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.

Samacheer Kalvi 12th Commerce Notes