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OVERVIEW OF
THE STRUCTURE AND SIGNIFICANCE OF FINANCIAL MARKETS IN INDIA 1
COVERED MONEY MARKET.ITS COMPONENT AND SIGNIFICANCE
FINANCIAL SERVICES AND MARKET
COVERED MONEY MARKET.ITS COMPONENT AND SIGNIFICANCE
FINANCIAL SERVICES AND MARKET
SECTION A
1. GIVE AN
OVERVIEW OF THE STRUCTURE AND SIGNIFICANCE OF FINANCIAL MARKETS IN INDIA
2. DISCUSS ABOUT
THE AGENCIES ASSOCIATED WITH THE ACTIVITIES OF NEW ISSUE MARKET IN INDIA
3. WHAT DO YOU
MEAN BY CAPITAL MARKET? OUTLINE THE COMPONENTS OF CAPITAL MARKET
4. EXPLAIN THE
DIFFERENT TYPES OF FACTORING? WHAT ARE THE LEGAL ASPECTS OF FACTORING?
SECTION B
1. DISCUSS THE
ROLE AND FUNCTIONS OF MERCHANT BANKING?
2. STATE THE
DISTINGUISHING FEATURES OF VENTURE CAPITAL FUND IN INDIA?
3. EXPLAIN THE
FUNCTIONS OF CREDIT RATING AGENCIES IN INDIA?
4. WHAT ARE THE
SEBI GUIDELINES RELATING TO MUTUAL FUNDS IN INDIA? EXPLAIN
.
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GIVE AN OVER VIEW OF THE STRUCTURE AND
SIGNIFICANCE OF FINANCIAL MARKETS IN INDIA
qANSWER HAS TO
BE GIVEN IN 35 MINUTES
qTHE PATTERN
OF ATTEMPTING THE QUESTION IS GIVEN BELOW
1. MEANING OF
FINANCIAL MARKET
2. CONSTITUENT
OF FINANCIAL MARKET
3. MEANING OF
MONEY MARKET
4. FEATURES
5. COMPONENTS (
VERY BRIEF)
6. MEANING OF
CAPITAL MARKET
7. COMPONENT OF
CAPITAL MARKET( VERY BRIEF)
8. FOREIGN EXCHANGE MARKET
9. SIGNIFICANCE
OF FINANCIAL MARKET
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MEANING OF
FINANCIAL MARKETS
§NOT SPECIFIC PLACE OR LOCATION
§WHENEVER A FINANCIAL TRANSACTION TAKES PLACE,IT
IS DEEMED TO HAVE TAKEN PLACE IN THE FINANCIAL MARKET
§FINANCIAL MARKETS CAN BE REFERRED AS TO THOSE CENTERS AND ARRANGEMENT WHICH FACILITATES BUYING AND SELLING OF FINANCIAL
ASSETS,CLAIMS AND SERVICES. SOMETIMES WE DO FIND THE EXISTENCE OF A SPECIFIC
PLACE OR LOCATION FOR A FINANCIAL MARKET IN CASE OF STOCK EXCHANGE.
§TRANSFERRING OF FUNDS FROM THE SURPLUS SECTOR
TO THE DEFICIT SECTOR IS THE MAIN FUNCTION OF FINANCIAL MARKET
§THE MARKET PARTICIPANTS ARE INVESTORS OR BUYERS
OF SECURITIES,BORROWERS OR SELLERS.,INTERMEDIARIES AND REGULATOR BODIES
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CONSTITUENTS OF FINANCIAL MARKET
1. UNORGANIZED MARKETS:-MONEY LENDERS,INDIGENOUS BANKERS,TRADERS ETC WHO LEND MONEY TO
PUBLIC.PRIVATE FINANCE COMPANIES AND CHIT FUND COMPANIES. RBI HAS TAKEN MANY
STEPS TO REGULATE THEM BUT NOT VERY SUCCESSFUL.
2. ORGANIZED
MARKETS: STANDARDIZED RULES AND REGULATIONS GOVERNING THEIR FINANCIAL DEALINGS.
SUBJECT TO STRICT SUPERVISION AND CONTROL BY THE RBI OR OTHER REGULATORY
BODIES.
a. MONEY MARKET
b. CAPITAL
MARKET
c.
FOREIGN EXCHANGE MARKET
·
MEANING OF
MONEY MARKET
IT IS A
MARKET FOR SHORT TERM LOANS OR FINANCIAL ASSETS. IT IS A MARKET FOR LENDING AND
BORROWING OF SHORT TERM FUNDS. IT DEALS WITH NEAR SUBSTITUTES FOR MONEY OR NEAR
MONEY LIKE TRADE BILLS, PROMISSORY NOTES ETC.
