Tamilnadu Samacheer Kalvi 12th Commerce Notes Chapter 4 Introduction to Financial Markets Notes
→ Business firms need large funds to undertaken desired project.
→ Governments need funds to provide goods and services to the people.
→ Financial market facilitates business firms as well as governments to raise the needed funds by issuing and selling different instruments.
→ Financial market also helps investors to facilitate them to invest surplus funds and earn a return.
→ Government and the financial institutions can get financial assistance in terms of both short term finance and long term finance.
→ The Indian financial system can be broadly classified into organized sector and unorganized sector.
→ Organized sector consist of Regulators, Financial Institutions, Financial Markets and Financial Services.
→ The unorganized sector consists of Money Lenders, Indigenous Bankers, etc.
→ The financial system facilitates the flow of funds from the suppliers to the users.
→ A market wherein financial instruments such as financial claims, assets and securities are traded is known as a‘financial market’.
→ It is a market for creation and exchange of financial assets from household savers to business firms or financial institutions.
→ Financial market transactions may take place either at a specific place or location, e.g. stock exchange, or through other mechanisms such as telephone, telex, or other electronic media.
→ The financial market provides financial assistance to individuals, agricultural sectors, industrial sectors, service sectors, financial institutions like banks, insurance sectors, provident funds and the government as a whole.
→ Debt Market is the financial market for trading in Debt Instrument.
→ Equity Market is the financial market for trading in Equity Shares of Companies.
→ Money Market is the market for short term financial claim (usually one year or less). E.g. Treasury Bills, Commercial Paper, Certificates of Deposit.
→ Capital Market is the market for long term financial claim (more than a year) E.g. Shares, Debentures.
→ Primary Market includes all the institutions that are involved in the sale of securities for the first time by the issuers (companies).
→ Secondary Market is the market for securities that are already issued.
→ Cash/Spot Market is a market where the delivery of the financial instrument and payment of cash occurs immediately, i.e., settlement is completed immediately.
→ Forward or Futures Market is a market where the delivery of asset and payment of cash takes place at a pre-determined time frame in future.
→ Exchange Traded Market is a centralized organization (stock exchange) with standardized procedures.
→ Over-the-Counter Market is a decentralized market (outside the stock exchange) with customized procedures.
→ One market may come under more than one category.
→ The intermediary functions of a financial market include: Transfer of Resources, Enhancing Income, Productive Usage, Capital Formation, Price Determination, Sale Mechanism and Information.
→ The financial functions of a financial market include: providing the borrowers with funds, providing the lenders with earning assets, and providing liquidity in the market so as to facilitate trading of funds.
→ Financial assets can be classified into: (i) Marketable assets (ii) Non-marketable assets
→ Marketable assets are those which can be easily transferred from one person to another without much hindrance.
→ Non-marketable assets are the ones which cannot be transferred easily.