MONEY MARKET

CALL MARKET Short term (few days) borrowing and lending mainly by banks. To meet mismatches in fund requirement. (CRR requirement of Banks) Call rate is the rate at which money is lent. The rate is set by demand and supply forces in the market. No benchmark rate set by any authority. The market is not regulated but the players are.

MONEY MARKET
Commercial Paper (CP) Issued by companies to meet short term fund requirements Tradable instrument and can be transferred by endorsement. Issued in multiples of Rs. 5 Lakhs. Maturity between 7 days (revised from 15 days earlier) to a year. Are unsecured (not backed by any assets) Issued at discount to face value. Compulsory rating of the company required. (minimum of P2)

MONEY MARKET
Certificate of Deposit (CD) Issued by Banks and select few Financial institutions permitted by RBI only to meet their short term fund requirement. Tradable instrument and can be transferred by endorsement. Issued at discount to face value. Minimum amount is Rs.1 lakh and in multiples of it thereof.

Minimum maturity period of 15 days. Maximum 1 year.

MONEY MARKET
TREASURY BILL (T-BILL) Short Term debt instrument issued by RBI on behalf of Government of India. Issued at Discount to Face value. Minimum Value of Rs.25,000 and multiples thereof. Firms, companies, corporate bodies, trusts and institutions can purchase the bills

91-day, 182-day and 364-day T-bill are the three types being issued. 14-day T-bill have been discontinued.

MONEY MARKET
Forex (Foreign Exchange) Market Market for buying and selling of currencies. Participants include Companies (Importers/Exporters) and Banks. In India only Authorized dealers (Entities licensed by RBI) are allowed to transact (buy/sell) in forex market. It can be divided into two segments, Spot market and forward market. In the spot market the transaction occurs within two days, while in forward market the transaction occurs at a specified future date. (Usually not greater than 6 months) No organized exchange. The transactions occur on Phone.

CAPITAL MARKETS

DEBT MARKET

EQUITY MARKET

EQUITY MARKET

Primary Market Issue Rights Bonus

Secondary market

Cash

Derivative

Futures

Options

Before discussing about primary & secondary market we try and understand the concept of Stock Market

STOCK EXCHANGE
A market to buy and sell financial securities (shares, debentures, etc) An equity share represents ownership in the company. Only equity share of a company is traded on an exchange. Debenture is a debt instrument and hence represents a claim on the company. A companys share/debenture must be listed on the exchange for it to be traded. In India currently there are two National exchanges, BSE (Bombay Stock Exchange) and NSE (National Stock Exchange), apart from 20 regional stock exchanges Close to 6500 companies are listed on BSE while about 930 are listed on NSE.

PRIMARY MARKET Primary Market is the medium for floating public issues. Public issue means an invitation by a company to the public to subscribe to the securities offered through a prospectus. The Primary market infuses new listed securities in the market generated through new public issues floated regularly and thus enlarges the security base traded in the secondary market.

SECONDARY MARKET Is that segment of the market where already issued securities are traded.

TRADING MECHANISM
Investor have to go though a broker for the purpose of transacting in an exchange. They issue instruction to the broker (also called order) to buy or sell a security at the stated price or at the market rate. Once the order is executed (for e.g. buy order) the broker issues a Transaction statement to the investor, detailing the Name, price and quantity of the security bought on his behalf. The trade is settled in two days wherein the investor makes the payment and he gets the securities in his account.

SEBI (Securities & Exchange Board of India)

SEBI is the authority regulating the securities market of India. All the listed companies have to comply with its rules. Companies are allowed to issue capital provided the issues are in conformity with the published guidelines relating to disclosure ad other matters relating to investor The stock exchanges also come under the purview of SEBI. The functioning of stock exchanges is regulated by SEBI.

CAPITAL MARKET
DEBT MARKET Comprises mainly of government securities and corporate debentures and bonds of financial institutions. Bonds are debt instruments issued by Central government, state government or undertakings owned by government. Instruments issued by other entities are called debentures. All the securities have original maturity of more than 1 year and most are coupon bearing securities. The interest on government securities is paid half-yearly. The securities are issued by RBI on behalf of government of India

GDR
GDR (Global Depository Receipt) Is a receipt created by overseas depository bank outside India and issued to non-resident investors against the issue of ordinary shares of the issuing company. It is denominated in the currency of the place where it is listed.

GDR holders are also entitled to dividends and voting rights. The only difference is that the right is exercised by the overseas depository which holds the shares.

DERIVATIVES
Is a contract between two parties to buy or sell an underlying security at a fixed price at a future date. Futures, Forwards, options and swaps are the four basic class of derivative instrument. A futures is a contract between two parties to buy or sell an underlying at an agreed price at some future date.

Forward contract like a future is a contract to buy or sell at a future date. However a forward contract is not standardized or exchange traded. The contract can be customized to the needs of the two parties very much unlike the futures, which is standardized.

An option gives the buyer the right to buy (sell) an underlying on a future date at the contracted price.

A swap is a contract between two parties wherein they agree to exchange series of future payments.