INTRODUCTION TO FINANCIAL MARKETS

Introduction: Economic growth and development of any country depends upon a well-knit financial system. Financial system comprises, a set of sub-systems of financial institutions, financial markets, financial instruments and services which help in the formation of capital. Thus a financial system provides a mechanism by which savings are transformed into investments and it can be said that financial system play an significant role in economic growth of the country by mobilizing surplus funds and utilizing them effectively for productive purpose. The financial system is characterized by the presence of integrated, organized and regulated financial markets, and institutions that meet the short term and long term financial needs of both the household and corporate sector. Both financial markets and financial institutions play an important role in the financial system by rendering various financial services to the community. They operate in close combination with each other.

Financial System;

financial system is a network of financial institutions, financial markets, financial instruments and financial services to facilitate the transfer of funds. The system consists of savers, intermediaries, instruments and the ultimate user of funds. The level of economic growth largely depends upon and is facilitated by the state of financial system prevailing in the economy. Efficient financial system and sustainable economic growth are corollary. The financial system mobilises the savings and channelizes them into the productive activity and thus influences the pace of economic development. Broadly speaking, financial system deals with three inter-related and interdependent variables, i.e., money, credit and finance.

Role/ Functions of Financial System The functions of financial system can be enumerated as follows: Financial system works as an effective channel for optimum allocation of financial resources in an economy. It helps in establishing a link between the savers and the investors. Financial system allows asset-liability transformation. Banks create claims (liabilities) against themselves when they accept deposits from customers but also create assets when they provide loans to clients. Economic resources (i.e., funds) are transferred from one party to another through financial system. The financial system ensures the efficient functioning of the payment mechanism in an economy. All transactions between the buyers and sellers of goods and services are effected smoothly because of financial system. Financial system helps in risk transformation by diversification, as in case of mutual funds. Financial system enhances liquidity of financial claims. Financial system helps price discovery of financial assets resulting from the interaction of buyers and sellers. For example, the prices of securities are determined by demand and supply forces in the capital market. Financial system helps reducing the cost of transactions.

Components/ Constituents of Indian Financial system: The following are the four main components of Indian Financial system 1. Financial institutions 2. Financial Markets 3. Financial Instruments/Assets/Securities 4. Financial Services. Financial institutions: Financial institutions are the intermediaries who facilitates smooth functioning of the financial system by making investors and borrowers meet. They mobilize savings of the surplus units and allocate them in productive activities promising a better rate of return. Financial institutions also provide services to entities seeking advises on various issues ranging from restructuring to diversification plans. They provide whole range of services to the entities who want to raise funds from the markets elsewhere. Financial institutions act as financial intermediaries because they act as middlemen between savers and borrowers. These financial institutions may be Banking or NonBanking institutions.

Financial Markets: Finance is a prerequisite for modern business and financial institutions play a vital role in economic system. It's through financial markets the financial system of an economy works. The main functions of financial markets are: 1. To facilitate creation and allocation of credit and liquidity; 2. To serve as intermediaries for mobilization of savings; 3. To assist process of balanced economic growth; 4. To provide financial convenience. Financial Instruments Another important constituent of financial system is financial instruments. They represent a claim against the future income and wealth of others. It will be a claim against a person or an institutions, for the payment of the some of the money at a specified future date.

Financial Services: Efficiency of emerging financial system largely depends upon the quality and variety of financial services provided by financial intermediaries. The term financial services can be defined as "activites, benefits and satisfaction connected with sale of money, that offers to users and customers, financial related value".

FINANCIAL MARKETS A Financial Market can be defined as the market in which financial assets are created or transferred, as against a real transaction that involves exchange of money for real goods or services. A financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend.

CLASSIFICATION Money market (Short term instrument) Capital markets (Long term instrument)

Money Market
The money market is a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions.

Main Function
To channelize savings into short term productive investments like working capital. Importance of Money Market A developed money market plays an important role in the financial system of a country by supplying short-term funds adequately and quickly to trade and industry. The money market is an integral part of a countrys economy. Therefore, a developed money market is highly indispensable for the rapid development of the economy. A developed money market helps the smooth functioning of the financial system in any economy in the following ways: Development Of Trade And Industry: Money market is an important source of financing trade and industry. The money market, through discounting operations and commercial papers, finances the short-term working capital requirements of trade and industry and facilities the development of industry and trade both national and international.

