7/24/12 Indian Financial Markets

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Financial markets refers to the institutional arrangements for dealing in financial assets and credit instruments of different types such as currency, check, bank
deposits are the credit markets caring to various credit needs of the individuals,firms and institutions.Credit is supplied both on the short as well as a long term
basis.

Financial markets may be broadly classified as negotiated to an markets and open markets.The negotiated loan market is a market in which the lender and the
borrower personally negotiated the term of the loan agreement,e.g businessman borrowing from a bank or from a small company.On the other hand, The open
market is a impersonal market in which standardized securities are treated in large volumes.The stock market is an example of an open market.

Function of financial system are as follows:---------
1.To facilitate creation and allocation of credit and liquidity.
2.To serve an as intermediaries for mobilization of savings.
3.To assist the process of balanced economic growth.
4.To provide financial convenience.
5.To caster the various credit needs of the business houses.
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On the basis of credit requirement the financial market can be classified into two types.These are---------->
!)Money market.
!!)Capital market.
!)Money Market:-The term money market is used in a composite sense to mean financial institution which deal with short term funds in the economy.It refers to
the institutional arrangements facilitating borrowing and lending of short term funds.The money market brings together the lender who have surplus short term
investment funds and the borrowers who are in need of short term funds.In a money market funds can be borrowed for a short period varying from a day,a week,a
month, or 3 to 6 months and against different types of instruments.Such as bill of exchange,bankers acceptance,bonds etc,called near money.These money
market has been defined by crocheter as,"the collective name given to the various firms and institution that deal in the various grades near money.
The function of money market are as follows:
!)The basic function of money market is to facilitate adjustment of liquidity position of commercial banks ,business corporation and other non-bank financial
institution.
!!)It provides outlets to commercial banks,business corporation,non-bank financial concern and other investors for their short term surplus funds.
!!!)IT provides short term funds to the various borrowers such as businessmen, industrialist, traders etc.
!v)Money market provides short term funds even to the government institution.
v)The money market constitute a highly efficient mechanism for credit control.It serves as a medium through which the central bank of the country exercises
control on the creation of credit.
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Capital market:-the term capital market refers to the institutional arrangements for facilitating the borrowing and lending of long term funds .A capital market can
be defined as an organized mechanism for effective and efficient transfer of money capital or financial resources from the investing parties i.e individuals or
institutional savers to the enter prevents (individuals or institution) engaged in industry or commerce in the business either be in the private or public sectors of an
economy.
The importance of capital market(in the economy)
!)The ensures possible ordination and balance between the flow of savings on one hand and the flow of investment leading to capital formation on the other.
!!)It directs the flow of savings into most profitable channels and there by ensures.Optimum utilization of financial resources.
The objectives of capital markets are
!)The mobilization and import of foreign capital and investment to augment the deficit in the required resources so as to maintain the expected rate of economic
growth.
Function of capital market are:-
The major function performed by capital markets are:-----------------
!)Mobilization of financial resources on a nation wide scale.
!!)Securing the foreign capital and know how to fill up deficit in the required resources for economic growth for a faster rate.
!!!)Effective allocation of the mobilized financial resources,by directing the same to projects yielding highest yield or to the projects needed to promote balanced
economic development.
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The capital market should be distinguish from money market.the capital market is the market for long term funds.On the other hand, money market is primarily the
market for short term funds.However, the two markets are closely related as the same institution many a times deals in both types of funds i.e short term funds as
well as long term funds.
Capital market Money market
1. It provides finance capital for long term invesment. 1.It providesfinance/moneycapital for short term invesment.
2. The finance provided by the capital market may be used both for fixed working 2.The finance provided by money market is utilised usually for working capital.
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capital.
3. Mobilisation of resources and effective utilisation of position 3.Lending and borrowing are its principal functions to facilitate adjustment of
liquidity
4.It's oneofthe constituents stock exchange acts as an
invesment market for buyers and sellers of sceurities.
4.It doesnot provide such facilities.The main components include called loan
market, Bill
market and acceptance houses
5. It acts as a middleman between the investors and the entrepreneur. 5.It acts as a link between the depositer and the borrower.
6. Underwriting in one of its primary activities. 6.Underwriting in a secondary function
7. It's invesments institutions raise capital from others for their short term funds. 7.It provides outlets to commercial banks,business corporation,non-bank financial
concerns and publicand investin selected sceurities so as to give
the
highest possible return with the lowest risk.
8. It provides long term funds to central and state of exchange etc. 8.It provides short term funds to goverment by purchasing treasury bills andto
others by
discounting bills

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Ans:-A financial instruments is a claim ,against a person or an institution for the payment of a sum of money and/or a period payment in the form of interest or
dividend , at a specified future date. It promotes development of innovative financial products suited to the investment requirement of heterogeneous investors.

Financial securities may be classified under two broad categories:-
1.Primary securities:These are termed as "direct securities" as these are issued directly by the ultimate borrowers of funds to the ultimate savers or investors.
Primary Securities include, equity shares , preference shares and debentures.
2.Secondary securities:- These Securities are also termed as indirect securities as these are not issues directly by the ultimate borrowers, rather, these are
issued by financial intermediaries to ultimate savers. Insurance policies, units of mutual funds , bank deposits etc are the example of secondary securities.
There has been tremendous growth in new financial instruments since 1990's , issued by both the corporate and financial institutions.The following are
some of the new innovative financial instruments devised for raising funds:
Equity warrants, Secured. Premium notes, Conavle band, Floating/Nariable or Adjustable .Rate bonds , Deep Discount Bonds(DDBs) , Inflation .Adjusted Bonds
(IABs), Easy exit bond with a floating interest . Rate, Regular income bonds, Retirement bonds, Index bonds,Eneash bonds. Growth Bonds, Capital bonds etc.

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Ans:-The term financial services can be defined as 'activities' benefits and satisfaction, connected with the scale of money, that offer to users and consumers ,
financial related value.Financial service organisations render services to industrial enterprises and to ultimate consumers markets, within the financial services
industry the main sectors are banks, financial institution and non-banking financial companies.
Financial services provided by various various financial institution , commercial banks and merchant bankers are broadly classifies into two categories.
!)Asset based / fund based services: asset based services include equipment leasing / Finance , hire purchase and consumer credit, bill discounting etc.
!!)Free based/ advisory services: Free basedservices include issue management , portfolio management , corporate counseling loan syndication , merger and
acquisition, credit rating etc.
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