My It Ppt on financial market

7/28/2019 My It Ppt on financial market

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Raj Joisar Roll No :- 44

Parikshit Ramjiyani Roll No :- 23

Mansi Shah Roll No :-30Disha Shah Roll No :- 27

Omkar Lotankar Roll No :- 65


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Mechanism that allows people to buy and sell financialsecurities (such as stocks and bonds) and items of value atlow transaction cost.

Markets work by placing many interested buyers andsellers in one place, thus making easier for them to findeach other.


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Financial Markets facilitate :

The raising of capital The transfer of risk

International trade


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Borrower : Issues a receipt to Lender promising to

payback the capitalReceipts : Securities which may be freely bought or sold.

Lender : Will expect some compensation in form ofinterest or dividends, in return.


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It includes money lenders, indigenous bankers, tradersetc., who lend money to he public. Indigenous bankers alsocollect deposit from the public.

There are also private finance companies, chit funds etc.,

whose activities are not controlled by RBI. Non-banking Financial Companies (Reserve Bank)Directions, 1998 for regulations.


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In the organized markets, there are standardized rules andregulation governing financial dealings. These markets aresubject to strict supervision and control by the RBI or otherregulatory bodies.

Organized markets are classifies into(i) Capital Market (ii) Money Market


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Purely for short term funds

It deals with financial assets having a maturity period upto one year only

It deals with those assets which can be converted into cashreadily without loss and with minimum transaction cost

There is no formal place like stock exchanges of a Capitalmarket

It is a heterogeneous market call money market, billmarket etc.


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To provide a parking place to employ short-term surplusfunds

To provide room for overcoming short-term deficits

To enable the central bank to influence and regulateliquidity in the economy through its intervention in thismarket

To provide a reasonable access to users of short-term funds

to meet their requirements quickly, adequately and atreasonable costs.


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INVESTMENT FUNCTIONS : The money market providesan ideal source for investment of the funds for a short periodof time for commercial banks, non-banking financialconcerns, business corporations and other investors.

FINANCING FUNCTION : Money market provides anideal source for short-term financing for industrial houses,traders, etc. to meet their day-to-day requirements of workingcapital.

FACILATING FUNCTION : Money market servers as anideal play ground for the central monetary authority of thecountry to carry out the various regulatory operations relatingto the banking and financial system to the country


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The sub-markets of a money market are (i) Call moneymarket (ii) Commercial bills market (iii) Treasury billmarket (iv) Acceptance market

Money market instruments are : (i) Treasury bills (ii)

Money at call (iii) Commercial bills and Promissory notes(iv) Commercial papers (v) Certificate of deposits (vi) Inter-bank participation certificates (vii) Repo Instruments


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A commercial paper is an unsecured promissory note issuedwith a fixed maturity by a company approved by RBI.

All private sector company, Public sector unit, Non-bankingcompanies can issue commercial papers

Individuals, banks, corporate and also NRIs can be theinvestors

These are redeemable at par to the holder at maturity


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A company can issue commercial paper only if it has: (i) tangiblenet worth of not less than Rs.4 Cr as per latest balance sheet.

(ii) Minimum current ratio of 1.33:1(iii) A fund based working capital limit of Rs. 4 cr or more(iv) Listed in stock exchange

(v) P2 and A2 rating from CRISIL etc.,


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Commercial paper shall be issued in multiples of Rs. 5 lakhbut the minimum amount to be invested by a single investorshall be Rs. 25 lakh

The commercial paper shall be issued for a minimum periodof 7 days and the maximum period of months from the date ofissue.

In US- it varies between 3 to 270 days.

The company can issue CPs to the extent of 75% of workingcapital limit.


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Certificate of deposits are short term deposit instrumentsissued by banks and financial institutions to raise large sums

of moneyIssuers are commercial banks and financial institutions andsubscribers are individuals, corporations, NRIs etc.,

These are marketable receipts in bearer or registered form

of funds deposited in a bank for a specified period at aspecified rate of interest.

These are issued at a discount and there is no lock-inperiod.


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The denomination of Certificate of deposits could be inmultiples of Rs. 1 lakh subject to minimum size of an issueto a single investor being Rs. 5 lakh.

The Certificate of deposits are short term depositinstruments with maturity period ranging from 3 monthsto one year.

Certificate of deposits cannot be bought back by issuinginstitutions, nor can the lend against Certificate of deposits.


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A treasury bill represents short term borrowing of theGovernment. It is a promissory note issued by theGovernment under discount for a specified period stated

therein. The Government promises to pay the specified amountmentioned therein to the bearer of the instrument on thedue date.

Treasury bills are issued by the RBI on behalf of theGovernment.


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Ordinary treasury bills are issued to the public and otherfinancial requirements of the Central Government. These

bills are freely marketable.Ad hocs treasury bills are always issued in favour of theRBI only. The holders of these bills can always sell themback to the RBI.

