plus two commerce business tudies note

1. BUSINESS FINANCE
Business need finance at the point of the
business man decides to start it. Business
need finance for purchasing fixed assets (fixed
capital) and payment for raw materials and
salary to employees( working capital)
Finance is the life blood of business.

2. CONCEPT OF FINANCIAL MARKET
Business is a part of an economic system. An
economic system consists of two main sector-a)
house holds – save funds
b) businee- use these fund
Financial market collect fund from the house holds
and allocate to the business. This process is called
as financial intermediation.
There are two major mechanisms for functioning
financial intermediation, they are banks and
financial markets.

4. Financial market
• Financial Market is the market for creation and
exchange of financial assets. Creation of financial
assets means new issues of shares, debentures,
derivatives etc. exchange of financial assets
means purchase and sale of existing financial
assets

5. Functions of financial market
1. Mobilisation of savings and channelising them into most
productive uses:- financial market collect finance from households
and allocating to business purpose. It convert savings to
investment
2. Facilitating price discovery:- demand and supply fixes the price for
a commodity. House holds are the supplier of fund and the
business demand the fund. As an intermediary financial market
can discover the price of finance.
3. Providing liquidity to financial assets:- liqudity means the ability to
convert an assets into cash. By providing easy facility to purchase
and sale of financial assets, financial market do this
4. Reducing the cost of transactions:- financial markets provide
valuable information about the price of financial assets and its
variability to investors. This helps them to reduce cost of
transactions.

6. Classification of financial market

7. Money market
Money market is a market for short term
fundsit deals with monetory assets whose period
of maturity is less than one year.
The instruments of money market includes
Treasury bill, Commercial paper, Call money,
Certificate of deposit, Commercial bill,
partiipation certtficates and money market
mutual funds.
the major participants in the market are the
RBI, Commercial Banks, Non Banking Finance
Companies, state governments, Large Corporates
and Mutual Funds

8. Money market instruments
1. Treasury bill
2. Commercial paper
3. Call money
4. Certificate of deposit
5. Commercial bill
6. Partiipation certtficates, and
7. money market mutual funds

9. 1. Treasury bill
it is also known as T-Bill and Zero Coupen
Bond. It is issued by RBI on behalf of the
Government. Its maturity period is less than one
year. It is issued in the form of promissory note.
The minimum amount of T-bill is 25000 and its
multiple thereof. It is issued at discount and
repaid at par. For eg. an investor purchase a 91
days T-bill having face value of Rs 100000 for
90000. after 91 days the investo will get Rs
100000. the difference of 10000 is the benefit of
the investor.

10. 2. Commercial paper
It is issued by large and credit worthy
companies to raise short term finance. Its
maturity period is 15 days to one year. It is issued
in the form of unsecured promissory notes. It is
issued at discount and repaid at par. Companies
use this for Bridge financing.
for raising long term capital from
the financial market business need to
meet some floatation costs. By issuing
commercial paper company can meet this
floation costs it is called bridge finance.

11. 3. Call money
Call money is a short term finance repayable on
demand, with a maturity period of 1 day to 15
days. It is used for inter bank transactions.
Mainly for maintaining CRR as per the RBI
guidelines. The interest on call money is called
as call rate.

12. 4. Certificates of Deposits
CDs are unsecured, negotiable short term
instruments in bearer form, issued by
commercial banks. The minimum amount of
CD is 1 lakh and its multiple thereof. Maturity
period is minimum not less than 7 days and
not more than one year. It is issued at a
discount and repaid at par.

13. 5. Commercial bill
It is bill of exchange used to finance woring
capital requirements. It is a short term self
liquidating instrument which is used to
finance the credit sales.

14. CAPITAL MARKET
Capital market is the market which deals in
long and medium term funds. Individual
investors and institutional investors are the
major suppliers of funds into the capital
market. They deals with ownership securities
and creditor ship securities. Shares,
debentures, bonds and other wide range of
securities are dealt in capital market.

15. Distinction between capital market
and money market
Money market Capital market
1. Dealing with short term funds 1. Dealing with long term funds
2. Provide finance for working capital 2. Provide for fixed capital
3. It is a whole sale market 3. It is a retail market
4. It has no active secondary market 4. It has a strong secondary market
5. It is regulated by RBI through DFHI 5.It is regulated by SEBI
6. T-bill, CPs, CDs are the main
instruments
6. Shares, debentures, derivatives ets are
the the instruments
7. Face value is high 7. Face value is very low
8. Higher degree of liquidity 8. Lower degree of liquidity
9. High safety 9. Low safety
10. Low return High return

16. Primary market
The primary market is also known as New
Issue Market (NIM). It is the market where the
securities are sold for the first time.

