Introduction to Financial

Markets
Financial markets are essential hubs where various financial instruments,
such as stocks, bonds, derivatives, and currencies, are traded. These markets
play a vital role in facilitating the flow of capital and investment, connecting
borrowers who need funding with lenders who have surplus funds to invest.

1 Efficient Capital Allocation 2 Price Discovery

Financial markets allow for the Through the interaction of supply
efficient allocation of capital, and demand, financial markets help
directing funds from savers to determine the fair prices of financial
borrowers who can put them to assets, which in turn guides
productive use, such as businesses investment decisions and the
seeking to expand or individuals efficient allocation of resources.
looking to make investments.

3 Risk Management
Financial markets provide tools and instruments, such as derivatives, that allow
individuals and businesses to manage and mitigate various types of financial risks,
such as market, credit, and liquidity risks.

By understanding the role and function of financial markets, individuals and businesses
can make informed decisions, manage their financial resources effectively, and
contribute to the overall economic growth and development.
 Types of Financial Markets
Financial markets can be categorized into different types, each serving a distinct purpose within the financial system.

1 Equity Markets 2 Debt Markets 3 Derivative Markets

Equity markets involve the trading Debt markets focus on the trading Derivative markets deal with
of stocks, representing ownership in of bonds, representing loans contracts whose value is derived
companies. extended by investors to borrowers. from an underlying asset, like stocks
or commodities.

4 Foreign Exchange Markets 5 Commodity Markets 6 Money Markets

Foreign exchange markets facilitate Commodity markets involve the Money markets facilitate short-term
the exchange of currencies, allowing trading of raw materials like oil, lending and borrowing, typically
businesses and individuals to gold, and agricultural products. involving instruments with
conduct transactions in different maturities less than a year.
currencies.

7 Capital Markets
Capital markets are where long-term investments are traded, including stocks and bonds.
Types of Equity Markets
Equity markets can be classified into several main types:

1 Primary Market
Where new stocks are issued and sold to investors for the first time, such as
during an IPO (Initial Public Offering).

2 Secondary Market
Where existing stocks are traded between investors, such as on a stock exchange
like the NYSE or Nasdaq.

3 Over-the-Counter (OTC) Market

A decentralized market where stocks are traded directly between parties, without
a central exchange.

4 Dealer Market
A market where dealers act as intermediaries, buying and selling stocks from
their own inventory.

Each type of equity market serves an important role in facilitating the flow of capital
and enabling investors to buy, sell and trade stocks.
 Stock Exchanges Around the World

India Global Exchanges

The two main stock exchanges in India are: Some of the largest and most influential stock exchanges around the world inc

1 Bombay Stock Exchange (BSE) 1 New York Stock Exchange (NYSE)

The BSE is the oldest stock exchange in Asia, established in 1875. The NYSE is the largest stock exchange in the world by market
It is one of the largest exchanges in the world by market capitalization. It is located in New York City and is the primary
capitalization. exchange for trading U.S. stocks.

2 National Stock Exchange (NSE) 2 NASDAQ

The NSE is the largest stock exchange in India by market The NASDAQ is an electronic exchange based in the United States
capitalization and trading volume. It was established in 1992 and that specializes in trading stocks of technology companies and
has become a leading exchange in the region. other high-growth industries.

3 London Stock Exchange (LSE)

These exchanges trade stocks, bonds, and derivatives of major Indian
companies and are important financial hubs in the region. The LSE is the largest stock exchange in Europe by market
capitalization. It is located in London and trades stocks of
companies from the UK and around the world.

4 Tokyo Stock Exchange (TSE)

The TSE is the largest stock exchange in Asia by market

capitalization. It is located in Tokyo and is the primary exchange for
trading Japanese stocks.
These global exchanges provide platforms for trading securities of public
companies from around the world.
 Key Stock Indices Around the World

Indian Stock Indices Global Stock Indices

1 Sensex (S&P BSE 30) 1 S&P 500 (United States)

The Sensex is the benchmark index of the Bombay Stock The S&P 500 is a stock market index that tracks the performance
Exchange (BSE). It tracks the performance of 30 of the largest and of the 500 largest U.S. publicly traded companies.
most liquid Indian companies.

