Financial Market
FINANCIAL MARKET
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Introduction
·
A market for Sale & Purchase of
o
Stocks
o
Bonds
o
Bill of exchange
o
Commodities
o
& Foreign currency which works as a
liquid assets
·
Financial market classified into two
categories
o
Money market
o
Capital market
Money
Market
·
Definition
o
A mechanism that deals with the lending of
short term funds (less than one year)
o
A part of market under which financial
instrument having high liquidity & very short maturities are traded
·
Features
o
Constituents of money market
o
Heterogeneous market
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Dealers of money market
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Short term money loans
o
Different from capital market
o
Association with big cities
o
Change with place & time
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Characteristics
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Existence of central bank
o
Organized commercial banking system
o
Sub-market existence
o
Integrated money market structure
o
Proper credit instruments availability
o
Elasticity & adequacy of funds
o
International attraction
o
Interest rates uniformity
o
Stability of prices
o
High developed industrial system
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Importance
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Financing industry
o
Financing trade
o
Self sufficiency of banks
o
Effective monetary policy
o
Economic growth
o
Help to government
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Allocation of resources
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Instruments
o
Treasury bills
o
Commercial bills
o
Money at call
o
Promissory notes
o
Mutual funds
Capital
Market
·
Definition
o
A market where Bonds & Equities are
traded
o
Role of this market is to make investment
from investors having surplus funds to the ones who are running a deficit
o
It offers both long & overnight funds
·
Instruments
o
Equity
o
Insurance
o
Foreign exchange
o
Hybrid
·
Nature
o
Has two segments (Primary & Secondary)
o
Deals with long term securities
o
Performs trade-off function
o
Create dispersion in ownership
o
Helps in capital formation
o
Helps to create liquidity
·
Types
o
Primary (Shares
& debentures are sold to collect long term capital)
o
Secondary (Buying
& Selling of the previously issued securities is done)
·
Features
o
Creates liquidity
o
Comes after primary market
o
Has a particular place
o
Encouragement of new investments
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