Development Of Capital Market: The short-term rates of interest and the conditions that prevail in the money market influence the long-term interest as well as the resource mobilization in capital market. Hence, the development of capital market depends upon the existence of a developed money market. Smooth Functioning of Commercial Banks: The money market provides the commercial banks with facilities for temporarily employing their surplus funds in easily realisable assets. The banks can get back the funds quickly, in times of need, by resorting to the money market. The commercial banks gain immensely by economizing on their cash balances in hand and at the same time meeting the demand for large withdrawal of their depositors. It also enables commercial banks to meet their statutory requirements of cash reserve ratio (CRR) and Statutory Liquidity Ratio (SLR) by utilishing the money market mechanism.

Effective Central Bank Control: A developed money market helps the effective functioning of a central bank. It facilities effective implementation of the monetary policy of a central bank. The central bank, through the money market, pumps new money into the economy in slump and siphons it off in boom. The central bank, thus, regulates the flow of money so as to promote economic growth with stability.

Formulation Of Suitable Monetary Policy: Conditions prevailing in a money market serve as a true indicator of the monetary state of an economy. Hence, it serves as a guide to the Government in formulating and revising the monetary policy then and there depending upon the monetary conditions prevailing in the market. Non-Inflationary Source Of Finance To Government: A developed money market helps the Government to raise short-term funds through the treasury bills floated in the market. In the absence of a developed money market, the Government would be forced to print and issue more money or borrow from the central bank. Both ways would lead to an increase in prices and the consequent inflationary trend in the economy.

Instruments in Money Market

CALL MONEY MARKET Part of the national money market Day-to day surplus funds mainly of banks are traded Short term in nature Maturity of these loans vary from 1 to 15 days. (Lent for 1 day: Call money & Lent for more than 1 day but less than 15 days: Notice money) Convenient interest rate Highly liquid loan repayable on demand Helps Bank to manage short-term deficit or surplus of money. Helps Bank to fill the gaps or temporary mismatches in funds Helps Bank to meet the CRR & SLR Mandatory requirements as stipulated by the Central bank. Helps bank to meet sudden demand for funds arising out of large outflows. Provides funds that can be used to conduct transactions between banks, or with other money market dealers Participants are RBI , banks and primary dealers. The rate at which funds are borrowed in this market is called call Money rate. The size of the market for these funds in India is between Rs 60,000 million to Rs 70,000 million, Of which public sector banks account for 80% of borrowings and Foreign banks/private sector banks account for the balance 20%.

COMMERCIAL PAPERS Unsecured Promissory note. Introduced in India in 1990. CP can be issued either in the form of a promissory note (Schedule I) or in a dematerialised form through any of the depositories approved by and registered with SEBI. Issued by Corporate, primary dealers (PDs) and the All-India Financial Institutions (FIs) with strong and high credit rating. Sold directly by the issuers to investors or through agents like merchant banks and security houses. Individuals, banking companies, other corporate bodies registered or incorporated in India and unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (FIIs) etc. can invest in CPs. CPs can be issued for maturities between a minimum of 15 days and a maximum of 1 year and for meeting short term requirement of fund. Commercial Papers are actively traded in the secondary market since they are issued in the form of promissory notes and are freely transferable in demat form. Issued in denominations of Rs.5 lakhs or multiples thereof. Commercial paper is usually sold at a discount from face value

REPOS AND REVERSE REPOS The RBI achieves the function of maintaining liquidity in the money market through REPOS / REVERSE REPOS. The repo / reverse repo is a very important money market instrument to facilitate shortterm liquidity adjustment among banks, financial institutions and other money market players. A repo / reverse repo is a transaction in which two parties agree to sell and repurchase the same security at a mutually decided future date and price. From the sellers point of view, the transaction is called a repo, whereby the seller gets immediate funds by selling the securities with an agreement to repurchase the same at a future date. Similarly, from the buyers point of view, the transaction is called a reverse repo, whereby the purchaser buys the securities with an agreement to resell the same at a future date. Repo or ready forward contact is an instrument for borrowing funds by selling securities with an agreement to repurchase the said securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed. The reverse of the repo transaction is called reverse repo which is lending of funds against buying of securities with an agreement to resell the said securities on a mutually agreed future date at an agreed price which includes interest for the funds lent.