17. Methods of floatation
there are various methods of floating new issues
in the primary market.

18. 1. Offer through prospectus
in this method companies inviting the
people to subscribe their shares through a
prospectus which contains the detail
regarding the company

19. Offer for sales

20. 3. Private placemen

21. 4. Right issue

22. e- IPOs
Electronic Initial Public Offer means floatation of
securities in the primary market with the help
of computer and its net working system

23. A stock exchange is an institution which
provides a platform for buying and selling of
existing securities. Stock exchange facilitates
the exchange of securities into cash and vuce
versa

24. Stock exchange meaning

25. Functions of secondary market
1. Providing liquidity and marketability to
existing securities
2. Pricing of securities
3. Safety of transactions
4. Contributes to economic growth
5. Spreading of equity cult-creating good about
securities in ithe investors
6. Providing scope for speculation

26. Trading and settlement procedure
in the beginning securites were bought and sold
under an “open outsry system”
trading of securites is now executed through an
online screen based electronic trading system. Simply
put all buying and selling of shares and debebtures are
done through a computer terminal.
NSE (National Stock Exchange) operates on the “National
Exchange for Automated Trading” (NEAT)
BSE (Bombey Stock Exchange) operates on the “BSE”s
Online Trading system(BOLT)

27. Advantagesof Electronoc Trading
system or Online Trading system
1. Transperency
2. Efficient passing of information
3. Efficiency in operation
4. It facilitate all scatered over the world to
purchase and sell securities
5. It facilitate a single platform for all trading
centers on the computer.

28. Steps in the Trading and Settlement
Procedure
The folowing are the steps to be followed by a
proposed investors in the stock excahnge
1. Enter in to a contract between a broaker or sub
broaker. They should provide certaindetail as
follows;
• PAN ( compulsory)
• DOB and addresproof
• Residential status
• Bankaccount details
• Depository account details
The broaker then opens a trading account in the
nameof the investor.

29. 2. Open a ‘demat’ account or ‘Benificial Owner’ (BO) account with
a Depository Participant (DP)
3. The investor then places order with the broaker to buy or sell
securities
4. Asper the order placed by the investor broaker connect this
order with the main stockexchange
5. When the order match with mentioned price , it will
communicated to the broaker’s terminal and the order will be
executed electronically
6. After the trade has been executed, with in 24 hours the broaker
issues a contract note. This note contains al about the trade and
it is an important doccument having legal protection

30. 7. now the investor has to deliver shares for the share
sold or pay cash for the share bought. This should be
done immediately after getting the contract note or
before making payment by the broaker or delivery of
shares to the exchange. This is called ‘pay-in-day’ . This
settlement is done on the basis of “T+2” settlement.
For eg. Transaction on Mondey will settle on
Wednesday. Tuesday transaction on Thursday. w.e.f 1
April 2003
8. On the T+2 day theexchange will deliver the share or
make mapyment to the other broaker. This is called
‘pay-out-day’
9. The broaker can make delivery of shares in de-mat
formdirectly to the investor’s de-mat account.

31. dematerialization
Dematerialization is the process of transforming
physical form of securities into electronic
form.
Depository Depository
Participant
Registrar Investor

32. Steps of dematerialization
1. investors surrender certificates to DP for
dematerialization
2. DP informs the Depository through electronic media
3. DP sent the certificate to the Registrar for verification
and cancellation
4. Depository sends formal request for de-materialization
to the Registrar
5. Registrar informs Depository and electronic credit
given to the customers
6. Depository updates its account and informs the DP
concerned
7. DP informs customer about the credit in its account

33. Depository services
A depository is an organization where
securities of share holder are held in electronic
form at the request of the holder through
Depository Participant (DP). Depository
Participant is an intermediary or the agent of the
investor in the depository system providing link
between company and he client through
depository
. In India two Depositories are operating viz,
National Securities Depositary Limited (NSDL)
& Central Depository Services Limited (CDSL)

35. • The National Stock Exchange (NSE) is the leading
stock exchange in India and the fourth largest in
the world by equity trading volume in 2015,
according to World Federation of Exchanges
(WFE). NSE was incorporated in 1992. It was
recognised as a stock exchange by SEBI in April
1993 and commenced operations in 1994. NSE
covers 364 cities and town across the counntry.
NSE follows Automated Trading System (ATS)
called NEAT (National Exchange for Automated
Trading)

36. Objectives of NSE
1. Establishing a network trading facility for all
types of securities
2. Ensure equal accesss to all over the country
through an appropriated communication
network
3. Providing a fair, efficient and transperant
securities market
4. Enabling shorter settlement cycles
5. Meeting international benchmarks and
standards

37. Market segment of NSE
There are two marketing segmant;
1. Whole sale Debt marketing segment- deals with
wide range of fixed income bearing securities of
state and central government and large
corporations. T-bills, CDs, commercial papers,
Mutual Fund etc.
2. Capital market segment- provide an efficient and
trading platform for equities, preference shares,
debentures, ExchangeTraded Funds etc.

38. Over The Counter Exchange of India
(OTCEI)
OTCEI is a stock market for small companies having paid
up capital of less than 3 crores. It was started in 1992.
incorporated under Companies Act 1956. this is
established on the lines of NASDAQ (National
Association of Securities Dealers Automated
Quotations) OTCEI was promoted by UTI, ICICI, IDBI,
IFCI, LIC, GIC, SBI capital market and Can Bank financial
service. It fully computerized, transparent and single
window exchange.
it provide a place where buyer seeks sellers and
vice-versa then transact with each other.

