market-determined and it is more attractive than that on bank deposits.
  • 13. COMMERCIAL BILLS • According to the Indian Negotiable Instruments Act, 1881, it is a written instrument containing an unconditional order, signed by the maker, directing a certain person to pay a credit sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. • A commercial bill or bill of exchange is a short-term, negotiable, and self- liquidating money market instrument. • It is an asset with a high degree of liquidity and a low degree of risk.
  • 14. CAPITAL MARKET Market where long term funds are borrowed and lent, the primary purpose being directing the flow of savings into long-term investments. Capital Markets deal in long-term claims (maturity period above 1 year).
  • 15. INSTRUMENTS TRADED IN CAPITAL MARKET • Equity/Ordinary Shares • Preference Shares • Debentures • Bonds
  • 16. PREFERNCE SHARE • Preference shares allow an investor to own a stake at the issuing company with a condition that whenever the company decides to pay dividends, the holders of the preference shares will be the first to be paid. • Dividend payment of the preference shareholders is fixed and if somehow company liquefies, the owners of the preference shares will be the first one to get their money back after the company has paid back its debt. • Thus, preference shares are those shares which full-fill both the following two conditions: (i) They carry preferential share right in respect of dividend at a fixed rate, (ii) They also carry preferential right in regard to payment of capital on winding up of the company.
  • 17. TYPES OF PREFERENCE SHARES a) Cumulative and Non-cumulative b) Convertible and Non-convertible c) Redeemable and Non-redeemable d) Participating and Non-participating
  • 18. TYPES OF PREFERENCE SHARES a) On cumulative preference shares, if in any year the profits are insufficient to pay the preference dividend then this dividend can be paid in the subsequent year before any other dividend is paid. In other words the right to receive the dividend goes on accumulating till it is paid. In case of Non – cumulative preference shares the dividend can be paid only in that year. If there are insufficient profits then such preference shareholders do not get any dividend for that year. b) Convertible preference shares can be converted into ordinary shares on terms and conditions fixed at the time of issue of such shares. c) A redeemable preference share matures in a fixed period of time and for all practical purposes it is regarded as a debt security like a debenture.
  • 19. TYPES OF PREFERENCE SHARES d) Participating preference shareholders can earn a higher dividend than the fixed one if the company makes good profits. Participating preference shares are entitled to participate in the surplus profits remaining after the payment of: (a) Fixed dividend to preference shareholders, and (b) Dividend to the equity shareholders. They are also entitled to participate in the surplus funds remaining at the time of winding of the company after payment of (a) Preference share capital & (b) Equity Share Capital.  Non – participating preference share are not entitled to participate in the surplus profits or surplus funds left over at the time of winding off.
  • 20. EQUITY/ORDINARY SHARES • According to Section 85 of The Companies Act, 1956, an Equity Share is a share which is not a preference share. In other words, shares which do not enjoy any preferential right in the payment of dividend or repayment of capital, are termed as equity/ordinary shares. • The equity shareholders are entitled to share the distributable profits of the company after satisfying the dividend rights of the preference shareholders. • The dividend on equity shares is not fixed and it may vary from year to year depending upon the amount of profits available for distribution. • The equity share capital may be (i) with voting rights; or (ii) with differential rights as to voting, dividend or otherwise in accordance with such rules and subject to such conditions as may be prescribed.
