1 Financial market.ppt

8/9/2019 1 Financial market.ppt

1/32

Financial Markets and Institutions

Outline of the PresentationFunctions of the Financial MarketsUnderstand the Role of the Direct and

Indirect FinanceTypes of Financial MarketsFinancial Market Analysis

MBA/MS219/U1/L1-L3 1


2/32

Financial Services

Financial Instruments

Financial Markets


Financial Institutions

4 major com onents o! Financial S"stem


3/32

Organizational Structure of IndianFinancial System

Financial System


FinancialInstitutions Financial

MarketsFinancialInstruments

FinancialServices

#e$ulator

"

Interme%iaries

&on-Interme%iaries

't(er s

Bankin$

&on Bankin$

'r$ani)e% Unor$ani)e%

*rimar" Secon%ar "

+a ital Mone", uit"

.e t.erivatives Market

*rimar" Secon%ar "

S(ort0erm

Me%ium 0erm

Lon$ 0erm


4/32

Financial InstitutionsMeaning: business organizations that act asmobilisers and depositors of savings, and aspurveyors of credit or nanceMobilise and transfer the savings or fundsfrom surplus unit to de cit unit

ifurcated into !egulatory and Intermediaries "he regulators are assigned #ith the $ob ofgoverning all the divisions of the Indian

nancial system% 'g: ! I, S' I, ( )", (entraloard of '*cise and (ustoms



5/32

+lso classi ed as intermediaries and nonintermediaries (All banking institutions areintermediaries)

-on banking institutions #hich act asintermediary ."I, /I( and 0I( (called NBFI)-on intermediary institutions: I) I, IF( and-+ +!) came into e*istence because ofgovernmental e1orts (called as NBSFO)

MBA/MS219/U1/L1-L3


6/32

Financial Market

A nancial market is a mechanism thatallows people to easily buy and sell(trade) nancial securities (such as stocksand bonds), commodities (such asprecious metals or agricultural goods),and other fungible items of alue at lowtransaction costs and at prices that

re!ect the e"cient#market hypothesis$

MBA/MS219/U1/L1-L3


7/32

Financial Markets and Financialintermediaries ha e the basic functionsof getting people with surplus funds tothose who ha e a shortage of funds$

%ell functioning of the nancial markets

and nancial intermediaries are crucialto economic health$

MBA/MS219/U1/L1-L3

+ont


8/32

Function of the Financial Markets

Lender-SaversHouseholdsBusiness firmsGovernmentsForeigners

FinancialIntermediaries

Borrower SpendersBusiness FirmsGovernments

HouseholdsForeigners

FinancialMarkets

Funds Funds

Funds

Funds Funds



9/32


10/32MBA/MS219/U1/L1-L3 1:


11/32

Financial System 4 'conomic)evelopment

MBA/MS219/U1/L1-L3 11

'conomic)evelopment

Saving & Investment orCapital Formation

Surplus SpendingEconomic Units

Income minus(Consumption + O wn

Investment)Surplus or Saving

Decit Spending EconomicUnits

Income minus(Consumption + O wn

InvestmentDecit or Negative Saving

Financial S"stem


12/32

Functions of the Financial Markets

Person A is having a powerful idea and Person B ishaving surplus fundsThe Role or function of the financial !arkets "#ondsand $tock !arkets% is get people like A and B togetherThis re&uires flow of funds fro! savers to #orrowersThis flow can occur in two ways' Direct Finance andIndirect finance route

MBA/MS219/U1/L1-L3 12


13/32

Direct and Indirect Finance

Direct Finance( Borrowers #orrow funds directly fro!the lenders in the financial !arkets #y selling the!

securities "financial instru!ents%) which are clai!s onthe #orrower*s future inco!e or assets

$ecurities are assets for the person who #uys the! #utlia#ilities to the person or fir!s that sells or issue the!

MBA/MS219/U1/L1-L3 13


14/32

Direct and Indirect Finance&ndirect Finance' orrowers borrow fundsthrough nancial intermediaries(banks,insurance companies, pension funds) inthe form of loans and deposits$

anks issue a liability(sa ing deposits,time deposits etc) use these funds toac uire an asset by a loan to *ondamotors or by buying *onda motors bondsin the nancial markets$

MBA/MS219/U1/L1-L3 14


15/32

Function of the Financial Markets

Lender-SaversHouseholdsBusiness firmsGovernmentsForeigners

FinancialIntermediaries

Borrower SpendersBusiness FirmsGovernmentsHouseholdsForeigners

FinancialMarkets

Funds Funds

Funds

Funds Funds

IN I!"#$ FIN%N#"

I!"#$ FIN%N#"MBA/MS219/U1/L1-L3 1


16/32

&h' this channeling of Funds so

important for the econom'(Financial !arkets are essential to pro!ote econo!icefficiencyFinancial !arkets are essential to increase production

Financial !arkets are helpful to fulfill you drea!sFinancial !arkets enhance entrepreneurialdevelop!ent and national welfare



17/32


18/32

(lassi cation of FinancialMarkets

Financial Market

MBA/MS219/U1/L1-L3 15

Mone" Market +a ital Market

*rimar" Secon%ar "

