Revision: Business Finance and Marketing >> Financial Markets CUET (UG) Financial Markets

Key Points: Concept of Financial Market

Finance is managed as personal, corporate and public finance.
Financial markets are a key part of the Indian financial system.
Financial market deals in assets like bonds, stocks and government securities.
It links surplus investors with deficit business enterprises.
Main functions: channelising savings, price determination, liquidity and low transaction cost.
Financial markets are divided into money market and capital market based on maturity.

Key Points: Money Market

Money market is for short-term funds and near money instruments.
All money market instruments have maturity of one year or less.
Instruments are highly liquid, less risky and easily tradable.
Key participants include RBI, banks, NBFCs, governments, big companies and mutual funds.
Main instruments: Treasury bills, call/notice money, commercial papers, commercial bills and certificates of deposit.
Call rate affects demand for other money market instruments through an inverse relationship.

Key Points: Capital Market

Capital market is for long‑term funds (debt and equity).
Supports investment and economic growth.
Demand: agriculture, trade, industry.
Supply: individual savers, corporates, banks, insurance companies, special institutions.
Institutions and instruments: development banks, commercial banks, stock exchanges, shares, debentures, bonds, mutual funds, public deposits.

Distinction Between Capital Market and Money Market

Basis	Capital Market	Money Market
Time span	Long- and medium-term securities with maturity more than one year.	Short-term instruments with maturity up to one year.
Liquidity	Tradable on stock exchanges; less liquid than money market instruments.	Highly liquid due to an active ready market.
Returns	Higher potential returns over a longer period.	Lower expected returns because of shorter maturity.
Instruments	Equity shares, preference shares, bonds, debentures.	Commercial papers, treasury bills, certificates of deposit.
Risk	Relatively risky for both return and principal repayment.	Relatively safe, issued for short duration by sound entities.

Key Points: Secondary Market/Stock Exchange

Secondary market is the stock exchange / stock market.
It deals in existing or second-hand securities.
Stock exchange is a platform for trading securities.
Companies Act 1850 was introduced to promote investment in corporate securities.
First stock exchange: Bombay, 1875, later called BSE.
Other exchanges came up in Ahmedabad, Calcutta and Madras.
Post-1991, Indian secondary market has a three-tier structure: Regional Stock Exchanges, NSE and OTCEI.

Key Points: Trading Procedure of Stock Exchange

Trading in securities begins by selecting an authorised stock broker.
The investor must open a Demat account for electronic holding and trading of securities.
Buy or sell orders are placed through the broker or electronically.
The broker executes the order and provides a contract note as proof of the transaction.
Settlement involves the transfer of securities and funds between the buyer and seller.
Trading is carried out in an organised, electronic and regulated manner through authorised intermediaries.

Key Points: Securities and Exchange Board of India (SEBI)

SEBI was established in 1988 and became a statutory body in 1992 under the SEBI Act, 1992.
SEBI regulates, supervises and promotes the securities market while protecting investors' interests.
The main objectives of SEBI are regulation, investor protection, prevention of malpractices and enforcement of a code of conduct.
SEBI performs three major functions: Protective, Developmental and Regulatory.
The major intermediaries regulated by SEBI are stock exchanges, stock brokers, merchant bankers, depositories, credit rating agencies and mutual funds.
The two major depositories in India are NSDL and CDSL, while the major stock exchanges are BSE and NSE.
The leading credit rating agencies are CRISIL and ICRA, and the oldest mutual fund in India is UTI.