Created by: Siddharth Jogani 1 year, 7 months ago
Financial Markets
Classification of Financial Markets: Organised Markets

There are standardised rules and regulations to be followed and all transactions are under strict supervision and control by various regulatory bodies such as SEBI, RBI, IRDA, etc. This results in high degree of institutionalization and a huge spread with the types of instruments. 

Types of Organised Market: -                                                                                                             1.Capital Market

2. Money Market

1. Capital Market                                                                                                              

It is a market for financial assets which have a long or indefinite maturity. It includes securities with long term maturity (i.e. above one year). The types of Capital Market are: 

A. Industrial Securities Market 

It comprises of the most popular instruments i.e. Equity shares, Preference shares, bonds and debentures. It is a market where industrial concerns raise their capital by issuing appropriate instruments. It is further sub-divided into two:-

       1. Primary Market (New issue market)   

       2. Secondary Market (Stock Exchange)

Primary Market

It is also known as the new issues market, it deals with those securities which are issued to the public for the first time. Primary market facilitates capital formation. There are three ways in which a company may raise capital in a primary market. They are :-

(i) Public Issue                       (ii) Rights Issue                       (iii) Private Placement

Public issue is the most common of these. It is done through sale of securities by a company for the first time. When an existing company wants to raise funds, securities are first offered to its existing shareholders , this is called as rights issue. Private placement is a way of selling securities privately to a small group, which according to SEBI shouldn't exceed 50 investors.

Secondary Market

It is a market for securities which were previously issued in the primary market. These securities are quoted on various stock exchanges. These stock exchanges are regulated under the Securities Contracts (Regulation) Act, 1956 and the regulatory body is Securities Exchange Board of India (SEBI). The principal stock exchange in India is the Bombay Stock Exchange (BSE).

B. Government Securities Market

It is also called gilt Edged Securities market. It is a market where government securities (G-secs) are traded. In India there are many kinds of G-secs are traded. G-secs are sold through Public Debt Office of the RBI. They offer a good source of raising inexpensive finance for the government exchequer and the interest on these securities affect pricing and yields in the market.

C. Long Term Loans Market

Commercial banks and development banks play a significant role in this market by supplying long term loans to corporate customers. It is classified into 3 categories: 

       (i) Term Loans Market        

       (ii) Mortgages               

       (iii) Financial Guarantees Market.

2. Money Market

It is the market for dealing with financial assets and securities which have maturity period of up to one year. It is sub-divided into four parts:

A. Call Money Market 

It is a market for extremely short period loans from say one day to 14 days. So, it is highly liquid. The loans are repayable on demand at the option of the lender or borrower. The interest rates vary from centre-to-centre and time-to-time and sensitive to changes in demand and supply of loans.

B. Commercial bills market

It is a  market for Bills of Exchange arising out of genuine trade transactions. This deals with discounting of bills before due date. In India, the bill market is under-developed. There are no specialised agencies for discounting bills.

C. Treasury bills market

T-bills as they are commonly referred to, are issued by the government. It is highly liquid because of the repayment guaranteed by the Government. There are two types of t-bills i.e. regular and ad-hoc (ad- hoc are issued in favour of RBI only).  T-bills have a maturity period of 91 days or 182 days or 364 days. State Governments do not issue T-bills. They are issued at discount and redeemed at par. Treasury Bills (short term securities) are sold through auctions

D. Short-term loan market

These are the loans given to corporate customers for meeting their working capital requirements. Loans are given in the form of cash credit and overdraft.

Classification of Financial Markets ...
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