*rimar" Secon%ar "

+allMone"

+ommercialBills

0reasur"Bills

S(ort0erm LoanMarket

StockMarket

.e tMarket

MutualFun%s


19/32

$'pes of Financial Markets

The financial !arkets can #e divided into differentsu#types(

-apital !arkets which consist of($tock !arkets ) which provide financing through the

issuance of shares or co!!on stock) and ena#le thesu#se&uent trading thereof

Bond !arkets ) which provide financing through theissuance of #onds) and ena#le the su#se&uent tradingthereof

MBA/MS219/U1/L1-L3 19


20/32

(ont5%%

-o!!odity !arkets ) which facilitate the trading ofco!!odities

Money !arkets ) which provide short ter! de#tfinancing and invest!ent

Derivatives !arkets ) which provide instru!ents forthe !anage!ent of financial risk

Futures !arkets ) which provide standardi,ed forward

contracts for trading products at so!e future date

MBA/MS219/U1/L1-L3 2:


21/32

(ont5%%Insurance !arkets ) which facilitate theredistri#ution of various risks

Foreign e.change !arkets ) which facilitate thetrading of foreign e.change

MBA/MS219/U1/L1-L3 21


22/32

6rimary and Secondary

MarketsThe capital !arkets consist of pri!ary !arkets and secondary!arkets A pri!ary !arket is a financial !arket in which new issues

of a security such as #ond or stocks are sold to initial #uyers#y the corporations or /overn!ent

$econdary !arkets deals with securities that previouslyissued These securities are resold in these !arkets

MBA/MS219/U1/L1-L3 22


23/32

Functioning of the Secondar'Markets$econdary !arkets !ake the financial instru!ents

!ore li&uid

They deter!ine the price of the securities those areissuing fir!s sale in the pri!ary !arkets

$o) condition in the secondary !arket enhances thecredi#ility of the corporations

0ence) we will focus !ore on the functioning of thesecondary !arkets

MBA/MS219/U1/L1-L3 23


24/32

6rimary vs% Secondary

MarketsP+&MA+ P+&MA+ -e# Issue ofSecurities

'*change of Fundsfor Financial (laim

Funds for orro#er7an IO. for /ender

-./O01A+ -./O01A+ "rading 6reviouslyIssued Securities

-o -e# Funds forIssuer

6rovides /i8uidity forSeller

MBA/MS219/U1/L1-L3 24


25/32

Money vs% (apitalMarketsMoneyMone y

Short "erm, 9 ;earMeans of li8uidity

ad$ustment


26/32

6layers in Money Market(entral ank 26residing )eity of MoneyMarket3 not only #atchdog but alsopromotional 4 development banker(ommercial anks(o operative anks)iscount 4 +cceptance


27/32


28/32

In%ian Mone" Market

Unor$ani)e% 'r$ani)e%

;in%i$enous ankers < mone"len%ers;0(e" a%vance loan a$ainstcollateral securit"; 'utsi%e t(e control o! t(e central

ank;#ate o! interest %i!!er !rom t(eor$ani)e% sector

;+onsist o! #BI= SBI < itssu si%iaries= commercial anks=!inance cor = ill market < ullionmarket;Mum ai= >olkata < .el(i are

rinci al centres

MBA/MS219/U1/L1-L3 25


29/32

anking System )ominantforce in the Indian MoneyMarket

MBA/MS219/U1/L1-L3 29

#eserve Bank o! In%ia 8#BI

Sc(e%ule% Banks &on Sc(e%ule% Banks

+entral +o-o erative Banks< *rimar" +re%itSocieties

&on-Sc(e%ule%+ommercialBanks

State +o-o erativeBanks

+ommercialBanks

Forei$n Banks In%ian Banks

*u -Sector Banks *vt Sector Banks

SBI < itsassociates

#e$ional

#ural Banks&ationali)e%Banks


30/32

Money Market Securities)ebt securities Only

(apital market securities)ebt and e8uity securities

)erivative SecuritiesFinancial contracts #hose value is derived from thevalues of underlying assets.sed for hedging 2risk reduction3 and speculation2risk seeking3

MBA/MS219/U1/L1-L3 3:

Securities 0ra%e% in FinancialMarkets


31/32

Financial Market +nalysis

Financial Market Analysis deals with the perfor!anceof a particular financial !arket "s% The perfor!anceof a financial !arket depends upon the perfor!anceof the total nu!#er of securities that are traded in that!arket

1n a given day when the !arket closes with the pricesof !ost of its securities on the higher side) then it could

#e said to have perfor!ed well This is reflected in a !arket indicator called Inde.which tracks the perfor!ance of so!e of the !orepopular and steady securities that are traded in that

particular financial !arketMBA/MS219/U1/L1-L3 31


32/32

Market inde*es of the#orldFootsie ) London financial market

ow *ones ) New +ork financial market

Hang Seng ) Hong ,ong financialmarketBS" Sense ) Mum.ai financial market

Nikkei ) $ok'o financial market Nift' ) Indian national financial market

Documents

1 Financial market.ppt