Basic introduction with types and examples.

1. Group members-
AASTHA
AMEYA
KRITI
KAAMYA
MANJOT
RUTUJA
FINANCIAL MARKETS
IBS Mumbai

2. FINANCIAL MARKET
• A mechanism enabling participants to deal in financial claims.
• Also provide a facility in which their demands and requirements interact to set a
price for such claims.

3. FUNCTIONS
 Enabling economic units to exercise their time preference.
 Separation, distribution, diversification and reduction of risk.
 Providing information about companies
 Transformation of financial claims to suit the preferences of both savers and
borrowers.

4. Financial
market
Capital
market
Equity
Market
Primary
Market
Domestic
Market
International
Market
Secondary
Market
Derivatives
Market
Debt Market
Primary
Segment
Secondary
Segment
Money
Market
Primary
Segment
Secondary
Segment
CLASSIFICATIONS

5. CAPITAL MARKET
 A market for long-term equity and debt instruments.
 Provide risk capital in the form of equity to entrepreneurs.
 Encourage broader ownership of productive assets
 It include
 primary markets, where new stock and bond issues are sold to investors,
 and secondary markets, which trade existing securities.

6. RECENT DEVELOPMENTS
I. Growth in Financial Intermediation
II. Growth in Underwriting of Securities
III. Growth of Merchant Banking
IV. Growth of Credit Rating Agencies
V. Growth of Mutual Funds
VI. Stock Exchange Regulation Act
VII. Liberalisation Measures

7. MONEY MARKET
 A market for short-term debt instruments.
 Highly liquid market wherein securities are bought and sold in large
denomination to reduce transaction cost.
 Example- call money market, certificates of deposit, commercial paper and
treasury bills are their major instruments.

8. Call Money Market
Treasury Bill Market
Commercial Paper
Certificate of
Deposits
MONEY MARKET

9. CALL MONEY MARKET
 Short-term funds repayable on demand
 Maturity period varying between one day to a fortnight
 Money borrow or lent for a day, known as call money and for more than a day and upto 14 days,
known as notice money
 No collateral money is required
 It is highly liquid, highly risky as well as extremely volatile

10. • Has to meet CRR and SLR mandatory
requirements stipulated by RBI
• Has to meet sudden demand for
funds
• Becomes the borrower
• Can avail for one day
• Or for 2 to 14 days
• Can avail through auction
• Highest bidder who is ready to give
higher interest rate, can avail the
loan
BANK OF
INDIA
(scheduled commercial bank)
• Has surplus of funds
• Becomes the lender
• Loan provided is repayable on
demand
State bank
of India
(scheduled commercial
bank)

11. TREASURY BILL MARKET
 Issued by RBI on behalf of the GOI
 To raise funds to bridge seasonal or temporary gaps between revenue and expenditure
 TDS not applicable on these bills
 Highly liquid in nature
 At present, there are 91-days, 182-days and 364-days T-bills in vogue.

12. • Is required to maintain SLR
• In the form of government approved securities
• Before providing credit to customers
• Buys T-bills
ICICI bank
• For cautious investors
• Who want safe and steady returns
• No tax deduction at source
• No risk of default
Investors
• 91-day T-Bill of 100 (face value) issued at 98.20
(discount of 1.80)
• Redeemed at face value of 100
• Return to investor= Maturity/face value - Issue
price
RBI

13. COMMERCIAL PAPER
 Unsecured short-term promissory note issued at a discount by creditworthy corporates, primary
dealers and all India financial institution
 Can be issued to individuals, banks, companies, and other registered Indian corporate bodies or
incorporate bodies
 Negotiable and transferable by endorsement and delivery with a fixed maturity rate
 Also known as finance paper, industrial paper, or corporate paper

14. CERTIFICATE OF DEPOSITES
 Shot-term tradable time-deposits issued by commercial banks and financial institutions
 They are unsecured, negotiable, transferable and tradable
 They are for specific maturity periods
 Generally issued at the time of tight liquidity at relatively high interest rate
 The minimum amount should be ₹ 1 lakh and minimum time period is not less than 7 days

15. Government securities
 A Government security is a tradable instrument issued by the Central Government or
the State Governments.
 It acknowledges the Government’s debt obligation.
 Such securities are short term (usually called treasury bills, with original maturities of
less than one year) or long term (usually called Government bonds or dated securities
with original maturity of one year or more).

16. 'Primary Market'
 A primary market issues new securities on an exchange for companies,
governments and other groups to obtain financing through debt-based or
equity-based securities.
 Primary markets are facilitated by underwriting groups consisting of
investment banks that set a beginning price range for a given security and
oversee its sale to investors.
 Once the initial sale is complete, further trading is conducted on the
secondary market, where the bulk of exchange trading occurs each day.

17. 'Secondary Market'
 The secondary market is where investors buy and sell securities they already
own.
 It is what most people typically think of as the "stock market," though stocks
are also sold on the primary market when they are first issued.
 The national exchanges, such as the New York Stock Exchange (NYSE), is
secondary markets.

18. CORPORATE DEBT MARKET
It is a market wherein debt securities of corporates are issued and traded.
 Reserve Bank of India (2011) observes that listed corporate debt forms only 2
per cent of GDP which is significantly low compared to other emerging
economies, such as Malaysia, Korea and China.
 Of the rest, only a few notable names dominate the market. Therefore,
there has been a lot of focus on the development of debt markets in India and
it has garnered a lot of policy and regulatory attention.

19. FOREX MARKET
Foreign Exchange Market in India operates under the Central Government of India and executes
wide powers to control transactions in foreign exchange.
The Foreign Exchange Management Act, 1999 or FEMA regulates the whole Foreign Exchange Market
in India.
It can be defined in terms of its specific functions:
 Facilitates the conversion of one country’s currency into another
 Sets and quotes exchange rates
 Offers contracts to manage foreign exchange reserves
Two types of FOREX market are:
i. Spot market- A spot market is the immediate delivery market.
ii. Forward market- The forward exchange market refers to the transactions of foreign exchange at
some specified date in the future.

20. MONEY MARKET INTERMEDIARIES
DISCOUNT AND FINANCE HOUSE OF INDIA
 Joint stock company set up in April 1988 and commenced its operations from July 1988
 Objective was to deepening and activating the money market
 Jointly owned by RBI, public sector banks and all-India financial institutions which contributed
to its paid-up capital of Rs 200 crore in the proportion of 5:3:2
 Act as a specialised MM intermediary for stimulating activity in MM instruments and develop
secondary markets in these instruments
 Serves as a base to broaden the secondary market and give an assured liquidity to the
instruments.
 In November 1989, under the RBI Act 1934, DFHI categorised as an eligible institution

21.  DFHI also authorised to undertake repo transactions in T-bills all dated govt. securities to impart
greater liquidity to these instruments.
 Since November 13, 1995 the DFHI is an accredited primary dealer
 With accreditation it act as a market maker
 It also extends repos, i.e., buy-back facility upto 14 days, to banks and financial institutions in
respect of MM instruments
 In March 31, 2003 SBI became the major shareholder and DFHI became a subsidiary of SBI
 In April 2004, SBI Gifts Ltd., a subsidiary of SBI, was merged with DFHI Ltd. And the name of the
merged entity was changed to SBI DFHI Ltd.