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Financial Markets

Study Material on
Financial Markets
Compiled by

Prof. Anil Suvarna

Anil Suvarna
1

Financial Markets

Syllabus
No.

Contents

Section 1: Introduction to Equities
1.1
Indian Financial Markets: An Overview
1.2

Classification of Financial Markets

1.3
1.4

Evolution of Stock Markets in India
History of Stock Exchanges in India

1.5

Management of Stock Markets

Section 2: Equities
2.1
Equities: History, Meaning and Definition
2.2
Types of Trading
2.3
Trading Mechanism and its Modernization
2.4
Clearing and Settlement
Section 3: Derivatives
3.1
Derivatives: History, Meaning and Definition
3.2
Classification of Derivatives
3.3
Features, Types and Players in Derivatives
3.4
Forwards: Meaning, Definition & Limitations
Section 4: Futures
4.1
Meaning
4.2
Terminologies
4.3
Payoff Profile
4.4
Numericals
Section 5: Options
5.1
Meaning
5.2
Terminologies
5.3
Payoff Profile
5.4
Numericals

Anil Suvarna
2

Financial Markets

Section 1: Introduction to Equities

1.1 Financial Markets: An Overview
Financial markets are an integral part of the economy of any nation. They play a key role in the development of the economy. In simple words financial markets facilitate the reallocation of savings from savers to entrepreneurs. In India the financial markets and institutions have, in recent years, undergone significant changes keeping in pace with the changing needs of market participants. Also the market has gone through various stages of liberalization that has increased its degree of integration with the global markets.

In the financial markets savings are linked to investments by a variety of intermediaries through a range of complex financial products called securities. Securities are defined in the Securities Contracts (Regulation) Act, 1956 to include shares, bond, scrip, stocks, or other marketable securities of like nature in or of any incorporate company or body corporate, government securities, derivatives of securities, units of collective investment scheme, interest and rights in securities, security receipt or any other instruments so declared by the Central Government.

Anil Suvarna
3

Financial Markets

1.2 Classification of Financial Markets
The Financial Market Comprises Of Two Broad Groups

Financial Market

Money Market

Capital Market

Gilt-edged Securities
Market

Primary Market

Securities Market

Secondary Market

Money market
The money market is concerned with the borrowing and lending of short- term funds. It deals with near substitutes for money like trade bills, promissory notes and government papers drawn for a short period not exceeding one year. These, short term instruments can be converted into cash readily without any loss and at low transaction cost. This market supplies funds for financing current business operations, working capital requirements, and short period requirements of the Government.

Anil Suvarna
4

Financial Markets
Capital market
Capital market is concerned with the borrowing and lending of long-term funds. The capital markets mobilize the savings of the households and of the industrial concerns, provide them with excellent investment opportunities thus facilitating capital formation in the country. The capital market makes available funds for various projects in the private sector as well as public sector. Also institutions raise funds for projects in the backward areas, which in turn lead to development of the backward areas. A healthy capital market is an indication of a tremendous economic growth and development of a country.

Evolution of capital markets
In India the current structure of capital market has evolved over the years due to constant improvement measures and modifications. A major reason behind this is the growth of Stock Exchanges in India. Due to this it has become possible for many people to be a part of the capital market as they have a...
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