Presented By:Tanushree Patra

Financial Market

A financial market is a mechanism that allows people to buy and sell financial securities , commodities and other items of value at low transaction costs and at a prices that reflect supply and demand.

Securities include stocks, bonds, and commodities include precious metals and agricultural goods.

Financial Market

Financial Market

Capital Market

Primary Market

Secondary Market

Money Market

Money Market

Money market is a mechanism that deals with lending of short terms funds which is generally less than 1 year.

A segment of the financial market in which financial instrument with high liquidity and very short maturities are traded.

The main purpose of money market is to provide investors with a safe place to invest easily accessible, cash-equivalent assets.

Importance of Money Market

Financing Trade Financing Industry Profitable Investment Self sufficiency of commercial bank Help to Central Bank Encourage to Economic growth

Commercial paper

Treasury Bills

Money Market

Instruments

Certificate of

Deposits

Repurchase Agreement

Banker’s Acceptance

Instruments of Money Market

Treasury Bills ( T –Bills )

T – Bills are the most marketable money market securities.

These are issued with three month, six month and one year maturities.

T – Bills are purchased for a price that is less than their par value, when mature, the government pays the holder the full par value.

T – Bills are so popular among money market instruments because of affordability to the individual investors.

Commercial Paper

Commercial paper is a short term unsecured loan issued by large bank and corporation typically financing day to day operation.

CP is a very safe investment because the financial situation of a company can be easily be predicted over a few months.

Only company with high credit rating issues CP’s.

Interest rates fluctuate with market condition, but are typically lower than bank’s rates.

Certificates of Deposits

A Certificates of deposits is a time deposit, financial product commonly offered to consumers by banks.

Like most time deposit, funds can’t withdrawn before maturity without paying a penalty.

CD’s have specific maturity date, interest rate and it can be issued in any denomination.

The main advantage of CD is their safety.

It normally give higher return than Bank term deposit, and are rated by approved rating agencies.

Repurchase agreements

Repo or Reverse Repo are transactions or short term loans in which two parties agree to sell and purchase the same security.

These are usually very short term purchases agreement, from overnight to 30 days of more.

The short term maturity and government backing usually mean that Repos provide lenders with extremely low risk.

These transactions can be done only between the parties approved by RBI and in RBI approved securities.

Banker’s Acceptance

A banker’s acceptance is a short term credit investment created by a non – financial firm.

BA’s are guaranteed by a bank to make payment.

Acceptance are traded at discounts from face value in the secondary market.

It acts as a negotiable time draft for financing imports, exports or other transactions in goods.

Capital Market

Capital market refers to the institutional arrangements for facilitating the borrowing and lending of long term funds.

It’s a market place where investment instruments like bonds, equities mortgages are traded.

The primary role of this market is to make investments from investors who have surplus funds to the ones who are running a deficit.

Importance of Capital Market

Link between savers and investors Encouragement to savings Encouragement to Investments Promotes Economic Growth Stability in Security Prices Benefits to Investors

Types of Capital Market

Equity Shares Preference Shares Bond Debenture

Instruments of Capital Market

Equity Share

Equity shares are commonly referred to common stock or ordinary shares. The holders of these shares are the real owners of the company.

They have a voting right in the meetings of holders of the company. They have a control over the working of the company.

Equity shareholders are paid dividend after paying it to the preference shareholders. The rate of dividend depends upon the profits of the company.

The risk factor in this instrument is high and thus yields a higher return.

Preference Share

Preference shares are those shares which carry certain special or priority rights. Firstly, dividend at a fixed rate is payable on these shares before any dividend is paid on equity shares.

At the time of winding up of the company, capital is repaid to preference shareholders prior to the return of equity capital.

Preference shares do not carry voting rights.

Types of Preference share:a. Redeemable Preference shareb. Irredeemable Preference sharec. Convertible Preference shared. Non – Convertible Preference

Bonds

Bond is a long term debt instrument that promises to pay a fixed annual sum as interest for specified period of time.

Interest is usually payable at fixed intervals (semi annual, annual, monthly). The Interest rate is also know as coupon rate. Usually this rate is fixed through out the life of the bond.

Some of the types of bonds: Zero coupon bond, Fixed rate bond, Government bond, Convertible bond, Floating rate bond, etc.

Debenture

A debenture is a long term debt instrument or security issued by company. The company is liable to pay a specified amount with interest and although

the money raised by debentures becomes a part of the company’s capital structure.

The rate of debentures are fixed and known to Investors. Types of Debenture:

Convertible Debenture Non Convertible Debenture Secured Debenture Unsecured Debenture

Constituents of Stock Market

National Stock Exchange (NSE)

Bombay Stock Exchange (BSE)