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    The Money and Capital Markets

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    The document provides an overview of financial markets and systems. It discusses that the primary function of the financial system is financial intermediation, which involves channeling funds from surplus units like households and firms to deficit units like borrowers. It also classifies financial markets into debt markets like money markets for short term and capital markets for long term lending and borrowing. Equity markets involve trading of common stocks. Financial market instruments are traded on exchanges or over-the-counter markets.

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    The Money and Capital Markets

    Uploaded by

    claytongarry
    154 views50 pages
    The document provides an overview of financial markets and systems. It discusses that the primary function of the financial system is financial intermediation, which involves channeling funds from surplus units like households and firms to deficit units like borrowers. It also classifies financial markets into debt markets like money markets for short term and capital markets for long term lending and borrowing. Equity markets involve trading of common stocks. Financial market instruments are traded on exchanges or over-the-counter markets.

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    The document provides an overview of financial markets and systems. It discusses that the primary function of the financial system is financial intermediation, which involves channeling funds from surplus units like households and firms to deficit units like borrowers. It also classifies financial markets into debt markets like money markets for short term and capital markets for long term lending and borrowing. Equity markets involve trading of common stocks. Financial market instruments are traded on exchanges or over-the-counter markets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    154 views50 pages

    The Money and Capital Markets

    Uploaded by

    claytongarry
    The document provides an overview of financial markets and systems. It discusses that the primary function of the financial system is financial intermediation, which involves channeling funds from surplus units like households and firms to deficit units like borrowers. It also classifies financial markets into debt markets like money markets for short term and capital markets for long term lending and borrowing. Equity markets involve trading of common stocks. Financial market instruments are traded on exchanges or over-the-counter markets.

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    Download as PPT, PDF, TXT or read online from Scribd
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    of 50

    An Overview of the Financial Markets

    2.1

    2008 Pearson Education Canada

    The Financial System


    Financial

    system refers to a set of institutional arrangements through which financial surpluses in an economy are mobilized from surplus units and transferred to the deficit unit. Which includes Conditions and mechanisms governing the production, distribution,exchange and holding of financial assets and instruments Working of financial markets financial Organization and operation of 2008 Pearson Education Canada

    An Overview of the Financial System


    Primary Function of the Financial System is Financial Intermediation
    The channeling of funds from households, firms and governments who have surplus funds (savers) to those who have a shortage of funds (borrowers).

    2.3

    2008 Pearson Education Canada

    The Financial System


    Financial

    system refers to a set of institutional arrangements through which financial surpluses in an economy are mobilized from surplus units and transferred to the deficit unit. Which includes Conditions and mechanisms governing the production, distribution,exchange and holding of financial assets and instruments 2008 Pearson Education Canada Working of financial markets

    An Overview of the Financial System

    2.5

    2008 Pearson Education Canada

    Classifications of Financial Markets


    Debt Markets
    Short-term (maturity < 1 year) the Money Market Long-term (maturity > 10 year) the Capital Market Medium-term (maturity >1 and < 10 years)

    2.6

    2008 Pearson Education Canada

    Constituents of Financial System


    Financial Assets (near money assets) Financial Markets The financial system of a country works through the financial markets, The financial market perform the following functions They create and allocate credit They serve as intermediaries in the process of mobilization of savings
    
    2008 Pearson Education Canada

    The Financial Markets


    They provide convenience and and benefits to the lender and borrower  They promote economic development by providing a balanced regional and sectoral allocation of investible funds  Financial markets are credit markets which cater to the financial needs of the people
    
    2008 Pearson Education Canada

    Types of Financial Markets


    Money Market  Capital Market  Money market deals with short period lending and borrowing of funds  Capital market deals with long period lending and borrowing of funds
    

    2008 Pearson Education Canada

    Types of Financial Markets


    Financial markets may also be classified as  Primary Market where newly issued credit instruments are bought and sold  Secondary Market where previously issued credit instruments are bought and sold.
    

    2008 Pearson Education Canada

    The Money Market


     o o a.

    b. o

    Features of money market Heterogeneous market Dealers of money market Lender- Commercial banks, non bank financial institutions etc Borrower- Manufacturer, trader etc Short term loans

    The Money Market


    o o o

    Near Money Assets Physical contact non necessary May change with place and time

    Structure and Constituents of Money Market


    Call Money Market- It deals witch very short period loans ( not exceeding seven days known as call loans. These loans have to be returned as soon as bank calls for them. No collateral security is required Eg-share brokers
    

    Structure and Constituents of Money Market


    Collateral Loan Market Collateral loan market refers to a market for loans againsr collateral securities like bonds and shares etc. The collateral is returned when the borrower returns the loan. If the borrower fails to return the collateral becomes the property of the lender
    

    Structure and Constituents of Money Market


    Acceptance Market It is the market for bankers acceptancesA bankers acceptance is a draft drawn drawn by a bussiness firm upon a bank and acceptrd by it wherby the bank is required to pay to the order of a specifoc party or to the bearer a specific sum of money at a specfic future date
    