The RBI, commercial banks and primary Dealers deal in the repos and reverse repo transactions. The financial institutions can deal only in the reverse repo transactions i.e. they are allowed only to lend money through reverse repos to the RBI, other banks and Primary dealers. The maturity date varies from 1 day to 14 days. The two types of repos are: Inter-bank repos (the transaction takes place between banks and DFHI). RBI repos (The repos / reverse repos are undertaken between banks and the RBI to stabilize and maintain liquidity in the market). Repos and Reverse Repos are used for following purposes: For injection / absorption of liquidity. To create an equilibrium between the demand for and supply of short-term funds. To borrow securities to meet SLR requirements. To increase returns on funds. To meet shortfall in cash positions.

CERTIFICATES OF DEPOSIT Introduced in July 1989, to enable the banking system to mobilise bulk deposits from the market, which they can have at competitive rates of interest. Defined as a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Greater flexibility to investors in the deployment of surplus funds. Permitted by the RBI to banks Issued by Scheduled commercial banks (except RRBs) and All India Financial Institutions . Buyers Individuals (other than minors), corporations, companies, trusts, funds, associations etc Maturity of not less than 7 days and not more than 1 year. (In case of FIs minimum 1 year and maximum 3 years) Minimum amount of investment Rs. 1 lakhs and multiples of Rs. 1 lakhs thereafter. Transferable in nature Free negotiability and limited flexibility. Physical CDs are freely transferable by endorsement and delivery. Dematted CDs can be transferred as per the procedure applicable to other demat securities. There is no lock-in period for the CDs.

MONEY MARKET MF

Defined as short term deposit by way of usance promissory notes. MMMF are one of the safest instruments of investment for the retail low income investor. The assets in a money market fund are invested in safe and stable instruments of investment issued by governments, banks and corporations etc. Generally, money market instruments require huge amount of investments and it is beyond the capacity of an ordinary retail investor to invest such large sums. Money market funds allow retail investors the opportunity of investing in money market instrument and benefit from the price advantage. Greater flexibility to investors in the deployment of surplus funds. Permitted by the RBI to banks Maturity is less than1 year. Transferable in nature Free negotiability and limited flexibility

TREASURY BILLS

Defined as the instruments of short term borrowing by the Central/State govt. They are promissory notes issued at discount and for a fixed period. Maturity less than one year At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments. Treasury bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000 Issued by RBI and sold through fortnightly or monthly auctions at varying discount rate depending upon the bids. Highly liquid and safe investment giving attractive yield. Eligibility for inclusion in SLR. Buyers banks, financial institutions, Primary Dealers, firms, companies, corporate bodies, partnership firms, institutions, mutual funds, Foreign Institutional Investors, Provident Funds, trusts, research organizations, It is available both in primary market as well as secondary market.

CAPITAL MARKET Capital market is market for long term securities. It contains financial instruments of maturity period exceeding one year. It involves in long term nature of transactions. It is a growing element of the financial system in the India economy. It differs from the money market in terms of maturity period & liquidity. It is the financial pillar of industrialized economy. The development of a nation depends upon the functions & capabilities of the capital market. In short Provide resources needed by medium and large scale industries. Purpose for these resources Expansion Capacity Expansion Investments Mergers and Acquisitions Deals in long term instruments and sources of funds Main Activity Functioning as an institutional mechanism to channelize funds from those who save, to those who needed for productive purpose. Provides opportunities to various class of individuals and entities.

IMPORTANCE OF CAPITAL MARKET Capital market plays an important role in mobilising resources, and diverting them in productive channels. In this way, it facilitates and promotes the process of economic growth in the country. Various functions and significance of capital market are discussed below: 1. Link between Savers and Investors: The capital market functions as a link between savers and investors. It plays an important role in mobilising the savings and diverting them in productive investment. In this way, capital market plays a vital role in transferring the financial resources from surplus and wasteful areas to deficit and productive areas, thus increasing the productivity and prosperity of the country. 2. Encouragement to Saving: With the development of capital, market, the banking and non-banking institutions provide facilities, which encourage people to save more. In the less- developed countries, in the absence of a capital market, there are very little savings and those who save often invest their savings in unproductive and wasteful directions, i.e., in real estate (like land, gold, and jewellery) and conspicuous consumption.