2 Nifty 50 2 NASDAQ Composite (United States)

The Nifty 50 is the flagship index of the National Stock Exchange The NASDAQ Composite is a stock market index that includes over
(NSE). It represents the 50 largest and most liquid Indian 3,000 stocks listed on the NASDAQ stock exchange.
companies.

3 BankNifty 3 FTSE 100 (United Kingdom)

The BankNifty is an index that tracks the performance of the top The FTSE 100 is a stock market index that tracks the performance
15 listed banks and financial institutions in India on the National of the 100 largest companies listed on the London Stock
Stock Exchange (NSE). Exchange.

4 Nikkei 225 (Japan)

These are the leading benchmark indices that track the performance of
the major publicly traded companies on the Bombay Stock Exchange The Nikkei 225 is a stock market index for the Tokyo Stock
(BSE) and National Stock Exchange (NSE) in India. Exchange, representing the 225 largest publicly traded Japanese
companies.
These are some of the most widely followed indices that represent the
stock market performance in major economies around the world.
Debt Markets
Debt markets enable borrowers to raise funds by issuing bonds to investors,
who lend money in exchange for interest payments. There are several key
types of debt instruments:

Government Bonds Corporate Bonds

Bonds issued by national Bonds issued by companies,
governments, often considered offering higher potential returns
relatively safe investments due to but also higher risk as they are
the stability and creditworthiness subject to the financial health
of the issuing entity. and performance of the issuing
corporation.

Municipal Bonds
Bonds issued by state and local governments, often providing tax-exempt
interest payments to investors.

Each type of debt instrument has unique characteristics in terms of risk,

return, and purpose, allowing investors to diversify their portfolios and meet
specific financial goals.
Advantages and Disadvantages of Debt
Markets
Debt markets, where bonds and other fixed-income securities are traded, offer both benefits and drawbacks for investors and issuers:

Advantages of Debt Markets Disadvantages of Debt Markets

1 Steady Income 1 Lower Returns

Debt securities like bonds provide a steady stream of interest The fixed nature of debt securities means investors may miss out
payments to investors. on higher potential returns from equities.

2 Lower Risk 2 Interest Rate Risk

Debt investments are generally less risky than equities, making Bond prices can fluctuate as interest rates change, exposing
them suitable for more conservative investors. investors to market risk.

3 Diversification 3 Default Risk

Debt markets allow investors to diversify their portfolios beyond just stocks. There is always the risk that the bond issuer may default, leading
to potential losses.

Understanding both the pros and cons of debt markets is crucial for making informed investment decisions.
Derivative Markets
Derivative markets deal with contracts whose value is derived from an
underlying asset, allowing investors to manage risk or speculate on price
movements.

Futures
Agreements to buy or sell an asset at a predetermined price and date

Options
Contracts that give the holder the right, but not the
obligation, to buy or sell an asset at a specific price.

Swaps
Agreements to exchange cash flows based on a specific
underlying asset or interest rate.
Foreign Exchange Markets
Foreign exchange markets facilitate the exchange of currencies, enabling businesses and individuals to conduct transactions in different curre

Spot Market Immediate exchange of currencies at the current market rate.

Forward Market Agreements to exchange currencies at a predetermined rate

in the future.

Futures Market Standardized contracts for exchanging currencies at a specific

price and date.

Options Market Contracts that give the holder the right, but not the obligation,
to buy or sell a currency at a specific rate.
Commodity Markets
Commodity markets involve the trading of raw materials, like oil, gold, and
agricultural products, providing a platform for price discovery and risk
management.

Energy
Crude oil, natural gas, and refined petroleum products.

Precious Metals
Gold, silver, platinum, and palladium.

Agriculture
Grains, soybeans, coffee, and sugar.
Advantages and Disadvantages of
Commodity Markets
Commodity markets offer investors a way to diversify their portfolios and
hedge against inflation. However, they can be volatile and subject to
external factors like weather conditions and geopolitical events.

