'Unit-10 Financial Markets'
'Unit-10 Financial Markets'
FINANCIAL MARKETS
Households can deposit their surplus funds with banks, who in turn
could lend these funds to business firms. Alternately, households can
buy the shares and debentures offered by a business using financial
markets
In this market, money from those who have surplus money is transferred to
those who require investment.
Investors are surplus units and business enterprises are deficit units, where
the financial market acts as a link between surplus and deficit units.
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COMMERCE DEPT BS @IISJ
FUNCTIONS OF FINANCIAL MARKET
Mobilization of Savings and Channeling them into the most Productive Use: A
financial market facilitates the transfer of savings from savers to investors. It
gives savers the choice of different investments and thus helps to channelize
surplus funds into the most productive use.
E-IPOs
The assets in the money market can be regarded as very close substitutes for
money. Accordingly, they are also called ‘near money instruments’.
The main components of the capital market are primary market and
secondary market.
PRIMARY MARKET
The primary market is also known as the new issues market. It deals with new
securities being issued for the first time.
2. Offer for Sale: Under this method securities are not issued directly to the public but
are offered for sale through intermediaries like issuing houses or stock brokers.
A company sells securities at an agreed price to brokers who, in turn, resells them to
the investing public.
5. E- IPOs::A company proposing to issue capital to the public through the on-line
system of the stock exchange has to enter into an agreement with the stock exchange.
This is called as an Electronic Initial Public Offer (IPO).
COMMERCE DEPT BS @IISJ 13
SECONDARY MARKET
It helps existing investors to disinvest and fresh investors to enter the market.
The first stock exchange was established in 1875 as ‘The Native Share and
Stock Brokers Association’ in Bombay. It was later renamed Bombay Stock
Exchange (BSE).
Stock exchanges help companies raise finance, provide liquidity and safety of
investment to the investors and enhance the credit worthiness of individual
companies.
Selection of a broker
Placing an order
Settlement stage
3. Placing an order: after opening the Demat account, the investor places an
order with the broker clearly specifying the price range an the security code
number through which the purchase and sale should take place.
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COMMERCE DEPT BS @IISJ
4. Execution of the order: the broker executes the order and prepares a
contract note which states name and price of the securities, parties involved ,
brokerage and other taxes charged by him.
• The Securities and Exchange Board of India (SEBI) was established in 1988
with the basic objective of promoting orderly and healthy growth of the
securities market.
Objectives of SEBI
1. Regulatory Functions
2. Development Functions
3. Protective Functions