3. Encouragement to Investment: The capital market facilitates lending to the businessmen and the government and thus encourages investment. It provides facilities through banks and nonbank financial institutions. Various financial assets, e.g., shares, securities, bonds, etc., induce savers to lend to the government or invest in industry. With the development of financial institutions, capital becomes more mobile, interest rate falls and investment increases. 4. Promotes Economic Growth: The capital market not only reflects the general condition of the economy, but also smoothens and accelerates the process of economic growth. Various institutions of the capital market, like nonbank financial intermediaries, allocate the resources rationally in accordance with the development needs of the country. The proper allocation of resources results in the expansion of trade and industry in both public and private sectors, thus promoting balanced economic growth in the country. 5. Stability in Security Prices: The capital market tends to stabilise the values of stocks and securities and reduce the fluctuations in the prices to the minimum. The process of stabilisation is facilitated by providing capital to the borrowers at a lower interest rate and reducing the speculative and unproductive activities.

6. Benefits to Investors: The credit market helps the investors, i.e., those who have funds to invest in longterm financial assets, in many ways: (a) It brings together the buyers and sellers of securities and thus ensure the marketability of investments, (b) By advertising security prices, the Stock Exchange enables the investors to keep track of their investments and channelize them into most profitable lines, (c) It safeguards the interests of the investors by compensating them from the Stock Exchange Compensating Fund in the event of fraud and default.

PLAYERS IN THE CAPITAL MARKET Capital market is a market for long term funds. It requires a well structured market to enhance the financial capability of the country. The market consist a number of players. They are categorized as: Companies : Generally every company can access the capital market. The companies which are in need of finance for their project can approach the market. The capital market provides funds from the savers of the community. The companies can mobilize the resources for their long term needs such as project cost, expansion & diversification of projects & other expenditure of India to raise the capital from the market. Financial Intermediaries: Financial intermediaries are those who assist in the process of converting savings into capital formation in the country. The major intermediaries in the capital market are:-Brokers, Stock brokers ,Underwriters, Registrars, Mutual funds Collecting agents, Depositories Agents , Portfolio Managers etc. Individual Investors: These are net savers and purchase the securities issued by corporates. Individuals provide funds by subscribing to these security or by making other investments.

STRUCTURE OF THE CAPITAL MARKET IN INDIA The structure of the capital market has undergone vast changes in recent years. The Indian capital market has transformed into a new appearance over the last four & a half decades. Now it comprises an impressive network of financial institutions & financial instruments. The market for already issued securities has become more sophisticated in response to the different needs of the investors. The specialized financial institutions were involved in providing long term credit to the corporate sector. Therefore the premier financial institutions such as ICICI, IDBI, UTI, and LIC & GIC constitute the largest segment. A number of new financial instruments & financial intermediaries have emerged in the capital market.

CAPITAL MARKET INSTRUMENTS Capital market has instruments of longer maturity period. These instruments are : Ownership Securities Equity Shares Preference Shares Cumulative Convertible Preference Shares Debt Securities Non-convertible Debentures Partly Convertible Debentures Zero-Interest Fully Convertible Debentures Optionally Convertible Debentures Deep Discount Bonds Mutual Fund Units Income Schemes Growth Schemes Sectoral Schemes Equity Schemes

EQUITY SHARES means that part of the share capital of the company which are not preference shares. The majority of Share Capital will be raised through the issue of Ordinary Shares. Ordinary Shareholders, are the legal owners of the business, and are entitled to full shareholder voting rights at meetings - the Annual General Meeting (A.G.M.), or at Extra-Ordinary General Meetings (E.G.M.s). They are entitled to receive returns out of the companies profit, in the form of Dividends.

