Financial market

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FINANCIAL MARKET
FFT-1: DILAFRUZ NABIEVA
Business English

AGENDA

• Financial system;
• Financial markets;
• How allocation funds work;
• Functions of financial market;
• Money market;
• Features of money market;
• Sub markets of Indian money market;

GLOSARRY

• Share - Shares are units of equity ownership in a corporation. For some companies, shares exist as a financial asset providing for an equal distribution of any residual profits, if any are declared, in the form of dividends;
• Debenture - A debenture is a type of bond or other debt instrument that is unsecured by collateral;
• Bond - A bond is a fixed-income investment that represents a loan made by an investor to a borrower, usually corporate or governmental;
• Government securities are government debt issuances used to fund daily operations, and special infrastructure and military projects;
• RBI- Reserve bank of India;
• NBFCs - Nonbank financial companies (NBFCs) are entities or institutions that provide certain bank-like and financial services but do not hold a banking license.
• Rediscount - A rediscount occurs when a short-term negotiable debt instrument is discounted for a second time.
• IPO(initial public offering) - An IPO is an initial public offering. In an IPO, a privately owned company lists its shares on a stock exchange, making them available for purchase by the general public. 

FINANCIAL MARKETS

• Financial markets facilitate buying and selling of financial instruments or services. It is a market for the creation and exchange of financial assets such as shares, debentures, bonds and Government securities.

• A business is part of an economic system;
• An economic system consists of two sectors, households and business firms;
• Households saves funds and business firms invest the funds ;
• Financial market act as an intermediary which makes possible the transfer of funds from the savers to the investors;

CONCEPT OF FINANCIAL MARKETS

HOW ALLOCATION OF FUNDS WORKS?

• There are two alternatives through which allocation of funds can be done - Banks and financial markets
• Households can deposit their surplus funds with banks. Banks lend these funds to business firms.
• Households can also buy shares and debentures offered by business through the financial markets.
• The process of allocation of funds is known as financial intermediation.

Features of Money Market

• Participants- RBI , Commercial Banks , NBFCs, Mutual Funds and State governments ;
• Instruments – short term debt instruments;
• Investment outlay –transactions entail huge sum of money ;
• Duration - tenure of maximum one year; can be a single day ;
• Liquidity - Enjoy a high degree of liquidity ;
• Safety – Short term duration of transactions ensures greater safety;
• Location – No physical location;
• Returns – expected returns are less compared to other markets ;
• Security- Instruments traded are unsecured;

Call Money Market(CMM)

• Day-to-day surplus funds of banks and financial institutions are dealt with;
• Helps to maintain statutory reserve fixed by RBI;
• Duration 1 day – 14 days;
• Located in cities like Mumbai, Kolkata, Ahmedabad, Chennai;
• CMM functions from Monday to Friday;

Commercial bill market

• Market for bill of exchange;
• Discounted bills are rediscounted in the commercial bill market;
• Provides short term liquidity to banks;
• RBI,LIC,UTI,GIC,ECGC offer re-discount facilities;

Treasury bill market
• Short-term borrowings made by government;
• Issued at a discount on face value & repayable at par;
• RBI issues T bills;
• Issued on ‘On tap’ & ‘On auction” basis;
• Duration 14 -364 days;

Commercial Paper(CP)

• Commercial Paper is a short term unsecured promissory note, with a maturity period ranging from 15 days to 270 days.
• CP is sold at a discount and redeemed at par.
• CP serve as an important source of working capital

Certificate of deposit(CD)
• A document of title issued by commercial banks on deposits
• Traded in money market
• Introduced in 1989
• Minimum amount is Rs.1,00,000
Features of CD’s
• Negotiable instruments
• Issued at a discount on the face value
• Period 3 months – 1 year
• Marketable after 45 days of issue
• Issuing banks are not allowed to buy back CD’s before maturity
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