FINANCIAL MARKET

1. FINANCIAL MARKET

2. We have different options to channelize our savings. Banks Financial Markets

3. Banks - A bank is a financial institution and a financial intermediary that accepts deposits and channelize those deposits into lending activities either directly or through capital markets. Financial Market - A financial market is a market where financial assets are bought or sold. Financial Assets are Shares, Debentures and Bonds etc.

4. SAVERS CONCEPT OF FINANCIAL MARKET FINANCIAL MARKETS INVESTORS Household Business Firms

5. Functions of Financial Markets Mobilization of savings and channelizing them into most productive use. Facilitates price discovery. Provide liquidity to financial assets. Reduce cost of transaction.

6. Classification of Financial Markets Unorganized Market Organized Market Capital Market Money Market Certificates of Deposits Call Money Commercial Bills Treasury Bills Industrial Securities Govt. Securities Long-term Loans Primary Market Secondary Market

7. Money Market –Money Market is the market where transactions are made forShort term securities. • Features of money market • Short term market • High safety • High liquidity • Fewer investors

8. Meaning It is a market for short term funds which deals in monetary assets whose period of maturity is up to one year. In it short term debt instruments that are highly liquid are issued and traded actively everyday. Money market securities are usually sold in large denominations . They have low default risk They mature in one year or less from their issue date

9. Participants Reserve Bank of India Commercial Banks Non-Banking Finance Companies State Governments Large Corporation Houses Mutual Funds.

10. Treasury Bill It is an instrument of short-term borrowing by the Government of India maturing in not less than one year.They are issued by RBI on behalf of the Central Government to meet its short-term requirements.They are issued at a price which is lower than their face value and repaid at par.They are issued for a period of 14 to 364 days.

11. Commercial Paper It is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period i.e. 15 days to one year. It is an alternative to bank borrowing for large companies that are generally considered to be financially strong. It is sold at discount and redeemed at par.

12. Ca l l Money It is a short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid On call money loans is known as the call rate.

13. Commercial Paper A commercial bill is a bill of exchange used to finance the working capital requirements of business firm. It is a short- term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. The seller (drawer) of the goods draws the bill and the buyer (drawee) accepts the bill. On being accepted, it becomes a marketable instrument and is called a trade bills. These bills can be discounted with a bank if the seller needs funds before the bill matures.

14. INSTRUMENTS OF MONEY MARKET • Call Money –call money is short term finance used for inter –bank • Transactions with maturity period of one to fifteen days . • Commercial Bills –The holder of a trade bill has the liberty to retain • Till the date of maturity or they can discount these bills with bank, • If they are in need of funds, before the maturity date of these bills. • When Trade bills are accepted by the commercial banks ,they are • known as Commercial bills. • Treasury bills-T-bills are instruments for short term borrowing issued by Govt. of India .Their maturity is less than one year. They are freely transferable. These are issued by RBI on behalf of central govt. • Certificate of deposit- It refers to short term instruments issued by • Commercial to the individual ,corporation and companies.

15. Types of Capital Market – a)Primary Market-It is a new issue market . b) Secondary Market It deals with the purchase and sale of existing securities.

16. Capital Market • Long Term Funds • Raised by • Government • Corporates • Trading Instruments used • Shares • Debts • Derivatives • Units of Mutual Funds

17. Debt Market • Debt • Contract • One Party lends to another Party • Predetermined • Interest Rates and Term • Participants • Banks • Financial Institutions • Mutual Funds • Insurance Companies etc. • Instruments • Government Securities (G-Secs) • Public Sector Units Bonds • Corporate Securities

18. Stock and Shares • Stock • Capital raised by corporations • Through issue and distribution of shares • Share • Signifies ownership in the company • A company might have thousands of Shareholders • Which company issued shares for the first time in the world??? • The Dutch East India Company in 1602

19. Primary vs. Secondary Markets • Primary Markets • Newly issued securities sold by the issuer (e.g., a company sells bonds to pay for a manufacturing plant) • Usually no commission to buyer (seller pays full commission) • Secondary Markets • Issuer not involved, all trades between investors

20. Primary Market It is a market for new securities issued. In the primary market the security is purchased directly from the issuer.

