Financial market

class 12

1. Financial Market Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A.,

2. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Concept Financial market and banks help the savers and the investors by mobilizing funds between them, Financial market and banks act as intermediaries in this allocative function of matching the demand and supply of funds.

3. If the allocative function of directing funds available for investment into most productive investment opportunity is performed well, it leads to Higher rate of return to households Scare resources are allocated to those firms, which have the highest productivity. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A.,

4. Financial market is a market for creation and exchange of financial assets. Creation of financial assets Exchange of assets Financial assets Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Financial Market

5. Mobilization of savings and channelizing them into the most productive uses. Facilitating price discovery Providing liquidity to financial assets Reducing the cost of transactions Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Function of financial market

6. Financial markets Money market capital market (market for short-term instruments) (market for long-term instruments) Money market instruments primary market secondary market Treasury bills (new issue market) (sale and purchase of existing securities ) Commercial papers Call money Certificate of deposit debt and equity Commercial bill Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Types of financial market

7. Short – term funds Period of maturity is up to one year Low risk, unsecured Debts are highly liquid Issued and actively traded everyday, over the telephone and through the internet Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Money Market

8. 1 . Treasury bills ( T-Bills) It is a short term borrowing instrument issued by the Government of India, RBI, issues it on behalf of GOI It is also known as zero coupon bonds It has a maturity of less than one year It is issued at discount and repaid at par It is in the form of a promissory note It is highly liquid and have negligible risk It is available in denominations of 25000 and its multiples. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Money market instruments

9. 2. Commercial paper Issued by large creditworthy companies to raise short-term funds at lower rates of interest than the market rate It is unsecured promissory note, having a maturity of 15 days to one year It is negotiable instrument, transferable by endorsement and delivery It is sold at discount and redeemed at par It is an alternative to bank borrowing It is used by companies for bridge financing Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Money market instruments

10. 3. Call money Call money is a method used by commercial banks, to borrow funds from each other, in order to maintain the Cash Reserve Ratio (CRR) It is short-term finance repayable on demand Maturity of call money is 1 day to 15 days The interest paid on call money is called the call rate Call rate is highly fluctuating, which vary from day-to-day or even from hour-to-hour There is an inverse relationship between call rates and return on other short-term money markets instruments. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Money market instruments

11. 4. Certificate of Deposit Certificate of deposits are issued by commercial banks or developmental financial institutions to individuals, institutions, corporations and companies It is an unsecured, negotiable instrument in bearer form It is issued in periods of tight liquidity, when the deposits by individual and households is less, but the demand for credit is high. They help to mobilize large amount of money in a short time period Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Money market instruments

12. 5.Commerical Bills It is bill of exchange used by business firms to meet their working capital needs It is a short-term, self-liquidating, negotiable instrument, used for financing credit sales of a firm When goods are sold on credit, the seller draws a bill of exchange on the buyer, who accepts it. When he accepts the bill, it becomes a marketable instrument, which is called a trade bill. When the seller presents it to the bank for discounting it, to get the funds before the maturity of the bill and the bank accepts it, it is called a commercial bill Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Money market instruments

13. Capital market is a market for medium and long – term funds. This market facilitates the institutional arrangements through which long-term funds, both debt and equity are raised and invested. The capital market consists of development banks, commercial banks and stock exchange. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Capital market

14. Primary market It is also known as the new issues market , as this markets deals with the new securities issued for the first time Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Types of capital market

15. 1. Offer through prospectus A company invites public to subscribe for tis shares through issue of prospectus. The contents of prospectus must be according to the provisions of Companies Act and SEBI guidelines The issue must be listed on at least one stock exchange The issue may be underwritten to save the company from under subscription Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Methods of floatation of new issues in primary market

16. 2. Offer for sale Under this method, securities are not issued directly to the public, but are offered for sale through intermediaries like issuing houses or stock brokers. For this, the company sells the securities enbloc to brokers at an agreed price, who, then resells them to the investing public. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Methods of floatation of new issues in primary market

17. 3. Private placement It is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise funds more quickly than a public issue The cost of floatation, which is quite expensive in other alternatives, is saved Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Methods of floatation of new issues in primary market

18. 4. 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. This right is called the pre-emptive right’ of the existing shareholders. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Methods of floatation of new issues in primary market

19. 5. e-IPOs When the public issue is made through an online system of stock exchange, it is known as e-IPO, i.e., electronic Initial Public Offer. The company doing so, has to enter into an agreement with the stock exchange and has to appoint a SEBI registered broker to accept applications and place orders with the company Appoint a registrar having electronic connectivity with the exchange Securities have to be listed on at least one exchange, The lead manager coordinates with all the intermediaries connected with the issue. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Methods of floatation of new issues in primary market

20. Secondary market / stock exchange Secondary markets is also known as the stock markets or stock exchange. In this market, securities are not directly issued by the company to investors but it is sold by existing investors to other investors. It provides liquidity and marketability to existing securities. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Types of capital market

21. Stock Exchange – functions and trading procedure Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A.,

22. The stock exchange plays a pivotal role in the growth of the industry and commerce of the economy that eventually affects the economy to a great extent The primary market is for new issues of shares, debentures etc., of already listed companies of for the companies, which are going public for the first time . Thus , stock exchange is a common platform where buyers and sellers of securities actively trade already issued securities Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Introduction

23. 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 of securities. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Definition

24. Provides liquidity and marketability to existing securities. Pricing of securities Safety of transactions Contributes to economic growth Spreading equity cult Provides scope for speculation Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Functions

25. Selection of a broker Opening demat-account with depository Placing the order Executing the order Settlement Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Trading procedures on a stock exchange

26. The depository act was passed in 1996 It was formed for the purpose of ensuring free transferability of securities with speed, accuracy and security. SEBI developed a new system , by which all trading in shares is done in electronic form. Depository services and demat account are the very basis of this system Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Depository

27. Depository is an institution or organization which holds securities in electronic form, in which trading is done. It is technology driven electronic storage system It has no paper work relating to share certificate, transfer, forms etc., In India there are two depository National Securities Depositories Limited (NSDL) Cantal Depository Services Limited (CDSL) Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Depository

28. Depository participant (DP) Beneficial owner Issues Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Terms related to Depository

29. Dematerialisation is the process, by which the physical form of securities are converted into electronic form When shares are converted into electronic form, they are held in a demat account Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Dematerialisation of securities

30. A demat account is opened with a depository. For this he approaches a depository participant, where he fills in a demat form and submits the required documents. Then, he submits his certificates to the DP, along with the form and documents. The registrar, then confirms the request and dematerialise his account with the shares submitted by him The account thus is credited with the number and amount of shares Now, the investor can, with the help of broker and DP, operates his account by selling or buying shares and other securities . Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Procedure for Dematerialisation

31. Brokers Jobbers Bulls Bears Stag Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Types of operators on a stock exchange

32. Madan Kumar M.A.,M.A.,B.Ed.,M.Phil.,M.B.A., Thank you