FEATURES OF EQUITY SHARES

PREFERENCE SHARES means shares which fulfill the following 2 conditions. Therefore, a share which is does not fulfill both these conditions is an equity share. It carries Preferential rights in respect of Dividend at fixed amount or at fixed rate i.e. dividend payable is payable on fixed figure or percent and this dividend must paid before the equity shares holders dividend. It also carries preferential right in regard to payment of capital on winding up or otherwise. It means the amount paid on preference share must be paid back to preference shareholders before anything is paid to the equity shareholders. In other words, preference share capital has priority both in repayment of dividend as well as capital. Types of Preference Shares 1.Cumulative or Non-cumulative preference shares 2.Redeemable and Non- Redeemable preference shares 3.Participating Preference Share or non-participating preference shares 4. Convertible and non-convertible preference shares Features of preference shares Fixed dividend Convertibility Voting rights Cumulative dividend Redemption

DEBENTURE: When a company intends to raise the loan amount from the public it issues debentures. A person holding debenture or debentures is called a debenture holder. A debenture is a document issued under the seal of the company. It is an acknowledgment of the loan received by the company equal to the nominal value of the debenture. It bears the date of redemption and rate and mode of payment of interest. A debenture holder is the creditor of the company. Kinds of debentures 1. Non-convertible debentures 2. Fully convertible debentures 3. Partly convertible debentures 4. Redeemable and Irredeemable debentures 5. Secured and Unsecured debentures Features of debentures 1. Fixed rate of interest 2. Maturity 3. Security 4. Redemption 5. Claim on assets and income

Usually the capital markets are classified in two ways:On the basis of issuer On the basis of instruments

On the basis of issuer the capital market can be classified again two types: Corporate securities market Governments securities market On the basis of financial instruments the capital markets are classifieds into two kinds:Equity market: The equity market can be divided into two categories (a) primary market (b) secondary market Debt market: Debt market represents the market for long term financial instruments such as debentures, bonds, etc.

PRIMARY MARKET In the primary market, governments, companies, or public sector organizations can obtain funding through the sale of a new stock or bonds. These are normally issued through securities dealers and banks, which underwrite the offered stocks or bonds. The issuers earn a commission, which is built into the price of the security offering. TYPES OF ISSUE A company can raise its capital through issue of share and debenture by means of :PUBLIC ISSUE :Public issue is the most popular method of raising capital and involves raising capital and fund direct from the public . RIGHT ISSUE :Right issue is the method of raising additional finance from existing members by offering securities to them on pro rata basis. A company proposing to issue securities on right basis should send a letter of offer to the shareholders giving adequate discloser as to how the additional amount received by the issue is used by the company.

BONUS ISSUE:-

Some companies distribute profits to existing shareholders by way of fully paid up bonus share in lieu of dividend. Bonus share are issued in the ratio of existing share held. The shareholder do not have to nay additional payment for these share .
PRIVATE PLACEMENT:The sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.

SECONDARY MARKET

The secondary market is that segment of the capital market where the outstanding securities are traded. From the investors point of view the secondary market imparts liquidity to the long term securities held by them by providing an auction market for these securities. The secondary market operates through the medium of stock exchange which regulates the trading activity in this market and ensures a measure of safety and fair dealing to the investors.

FUNCTIONS OF THE SECONDARY MARKET 1. To facilitate liquidity and marketability of the outstanding equity and debt instruments. 2. To contribute to economic growth through allocation of funds to the most efficient channel through the process of disinvestments to reinvestment. 3. To provide instant valuation of securities caused by changes in the internal environment (that is, company-wide and industry wide factors). Such valuation facilitates the measurement of the cost of capital and the rate of return of the economic entities at the micro level. 4. To ensure a measure of safety and fair dealing to protect investors interest. 5. To induce companies to improve performance since the market price at the stock exchanges reflects the performance and this market price is readily available to investors.

Role of Stock Exchanges In Capital Market of India Stock Exchanges play a crucial role in the consolidation of a national economy in general and in the development of industrial sector in particular. It is the most dynamic and organised component of capital market. Especially, in developing countries like India, the stock exchanges play a cardinal role in promoting the level of capital formation through effective mobilisation of savings and ensuring investment safety. Lets study the role of stock exchanges in capital market of India :1. Effective Mobilisation of savings Stock exchanges provide organised market for an individual as well as institutional investors. They regulate the trading transactions with proper rules and regulations in order to ensure investor's protection. This helps to consolidate the confidence of investors and small savers. Thus, stock exchanges attract small savings especially of large number of investors in the capital market.

