capital market new
TRANSCRIPT
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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Like most time deposit, funds can not withdrawn before maturity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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