THE RBI
DEFINES MONEY MARKET AS “ A MARKET FOR SHORT TERM FINANCIAL ASSETS THAT ARE
CLOSE SUBSTITUTES FOR MONEY, FACILITATES THE EXCHANGE OF MONEY FOR NEW
FINANCIAL CLAIMS IN THE PRIMARY MARKET AND ALSO FOR FINANCIAL CLAIMS, ALREADY
ISSUED IN THE SECONDARY MARKET.
FEATURES
a. PURELY FOR
SHORT TERM FUNDS
b. DEALS WITH
FINANCIAL ASSETS HAVING A MATURITY PERIOD UP TO ONE YEAR.
c.
TRANSACTION MAY TAKE THROUGH PHONE AND ALSO
CONDUCTED WITH THE HELP OF BROKERS
d. COMPRISES OF
VARIOUS SUB MARKET EACH SPECIALIZING IN PARTICULAR TYPE OF FINANCING ,EG. CALL
MONEY MARKET, ACCEPTANCE MARKET AND BILL MARKET AND SO ON
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THE COMPONENTS OF MONEY MARKET ARE:-
- CENTRAL BANK
- COMMERCIAL BANK
- NON BANKING
FINANCIAL COMPANIES
- DISCOUNT HOUSE
AND ACCEPTANCE HOUSE
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OBJECTIVES OF
MONEY MARKET
1. OVERCOMING
SHORT TERM DEFICITS
2. TO ENABLE THE
CENTRAL BANK TO INFLUENCE AND REGULATE LIQUIDITY IN THE ECONOMY
3. PARKING PLACE
TO EMPLOY SHORT TERM SURPLUS FUNDS
4. QUICK ACCESS
TO SHORT TERM FUNDS AT REASONABLE COST
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REQUISITES OF WELL DEVELOPED MONEY MARKET
1. HIGHLY
ORGANIZED BANKING SYSTEM
2. PRESENCE OF A
CENTRAL BANK
3. AVAILABILITY
OF PROPER CREDIT INSTRUMENT
4. EXISTENCE OF
SUB MARKETS
5. AMPLE
RESOURCES
6. EXISTENCE OF
A SECONDARY MARKET
7. DEMAND AND
SUPPLY OF FUNDS
q IMPORTANCE
1. DEVELOPMENT
OF TRADE AND INDUSTRY
2. DEVELOPMENT
OF CAPITAL MARKET
3. SMOOTH
FUNCTIONING OF COMMERCIAL BANKS
4. EFFECTIVE
CONTROL BY CENTRAL BANK
5. FRAMING IN
SUITABLE MONETARY POLICY
6. NON
INFLATIONARY SOURCE OF FINANCE TO GOVERNMENT
q COMPOSITION
OF MONEY MARKET
MAIN SUB –
MARKET :-
1. CALL MONEY
MARKET
2. COMMERCIAL
BILL MARKET
3. ACCEPTANCE
MARKET
4. TREASURY BILL
MARKET
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CALL MONEY MARKET
REFERS TO THE
MARKET FOR EXTREMELY SHORT PERIOD LOANS
THESE LOANS
ARE REPAYABLE ON DEMAND AT THE OPTION OF EITHER THE LENDER OR BORROWER.
THESE LOANS
ARE GIVEN TO BROKERS AND DEALERS IN
STOCK EXCHANGE
THE
PARTICIPANTS IN THIS MARKET CAN BE CLASSIFIED INTO TWO CATEGORIES:-
1. THOSE
PERMITTED TO ACT AS BOTH LENDERS AND BORROWERS OF CALL LOANS
2. THOSE
PERMITTED TO ACT ONLY AS LENDERS IN THE MARKET
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OPERATIONS IN THE CALL MARKETS
§BORROWER AND
LENDER CONTACT THROUGH PHONE. IF THEY FINALIZE THE DEAL , THE LENDER ISSUES FBL
CHEQUE IN FAVOR OF THE BORROWER AND THEN BORROWER ISSUES CALL MONEY BORROWING
RECEIPT.
§CAN BE ROUTED
THROUGH DISCOUNT AND FINANCE HOUSE OF INDIA. ONCE THE DEAL IS CONFIRMED, DEAL
SETTLEMENT ADVICE IS EXCHANGED.
§IN CASE OF DFHI
BORROWS , ISSUES CALL DEPOSIT RECEIPT TO THE LENDER AND RECEIVES RBI CHEQUE
§THE DULY
DISCHARGED CALL DEPOSIT RECEIPT IS SURRENDERED AT THE TIME OF SETTLEMENT. CALL
LOANS CAN BE RENEWED UPTO A MAXIMUM PERIOD OF 14 DAYS ONLY.
qCOMMERCIAL
BILL MARKET
§ARISE OUT OF A GENUINE TRADE TRANSACTIONS,I.E.,
CREDIT TRANSACTION. WHEN THE GOODS ARE SOLD BY THE SELLER ON CREDIT , SELLER
DRAWS A BILL ON THE BUYER FOR THE AMOUNT DUE. THE BUYER ACCEPTS IT IMMEDIATELY
AGREEING TO PAY THE MENTIONED AMOUNT AT A CERTAIN SPECIFIED DATE.
