18 Banking Awareness Financial Market

Banking Awareness
Financial Market
Banking Awareness
Financial Market
Financial Market
Financial market could be a platform where buyers and sellers are involved in the sale and
buying of monetary products like shares, mutual funds, bonds so on.
Functions:
1. It is a platform that facilitates traders to buy and sell financial instruments and
securities.
2. Financial markets create liquidity that allows businesses to grow and entrepreneurs
to raise money for their ventures.
3. Mobilizing Funds
Types of Financial Market:
Types of Financial Market
Capital Market Financial Market
CapitalMarket:
Capital market could be a place where buyers and sellers like trade (buying/selling) of
economic securities like bonds, stocks, etc. The trading is undertaken by
participants like individuals and institutions. Capital market trades mostly in long-term
securities.
Functions:
1. The Capital Markets help to accelerate the process of economic growth
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Banking Awareness
Financial Market
2. Facilitates the movement of capital to be used more profitability and productively to
boost the national income
3. Minimization of transaction and information cost
4. Quick valuations of financial instruments
5. Encourages a massive range of ownership of productive assets
There are two types of Capital Market:
1. Primary Market
2. Secondary Market
Primary Market: A primary market is one during which a company issues new securities in
exchange for cash from an investor (buyer). It deals with the trade of new issues of stocks
and other securities sold to investors. The primary market mainly deals with new securities
that are issued within the stock market for the first time. Thus, it is also referred to as the
new issue market. The main objective is capital formation for government, institutions,
companies, etc. also referred to as Initial Public Offer (IPO).
Secondary Market: Secondary market is a form of capital market where stocks and
securities which have been previously issued are bought and sold. Secondary markets give
investors the means to resell/ trade existing securities. It is called a stock exchange or stock
market.
Capital Market Instruments:
1. Securities: A security is a tradeable financial asset.
2. Equity Shares: It is an instrument, a contract, which guarantees a residual interest in
the assets of an enterprise after deducting all its liabilities- including dividends on
preference shares.
Banking Awareness
Financial Market
3. Debentures: A debenture is a contract between the investor and also the company,
where a charge over the company's assets is granted to the lenders by providing
them.
4. Bonds: Bonds are units of corporate debt issued by companies and securitized as
tradeable assets. A bond is referred to as a fixed-income instrument
since bonds traditionally pay a fixed interest rate (coupon) to debt holders.
5. Preference Shares: Preference shares also commonly known as preferred stock, are
a special type of share where dividends are paid to shareholders before the issuance
of common stock dividends.
Money Market:
Money Market is a trading in very short-term debt investments up to 1 year. They invest
in various money market instruments and endeavour to offer good returns.
Features:
1. Maintains high Liquidity in Market
2. Provides Funds for short-term.
3. No fixed geographical Location
Types of Money Market Instruments:
Banking Awareness
Financial Market
1. Treasury Bills: Treasury Bills or T-Bills are short-term debt instruments. Treasury
bills are zero coupon securities and have no interest. They are the safest short-term
fixed-income investments as they are backed by the Government of India.
Tenure- 91 days, 182 days and 364 days
Denomination- Rs.25000 and its multiples
Issued by: Government of India
2. Certificate of Deposits: Certificate of Deposit or CD is a fixed-income financial
instrument governed under the Reserve Bank and India (RBI), issued in a
dematerialized form.
Introduced in- 1989
Tenure- 7 days to 1 year
Denomination: Rs.5 lakh and its multiples
Issued by: All-India Financial Institution or Scheduled Commercial Bank.
3. Commercial Papers: Commercial Paper is a short-term debt instrument issued to
meet short-term financial obligations, such as funding for a new project. It is an
unsecured money market instrument issued in the form of a promissory note.
Banking Awareness
Financial Market
Introduced in – 1990
Tenure-15 days to 1 year
Denomination- Rs.5 lakh and its multiples
Issued by- Primary Dealers (PDs) and the All-India Financial Institutions (FIs)
4. Promissory Notes: It is a financial instrument with a written promise by one party, to
pay to another party, a definite sum of money by demand or at a specified future
date, although it falls in due for payment after 90 days within three days of grace.
5. Call Money and Notice Money: When a loan is lent for a single day then it’s called
“Call Money”. If it’s lent for as many as 15 days then it’s called “Notice Money”.
6. Bankers Acceptance: A financial instrument produced by an individual or a
corporation, in the name of the bank is known as Banker’s Acceptance.
Tenure: 30 days to 180 days
Issued by: Bank
7. Repurchase Agreement: Repurchase agreements (also commonly referred to
as repo agreements) are short-term secured loans frequently obtained by dealers
(borrowers) to fund their securities portfolios, and by institutional investors (lenders)
such as money market funds and securities lending firms, as sources of
collateralised investment.
8. Cash Management Bills: These bills are issued by the central government to meet
their financial needs. The bills are issued by RBI on behalf of the government.
Tenure: Less than 91 days.

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Banking Awareness

buying of monetary products like shares, mutual funds, bonds so on.

to raise money for their ventures.

Types of Financial Market:

Types of Financial Market

Capital Market Financial Market

economic securities like bonds, stocks, etc. The trading is undertaken by

1. The Capital Markets help to accelerate the process of economic growth

2. Facilitates the movement of capital to be used more profitability and productively to

boost the national income

3. Minimization of transaction and information cost

4. Quick valuations of financial instruments

5. Encourages a massive range of ownership of productive assets

There are two types of Capital Market:

companies, etc. also referred to as Initial Public Offer (IPO).

Capital Market Instruments:

1. Securities: A security is a tradeable financial asset.

2. Equity Shares: It is an instrument, a contract, which guarantees a residual interest in

tradeable assets. A bond is referred to as a fixed-income instrument

of common stock dividends.

in various money market instruments and endeavour to offer good returns.

1. Maintains high Liquidity in Market

2. Provides Funds for short-term.

3. No fixed geographical Location

Types of Money Market Instruments:

fixed-income investments as they are backed by the Government of India.

Tenure- 91 days, 182 days and 364 days

Denomination- Rs.25000 and its multiples

Issued by: Government of India

2. Certificate of Deposits: Certificate of Deposit or CD is a fixed-income financial

Introduced in- 1989

Tenure- 7 days to 1 year

Denomination: Rs.5 lakh and its multiples

Issued by: All-India Financial Institution or Scheduled Commercial Bank.

3. Commercial Papers: Commercial Paper is a short-term debt instrument issued to

meet short-term financial obligations, such as funding for a new project. It is an

unsecured money market instrument issued in the form of a promissory note.

Tenure-15 days to 1 year

Denomination- Rs.5 lakh and its multiples

4. Promissory Notes: It is a financial instrument with a written promise by one party, to

pay to another party, a definite sum of money by demand or at a specified future

6. Bankers Acceptance: A financial instrument produced by an individual or a

corporation, in the name of the bank is known as Banker’s Acceptance.

Tenure: 30 days to 180 days

Issued by: Bank

7. Repurchase Agreement: Repurchase agreements (also commonly referred to

as repo agreements) are short-term secured loans frequently obtained by dealers

(borrowers) to fund their securities portfolios, and by institutional investors (lenders)

such as money market funds and securities lending firms, as sources of

Tenure: Less than 91 days.

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