FINANCIAL MARKET IFBI

In this session, you will learn to:Understand markets and financial markets in particular.Objectives IFBI

Physical markets

Where there is a buyer and seller

Where there is need and product to satisfy the need

Categorized into natural products and manufactured products

Where the producer can be a seller or selling activities are carried on by different entities

Where value of the product is based onDemand and supplyThe needSocial parametersWhich requires a medium of exchange for settlement of the tradeWhich requires additional services for delivery of the product or price.

Has location and physical constraints

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Financial markets

Deal with only one product- money and its variants.

Requires no medium of exchange as the product is the medium of exchange

value creation is mostly by time.

Products are given birth by way of legislation

Knowledge oriented

Personal qualities play an important role

Calls for regulation for fair market practices..

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Factors common to both physical and financial market

Requires participation by two parties- buyer and seller

Affected by the government policies

Buyer always pays and seller always receive the value. IFBI

Money markets

Money market deals with debt securities that pay off in the short term usually less than one year.

Involve trading and issuance of short term debt instruments including treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc. IFBI

Capital markets

Capital market is a market for long-term funds It deals with debt and equity shares.

Also invoves private placement sources of debt and equity

Capital market are categorised into two types:Primary markets- brings funds to the issuerSecondary market- an exit route to the subscriber of primary market instruments

Discussion points: Are the primary and secondary markets are interrelated? IFBI

Organized marketsAre regulated

Enables free and fair trades

Are supported by legal provisions.

Have provisions of risk management

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Regulators

SEBI

IRDA

RBI

Can you identify whom these regulators regulate?

How SEBI is organized? (next slide )

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Sr.No..Name of the Department Major Activities 1Market Intermediaries Registration and Supervision department (MIRSD) Registration, supervision, compliance monitoring and inspections of all market intermediaries in respect of all segments of the markets viz. equity, equity derivatives, debt and debt related derivatives. 2Market Regulation Department (MRD) Formulating new policies and supervising the functioning and operations (except relating to derivatives) of securities exchanges, their subsidiaries, and market institutions such as Clearing and settlement organizations and Depositories (Collectively referred to as Market SROs.) 3Derivatives and New Products Departments (DNPD Supervising trading at derivatives segments of stock exchanges, introducing new products to be traded, and consequent policy changes

Products of financial markets

Ordinary equity

Preference equity

Debentures

Bonds

Government securities

Commercial paper

Treasury bills and many more..

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Example of a regulated market placeStock exchangesNational stock exchangeBombay stock exchangeOther regional stock exchangesPresently BSE and NSE are demutualised exchanges where operations are governed by a separate body and not by its members.Constituents of stock marketsBrokersSub brokersInstitutional investorsRetail investorsDepositoriesStock exchanges and its constituents.

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Consumers of financial markets

Are influenced by the social perception.

Consider personal traits of the seller as important.

Are possessive about money

Expect return based on time.

Consumers of the financial market,

Can be categorized into risk profiles.Discuss- risk . IFBI

GDP

Interest rates

Money supplySecuritiesDerivativesInflation and interest ratesForeign TradeCurrencyForeign exchangeDerivatives

Terminologies IFBI

Quiz IFBI

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