Financial markets play a vital role in allocating resources and creating liquidity. They facilitate transactions between buyers and sellers of financial holdings like stocks, bonds, and other securities. This allows those with excess funds to invest and earn returns, while making capital available to those who need funds like businesses and entrepreneurs.

1. Financial markets play a vital role in facilitating the smooth operation
of capitalist economies by allocating resources and creating liquidity for
businesses and entrepreneurs. The markets make it easy for buyers and sellers
to trade their financial holdings. Financial markets create securities products
that provide a return for those with excess funds (investors/lenders) and make
these funds available to those needing additional money (borrowers).
STRUCTURE
FINANCIAL
MARKET

2. INSTRUMENTS DEBT(LONG
TERM)
DEBT(SHORT
TERM)
EQUITY FOREIGN EX
SECURITIES BONDS WITH
TENURE ≥1YR
T-BILLS
COMMERICAL
PAPER
SHARES N/A
CASH LOANS COD
,DEPOSITS
N/A SPOT FOREX
EXCHANGE-
TRADED
DERIVATIES
BOND
FUTURES/OPTI
ONS
INTREST RATE
FUTURES
OPTIONS ON
STOCKS
EQUITY
FUTURES
CUREENCY
FUTURES
OTC
DERIVATIES
INT RATE
SAWPS,INT
OPTIONS,INT
RATE
CAPS,FLOORS,
&EXOTIX
DERIVATIES
FORWARD
RATE
AGREEMENTS
OPTIONS ON
STOCKS
,EXOTIC
DERIVATIES
CURRENCY
SWAPS,FOREX
SAWPS,FOREX
OPTIOND

4. PLAYERS IN FINANCIAL MARKET
• COMPAINES-Through an IPO( initial public offering).
• INVESTMENTS BANKS – Issuance of bonds and shares in primary
market.
• STOCK EXCHANGE- Buying and selling shares futures & options.
• BANKS- Custodians of funds or channels.
• FINANICAL INSTERMEDIARIES-buy and sell securities and stock..
• CLEARING AGENICES- self regulatory
• FUND MANAGERS- corporate & public pensions invest in market of
retires
• GOVERNMENT- initial payments in public sector by shares,
• INVESTMENT ADVISERS- NSE & BSE
• MUTAL FUNDS
• MARKET DEALERS- bid and ask prices and seek profit
• INDIVIDUALS- persons investment
• STOCLBROKERS- link between the stock exchange and investors.
• TRADER- maximize their returns
• REGULATORS- regulators of RBI,SEBI.
• INSTITUTIONAL INVESTORS- countries equity and debt.

6. AD - It refers to the expected revenue from the sale of output produced
at a particular level of employment.
Level of
employment (N)
AD PRICE (D)
20 230
25 240
30 250
35 260
40 270
45 280
50 290
TABLE & DIAGRAM KEYS:
• ⇑ in the level of employment(N) proceeds
expected rise of price & vice versa.
• AD is an increasing function of (N).
• D=f(N)
• It slopes upward from left to right as ^N so
^D shown in AD curve.

7. The AD-AS AND PRICE OUTPUT RELATIONSHIP
• The AD-AS (aggregate demand-aggregate supply) model is a way of
illustrating national income determination and changes in the price level.
• We can use this to illustrate phases of the business cycle and how different
events can lead to changes in two of our key macroeconomic indicators:
real GDP and inflation.
• Two axes: a vertical axis labeled “Price level” or “PL” and a horizontal axis
labeled “real GDP.”
• A downward sloping aggregate demand curve labeled “AD.” An upward
sloping short-run aggregate supply curve labeled “SRAS.”
AD
SRAS
rGDP
PL1
Y
x
Y1
O
E