INDIAN FINANCIAL SYSTEM
TYPES OF FINANCIAL MARKETS
1. Money market – for short term funds. Upto 1 year. It refers to the network of financial institutions dealing in short term funds eg. treasury bills, commercial paper, govt bonds.
2. Capital market– for medium and long term. Provides facility for trading of securities such as shares, debentures, bonds. Primary market deals with new issues of securities. Secondary market for existing securities – called stock market or stock exchange.
3. Commodity market: Gold, crude oil and other products
4. Derivative market – future and options. Future price of a particular stock.
5. Foreign exchange markets
COMPONENTS OF SECURITIES MARKETS
1. Securities – stocks, bonds, derivatives, MF, debentures
2. Intermediaries- Brokers,sub-brokers,custodians, share transfer agents, depository participants (CDSL/NSDL), credit rating agencies, merchant bankers
3. Issuers – companies, govt, financial institutions, banks, MF.
4. Investors- individual, MF, FII, companies
5. Regulators- SEBI,RBI, department of economic affairs, department of company affairs
Stock exchanges – BSE and NSE in India. New York stock exchange and NASDAQ in USA.
Stock exchange SCRA 1956 act. Securities contract regulation act- stock exchange is any body of individuals constituted for purpose of assisting, regulating or controlling business of buying, selling or dealing in securities.
Equity / share– Total equity capital of company is divided into equal units of small denominations, each called a share.
Unlisted companies – you can get financial statement from registrar of companies.
Debt-one party lends money to other on pre determined terms with regards to rate and periodicity of interest, repayment of principal amount by borrower to lender.
There are 2 segments in debt
1. Govt-G-sec. dominant
2. Corporate securities markets- PSU, private sector,by govt or PSU- bond, by private corporate –called debenture
FEATURES OF DEBT MARKET.–
Maturity-due date for payment,
Method of raising debt – public or private
dated securities- issuer -central govt,maturity 2-30 yrs,
treasury bills- issuer-state govt, 14-364 days
state development loan – issuer- state govt, 5-10 yrs.
Structured bond- issuer –PSUs. 5-10 yrs.
Debenture bonds – issuer – corporate, maturity 1-12 yrs.
Commercial papers – issuer – corporates, maturity 15 days to 1 year.
Certificate of deposit – issuer banks, 3months to 1 year.
Challenges in debt market– illiquidity in secondary market, lack of transparency, high issuance cost
Bonds – fixed rate or floating rate
Debentures can be non convertible, partly convertible, fully convertible
MONEY MARKET – for less than 1 year, only by banks
Call money market
Notice money market. < 1 m
Term money market. 1m – 1 yr
Money market Instruments are – Commercial papers, certificate of deposit, inter corporate deposit, bankers acceptance, repurchase agreements