ECONOMICS,COMMERCE AND MANAGEMENT: FINANCIAL MARKET

FINANCIAL MARKETS PART 1

REFERS TO INSTITUTIONAL ARRANGEMENT FOR DEALING IN FINANCIAL ASSETS AND CREDIT INSTRUMENTS
A FINANCIAL MARKET ACTS A LINK BETWEEN SAVERS AND BORROWERS
MONEY IS TRANSFERRED FROM SURPLUS UNITS OF SAVERS/LENDERS TO DEFICIT UNITS
TWO WAYS THROUGH WHICH FUNDS CAN BE COLLECTED
THROUGH BANKS
THROUGH FINANCIAL MARKETS

7. FINANCIAL MARKET IS A MARKET FOR CREATION AND EXCHANGE OF FINANCIAL ASSETS

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 CENTRES 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
FUNCTIONS OF FINANCIAL MARKETS
MOBILISATION OF SAVING AND CHANNELISING THEM INTO PRODUCTIVE USERS :TRANSFER OF SAVINGS FROM SAVERS TO INVESTORS. PROVIDE DIFFERENT INVESTMENT OPTIONS TO SAVERS WHICH HELPS THEM TO INVEST OR CHANNELIZE THEIR SURPLUS FUNDS INTO THE MOST PRODUCTIVE USES
FACILITATES PRICE DETERMINATION : PRICE IS DETERMINED ON THE BASIS OF DEMAND AND SUPPLY AND HOUSEHOLD SUPPLY THEIRS FUNDS IN THE FINANCIAL MARKET AND BUSINESS FIRMS MAKE DEMAND AND INTERACTION BETWEEN THE SAVERS AD BUSINESS FIRMS WILL HELP IN DETERMINATION OF THE PRICE OF SECURITIES IN THAT FINANCIAL MARKET
PROVIDE LIQUIDITY TO FINANCIAL ASSETS :LIQUIDITY TO FINANCIAL ASSETS THEY CAN EASILY BE CONVERTED INTO CASH AS WHEN REQUIRED
FUNCTIONS OF FINANCIAL MARKETS
REDUCE THE COST OF TRANSACTION : FULL INFORMATION ABOUT SECURITIES BEING TRADED TO THE BUYER AND SELLERS
TYPES OF FINANCIAL MARKET

TYPES OF FINANCIAL 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.
IT DEALS IN MONETARY ASSETS WHOSE PERIOD OF MATURITY IS UP TO ONE YEAR
FEATURES

PURELY FOR SHORT TERM FUNDS
DEALS WITH FINANCIAL ASSETS HAVING A MATURITY PERIOD UP TO ONE YEAR.
TRANSACTION MAY TAKE THROUGH PHONE AND ALSO CONDUCTED WITH THE HELP OF BROKERS
COMPRISES OF VARIOUS SUB MARKET EACH SPECIALIZING IN PARTICULAR TYPE OF FINANCING ,EG. CALL MONEY MARKET, ACCEPTANCE MARKET AND BILL MARKET AND SO ON

OVERCOMING SHORT TERM DEFICITS
TO ENABLE THE CENTRAL BANK TO INFLUENCE AND REGULATE LIQUIDITY IN THE ECONOMY
PARKING PLACE TO EMPLOY SHORT TERM SURPLUS FUNDS
QUICK ACCESS TO SHORT TERM FUNDS AT REASONABLE COST

TREASURY BILLS ( T BILLS) _-- IS A SHORT TERM INSTRUMENTS OF MONEY MARKET ISSUED BY RBI ON BEHALF OF INDIAN GOVERNMENT.
ISSUED TO MEET THE TEMPORARY NEEDS FOR FUND OF THE GOVERNMENT
TREASURY BILLS ARE AVAILABLE FOR A MINIMUM AMOUNT OF RS 25,000 AND IN MULTIPLES THEREOF
THESE ARE KNOWN AS ZERO COUPON BONDS SINCE THEY DO NOT PAY ANY INTEREST BUT THE ISSUE PRICE IS LESS THAN REDEMPTION PRICE. THE DIFFERENCE BETWEEN ISSUE PRICE IS LESS THAN REDEMPTION PRICE IS INTEREST RECEIVABLE ON IT.
IT IS HIGHLY LIQUID,HAS ASSURED RETURN AND NEGLIGIBLE RISK OF DEFAULT
TREASURY BILLS
REGULAR: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.
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.

