PRESENTED BY:SRIBATSA PATTANAYAKM.B.A ABA, BALASORE

INTRODUCTION

EVERY MODERN ECONOMY IS BASED ON A SOUND FINANCIAL SYSTEM. THE PRINCIPAL AIM OF FINANCIAL SYSTEM IS TO TRANSFORM SURPLUS INCOME & SAVINGS INTO INVESTMENTS.

SEEKERS OF FUNDS, MAINLYBUSINESS FIRM& GOVT.

SUPPLIERS OF FUNDS, MAINLYHOUSEHOLD

FLOW OF FUNDS

FLOW OF FINANCIAL SERVICES

FINANCIAL MARKETFINANCIAL MARKET

FINANCIAL MARKETS PROVIDE CHANNELS FOR ALLOCATION OF SAVINGS TO INVESTMENT. IT IS A MARKET WHERE FINANCIAL ASSETS ARE CREATED OR TRANSFERRED THROUGH BUYING & SELLING OF FINANCIAL ASSETS.

1.MONEY MARKET :IT REFERS TO THE MARKET, WHERE BORROWERS & LENDERS EXCHANGE SHORT TERM FUNDS TO SOLVE THEIR LIQUIDITY NEEDS. FUNDS ARE AVAILABLE IN THIS MARKET FOR PERIODS RANGING FROM A SINGLE DAY UPTO A YEAR. THE FINANCIAL CLAIMS HERE HAVE LOW RISK, HIGH LIQUIDITY & MATURITIES UNDER ONE YEAR.1.CAPITAL MARKET :THE CAPITAL MARKET IS DESIGNED TO FINANCE THE LONG TERM INVESTMENTS. THE TRANSACTIONS TAKING PLACE IN THIS MARKET WILL BE FOR PERIODS OVER A YEAR.AGAIN THE CAPITAL MARKET CAN BE CLASSIFIED ON THE BASIS OF CLAIMS REPRESENTING NEW ISSUES OR OUTSTANDING ISSUES AS PRIMARY & SECONDARY .

•PRIMARY MARKET : IT IS THE MARKET WHICH PROVIDES THE CHANNEL FOR SALE OF NEW ISSUES. RESOURCES ARE REQUIRED FOR BOTH NEW AS WELL AS EXISTING PROJECTS WITH A VIEW TO EXPANSION, MODERNISATION, DIVERSIFICATION & UPGRADATION. IT IS THE MARKET WHERE RESOURCES ARE MOBILISED BY COMPANIES THROUGH ISSUE OF NEW SECURITIES.•SECONDARY MARKET :A MARKET WHERE INVESTORS TRADE OUTSTANDING SECURITIES/ ISSUES ARE CALLED SECONDARY MARKET. SECONDARY MARKET COMPRISES OF STOCK EXCHANGES, WHICH PROVIDE PLATFORM FOR PURCHASE & SALE OF SECURITIES BY INVESTORS, WHERE THE TRADING IS ACCESSIBLE ONLY THROUGH BROKERS & TRADING IS CONFIED ONLY TO STOCK EXCHANGES.

FOREX MARKET:

THIS MARKET DEALS WITH THE MULTICURRENCY REQUIREMENTS, WHICH ARE MET BY THE EXCHANGE OF CURRENCIES. DEPENDING ON THE EXCHANGE RATE THAT IS APPLICABLE, THE TRANSFER OF FUNDS TAKES PLACE IN THIS MARKET. THIS IS ONE OF THE MOST DEVELOPED & INTEGRATED MARKET ACROSS THE GLOBE.

CREDIT MARKET:IT IS A PLACE WHERE BANKS, FINANCIAL INSTITUTIONS & NBFC’S RENDER SHORT, MEDIUM & LONG TERM LOANS TO CORPORATE & INDIVIDUALS.

FINANCIAL INSTRUMENTS1.MONEY MARKET INSTRUMENTS :THE MONEY MARKET IS A MARKET FOR SHORT TERM MONEY & FINANCIAL ASSETS THAT ARE CLOSER SUBSTITUTES OF MONEY. HERE THE TERM SHORT TERM MEANS GENERALLY A PERIOD UPTO ONE YEAR & CLOSER SUBSTITUTES OF MONEY MEANS ANY ASSET WHICH CAN BE QUICKLY CONVERTED INTO MONEY WITH MINIMUM TRANSACTION COST.THE IMPORTANT MONEY MARKET INSTRUMENTS ARE :

CALL/NOTICE MONEYTERM MONEYTREASURY BILLCOMMERCIAL PAPERS

CALL/NOTICE MONEY: IT IS THE MONEY BORROWED OR LENT ON DEMAND FOR A VERY SHORT PERIOD. WHEN MONEY IS BORROWED OR LENT FOR A DAY, IT IS KNOWN AS CALL/ OVERNIGHT MONEY. HOLIDAYS & SUNDAYS ARE EXCLUDED HERE. THUS MONEY BORROWED ON A DAY & REPAID ON THE NEXT WORKING DAY IS “CALL MONEY”. BUT WHEN MONEY LENT OR BORROWED FOR MORE THAN A DAY & UPTO 14 DAYS, IT IS NOTICE MONEY.