  • 21. DIFFERENCE PREFERENCE SHARE I. Preference shareholders are paid dividend before the equity shareholders. II. Rate of dividend is fixed. III. Preference share may be converted to equity shares, if the terms of issue provide so. EQUITY SHARE I. Equity shareholders are paid dividend out of the balance of profit available after the dividend paid to preference shareholders. II. Rate of dividend is decided by Board of Directors, year to year depending on profits. III. Equity shares are not convertible. Right of Dividend Rate of Dividend BASIS OF DIFFERENCE Convertibility
  • 22. DIFFERENCE PREFERENCE SHARE IV. Preference shareholders do not have the right to participate in the management of the company. V. Preference shareholders do not carry the voting right. They can only vote in special circumstances. VI. At the time of winding up of the company, preference share capital is paid before the payment of equity share capital. EQUITY SHARE IV. Equity shareholders have the right to participate in the management of the company. V. Equity shareholders have voting rights in all circumstances. VI. On winding up, equity share capital is paid after preference share capital is paid. Participation in Management BASIS OF DIFFERENCE Voting Right Refund of Capital
  • 23. DEBENTURE • The word ‘debenture’ has been derived from a Latin word ‘debere’ which means to borrow. • Debenture is a written instrument acknowledging a debt under the common seal of the company. • It contains a contract for repayment of principal after a specified period or at intervals or at the option of the company and for payment of interest at a fixed rate payable usually either half-yearly or yearly on fixed dates. • According, to Section 2(12) of The Companies Act,1956 ‘Debenture’ includes Debenture Inventory, Bonds and any other securities of a company whether constituting a charge on the assets of the company or not.
  • 25. TYPES OF DEBENTURES • Convertible Debentures: Debentures which are convertible into equity shares or in any other security either at the option of the company or the debenture holders are called convertible debentures. These debentures are either fully convertible or partly convertible. • Non-Convertible Debentures: The debentures which cannot be converted into shares or in any other securities are called nonconvertible debentures. Most debentures issued by companies fell in this category. On the basis of CONVERTIBILITY
  • 26. TYPES OF DEBENTURES • Redeemable Debentures: Redeemable debentures are those which are payable on the expiry of the specific period either in lump sum or in Instalments during the life time of the company. Debentures can be redeemed either at par or at premium. • Irredeemable Debentures: Irredeemable debentures are also known as Perpetual Debentures because the company does not given any undertaking for the repayment of money borrowed by issuing such debentures. These debentures are repayable on the on winding-up of a company or on the expiry of a long period. On the basis of TENURE
  • 27. BOND A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and federal governments to finance a variety of projects and activities.
  • 28. TYPES OF BONDS • Corporate Bonds • Municipal Bonds • Zero Coupon Bonds
  • 29. CORPORATE BONDS • Corporate bonds are debt securities issued by private and public corporations. • Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. • When one buys a corporate bond, one lends money to the "issuer," the company that issued the bond. • In exchange, the company promises to return the money, also known as "principal," on a specified maturity date. Until that date, the company usually pays you a stated rate of interest, generally semi-annually.
  • 30. MUNICIPAL BOND • Municipal Bond is a bond issued by a state, U.S. territory, city, local government, or their agencies. • Interest income received by holders of municipal bonds is often exempt from the federal income tax and from the income tax of the state in which they are issued, although municipal bonds issued for certain purposes may not be tax exempt. • This concept is new in India. • The first municipal bonds in India were issued in 1995, while the first state- guaranteed bonds were launched by the Bangalore Municipal Corporation (Bruhat Bengaluru Mahanagara Palike) in 1997. • In 2010, the Greater Visakhapatnam Municipal Corporation issued bonds worth Rs. 30 lakhs.
  • 31. MUNICIPAL BOND • In November 2013, the Associated Chambers of Commerce and Industry had written to the Reserve Bank of India to allow municipal bonds to be traded. • In December, SEBI had set up a 20-member committee to develop a market for such bonds. • Experts say India’s municipal bond market faces various hurdles, including low ratings, reluctant investors and unclear regulation. • Municipalities in metros and other large cities are reluctant to turn to the debt market, as these are flush with cash. • Municipalities in tier-III and tier–IV cities, which need capital, don’t have access to bond markets and rely on Housing and Urban Development Corporation for funding.
  • 32. ZERO COUPON BOND • Zero coupon bonds are bonds with no coupon payments. • Like Treasury Bills, they are issued at a discount to the face value. • The Government of India issued such securities in the nineties, it has not issued zero coupon bond after that. • Examples of Zero-Coupon bond includes U.S. Treasury Bills, U.S. Savings bonds, etc.