This GSEB Class 12 Organization of Commerce and Management Notes Chapter 9 Financial Market Posting covers all the important topics and concepts as mentioned in the chapter.
Financial Market Class 12 GSEB Notes
Concept of Financial Market:
Financial market is an important component of financial structure; ’where transactions are carried out on large scale.
Financial market is mainly divided into two parts:
- Capital market and
- Money market. Capital market is for long-term securities while money market is for short-term securities.
Money Market:
Meaning and Concept:
Money market is a market for short-term instruments. It is for procurement of money by borrowing or for lending the money. It is market for securities maturing within one year or shorter period.
Definition of Money Market:
Money market is a market for dealing in short-term financial assets, having high liquidity with close substitute for money.
Characteristics of Money Market:
- Two parts
- Maturity period is less
- Credit-worthiness is important
- Collective structure of various institutions
- Prompt convertibility into cash
- Sub-branches have developed,
- Debt Instruments and
- Basis of success of money market.
Organized Money Market and Unorganized Money Market:
Money market can be divided into two parts as under:
- Organized Money Market: It consists of Reserve Bank of India, Commercial banks, Mutual funds, etc. It is regulated by Reserve Bank of India. Its financial instruments are mainly: Treasury bills, Commercial papers, Call and Notice money, etc.
- Unorganized Money Market: Unorganized money market is informal, not under regulation of any centralized institution. , Unorganized money market consists of money lenders, landlords, pawn, indigenous bankers, shroffs, etc. more developed in Indian rural areas.
Instruments of Money Market:
The maturity period of the instruments of money market is one year or lesser period. The main instruments are as under:
- Treasury Bills: Treasury bill is a shortterm financial instrument, which is issued by Reserve Bank of India, on behalf of Government of India. It is issued at a discount. It possesses cash liquidity.
- Commercial Papers: Commercial paper is an unsecured and short-term document like a promissory note. It is issued by companies and financial institutions at a discount.
- Certificate of Deposits: Certificate of deposit is unsecured negotiable instrument, to procure short-term finance. It can be published by scheduled commercial banks and financial institutions.
- Commercial Bills: Commercial bill arises out of business transactions on credit. Commercial bill is drawn by seller of the goods on the purchaser who purchases on credit. It is negotiable. There are many types of commercial bills.
- Call and Notice Money: Call money is borrowed or lent for one day. Usually banks participate in the same. When the finance is borrowed or lent for 2 to 14 days, it is called Notice money.
Capital Market:
Capital market consists of Primary market and Secondary market.
Meaning of Capital Market:
Capital market is an organized market which provides fund in the form of capital to industrial enterprises through the savings of the society. It is market for all the types of financial securities. It becomes helpful in the economic growth by mobilizing the savings of the society.
Characteristics of Capital Market:
- Market for long-term capital fund
- Instruments include various securities
- Investment of fund into long-term securities
- Covered under SEBI regulation
- Title of ownership of securities is transferred
- Provides liquidity to financial assets and
- It is divided into two parts.
Meaning of Primary Capital Market:
It is market for new securities. To procure capital fund, market for sale of securities means primary capital market.
Characteristics of Primary Capital Market:
- It is market for newly issued securities,
- New securities are sold
- There are numerous intermediates in primary capital market and
- New capital is issued through prospectus.
Meaning and Explanation: Secondary Market – Stock Exchange:
The oldest and first stock exchange of India is Bombay Stock Exchange. Stock exchange is an organization which provides facility to buy and sell securities.
Characteristics of Secondary Market or Stock Exchange:
- Registered corporate body
- Government approval
- Organized market
- Membership
- Market of securities,
- Listing of securities
- Management
- Strict control over the members
- Organizational Structure and
- Regulation of stock exchange.
Functions of Stock Exchange:
- Liquidity
- Valuation of the securities
- Conversion of savings into capital
- Intermediary in the creation of capital
- Safety in transaction
- Growth of capital market
- Facilities to perform activities
- Necessary facilities for speculation
- Information provider
- Listing of securities and
- Guidance to investors.
Concept of Demat Account:
Demat means dematerialization, which further means securities into physical form will be converted into digital form, i.e., conversion through computer in electronic data. To avail depository service one has to open a Demat account with depository participants.
Meaning and Explanation:
Depository: In India, a company registered under Companies Act, can perform function as depository. Depository has to obtain certificate of registration from SEBI before starting its operations. The primary function of depository is to convert securities from physical form into electronic form and to maintain the same in electronic form.
At present there are two depositories in India:
- NSDL – National Securities Depository Limited and
- CDSL – Central Depository Services (India) Limited.
National Securities Depository Limited – NSDL:
It is a company formed under the Companies Act. Its registration with SEBI was made in 1996. It is managed by Board of Directors. It gets its functions done through its appointed depository participants.
Central Depository Services (India) Limited -CDSL:
It is established in 1999 by Bombay Stock Exchange in collaboration with Banks. The objective of the same is to provide easy and safe services to investors. It publishes the list of participants registered with it from time to time on its website.
Depository Services:
- Dematerialisation and Rematerialisation
- Easy transfer of securities at less expenses
- Prompt settlement of transaction
- Record in customer’s account
- Facility to mortgage
- Facility to freeze or close account
- Record and storage of information
- Link between investor and clearing house and
- Services through internet.
Trading Procedure of Securities:
The share brokers used to gather on the floor of stock exchange and by outcry and different signs of hands they were dealing in transactions of securities. This method in India has come to an end. Now online screen based electronic trade system has come into existence. Investors can purchase or sell securities online.
Online Trading of Securities:
- To open demat account
- Order to buy-sell,
- Execution of order
- Contract note
- Settlement of transaction
- Payment of amount and delivery of security
- Inform to customer about settlement of transaction.
SEBI:
SEBI means Securities and Exchange Board of India. SEBI is a statutory body regulating stock exchanges in India.
Objectives of SEBI:
- To protect the interest of Investors
- To encourage the development of securities’ market and
- To regulate securities’ market.
Functions of SEBI:
- To regulate the business in stock exchange
- Protection of the interest of the investors
- Registration and regulation of intermediaries
- Registration and regulation of mutual funds
- To prevent fraudulent trade
- To cancel registration of brokers
- To regulate the merger and take-over of the companies
- Guidelines with reference to public issues
- Self-regulation
- Maintaining stock exchange as an efficient market
- Inspection of books
- Monitoring and inspection of stock exchange
- Guidelines
- To obtain annual and periodical reports
- Research work.