Indian financial system - financial market
- 2. What is a Financial market? A market is a venue where goods and services are exchanged. A financial market is a place where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds.
- 3. 2-3 Function of Financial Markets 1. Allows transfers of funds from person or business without investment opportunities to one who has them 2. Improves economic efficiency
- 4. Funds Flow in Securities Market Employees and Employers Policy Holders Corporates Individual Surplus Units Pension Funds Insurance Companies Mutual Funds Banks FIIs Deficit Units
- 5. Regulation of Financial Markets RBI - All Banks & Currencies SEBI - Stock Market & Mutual Funds IRDA - Insurance Companies FMC - Commodity Market
- 6. Types of Financial Markets Capital Market Money Market Forex Market Equity Debt Retail Corporate Banks FI FIIs T-Bills Call Money, CP, CD Banks Corporate FI, FIIs Spots Forwards Banks Corporate FI, FIIs Commodities, Financial futures like Stocks Interest rate, currency, indices etc Banks, FIs Corporate Derivatives Market
- 7. Capital Market Capital Market is the market for long term finance with the maturity period more than one year. The Capital Market deals with the stock markets which provide financing through the issuance of shares or common stock in the primary market, and enable the subsequent trading in the secondary market.
- 8. Indian Capital Market Development Financial Institutions ◦ Industrial Finance Corporation of India (IFCI) ◦ State Finance Corporations (SFCs) ◦ Industrial Development Finance Corporation (IDFC) Financial Intermediaries ◦ Merchant Banks ◦ Mutual Funds ◦ Leasing Companies ◦ Venture Capital Companies
- 9. Types of capital market There are two types of capital market: Primary market, Secondary market
- 10. Primary Market It is that market in which shares, debentures and other securities are sold for the first time for collecting long- term capital. This market is concerned with new issues. Therefore, the primary market is also called NEW ISSUE MARKET.
- 11. Features of Primary Market It Is Related With New Issues It Has No Particular Place It Has Various Methods Of Float Capital: Following are the methods of raising capital in the primary market: i) Public Issue ii) Offer For Sale iii) Private Placement iv) Right Issue v) Electronic-Initial Public Offer It comes before Secondary Market
- 12. Secondary Market The secondary market is that market in which the buying and selling of the previously issued securities is done. The transactions of the secondary market are generally done through the medium of stock exchange. The chief purpose of the secondary market is to create liquidity in securities.
- 13. Cont If an individual has bought some security and he now wants to sell it, he can do so through the medium of stock exchange to sell or purchase through the medium of stock exchange requires the services of the broker presently, their are 24 stock exchange in India. .
- 14. Features of Secondary Market It Creates Liquidity It Comes After Primary Market It Has A Particular Place It Encourage New Investments
- 15. Capital market Investments in the Stock Market The stock market is basically the trading ground capital market investment in the following: i) Company’s stocks ii) Derivatives iii) Other securities The capital market investments in the stock market take place by: 1) Small individual stock investors 2) Large hedge fund traders. The capital market investments can occur either in: 1) The physical market by a method known as the open outcry.
- 16. Capital Market Investments in the Bond Market The bond market is a financial market where the participants buy and sell debt securities. The bond market is also differently known as the debt, credit or fixed income market. There are different types of bond markets based on the different types of bonds that are traded. They are: Corporate, Government and agency, Municipal, Bonds backed by mortgages & assets, Collateralized Debt Obligation.
- 17. Money Market The Money Markets are associated with the issuance and trading of short- term(less than a year). Investors in Money Market Instruments include corporations and FIs who have idle cash but are restricted to a short-term investment horizon. The Money Markets essentially serve to allocate the nation’s supply of liquid funds among major short-term lenders and borrowers
- 18. Money Market Organised (Call money market) Bill Market ◦ Treasury bills ◦ Commercial bills Bank loans (short-term) Organised money market comprises RBI, banks (commercial and co-operatives) Unorganised (money lenders, chit funds, etc.)
- 19. 19 The foreign exchange market is the mechanism by which participants: ◦ Transfer purchasing power between countries; ◦ Obtain or provide credit for international trade transactions, and ◦ Minimize exposure to the risks of exchange rate changes. Forex Market
- 20. 20 A Spot transaction in the interbank market is the purchase of foreign exchange, with delivery and payment between banks to take place, normally, on the second following business day. The date of settlement is referred to as the value date. Forward exchange rates are usually quoted for value dates of one, two, three, six and twelve months. Buying Forward and Selling Forward describe the same transaction (the only difference is the order in which currencies are referenced.) Types of Transactions
- 21. 21 A swap transaction in the interbank market is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. Both purchase and sale are conducted with the same counterparty. Some different types of swaps are: ◦ spot against forward, ◦ forward-forward, ◦ nondeliverable forwards (NDF). Types of Transactions