Financial market and types

1. ASSIGNMENT OF
Financial institution and market
MSC. ECONOMICS INTEGRATED 5TH SEM
PANKAJ NAUTIYAL (SSEI-190)
SUBMITTEDTO:-dR.MANOJBHATTSIR

2. FINANCIALMARKET
In economics, a financial market is a mechanism that allows people to
easily buy & sell (trade) financial securities (such as stocks & bonds),
commodities (such as precious metals or agricultural goods).
A financial market is a market in which people trade financial securities,
commodities, and other fungible items of value at low transaction costs
and at prices that reflect supply and demand. Securities include stocks
and bonds, and commodities include precious metals or agricultural
products.
Financial market gives impetus to the savings of the people. This market
takes the uselessly lying finance in the form of cash to places where it is
really needed. Many financial instruments are made available for
transferring finance from one side to the other side. The investors can
invest in any of these instruments according to their wish.
TYPEOFFINANCIALMARKET
Capital market
Money market
Commodity market
Insurance market
Derivatives market

3. Foreign exchange market
CAPITAL MARKET
The part of a financial system concerned with raising capital by dealing
in shares, bonds, and other long-term investments
Capital markets are financial markets for the buying and selling of long-
term debt or equity-backed securities. These markets channel the wealth
of savers to those who can put it to long-term productive use, such as
companies or governments making long-term investments
The capital market is a market which deals in long-term loans. It
supplies industry with fixed and working capital and finances medium-
term and long-term borrowings of the central, state and local
governments. The capital market deals in ordinary stock are shares and
debentures of corporations, and bonds and securities of governments.
Importance or Functions of Capital Market:
The capital market plays an important role immobilizing saving and
channel is in them into productive investments for the development of
commerce and industry. As such, the capital market helps in capital
formation and economic growth of the country. We discuss below the
importance of capital market.
The capital market acts as an important link between savers and
investors. The savers are lenders of funds while investors are borrowers
of funds. The savers who do not spend all their income are called.
“Surplus units” and the borrowers are known as “deficit units”.

4. Objectives of Capital Market:
The economic services which a well regulated and efficiently run capital
market can render to a country with a large private sector are consider-
able. In the first place, it is only an organized securities market (an
integral part of capital market) which can provide sufficient
marketability and price continuity for shares, so necessary for the needs
of investors.
It is only such a market that can provide a reasonable measure of safety
and fair dealing in the buying and selling of securities.
Through the interplay of demand for and supply of securities, properly
organized stock exchange assists in a reasonably correct evaluation of
securities in terms of their real worth.
Through such evaluation of securities the stock exchange helps in the
orderly flow and distribution of savings as between different types of
competitive investments.
Capital Market Types
 There are two types of capital market
 Features of primary markets
 Methods of issuing securities in the primary market
 Initial public offering
 Preferential issue
 Initial public offering

5.  Rights issue
The instruments traded (media of exchange) in the capital
market are:
 Debt Instruments.
 Equities (also called Common Stock)
 Preference Shares.
 Derivatives.
MONEY MARKET
In the money market, the excess reserves of the commercial banks are
invested in near-money assets (e.g., short-term bills of exchange), which
are easily converted into cash. Thus, commercial banks earn profits
without sacrificing liquidity.
The money market is a market for short-term instruments that are close
substitutes for money. The short term instruments are highly liquid,
easily marketable, with little change of loss. It provides for the quick and
dependable transfer of short term debt instruments maturing in one year
or less, which are used to finance the needs of consumers, business
agriculture and the government. The money market is not one market
but is “a collective name given to the various form and institutions that
deal with the various grades of near money.”

6. In other words, “it is a network of market that are grouped together
because they deal in financial instruments that have a similar function in
the economy and are to some degree substitutes from the point of view
of holders.”
Institutions of the Money Market:
1. Central Bank
2. Commercial Banks
3. Non-bank Financial Intermediaries
4. Discount Houses and Bill Brokers
5. Acceptance Houses
Instruments of the Money Market:
1. Promissory Note
2. Bill of Exchange or Commercial Bills
3. Treasury Bill
4. Call and Notice Money
5. Inter-bank Term Market
6. Certificates of Deposits (CD)
7. Commercial Paper (CP)
Functions of a Money Market:

7. 1. Provides Funds
2. Use of Surplus Funds
3. No Need to Borrow from Banks
4. Helps Government
5. Helps in Monetary Policy
6. Helps in Financial Mobility
7. Promotes Liquidity and Safety
8. Equilibrium between Demand and Supply of Funds
9. Economy in Use of Cash
COMMODITYMARKET
A 'commodity market' is a market that trades in primary rather than
manufactured products. Soft commodities are agricultural products such
as wheat, coffee, cocoa and sugar. Hard commodities are mined, such as
gold and oil.
A commodity market is a market that trades in primary economic sector
rather than manufactured products. Soft commodities are agricultural
products such as wheat, coffee, cocoa and sugar. Hard commodities are
mined, such as gold and oil.
Most commodity markets across the world trade in agricultural products
and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa,
coffee, milk products, pork bellies, oil, metals, etc.) and contracts based
on them. These contracts can include spot prices, forwards, futures and
options on futures.

8. The products which possess the following characteristics
are fit for dealing in commodity exchange:
1. Homogeneity:
2. Durability:
3. Gradability:
4. Price Fluctuation:
5. Open Supply:
DERIVATIVEMARKET
The derivatives market is the financial market for derivatives, financial
instruments like futures contracts or options, which are derived from
other forms of assets. The market can be divided into two, that for
exchange-traded derivatives and that for over-the-counter derivatives.
Some of the common variants of derivative contracts are as follows:
Forwards: A tailored contract between two parties, where payment takes
place at a specific time in the future at today's pre-determined
price. Futures: are contracts to buy or sell an asset on a future date at a
price specified today.
INSURANCEMARKET

9. Marketing Insurers will often use insurance agents to initially market or
underwrite their customers. Agents can be captive, meaning they write
only for one company, or independent, meaning that they can issue
policies from several companies.
FOREIGNEXCHANGEMARKET
The foreign exchange market (for ex, FX, or currency market) is a
global decentralized market for the trading of currencies. This includes
all aspects of buying, selling and exchanging currencies at current or
determined prices. In terms of volume of trading, it is by far the
largest market in the world.
Functions of Foreign Exchange Market:
1. Transfer Function
2. Credit Function
3. Hedging Function
Kinds of Foreign Exchange Markets:
(i) Spot Market
(ii) Forward Market
(i) Spot Market
Spot market refers to the market in which the receipts and payments are
made immediately. Generally, a time of two business days is permitted
to settle the transaction. Spot market is of daily nature and deals only in

10. spot transactions of foreign exchange (not in future transactions). The
rate of exchange, which prevails in the spot market, is termed as spot
exchange rate or current rate of exchange.
(ii) Forward Market:
Forward market refers to the market in which sale and purchase of
foreign currency is settled on a specified future date at a rate agreed
upon today. The exchange rate quoted in forward transactions is known
as the forward exchange rate. Generally, most of the international
transactions are signed on one date and completed on a later date.
Forward exchange rate becomes useful for both the parties involved in
the transaction.