Financial Markets

About this unit

A financial market brings together those who have surplus funds (savers) and those who need funds (borrowers and investors). This unit explains the role and types of financial markets, the money market and its instruments, the capital market with its primary and secondary segments, the working of stock exchanges with demat accounts and depositories, and the role of SEBI as the regulator of the securities market in India.

Key ideas

• Financial markets mobilise savings, discover prices, provide liquidity and reduce transaction costs.
• The money market deals in short-term funds (up to one year); the capital market deals in medium- and long-term funds.
• Money market instruments include treasury bills, commercial paper, call money, certificates of deposit and commercial bills.
• The primary market issues new securities; the secondary market (stock exchange) trades existing ones.
• Depositories such as NSDL and CDSL hold securities in electronic (demat) form.
• SEBI protects investors and regulates and develops the securities market.

How to prepare

• Prepare a comparison of money market and capital market, and of primary and secondary markets.
• Learn the features of each money market instrument.
• Memorise the steps of the trading procedure and SEBI's protective, developmental and regulatory functions.