9 1 days, 182 days and 364 days trasury bills Treasury bills are available for a minimum amount of Rs.25,000 and in multiples.


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Treasury bills are issued through a bidding process atauctions. The bid can be prepared either competitively ornon-competitively

In non-competitive bidding, return required is notspecified and the one determined at the auction is receivedon maturity.

Whereas, in case of competitive bidding, the return

required on maturity is specified in the bid. In case thereturn specified is too high then the Treasury bills mightnot be issue to the bidder


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NOTIFICATION : The RBI issues notifications for thesale of treasury bills through auction. While 91-daysTreasury bills are auctioned every week on Wednesdays.The notification mentions the date of auction and last datefor submission of tenders


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TENDERING : Immediately after the issue of

notification by the RBI, investors are permitted to submitbids through separate tenders, The result of the auction

mentioning the price up to which bids have been

accepted is displayed. The successful bidders are

expected to collect letter of acceptance from the RBI anddeposit the same together with a cheque on RBI.

SGL : SGL (settlement guarantee limit) is maintained by

the RBI for facilitating the purchases and sales of

Treasury bills by the investors.

DFHI : Where SGL facility is not available to certain

investors. Purchase and sale takes place through DFHI

(Discount and Finance House of India).


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Liquidity

No Default Risk

Availability (transaction cost and capital investment) Safe return

Perfect Hedge


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The RBI introduced participation certificates (PCs) inApril 1970. The Participation Certificate is an instrumentwhereby a bank can sell to a third party (transferee) a partor all of a loan made by the bank to a client (the borrower).

The Participation Certificates scheme was replaced by twotypes of Inter-Bank participations, one on risk sharingbasis and the other without it. Any schedule commercial

bank having less liquidity can issue inter-bankparticipation certificate for fund in order to meet shortterm requirements.

Participation is restricted , minimum 90 days andmaximum 180 days.


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A commercial bill is one which arises out of a genuine tradetransaction (credit). As soon as goods are sold on credit, theseller draws a bill on the buyer for the amount due. The buyeraccepts it immediately agreeing to pay the amountmentioned therein after a certain specified date.

Section 5 of the Negotiable Instruments Act, 1881, defines abill of exchange as follows : An instrument in writingcontaining an unconditional order, signed by the maker,directing a certain person to pay a certain sum of money only

to, or to the order of a certain person or to the bearer of theinstrument.


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Three Parties

(i) The person who gives the order to pay or who makesthe bill called.

(ii) The person who is directed to pay is called thedrawee. When the drawee accepts the bill, he iscalled the acceptor.

(iii) The person to whom the payment is to be made is

called the payee.


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Demand Bill : A demand bill is payable on demand, i.e.,immediately at sight or on presentation to the drawee.

Usance Bill : is payable after a specified time.

Clean Bill : In this bill, documents are enclosed and deliveredagainst acceptance by the drawee, after which it becomes clear.

Documentary Bill : Documents are delivered against paymentaccepted by the drawee and the documents of the file are held bythe bankers till the bill is paid.

Inland Bills : Bills must (a) be drawn or made in India and mustbe payable in India; or (b) drawn upon any person resident inIndia.

Foreign Bills : (a) drawn outside India and may be payable inand by a party outside India, or may be payable in India or drawnon a party in India (b) it may be drawn in India and payable outsideIndia


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The call money market refers to the market forextremely short period loans. The period ranges fromovernight to a fortnight. Call money is repayable on theimmediate next working day, notice money is repayable

within a fortnight.

Banks with surplus funds lend to other banks withdeficit funds in the call money market.

Borrowers and lenders, in a call market contact eachother over telephone. After negotiations over the phone,

they arrive at a deal specifying the amount of loan and therate of interest.

Instead of negotiating the deal directly, it can be routedthrough the DFHI (Discount and Finance House of India)


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Repo stands for Repurchase. Under repo transaction, theborrower parts with securities to the lender with an

agreement to repurchase them at the end of the fixedperiod at a specified price.

At the end of the period, the borrower will repurchase thesecurities at the predetermined price.

The difference between the purchase and the originalprice is the cost for the borrower. This cost of borrowing iscalled repo rate


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An inter corporate deposits (ICD) is an unsecured loanextended by one corporate to another. This market allowscorporate with surplus funds to lend to other corporate.

Also the better-rated corporate can borrow from thebanking system and lend in this market. As the cost offunds for a corporate is much higher than that for a bank.


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Existence of Unorganized Money Market : The majordefects of Indian money market have always been theexistence of the indigenous bankers who do not distinguishbetween short-term and long-term finance, nor even

between the purposes of finances.

Absence of Integration : An important defect of theIndian money market at one time was the division of themoney market into several segments or sections, loosely

connected to each other. Diversity in money rates of interest : Another defect ofthe Indian money market related to existence of too many

rates of interest.

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