21. Features of Primary • Features Of Primary Market are:- • 1. This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM). • 2. In a primary issue, the securities are issued by the company directly to investors. • 3. The company receives the money and issue new security certificates to the investors. • 4. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. • 5. The primary market performs the crucial function of facilitating capital formation in the economy. • 6. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as ‘going public’.

22. Methods of issuing securities in the Primary Market 1. Private Placement of Shares 2. Initial Public Offer; 3. Rights Issue; 4. Preferential Issue. 5. e.Ipo

23. Private Placement of Shares Raising of capital via private organizations rather than public placement. The result is the sale of securities to a relatively small number of investors. The examples of the private placement are: shares of Cyberspace Infosys are privately placed to the UTI, GIC and LIC.

24. Initial Public Offer • When a company issues common stock to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. • In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. • IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

25. Right Issue of Shares When a company gives the right to an existing share holder to buy a specified number of new shares from the firm at a specified price, within a specified time period. A right issue, is offered to all existing shareholders. Rights are often transferable, allowing the holder to sell them on the open market.

26. Preferential Issue • Preference shares, is typically a higher ranking stock than voting shares, and its terms are negotiated between the corporation and the investor. • Preferred stock usually carry no voting rights but may carry superior priority over common stock in the payment of dividends and upon liquidation. Preferred stock may carry a dividend that is paid out prior to any dividends to common stock holders. Preferred stock may have a convertibility feature into common stock. Preferred stockholders will be paid out in assets before common stockholders and after debt holders in bankruptcy. Terms of the preferred stock are stated in a "Certificate of Designation".

27. E-IPO A company can also issue capital to public through the online system of the stock exchange. The appointment of various intermediaries by the issuer includes a prerequisite that such members/registrars have the required facilities to accommodate such an online issue process.

28. Stock Exchange • Place where the shares are traded • BSE • NSE • BSE – Bombay Stock Exchange • Oldest Stock Exchange in Asia • Sensex – Sensitive Index • Index of 30 Actively traded Companies • NSE – National Stock Exchange • Incorporated in 1992 • Nifty • Index of 50 Actively traded Companies

29. Other exchanges • Regional Stock Exchanges • Ahmedabad Stock Exchange • Calcutta Stock Exchange • Over the counter market (OTC) • OTCEI

30. GOI MinistryofFinance GOI Deptof Co. Affairs SEBI RBI Registrar of Companies Stock Exchanges Clearing Corporations Depositories Mutual Funds Banks Companies Broker Dealers Merchant Bankers Depository Participants Registrar & Transfer Agents Primary Dealers Structure of Indian Financial System:

31. WHAT IS STOCK MARKET • STOCK MARKET IS A PLACE WHERE SECURITIES-SHARES,DEBENTURES,BONDS ARE TRADED • STOCK MARKET HAS TWO BASIC ELEMENTS • 1.CORPORATE/ COMPANY NEED - FOR FUNDS • 2.INVESTOR NEED - TO GAIN PROFITS • STOCK INVESTMENTS ARE MADE IN • 1.COMPANY SHARES • 2.OTHER SECURITIES • 3.DERIVATIVES

32. MECHANISM OF STOCK MARKET • STOCKS ARE LISTED & TRADED ON -- STOCK EXCHANGES • STOCK EXCHANGES ARE SPECIALIZED ENTITIES,WHICH TRANSPARENTLY BRINGS BUYERS & SELLERS TOGETHER • EXAMPLES: • 1.UNITED STATES OF AMERICA - NYSE,NASDAQ • 2.EUROPE - LONDON STOCK EXCHANGE ETC. • 3.INDIA - NSE,BSE AND REGIONAL EXCHANGES • ACTUAL TRADES ARE BASED ON ---- AUCTION MARKET PARADIGM

33. TRADING • TRADING IS EXCHANGE OF SECURITIES BETWEEN BUYERS AND SELLERS • BUYERS ---- BID X PRICE • SELLERS---- ASKS Y PRICE • WHEN X=Y ---- SALE ON MATCHING PRICE ON FIRST COME FIRST SERVE BASIS • ORDERS ARE EXECUTED THROUGH A PROFESSIONAL AT STOCK EXCHANGE __ (BROKER) • BROKERS ARE REGISTERD TO OPERATE ON STOCK EXCHANGES • REGISTRATION PROCESS INVOLVES VARIOUS CRITERIA LIKE FINANCIAL STRENGTH & TRACK RECORD ETC. • BROKERS REFER THEIR REG. NO. ALONGWITH REGULATORY AUTH. NO. --LIKE S.E.B.I. NO.ETC. TO BUYERS.

