FINANCIAL MARKET

IFBI

Objectives

In this session, you will learn to:

Understand markets and financial markets in particular.

IFBI

Physical markets
Where there is a buyer and seller
Where there is need and product to satisfy the need
Categorized into natural products and manufactured products
Where the producer can be a seller or selling activities are carried on by different
entities
Where value of the product is based on
Demand and supply
The need
Social parameters
Which requires a medium of exchange for settlement of the trade
Which requires additional services for delivery of the product or price.
Has location and physical constraints

IFBI

Financial markets
Deal with only one product- money and its variants.
Requires no medium of exchange as the product is the medium of exchange
value creation is mostly by time.
Products are given birth by way of legislation
Knowledge oriented
Personal qualities play an important role
Calls for regulation for fair market practices..
IFBI

Factors common to both physical and financial market

Requires participation by two parties- buyer and seller
Affected by the government policies
Buyer always pays and seller always receive the value.

IFBI

Financial markets

Money markets

Foreign exchange
market

Capital markets

 Money markets

Money market deals with debt securities that pay off in the short term usually less than one
year.

Involve trading and issuance of short term debt instruments including treasury bills,
commercial papers, bankers acceptance, certificates of deposits, etc.

IFBI

Capital markets

Capital market is a market for long-term funds

It deals with debt and equity shares.

Also invoves private placement sources of debt and equity

Capital market are categorised into two types:

Primary markets- brings funds to the issuer
Secondary market- an exit route to the subscriber of primary market instruments

Discussion points: Are the primary and secondary markets are

interrelated?
IFBI

Organized markets
Are regulated
Enables free and fair trades
Are supported by legal provisions.
Have provisions of risk management

IFBI

Regulators
SEBI
IRDA
RBI

Can you identify whom these regulators regulate?

How SEBI is organized? (next slide )

IFBI

Sr.
No.
.

Name of the Department

Major Activities

Market Intermediaries Registration and Supervision department (MIRSD)

Registration, supervision, compliance

monitoring and inspections of all
market intermediaries in respect of all
segments of the markets viz. equity,
equity derivatives, debt and debt
related derivatives.

Market Regulation Department (MRD)

Formulating new policies and

supervising the functioning and
operations (except relating to
derivatives) of securities exchanges,
their subsidiaries, and market
institutions such as Clearing and
settlement organizations and
Depositories (Collectively referred to
as Market SROs.)

Derivatives and New Products Departments (DNPD

Supervising trading at derivatives

segments of stock exchanges,
introducing new products to be traded,
and consequent policy changes

Products of financial markets

Ordinary equity
Preference equity
Debentures
Bonds
Government securities
Commercial paper
Treasury bills and many more..
IFBI

Example of a regulated market place

Stock exchanges

National stock exchange

Bombay stock exchange
Other regional stock exchanges

Presently BSE and NSE are demutualised exchanges where

operations are governed by a separate body and not by its
members.

Constituents of stock markets

Brokers
Sub brokers
Institutional investors
Retail investors
Depositories
Stock exchanges and its constituents.
IFBI

Consumers of financial markets

Are influenced by the social perception.
Consider personal traits of the seller as important.
Are possessive about money
Expect return based on time.

Consumers of the financial market,

Can be categorized into risk profiles.
Discuss- risk .
IFBI

Terminologies

GDP

Interest rates

Money supply
Securities
Derivatives
Inflation and interest rates
Foreign Trade
Currency
Foreign exchange
Derivatives

IFBI

Quiz

IFBI