Advantages Disadvantages

• Diversification: Commodity • High Volatility: Commodity

prices often move prices can be highly volatile,
independently from stocks subject to sudden and
and bonds, providing portfolio significant price swings.
• Exposure to External Factors:
• diversification.
Inflation Hedge: Commodity
Commodity prices are
prices tend to rise with
influenced by factors outside of
inflation, making them a
an investor's control, such as
useful hedge against rising
• Access weather, geopolitics, and supply
prices. to Global Markets:
Commodity markets allow • and demand.Commodity markets
Complexity:
investors to gain exposure to can be complex, with specialized
global economic trends and knowledge and tools required to
events. navigate them effectively.
Money Markets
Money markets are a crucial component of the financial system, facilitating
short-term lending and borrowing between various entities such as
governments, corporations, and financial institutions. These markets play a
vital role in providing liquidity, managing cash flow, and supporting the
broader economy.
Treasury Bills
1
Treasury bills are short-term debt securities issued by the
government, typically with maturities ranging from a few days to
one year. They are considered one of the safest money market
instruments, as they are backed by the full faith and credit of the
government.

2 Commercial Paper
Commercial paper refers to unsecured short-term debt issued by
corporations to meet their immediate financing needs, such as
funding working capital or covering temporary cash flow gaps.
These instruments are generally considered low-risk, as they are
issued by large, creditworthy companies.

3 Repurchase Agreements
Repurchase agreements, or "repos," are short-term collateralized
loans where one party sells securities (often government bonds)
to another party with an agreement to buy them back at a slightly
higher price at a later date.
 Capital Markets
Capital markets play a crucial role in facilitating long-term investments and enabling companies, governments, and other entities to raise funds for
growth, expansion, and development. These markets connect providers of capital, such as investors, with those seeking capital, such as businesses
and governments.

Stocks Bonds
Bonds are debt securities that represent loans made to borrowers, such as
Stocks, also known as equities, represent ownership shares in a company.
governments or corporations. Bondholders receive fixed interest payments at
They offer investors the potential for capital appreciation as the company's
regular intervals and the return of the principal amount at the bond's maturity
value grows, as well as the opportunity to earn dividends, which are a
date. Bonds are generally considered less risky than stocks but offer lower
portion of the company's profits.
potential returns.
Together, the stock and bond markets form the core of the capital markets, enabling the efficient allocation of long-term capital to support economic
growth and development. Investors can participate in these markets to diversify their portfolios, generate returns, and achieve their financial goals.
Difference Between Capital and
Money Markets
Characteristic Capital Markets Money Markets

Investment Horizon Long-term (1 year or more) Short-term (less than 1 year)

Instruments Stocks, bonds, mutual funds Treasury bills, commercial

paper, certificates of
deposit
Liquidity Lower liquidity Higher liquidity

Risk Higher risk Lower risk

Return Higher potential returns Lower potential returns

Purpose Raising long-term capital Providing short-term

for growth and expansion funding for daily
operations and liquidity
management
Understanding the key differences between capital and money markets is crucial for
investors to make informed decisions, manage risk, and achieve their financial goals.
Conclusion and Key
Takeaways
Financial markets play a vital role in the global economy, connecting savers and
investors, enabling the flow of capital, and fueling economic growth and development.
As we've explored, there are many different types of financial markets, each serving
unique functions and offering opportunities and risks for participants.

Key Takeaways

1 Diversity of Markets 2 Price Discovery

Financial markets encompass a wide Markets facilitate the efficient
range of asset classes, including pricing of assets based on supply,
equities, debt, derivatives, demand, and other market forces.
currencies, and commodities.

3 Capital Allocation
Markets channel funds from savers to borrowers, enabling investment and economic expansion.

In conclusion, financial markets are the lifeblood of the modern economy, and a
comprehensive understanding of their structure and dynamics is essential for achieving
financial success and contributing to sustainable economic growth.
Created and Presented By -
Abhishek Goel (231060)

Kartikey Gupta (231026)

Vishisht Gulla (231091)