34. STOCK EXCHANGE

35. STOCK EXCHANGES The word ‘ stock’ means fraction of the capital of the company and the word ‘exchange’ means a place for purchasing and selling something. That means stock exchange is a market where there is a trading in stock of different companies.

36. The securities contracts act , 1956 has defined stock exchange as on association , organisation or body of individuals ,where incorporated or not , established for the purpose of assisting ,regulating and controlling business in buying , selling and dealing in securities.

37. OBJECTIVES AND FUNCTIONS OF STOCK EXCHANGE • Ready Market :Stock exchange provides ready and continuous market where investors can convert their money into securities and securities into money easily and quickly. • Evaluation of Securities : Stock exchange helps in determining the prices of various securities that reflect their real worth.

38. Protection of Investors :Stock exchange ensures fair dealings and safety of funds due to government control of the working of stock exchanges. • Mobilisation of savings: Stock exchange helps in mobilizing surplus funds of individuals and institutions by investment in securities . • Capital formation:Stock exchange not only mobilises the existing saving but also includes people to save and invest their money in industrial securities which yield higher return .

39. Economic barometer: Stock exchange is a very sensitive barometer of business conditions in the country . Price trends on the stock exchange reflect the economic climates in the country. • Regulations of company management: Stock exchange through its rules and regulations exercises control on the functioning of the company .

40. TRADING PROCEDURE ON STOCK EXCHANGE Till a few years ago trading on a stock exchange took place through a public outcry or auction system . This has been replaced by an online screen based electronic trading system as almost all exchange have become electronic. Trading has, therefore, shifted from the stock market floor to broker’s office where trades are executed through a computer .Broker’s are members of stock exchange through whom trading of securities is done. They are intermediaries between the buyers and sellers.

41. A company’s securities can be traded on a stock exchange only if they are listed or quoted on it . Company’s have to fulfill a stringent set of requirements to get their securities listed on stock exchange. This ensures that the interest of the shareholders is adequately looked after . Transactions on a stock exchange may be carried out on either cash basis or a carry over basis. The carry over basis is also called ‘badla’ and is a unique feature of Indian stock markets, particularly BSE.

42. NATIONAL STOCK EXCHANGE (NSE)

43. NATIONAL STOCK EXCHANGE OF INDIA The National Stock Exchange is the latest , most modern technology driven exchange. It was incorporated in 1992 and was recognized as a stock exchange in April 1993. It started operations in 1994 ,with trading as the whole sale debt market segment . Subsequently,it launched the capital market segment in November, 1994 as a trading platform for equities and the futures and options segment in June 2000 for various derivative instruments . NSE has set up on a nation -wide-fully automated screen based trading system.

44. Establishing the nationwide trading facility for all types of securities. Ensuring equal access to investors all over the country through an appropriate communication network. Providing a fair ,efficient and transparent securities market using electronic trading system . Enabling shorter settlement cycles and book entry settlements. Meeting international benchmarks and standards. OBJECTIVES OF NSE

46. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

47. SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) The securities and exchange board of India was established by the government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investors protection . It was to function under the over all administrative control of the Ministry of Finance of the Government of India.

48. The SEBI was given a statutory status on 30 January 1992 through an ordinance . The ordinance was later replaced by the Act of Parliament known as the Securities and Exchange board of India Act , 1992 .

49. SENSEX

50. SENSEX Sensex (Bombay Stock Exchange Sensitive Index) goes up and down all times and seems to be very important part of business and economic news. The SENSEX is the bench mark index of BSE. Since the BSE has been the leading exchange of the Indian Secondary Market, the Sensex has been an important indicator of the Indian Stock Market. It is most frequently used indicator while reporting on the state of the market.