UNSECURED INSTRUMENTS ISSUED ONLY BY LARGE AND CREDIT WORTHY COMPANIES
MATURITY PERIOD OF 15 DAYS TO ONE YEAR.
ISSUED TO RAISE SHORT TERM FUNDS AT LOWER RATES OF INTEREST THAN MARKET RATE
NEGOTIABLE AND TRANSFERABLE ENDORSEMENT
FUNDS RAISED THROUGH COMMERCIAL PAPER ARE USED TO FULFILL SEASONAL AND WORKING CAPITAL NEEDS
ISSUED AT DISCOUNT AND REDEEMED AT PAR
CAN BE ISSUED IN DENOMINATION OF RS 5 LACS OR MULTIPLES THEREOF
INDIVIDUALS,BANKING COMPANIES,OTHER CORPORATES BODIED ( REGISTERED OR INCORPORATED IN INDIA) AND UNINCORPORATED BODIES,NON RESIDENT INDIAN AND FOREIGN INSTITUTIONAL INVESTORS ( SUBJECT TO WITH IN THE LIMITS SET BY SEBI)
ALSO CALLED BRIDGE FINANCE
FOR EXAMPLE A COMPANY WANTS TO RAISE LONG TERM FUNDS AND FOR THIS PURPOSE IT WILL HAVE TO INCUR FLOATATION COSTS. THESE EXPENSES MAY BE MET THROUGH COMMERCIAL PAPER.

· CALL MONEY:

1. CALL MONEY IS SHORT TERM FINANCE USED FOR INTER BANK TRANSACTIONS

2. HAS MATURITY PERIOD VARYING FROM ONE DAY TO 15 DAYS

3. ALL THE COMMERCIAL BANKS ARE REQUIRED TO MAINTAIN CASH BALANCE WITH RBI KNOWN AS CRR ( CASH RESERVE RATIO)

4. CALL MONEY IS USED BY BANKS TO MAINTAIN CRR

5. THE INTEREST RATE PAID ON CALL MONEY IS KNOWN AS CALL RATES WHICH VARIES FREQUENTLY

6. INVERSE RELATIONSHIP BETWEEN CALL RATE AND DEMAND FOR CALL MONEY. RISE IN RATE WILL REDUCE THE DEMAND FOR CALL MONEY

CERTIFICATE OF DEPOSIT : IS A MONEY MARKET INSTRUMENT WHICH ISSUED IN DEMAT FORM

RBI ISSUES GUIDELINES FOR THE CD FROM TIME TO TIME
ONLY SCHEDULED COMMERCIAL BANKS/FINANCIAL INSTITUTIONS IN INDIA CAN ISSUE CERTIFICATE OF DEPOSIT
ISSUED TO INDIVIDUALS,COMPANIES,FUNDS AND CAN BE ISSUED TO NR ON NON REPATRIABLE BASIS
MATURITY PERIOD RANGE FROM 7 DAYS TO ONE YEAR
UNSECURED AND NEGOTIABLE

COMMERCIAL BILL

BILL OF EXCHANGE USED TO FINANCE CREDIT NEEDS OF THE REQUIREMENTS OF THE BUSINESS FIRMS
SHORT TERM,NEGOTIABLE INSTRUMENT WHICH IS USED TO FINANCE CREDIT SALES OF FIRM
WRITTEN ACKNOWLEDGEMENT OF THE DEBT WHERE THE SELLER DRAWS THE BILL AND BUYER ACCEPTS IT. AFTER ACCEPTANCE IT BECOMES A MARKETABLE INSTRUMENT AND CALLED TRADE BILLS
IN CASE THE SELLER WANTS FUNDS BEFORE MATURING OF THE BILL THEN IT COULD BE DISCOUNTED WITH THE BANK