2. Promoting Capital formation: The funds mobilised through capital market are provided to the industries engaged in the production of various goods and services useful for the society. This leads to capital formation and development of national assets. The savings mobilised are channelised into appropriate avenues of investment. 3. Wider Avenues of investment: Stock exchanges provide a wider avenue for the investment to the people and organisations with investible surplus. Companies from diverse industries like Information Technology, Steel, Chemicals, Fuels and Petroleum, Cement, Fertilizers, etc. offer various kinds of equity and debt securities to the investors. Online trading facility has brought the stock exchange at the doorsteps of investors through computer network. Diverse type of securities is made available in the stock exchanges to suit the varying objectives and notions of different classes of investor. Necessary information from stock exchanges available from different sources guides the investors in the effective management of their investment portfolios.

4. Liquidity of investment: Stock exchanges provide liquidity of investment to the investors. Investors can sell out any of their investments in securities at any time during trading days and trading hours on stock exchanges. Thus, stock exchanges provide liquidity of investment. The on-line trading and online settlement of demat securities facilitates the investors to sellout their investments and realise the proceeds within a day or two. Even investors can switch over their investment from one security to another according to the changing scenario of capital market.
5. Investment priorities: Stock exchanges facilitate the investors to decide his investment priorities by providing him the basket of different kinds of securities of different industries and companies. He can sell stock of one company and buy a stock of another company through stock exchange whenever he wants. He can manage his investment portfolio to maximise his wealth.

6. Investment safety: Stock exchanges through their by-laws, Securities and Exchange Board of India (SEBI) guidelines, transparent procedures try to provide safety to the investment in industrial securities. Government has established the National Stock Exchange (NSE) and Over The Counter Exchange of India (OTCEI) for investors' safety. Exchange authorities try to curb speculative practices and minimise the risk for common investor to preserve his confidence. 7. Wide Marketability to Securities: Online price quoting system and online buying and selling facility have changed the nature and working of stock exchanges. Formerly, the dealings on stock exchanges were restricted to its head quarters. The investors across the country were absolutely in dark about the price fluctuations on stock exchanges due to the lack of information. But today due to Internet, on line quoting facility is available at the computers of investors. As a result, they can keep track of price fluctuations taking place on stock exchange every second during the working hours. Certain T.V. Channels like CNBC are fully devoted to stock market information and corporate news. Even other channels display the on line quoting of stocks. Thus, modern stock exchanges backed up by internet and information technology provide wide marketability to securities of the industries. Demat facility has revolutionised the procedure of transfer of securities and facilitated marketing.

8. Financial resources for public and private sectors Stock Exchanges make available the financial resources available to the industries in public and private sector through various kinds of securities. Due to the assurance of liquidity, marketing support, investment safety assured through stock exchanges, the public issues of securities by these industries receive strong public response (resulting in oversubscription of issue). 9. Funds for Development Purpose Stock exchanges enable the government to mobilise the funds for public utilities and public undertakings which take up the developmental activities like power projects, shipping, railways, telecommunication, dams & roads constructions, etc. Stock exchanges provide liquidity, marketability, price continuity and constant evaluation of government securities. 10. Indicator of Industrial Development Stock exchanges are the symbolic indicators of industrial development of a nation. Productivity, efficiency, economic-status, prospects of each industry and every unit in an industry is reflected through the price fluctuation of industrial securities on stock exchanges. Stock exchange sensex and price fluctuations of securities of various companies tell the entire story of changes in industrial sector.

11. Barometer of National Economy Stock exchange is taken as a Barometer of the economy of a country. Each economy is economically symbolized (indicators) by its most significant stock exchange. New York Stock Exchange, London Stock Exchange, Tokyo Stock Exchange and Bombay Stock Exchange are considered as barometers of U.S.A, United Kingdom, Japan and India respectively. At both national and international level these stock exchanges represent the progress and conditions of their economies.

Thus, stock exchange serves the nation in several ways through its diversified economic services which include imparting liquidity to investments, providing marketability, enabling evaluation and ensuring price continuity of securities.

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