Capital Market New

8/9/2019 Capital Market New

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Indian

financialsystem

Financial

institutions

financialinstruments

Financialservices

Financialmarkets

Money

market

Capitalmarket


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MONEY MARKET

As per RBI definitions A market for short terms financial assets that are close

substitute for money, facilitates the exchange of money in primary and secondary

market

The money market is a mechanism that deals with the lending and borrowing of

short term

funds (less than one year).

A segment of the financial market in which financial instruments with high

liquidity and very short maturities are traded. It doesnt actually deal in cash ormoney but deals with substitute of cash like trade bills, promissory notes & govt

papers which can converted into cash without any loss at low transaction cost.

It includes all individual, institution and intermediaries.


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FEATURES OF MONEY MARKETIt is a market purely for short-terms funds or financial assets called near

money.

It deals with financial assets having a maturity period less than one year

only.

In Money Market transaction can not take place formal like stockexchange, only through oral communication, relevant document and written

communication transaction can be done Transaction have to be conducted

without the help of brokers.

It is not a single homogeneous market, it comprises of several submarketlike call money market, acceptance & bill market.

The component of Money Market are the commercial banks, acceptance

houses & NBFC (Non-banking financial companies).


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INSTRUMENTS OF MONEY MARKETS

Commercial papers.Certificate of deposit.

Money Market mutual fund.

Treasury bills.

C

ommercial bills, promissory notes in the bill market.


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Treasury bills rate of interest.

maturities.

denomination

investors.


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Certificates of deposit

A CD is a time deposit with a bank.

Like most time deposit, funds can not withdrawn before maturity

without paying a penalty.

CDs have specific maturity date, interest rate and it can be issued

in any denomination.

The main advantage ofCD

is their safety.

Anyone can earn more than a saving account interest.


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Commercial papers

CP is a short term unsecured loan issued by a corporation typically

financing day to day operation.

CP is very safe investment because the financial situation of a

company can easily be predicted over a few months.

Only company with high credit rating issues CPs.


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Disadvantage of Money Market

Purchasing power of your money goes down, in case of up ininflation.

Absence of integration.

Absence of Bill market.

No contact with foreign Money markets.

Limited instruments.

Limited secondary market.

Limited participants.


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Capital Market:

A capital market is a market for securities (debt orequity), where business enterprises (companies) and

governments can raise long-term funds. It is defined as a

market in which money is provided for periods longer

than a year[1], as the raising of short-term funds takes

place on other markets (e.g., the money market).


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Capitalmakts

Bondmkt

Stockmt

Primar

mkt

Sec

mkt


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Bond Market:The debt market is the market where debt instruments are traded.

Debt instruments are assets that require a fixed payment to the

holder, usually with interest. Examples of debt instruments include

bonds (government or corporate) and mortgages.

Stock Market:The equity market (often referred to as the stock market) is the market

for trading equity instruments. Stocks are securities that are a claim

on the earnings and assets of a corporation (Mishkin 1998). Anexample of an equity instrument would be common stock shares, such

as those traded on the New York Stock Exchange.


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Bond market stock market

Issuing a bond does increase the debt

burden of the bond issuer becausecontractual interest payments must be

paid unlike dividends, they cannot be

reduced or suspended.

Bonds are considered to be less risky

investments.

should the company run into trouble,

bondholders are paid first, before other

expenses are paid.

bondholders do not gain ownership in the

business or have any claims to the future

profits of the borrower. The borrowers only

obligation is to repay the loan with interest

Bond holders do not have claims on the

future earnings of the firm

Much larger market

Equity financing allows a company to

acquire funds (often for investment) withoutincurring debt. there are no compulsion for

the borrowers to pay dividends.

Equities are considered to be more risky

instruments.

If the company runs into losses first other

expenses are paid and lastly if anything is

left the shareholders are paid.

Those who purchase equity instruments

(stocks) gain ownership of the business

whose shares they hold (in other words,

they gain the right to vote on the issues

important to the firm). In addition, equity holders have claims on

the future earnings of the firm.

Much smaller market compared to bond

market


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Importance For Economic Growth

Stock market:The stock market is equally important for economic activity because it

affects both investment spending and consumer spending decisions. The

price of shares determines the amount of funds that a firm can raise by

selling newly issued stock. That, in turn, will determine the amount of

capital goods this firm can acquire and, ultimately, the volume of thefirms production.

Bond market:The bond market is vital for economic activity because it is the marketwhere interest rates are determined. Interest rates are important on a

personal level, because they guide our decisions to save and to finance

major purchases (such as houses, cars, and appliances, to give a few

examples). From a macroeconomic standpoint, interest rates have an

impact on consumer spending and on business investment.


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Prepared by:

Sunil Jain 16

Sumeet . M 26

Vijay Shinde 45Mahesh Soni 47

Sunoj Subhagan 48

Pawan Kotai 61


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Documents

Capital Market New