TERM MONEY : INTER BANK MARKET FOR DEPOSITS OF MATURITY BEYOND 14 DAYS IS REFERRED TO AS THE TERM MONEY MARKET.

TREASURY BILL :IT IS A SHORT TERM BORROWING INSTRUMENT OF THE UNION GOVT. IT IS AN IOU I.e. ACKNOWLEDGEMENT OF DEBT OF THE GOVT. TO PAY A STATED SUM OF AFTER EXPIRY OF STATED PERIOD FROM THE DATE OF ISSUE.(LESS THAN 1 YEAR).

COMMERCIAL PAPERS :IT REPRESENTS SHORT TERM UNSECURED PROMISORY NOTES ISSUED BY FIRMS THAT ARE GENERALLY CONSIDERED TO BE FINANCIALLY STRONG. COMMERCIAL PAPERS USUALLY HAS A MATURITY PERIOD OF 90 - 180 DAYS. IT IS GENERALLY SOLD AT DISCOUNT & REDEEMED AT PAR.IT IS EITHER DIRECTLY PLACED WITH THE INVESTORS OR SOLD THROUGH DEALERS. BUT IT DOES NOT PRESENTLY HAVE A WELL DEVELOPED SECONDARY MARKET IN INDIA.

EQUITY SEGMENTS : DEBT SEGMENTS :

EQUITY SHARES . DEBENTURES .

PREFERENCE SHARES . ZERO-COUPON BOND

CONVERTIBLE PREFERENCE SHARES . DEEP DISCOUNT BOND

NON-CONVERTIBLE PREFERENCE SHARES .

CAPITAL MARKET INSTRUMENTS :

THE CAPITAL MARKET GENERALLY CONSISTS OF THE FOLLOWING LONG TERM PERIOD i.e. MORE THAN 1 YEAR PERIOD. THE MAJOR FINANCIAL INSTRUMENTS USED FOR A CAPITAL MARKET ARE :

HYBRID INSTRUMENTS :

HYBRID INSTRUMENTS HAVE BOTH THE FEATURES OF EQUITY & DEBENTURE. THIS KIND OF INSTRUMENT IS CALLED AS HYBRID INSTRUMENTS. EXAMPLES ARE: CONVERTIBLE DEBENTURES.

WARRANTS, ETC.

FINANCIAL INTERMEDIATIONWHEN THE BORROWER OF THE FUNDS APPROACHES THE FINANCIAL MARKET TO RAISE FUNDS, ADEQUATE INFORMATION OF ISSUE, ISSUER & THE SECURITY SHOULD BE PROVIDED. SO THERE SHOULD BE A PROPER CHANNEL TO ENSURE SUCH TRANSFER WITHIN THE FINANCIAL SYSTEM. FOR THIS PURPOSE FINANCIAL INTERMEDIARIES CAME INTO EXISTENCE.

IN INDIA FINANCIAL INTERMEDIATION IN THE ORGANISED SECTOR IS CONDUCTED BY VARIOUS INSTITUTIONS UNDER THE VIGILANCE OF R.B.I. IN THE INITIAL STAGE THE ROLE OF INTERMEDIARIES WAS MOSTLY RELATED TO ENSURE TRANSFER OF FUNDS FROM THE LENDER TO THE BORROWER. THIS SERVICE WAS OFFERED BY BANKS, INANCIAL INSTITUTIONS, BROKERS & DEALERS.

HOWEVER, AS THE FINANCIAL SYSTEM WIDENED ALONG WITH THE DEVELOPMENTS TAKING PLACE IN THE FINANCIAL MARKETS, THE SCOPE OF ITS OPERATION TOO WIDENED.

SOME OF THE IMPORTANT INTERMEDIARIES OPERATING IN THE FINANCIAL MARKETS INCLUDE :

•INVESTMENT BANKERS

•STOCK EXCHANGES

•MUTUAL FUNDS

•FINANCIAL ADVISORS

•FINANCIAL CONSULTANTS

•PRIMARY DEALERS, ETC.