§A BILL OF EXCHANGE CONTAINS A WRITTEN ORDER
FROM THE CREDITORS TO THE DEBTORS TO PAY A CERTAIN SUM TO A CERTAIN PERSON
AFTER A CERTAIN PERIOD.
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TYPES OF BILLS
1. DEMAND AND
USANCE BILLS
2. CLEAN BILLS
AND DOCUMENTARY BILLS
3. INLAND AND
FOREIGN BILLS
4. EXPORT BILLS
AND IMPORT BILLS
5. INDIGENOUS
BILLS
6. ACCOMMODATION
BILLS AND SUPPLY BILLS
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TREASURY BILL MARKET
§REPRESENT SHORT TERM BORROWINGS OF THE GOVT.
TREASURY BILL MARKET REFERS TO THE MARKET WHERE TREASURY BILLS ARE BOUGHT AND
SOLD.
§A TREASURY BILL IS NOTHING BUT A PROMISSORY
NOTE ISSUED BY THE GOVT UNDER DISCOUNT FOR A SPECIFIED PERIOD THEREIN.
§PURELY A FINANCE BILL BECAUSE IT DOES NOT ARISE
OUT OF ANY TRADE TRANSACTION. IT IS A
CLAIM AGAINST THE GOVERNMENT.
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TYPES OF TREASURY BILLS
1. ORDINARY OR
REGULAR
2. AD HOC
·
ORDINARY
TREASURY BILLS
o
ARE
ISSUED TO PUBLIC AND OTHER FINANCIAL INSTITUTIONS FOR MEETING THE SHORT
TERM FINANCIAL REQUIREMENTS OF CENTRAL GOVERNMENTS. THESE BILLS ARE FREELY
MARKETABLE AND ALSO THEY HAVE SECONDARY MARKET ALSO.
o
AD HOCS ARE ALWAYS ISSUED IN FAVOR OF THE RBI
ONLY. NOT SOLD THROUGH TENDER OR AUCTION. THEY ARE PURCHASED BY THE RBI AND RBI
IS AUTHORIZED TO ISSUE CURRENCY NOTES AGAINST THEM. THEY ARE NOT MARKETABLE IN
INDIA.
o
CLASSIFICATION ON THE BASIS OF
•
91 DAYS TREASURY BILLS ( CAN BE ISSUED AT A
FIXED DISCOUNT RATE OF 4% AS WELL AS THROUGH AUCTIONS)
•
182 DAYS TREASURY BILLS
•
364 DAYS TREASURY BILLS
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OPERATIONS AND PARTICIPANTS
§91 DAYS TREASURY BILLS AND THEY ARE ISSUED ON
TAP BASIS THROUGHOUT THE WEEK.
§364 DAYS TBS ARE SOLD THROUGH AUCTION WHICH IS
CONDUCTED ONCE IN A FORTNIGHT.
§THE DATE OF AUCTION AND THE LAST DATE OF
SUBMISSION OF TENDERS ARE NOTIFIED BY THE RBI THROUGH A PRESS RELEASE.
§INSTITUTIONAL INVESTORS LIKE COMMERCIAL BANKS,
DFHI,STCI, ETC, MAINTAIN A SUBSIDIARY GENERAL LEDGER ACCOUNT WITH RBI.
INVESTORS NOT HAVING SGL ACCOUNT CAN PURCHASE AND SELL TBS THROUGH DFHI
qMONEY MARKET INSTRUMENTS
THE
INSTRUMENTS ARE :-
1. TREASURY
BILLS
2. MONEY AT CALL
AND SHORT NOTICE IN THE CALL LOAN MARKET
3. COMMERCIAL
BILLS, AND PROMISSORY NOTES
§IN ADDITION TO THE ABOVE MENTIONED INSTRUMENTS
, THE FOLLOWING NEW INSTRUMENTS ARE AVAILABLE:-
a. COMMERCIAL
PAPERS
b. CERTIFICATE
OF DEPOSIT
c.
INTER BANK PARTICIPATION CERTIFICATES
d. REPO
INSTRUMENTS
q
DEFICIENCIES OF INDIAN MONEY MARKET
I.
EXISTENCE OF UNORGANIZED SECTOR
II.
ABSENCE OF INTEGRATION
III.
DIVERSITY IN MONEY RATES OF INTEREST
IV. SEASONAL STINGENCY OF FUNDS
V.
LIMITED PARTICIPANT
VI.
NO CONTACT WITH FOREIGN MONEY MARKET
VII.
LIMITED SECONDARY MARKET
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