39. Advantages of OTCEI
1. Provide a platform to small and less liquid
companies which can not list in a regular stock
exchange for raising capital
2. Lower cost of new issue and ower expenses
ofservicing the investors
3. Family concerns and closely held companies can
go through OTC
4. It provide greater freedom to the investors
5. It provide higher transperancy
6. Provide valuable information

40. Comparison between primary market
and secondary market
PRIMARY MARKET SECONDARY MARKET
1. it deals with new securities
2. Securities are sold only once
3. It links the issuing company and
the investors
4. Investors can only purchase the
securities
5. It provides capitals to the
companies
6. It does not have any physical;
existence
1. it deals with existing securities
2. It provides regular and continuous
market
3. Transactions are made with in the
investors
4. Investors can purchase and sell
securities
5. Issuing company does not have
any direct role
6. Stock exchange has physical
existence

41. • Listing:- admission of a company for trading its
securities in the stock exchange. Government
securities need not to be listed in the official list
of the stock exchange. Only listed company’s
shares are traded in the stock exchanges.
(Students corner )
• Open out cry system
• Offer price
• Bid price
• Online trading

42. Management of stock exchange
Picture of stock exchange structure

43. speculation
It is the process of buying securities when price
is low and selling securities when price is high.
Speculator is a person who conduct
speculation for making profit from the price
differences of securities

44. Types of speculator
1. Bull:- a bull speculator expect a raise in the price so they
buy this shares and sell when raise the price. The market
dominated by bull is known as bullish market
2. Bear:- a bear speculator expect a fall in the price so they
sell this shares and purchase when fall the price. The
market dominated by bear is known as bearish market
3. Lame duck:- lame duck is a bear speculator. He is so called
because of the non availability of shares that he has
agreed to sell
4. Stag:- stag is a premium hunter. He apply for shares in the
NIM and after getting allotment he sells the same at a
higher price.

45. Major stock exchanges in India
prepare a report on this topic
Source ; inter net news paper books etc
Include the history of stock exchange in India

47. Bombey Stock Exchange (BSE)
BSE is the first stock exchange in Asia,
established in 1875 by Native Share Stock
Brokers Association. It is the first stock
exchange in India, obtained permanent
recognition in 1956 under the Securites
Contract Regulation Act, 1956 (SCRA).

48. Objectives of BSE
1. To provide an efficient and transperant
securities marketing
2. To provide a trading platform for small and
medium enterprises
3. To ensure safety
4. Provide service to capital market participants
like risk management, clearing, settlement,
market date, and education
the BSE has about 5000 companies listed from
all over the world and has the largest market
capitalisation in India

49. Securites and Exchange Board of India
(SEBI)
The SEBI was established in 12 april 1988 as an
adivisory body to promote healthy securities
marketing. 1980 s characterised as tremendous
growth in securities marketing and it leads to capital
market scam (1991) To solve this the government of
India by an ordinance SEBI was given statutory
status. The ordinance later became an Act namely
Securites and Exchange Board of India (SEBI) Act
1992. it is head quarted in Mumbai with regionl
offices in Delhi,Kolkatta, Chennai and Ahemmadabad

50. Porpose and role of SEBI
1. To the issures provide a safety market place
for securities trading
2. To the investors, provide protection
3. To intermediaries, offer competitive,
professionalised and expand market

51. Objectives of SEBI
1. To regulate stock exchanges and the
securities industry to promote their orderly
functioning
2. To protect the right and interest of the
investors
3. To prevent trading malpractices
4. To regulate and develop a code of conduct
and fair practices.

52. Functions of SEBI
1. Regulatory function
1. Registration of broakers and sub broakers and other
plaayers in the market
2. Registration of mutual funds
3. Regulation of stock broakers, portfolio exchanges,
underwriters, merchant bankers and buusiness
4. Regulation of takeover bids by companies
5. Conducting enquireis and audits of stock exchanges
6. Levying fee or other charges for carrying out the
ppurpoose oof the Act
7. Performing the power as per
SecuritiesContract(Regulation)Act1956.

53. B) Development function
1. Training of intermediaries of the security market
2. Conducting research and publishing information
3. Develop the capital market
C) Protective functions
1. Prohibition of frdulant and unfair trade practices like
misleading statement, manipulations, price rigging etc
2. Controlling the insider trading and imposing penalties
3. Undertaking steps for investor protection
4. Promotion of fair trade practices in securities market

54. The organisation structure of SEBI
The board consists of nine members under a
chairman. (sri U K Sinha present chairman). SEBI
classified its functions under various operatonal
departments headed by an executive director.
SEBI also setup two advisory committee.
They are primary market advisory committee and
secondary market advisory committee. The objectives
of these two committees are as follows;
– To advice SEBI on matters relating to protect the iterest of
the investors
– To advice the SEBI on issues related to the development of
primary market in India
– To advice SEBI on disclosure requirements for companies