The document discusses financial markets and capital markets. It defines the primary market as dealing with new securities being issued for the first time, while the secondary market is where existing securities are bought and sold, such as on a stock exchange. The primary market raises capital for companies through methods like rights issues, private placements, and prospectus offers. Major stock exchanges in India are BSE and NSE, which provide liquidity and pricing for securities as well as other functions that contribute to economic growth.

2. Financial Markets
Session 2
Grade XII
Business Studies

3. Learning Objectives
• To understand the concept of a capital market
• To understand the difference between primary market and
secondary market
• To know the methods of floatation
• To understand rights issue, private placement, sale and
prospectus of shares

5. CAPITAL MARKET
•The term capital market refers to facilities and
institutional arrangements through which long-term
funds, both debt and equity are raised and invested.
•The Capital Market can be divided into two parts:
a. Primary Market b. Secondary Market

6. Primary Market
• The primary market is also known as the new issues
market. It deals with new securities being issued for the
first time.
• The investors in this market are banks, financial
institutions, insurance companies, mutual funds and
individuals.
• A company can raise capital through the primary market in
the form of equity shares, preference shares, debentures,
loans and deposits.

7. Methods of Floatation

8. Offer through Prospectus
A prospectus makes a direct appeal to investors to raise
capital, through an advertisement in newspapers and
magazines.
The issues may be underwritten and also are required to be
listed on at least one stock exchange.

9. Offer for Sale
Shares are offered for sale through intermediaries like
issuing houses or stock brokers.
A company sells securities enbloc at an agreed price to
brokers who, in turn, resell them to the investing public.

10. Private Placement
• Private placement is the allotment of securities by a
company to institutional investors and some selected
individuals.
• It helps to raise capital more quickly than a public issue.

11. Rights Issue
• This is a privilege given to existing shareholders to
subscribe to a new issue of shares according to the terms
and conditions of the company.
• The shareholders are offered the ‘right’ to buy new shares
in proportion to the number of shares they already possess.

12. e-IPOs
• A company proposing to issue capital to the public through the on-line
system of the stock exchange has to enter into an agreement with the
stock exchange. This is called an Initial Public Offer (IPO).
• SEBI registered brokers have to be appointed for the purpose of accepting
applications and placing orders with the company.
• The issuer company should also appoint a registrar to the issue having
electronic connectivity with the exchange.
• The issuer company can apply for listing of its securities on any exchange
other than the exchange through which it has offered its securities.
• The lead manager coordinates all the activities amongst intermediaries
connected with the issue.

13. SECONDARY MARKET
• The secondary market is also known as the stock market or stock
exchange.
• It is a market for the purchase and sale of existing securities.

15. Stock Exchanges in India
BSE NSE

16. STOCK EXCHANGE
• A stock exchange is an institution which provides a platform
for buying and selling of existing securities.
• As a market, the stock exchange facilitates the exchange of
a security (share, debenture etc.) into money and vice
versa.
• According to Securities Contracts (Regulation) Act 1956,
stock exchange means any body of individuals, whether
incorporated or not, constituted for the purpose of
assisting, regulating or controlling the business of buying
and selling or dealing in securities.

17. Functions of a Stock Exchange
1. Providing Liquidity and Marketability to Existing
Securities
2. Pricing of Securities
3. Safety of Transaction
4. Contributes to Economic Growth
5. Spreading of Equity Cult
6. Providing Scope for Speculation

18. Review
• Distinguish between Capital Market and Money Market.
• What are the functions of Stock Exchange?
• What are the methods of floatation in Primary Market?

19. Recapitulation
• Capital Market is a place where long-term funds are mobilised by the
corporate undertakings and Government.
• Capital Market may be devided into primary market and secondary
market.
• Primary market deals with new securities which were not previously
tradable to the public.
• Secondary market is a place where existing securities are bought and
sold.
• Stock Exchanges are the organisations which provide a platform for
buying and selling of existing securities.
• Stock exchanges provide continuous market for securities, helps in price
discovery, widening shareownership and provide scope for speculation.