EVOLUTION, GROWTH & FUNCTIONS OF INDIAN FINANCIAL SYSTEM

INDIAN FINANCIAL SYSTEM WAS CHARACTERISED BY :•ABSENCE OF ORGANISED CAPITAL MARKET•DEPENDENCE OF INDUSTRIES & OTHER USERS ON INTERNAL SOURCES.•RARE CASES OF PUBLIC ISSUES OF CAPITAL FOR EXPANSION & MODERNISATION.•FEW FINANCIAL INSTITUTIONS & PLAYERS IN THE MARKET.•AWKWARD & VERY STRICT CONDITIONS FOR LOAN ASSISTANCE TO COMPANIES .

NATIONALISATION OF BANKS IN 1969 WAS A MAJOR STEP TO ENSURE THAT TIMELY AND ADEQUATE CREDIT SUPPORT WAS AVAILABLE.GRANT OF CREDIT TO AGRICULTURAL & SMALL INDUSTRIES BY EXPANSION OF RURAL BANKING PROVED TO BE A BOON OFFERED BY THE NEW POLICY.

THE INDIAN FINANCIAL SYSTEM HAS MADE COMMANDABLE PROGRESS IN EXTENDING ITS GEOGRAPHIC SPREAD & FUNCTIONAL REACH. THE SUDDEN BRST OF ACTIVITIES OF BANKING SYSTEM HAS BEEN A MAJOR FACTOR IN PROMOTING FINANCIAL INTERMEDIATION IN THE ECONOMY & GROWTH OF FINANCIAL SAVINGS.

INDIAN MONEY MARKET CONSISTS OF FORMAL & INFORMAL SEGMENTS. THE FORMAL MARKET COMPRISES OF RBI, VARIOUS COMMERCIAL BANKS, COOPERATIVE BANKS, UTI ETC. INFORMAL MARKET CONSISTS OF CHITFUNDS, NIDHIS, INDEGENOUS BANKERS ETC. THE MONEY MARKET INSTRUMENTS INCLUDES TREASURY BILLS, COMMERCIAL PAPERS ETC.

MONEY MARKET HAS GAINED GREATER STRENGTH WITH THE RECENT WORLD WIDE LIBERISATION OF MONETARY & TRADE POLICIES. WITH THE ARRIVAL OF WTO & REMOVAL OF ARTIFICIAL BARRIERS AMONG COUNTRIES BOOSTING FREE FLOW OF GOODS & SERVICES, CAPITAL MARKETS HAVE GROWN MULTIFOLD & THE POTENCIAL OF FUTURE IS EVEN MORE LARGER. WITH THE INCREASING INDUSTRIAL & TRADE ACTIVITIES AFTER LIBERALISATION,THE DEMAND FOR CAPITAL MOBILISATION FROM THE MARKET HAS CROSSED ALL ESTIMATES & GIVING RISE TO MANY INNOVATIONS & REFORMS.THE MARKET PLAYERS IN THE INDIAN CAPITAL MARKET ESSENTIALLY CONSISTS OF VARIETY OF INVESTORS FROM DIFFERENT SECTORS, SUCH AS :SMALL INVESTORS, BANKS, MUTUAL FUNDS, COMPANIES, FINANCIAL INSTITUTIONS & SO ON.

THE INVESTORS ARE EXPECTED TO ENQUIRE & INFORM THEMSELVES ABOUT THE STRENGTHS & WEAKNESSES OF DIFFERENT INSTRUMENTS & THE INSTITUTIONS IN WHICH THEY INVEST OR PLANNING TO INVEST. THEY SHOULD ALSO BE FAMILIAR WITH THE PREVAILING RULES & REGULATIONS OF THE COUNTRY APPLICABLE TO SUCH INVESTMENTS & INSTITUTIONS .THE CONCEPT OF SAFETY, LIQUIDITY & PROFITABILITY OF THE INVESTMENT SHOULD BE CLEAR BEFORE THE INVESTOR MAKES ANY DECISSION TO INVEST.

CONCLUSIONIN INDIA MONEY MARKET IS REGULATED BY RESERVE BANK OF INDIA & SECURITIES EXCHANE BOARD OF INDIA/SEBI REGULATES CAPITAL MARKET. CAPITAL MARKET CONSISTS OF PRIMARY MARKET & SECONDARY MARKET. ALL INITIAL PUBLIC OFFERINGS/IPO’S COMES UNDER THE PRIMARY MARKET, & ALL SECONDARY MARKET TRANSACTIONS DEALS IN SECONDARY MARKET. SECONDARY MARKET REFERS TO A MARKET WHERE SECURITIES ARE TRADED AFTER BEING INITIALLY OFFERED TO THE PUBLIC IN THE PRIMARY MARKET & ARE LISTED ON THE STOCK EXCHANGE. SECONDARY MARKET COMPRISES OF EQUITY MARKET & DEBT MARKETS. IN THE SECONDARY MARKET TRANSACTIONS BSE & NSE PLAYS A GREAT ROLE IN EXCHANGE OF CAPITAL MARKET INSTRUMENTS.