    Structure and Constituents of Money Market


    Bill Market Bill market specialises in the sale and purchase of different type of short term papers or bills . The important type of bills are Bills of exchange and Treasury Bills

    Structure and Constituents of Money Market


    Acceptance Market It is the market for bankers acceptancesA bankers acceptance is a draft drawn drawn by a bussiness firm upon a bank and acceptrd by it wherby the bank is required to pay to the order of a specifoc party or to the bearer a specific sum of money at a specfic future date
    

    Structure and Constituents of Money Market


    Bill Market Bill market specialises in the sale and purchase of different type of short term papers or bills . The important type of bills are Bills of exchange and Treasury Bills

    Instruments of money market


    Commercial BankThey form the largest source of financing short trem funds for trade. commerce and industry Central Bank The central bank is the apex institution in the money market of a country Acceptance house , discount house and bill broker Non bank financial institutions

    Characteristics of developed and underdeveloped money Presence of central bank market


    Developed Banking System Availability of financial assets Existence of submarket Integrated sources of market Availability of specialized instruments

    Importance of Money Market


    Financing Trade Financing Industry Profitable investment Encouraging saving and investment Help to central bank Help to government

    The Indian Money Market


    Structure of Indian money market Organized sector Unorganized sector

    Constituents of Indian Money market Supply for funds Organized sector Unorganized sector

    Submarkets of the Indian money market


    Call money market- It is also called interbank call money market S.B.I is always on the the lenders side of the market It operates through brokers who keep in touch with the banks

    It is highly unstable and competitive market The interest rate rise and fall at a very hig and rapid rate

    Treasury Bill Market 91 days or 365 days liability of the government of India

    Commercial bill market is of three month duration. It is a promise to pay a specified sum by the borrower to the lender at a specified period

    Collateral loan market

    Defects of Indian money market


    Dichotomy between organised and unorganised sector Predominance of unorganised sector Wasteful compitition Absence of all india money market Inadiquate banking fascilities

    Shortage of capital Seasonal shortage of funds

    Reason for underdevelopment


    Underdeveloped bankiing system Irregular supply of short term funds No uniformity of the interest rates No proper coordination between different sectors

    Suggestions of improvement
    Indigenous banks should be brought under purview of RBI Standardization Expansion of banking facilities Number of clearing houses should be increased

    Measures taken by RBI


    It is trying to encourage bill market Number of measures have been taken to improve the functioning of indigenous banks All banks are given equal treatment by RBI It has been able to reduce difference between interest rates

    Recent measures taken by RBI

    Capital market
    The capital market is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the Securities and Exchange Board of India, (India); oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded

    Capital market
    Securities and Exchange Board of India Securities and Exchange Board of India (SEBI) is a autonomous body created by the Government of India in 1988 and given statutory form in 1992 with the . Its head office is in Mumbai, and has regional offices in Chennai, Kolkata and Delhi. SEBI is the regulator of Securities markets in India. The new chairman of SEBI, Mr.C.B.Bave took charge on February 16 2008.

    Functions and Responsibilities


    SEBI has to be responsive to the needs of three groups, which constitute the market: the issuers of securities the investors the market intermediaries.

    SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. There is a Securities Appellate Tribunal which is a three member tribunal and is presently headed by a former Chief Justice of a High court. A second appeal lies directly to the Supreme Court.

    SEBI has had a mixed history in terms of its success as a regulator. Though it has pushed systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic), it lacked the legal expertise, till recently, needed to sustain prosecutions/enforcement actions. SEBI has been active in setting up the rules and regulations as required as directed by the RBI or the Ministry of finance

    Classifications of Financial Markets


    Equity Markets - Common stocks
    Primary Market - New security issues sold to initial buyers Secondary Market - Securities previously issued are bought and sold

    2.42

    2008 Pearson Education Canada

    Classifications of Financial Markets (Contd)


    Secondary Markets
    Exchanges Trades conducted in central locations (e.g., Toronto Stock Exchange and New York Stock Exchange) Over-the-Counter Markets Dealers at different locations buy and sell

    2.43

    2008 Pearson Education Canada

    Financial Market Instruments

    2.44

    2008 Pearson Education Canada

    Financial Market Instruments (Contd)


    Other Money Market Instruments
    Certificates of deposit Repurchase agreements Overnight funds

    2.45

    2008 Pearson Education Canada

    Financial Market Instruments (Contd)

    2.46

    2008 Pearson Education Canada

    Financial Market Instruments (Contd)


    Other Capital Market Instruments
    savings bonds Provincial and municipal bonds Government agencies securities

    2.47

    2008 Pearson Education Canada

    Internationalization of Financial Markets


    International Bond Market
    Foreign bonds - sold in a foreign country and denominated in that country Eurobonds denominated in a currency other than the country in which it is sold Eurocurrencies foreign currencies deposited in banks outside the home country

    2.48

    2008 Pearson Education Canada

    World Stock Markets

    2.49

    2008 Pearson Education Canada

    Function of Financial Intermediaries


    Financial Intermediaries
    Engage in process of indirect finance Are needed because of transactions costs and asymmetric information

    2.50

    2008 Pearson Education Canada

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