1.Write about financial markets in india.
2.Define the terms:- capital market money market
FINANCIAL MARKETS IN INDIA:Financial markets:
A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, and precious metals. It is a broad term used for a Marketplace where trading of securities including equities bonds currencies and derivatives is done.
It plays a crucial role in allocating limited resources, in the country’s economy. It acts as an intermediary between the savers and investors by mobilising funds between them. Money market is a market for debt securities that pay off in the short term usually less than one year for example the market for 91 days treasury bills this market encompasses the trading and issuance of short-term non equity debt instruments including treasury bills commercial papers bankers acceptance certificate and deposits and many more.
The financial market provides a platform to the buyers and sellers, to meet, for trading assets at a price determined by the demand and supply forces. Capital market is a market for long term debt and equity shares in this market the capital funds comprising of both equity and debt issued and trade this is also includes private placement sources of debt and equity as well as organised market live stock exchanges.
☆ capital market in India:
The capital market provides the support to the system of capitalism of the country. The Securities and Exchange Board of India , along with the Reserve Bank of India are the two regulatory authority for Indian securities market, to protect investors and improve the microstructure of capital markets in India.
Capital market can be divided into primary and secondary markets:
A primary market issues new securities on an exchange for companies, governments, and other groups to obtain financing through debt-based or equity-based securities. Primary markets are facilitated by underwriting groups consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors. Corporations National and local governments and other public sector institution can get financing through the sale of new stock or bonds issued through the primary market but simply the primary market create new securities and offers them for sale to the public. Face value is the original cost of the security as shown in the certificate instrument most equity shares have a face value of Rupee 1 Rupee 5 rupee 10 for rupees hundred and do not have much bearing on the actual market price of the stock. When issuing securities they may be offered at a discount or at premium when the securities offered at a price higher than the face value it is called a premium when the securities offered at a price lower than the face value it is called a discount.
Other types of primary market offerings for stocks include private placement and preferential allotment. Private placement allows companies to sell directly to more significant investors such as hedge funds and banks without making shares publicly available. While preferential allotment offers shares to select investors at special price not available to the general public.
Following are the features of primary market:
- Primary issues are used by companies for the purpose of modernizing the existing business or opening new business, etc.
- The primary market are the markets for new long-term equity capital.
- The financial assets sold can only be redeemed buy the original holder.
- The new issue market doesn’t include certain other sources of new long term external finance ,such as loans from financial institution.
- The securities are issued by the company directly to the investors.
- The primary market perform the crucial function of capital formation in economy.
- Borrower in the the new issue market maybe racing capital for converting private capital into public capital.
☆ secondary market:
The secondary market refers to a market where securities are trade after being initially offered to the public in the primary market and all listed on the stock exchange.It is what most people typically think of as the “stock market,” though stocks are also sold on the primary market when they are first issued. secondary market comprises of equity market and the debt market .equity is the stock capital of a company. Debt consists of the loans taken by the business.
Though stocks are one of the most commonly traded securities, there are also other types of secondary markets. For example, investment banks and corporate and individual investors buy and sell mutual funds and bonds on secondary markets. For the general investors , the secondary market provides an efficient platform for trading of his securities .for the management of the company, secondary equity markets serve as a monitoring and control conduit by facilitating value enhancing control activities, enabling implementation of incentive based management and aggregating information that guides the management decisions.
Transactions that occur on the secondary market are termed secondary simply because they are one step removed from the transaction that originally created the securities in question. For example, a financial institution writes a mortgage for a consumer, creating the mortgage security. The bank can then sell it to Fannie Mae on the secondary market in a secondary transaction.
☆ difference between primary market and secondary market:
• In primary market securities are offered to public for subscription for the purpose of raising capital of fund but in secondary market is and equity trading Avenue in which already existing securities are trade among investors.
• primary market are also called as New Issue Market ,wheres secondary markets are called as After Issue Market .
• role of primary market is a Market where stocks are issued for the first time.whereas, secondary markets are Market where stocks are traded once issued.
• primary market intermediaries is Investment banks and secondary market intermediaries is Brokers..
• sale of securities in primary market is directed by Directly by companies to investors.and sale of securities in secondary markets is to Sold and purchased amongst investors and traders.
• prices of shares in primary markets is Fixed at per value,whereas in secondary markets prices of shares is to the Changes depending on the supply and demand of shares.