FINANCIAL MARKETS AND INSTITUTIONS

MS-223
ASSIGNMENT

Its Definition
It is a platform that facilitates traders to buy and sell financial instruments and securities.
For example, a bank where an individual maintains a savings account. The bank can
use their money & the money of other depositors to loan to other individuals and
organizations and charge an interest fee.
The depositors themselves also earn & see their money grow through the interest
that is paid to it. Therefore, the bank serves as a financial market that benefits both
the depositors & the debtors.
Transactions in Financial markets is of 3 forms:
• Securities (stocks, bonds, etc)
• Instruments (commercial papers, bills, cheques, etc)
• Commodities (precious metals, agricultural products, etc)
Financial markets are known for transparent pricing, strict regulations and clear guidelines.

Raj Kumar
00111403919
MBA 3rd SEM
 FINANCIAL MARKETS AND INSTITUTIONS
MS-223
ASSIGNMENT
Its Importance
1. Play a major role in the economic growth of the country, by mobilizing savings for
productive investment and facilitating capital inflows.
2. They act as an intermediary between savers and investors, & they help savers to
become investors.
3. They also help businesses to raise money to expand their business.
4. They provide individuals, companies, and government organizations with access to
capital.
5. Financial markets help lower the unemployment rate because of the many job
opportunities it offers.

Its Functions
1. Determine the price:
Demand & supply of an asset in a financial market helps to determine their price.
Investors are the supplier of the funds, while the industries are in need of the funds.
Thus, the interaction between these two participants and other market forces helps
to determine the price.

2. Savings mobilization:
For an economy to be successful it is crucial that the money does not sit idle. Thus, a
financial market helps in connecting those who have money with those who require
money.

3. Ensures liquidity:
Buyers & sellers can decide to trade their securities anytime. They can use financial
markets to sell their securities & make investments as they desire.

4. Saves time and money:

5. Lowers the cost of transactions:

Raj Kumar
00111403919
MBA 3rd SEM
 FINANCIAL MARKETS AND INSTITUTIONS
MS-223
ASSIGNMENT
its Classifications
1. By nature of assets
I. Stock market:
 This is the market where shares of the company are listed and traded after their
IPO after that Investor can buy and sell shares in publicly traded companies.
II. Bond market:
 Also known as Debt, Credit, or Fixed-income market This market allows
companies and the government to raise money for investment.
 Investors buy bonds from a company, which later returns the amount of bond
with the agreed interest.
 These are issued by corporations, municipalities, states, and federal
governments.
III. Commodities market:
 The commodities market is where traders & investors buy and sell natural
resources or commodities such as corn, oil, meat, and gold.
 The price of these natural resources is to be delivered at a given future time is
already identified and sealed today.
IV. Derivatives market:
 this market involves derivatives or contracts whose value is based on the market
value of the asset being traded.
 Examples: - Forward Contracts, Future Options, Swaps, and Contracts-for-
difference.

2. By nature of claim
I. Equity Market:
 It is a market where investors deal with stocks or other equity instruments. It is
basically the market for residual claims. It is also known as the Stock market.
II. Debt Market:
 In this market, investors buy and sell fixed claims or debt instruments, like
debentures or bonds.
 Wholesale Debt Market – comprising of investors like Banks, financial
institutions, RBI, insurance companies, Mutual funds, corporates, & FIIs.
 Retail Debt Market – comprising of investors like individuals, pension funds,
private trusts, NBFCs, & other legal entities.

Raj Kumar
00111403919
MBA 3rd SEM
 FINANCIAL MARKETS AND INSTITUTIONS
MS-223
ASSIGNMENT
3. By maturity of claim
I. Money Market:
 The markets where investors buy and sell securities that mature within a year are
the money market.
 Examples: commercial paper, certificate of deposits, treasury bills, and more.
 The transaction is made in the instruments issued by the financial institutions.
 There is a formal agreement of creating liquidity, so it is more secure.
 In Indian, Money Market consists of the Reserve bank of India, Commercial
banks, Co-operative banks, Non - banking financial companies (NBFC), and
Financial markets like LIC, GIC, UTI, etc.
II. Capital Market:
 Markets, where investors buy and sell medium- & long-term financial assets, is a
capital market.
 There are two types of capital market:
a) Primary Market where a company issues its shares for the first time (IPO)
Initial Public Offering, example Alibaba Group IPO.
b) Secondary Market or Stock Market where buyers and sellers trade already
issued securities in the primary market. ex: NSE (national stock exchange).
 The issue of new stocks is first offered in the primary stock market, and then
stock securities trading happens in the secondary market.

4. By timing of delivery
I. Spot/Cash Market:
 It is a market place where trade is completed in real-time at the current price
market.
II. Futures Market:
 In this market, settlement & delivery take place at a future specified date.

5. By organizational structure
I. Exchange Traded Market:
 A market with centralized authority and set regulations are Exchange Traded
Market, like SPDR S&P 500 ETF (SPY).
II. Over-the-Counter Market (OTC):
 It is a type of secondary market where Markets with customized procedures
and decentralized organization is an OTC market.
 They manage public stock exchange, which is not listed on the Stock market.

Raj Kumar
00111403919
MBA 3rd SEM