PLAYERS OF MONEY MARKET AND CAPITA MARKET

PAWEL KU. GAUTAM PRATIK DUBEY SACHIN DHAMODKAR

What Is Financial Market ?

A financial market is a market in which people and entities can trade financial securities, commodities and other fungible items of value at low transaction costs and at prices that reflect supply and demand . Securities include stocks, bonds and commodities include precious metals or agricultural goods .

Functions Of Financial System

RETURN

COST Financial Market

N V E S T O R

B O R R O W E R S

Characteristics Of Financial Markets

Types Of Financial Market

What Is Money Market

"The Money Market is the centre for dealing

mainly of short character, in monetary assets; it meets the short term requirements of borrowers and provides liquidity or cash to the lenders. It is a place where short term surplus investible funds at the disposal of financial and other institutions and individuals are bid by borrowers, again comprising institutions and individuals and also by the government.
-According to the RBI

Structure of Indian Money Market

Organised Money Market
Reserve bank of India Scheduled Commercial Banks Discount and finance House of India Mutual funds Non-banking finance companies Primary Dealers

Unorganized Money Market

Indigenous Bankers Money Lenders Non - Banking Financial Companies (NBFCs) - Chit Funds - Nidhis - Finance Brokers

Functions of Money Markets

Monetary Equilibrium Economic Growth

1 2

3 4

Promote Trade and Industry Aiding Monetary Policy

5 6

Capital Formation Non inflationary source of Finance to Government

Players Of Money Market

Reserve Bank of India
Government Discount and Finance House of India

Commercial Banks
Mutual Funds Primary Dealer

Financial Institutions
Corporate Firms

RESERVE BANK OF INDIA

The reserve Bank Of India is the most important player in the Indian Money Market.

The Organised money market comes under the direct regulation of the RBI.
The RBI operates in the money market is to ensure that the levels of liquidity and short-term interest rates are maintained at an optimum level so as to facilitate economic growth and price stability RBI also plays the role of a merchant banker to the government. It issues Treasury Bills and other Government Securities to raise funds for the government.

GOVERNMENT
The Government is the most active player and the largest borrower in the money market.
It raises funds to make up the budget deficit. The funds may be raised through the issue of Treasury Bills (with a maturity period of 91day/182day/364 days) and government securities.

COMMERCIAL BANKS
Commercial Banks play an important role in the money market.
They undertake lending and borrowing of short term funds. The collective operations of the banks on a day to day basis are very predominant and hence have a major impact and influence on the interest rate structure and the liquidity position.

FINANCIAL INSTITUTIONS
Financial institutions also deal in the money market.
They undertake lending and borrowing of short-term funds. They also lend money to banks by rediscounting Bills of Exchange. Since, they transact in large volumes, they have a significant impact on the money market.

CORPORATE FIRMS
Corporate firms operate in the money

market to raise short-term funds to meet their working capital requirements.

They issue commercial papers with a maturity period of 7 days to 1 year. These papers are issued at a discount and redeemed at face value on maturity.

These corporate firms use both organised and unorganised sectors of money market.

DISCOUNT HOUSES AND PRIMARY DEALERS

They are the intermediaries in the money market
Discount Houses discount and rediscount commercial bill and Treasury Bills. Primary Dealers were introduced by RBI for developing an active secondary market for Government securities.

They also underwrite Government Securities.

MONEY MARKET MUTUAL FUND

A money market fund is a mutual fund that invests solely in money market instruments.
Money market funds are generally the safest and most secure of mutual fund investments.

The goal of a money-market fund is to preserve principal while yielding a modest return.
Money-market mutual fund is akin to a highyield bank account but is not entirely risk free. When investing in a money-market fund, attention should be paid to the interest rate that is being offered.

What Is Capital Market ?

Markets for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals. Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output. Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities.

Types of Capital Market

CAPITAL MARKET

PRIMARY MARKET

SECONDARY MARKET

Primary Market
It is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital. This market is concerned with new issues. Therefore, the primary market is also called NEW ISSUE MARKET.

The money collected from this market is generally used by the companies to modernize the plant, machinery and buildings, for extending business, and for setting up new business unit

Secondary Market
The secondary market is that market in which the buying and selling of the previously issued securities is done.
The transactions of the secondary market are generally done through the medium of stock exchange. The chief purpose of the secondary market is to create liquidity in securities.

Structure of Indian Capital Market with Diagram

Functions of Capital Market

Mobilization of Savings

Provision of Investment Avenue Speed up Economic Growth and Development

Proper Regulation of Funds

Capital Formation

Continuous Availability of Funds

Constituents/Components of Capital Markets

PLAYERS OF CAPITAL MARKET

Stock Exchange Merchant Banker Underwriters FII Credit Rating Agencies Venture Capital Fund Brokers

Portfolio Managers

Role of SEBI in Regulating Capital Market

Increasing Market Transparency. Improving the standards of Corporate Governance. Improving Market Efficiency. Reduction of Transaction Cost. Enhancing the Market Safety. Educate investors

STOCK EXCHANGE
A market in which securities are bought and sold. Makes it easy for investors to buy and sell securities in secondary markets.

Freeze active shares and debentures certificates in the safe custody.

Computerise trading

Credit dividend payment directly to the account of the shareholders in the bank through electronic clearing mechanism.
To act as a bank for shares .

MERCHANT BANKER
Merchant Banks are a very important factor in the capital markets. They have a big role to play especially, in placing equity in the primary market, through the Initial Public Offers route.
The SEBI issued guideline for the merchant bankers in April 1990. Merchant banker play major role is in the space of mergers and acquisitions

They will especially play a huge role in the hostile takeovers.

UNDERWRITERS
Underwriting is like insurance against the failure of an issue .
For the risk that the underwriter takes, he is paid commission Underwriting is a device that ensures the success of new issues The SEBI has made it mandatory for issuing companies to underwrite all issues .

VENTURE CAPITAL
Venture capital means funds made available for start-up firms and small business with exceptional growth potential. Venture capital is the financial support to young , rapidly growing companies/individuals that have potential to develop into significant economic contributors by the business man group to create a product or service which has a unique idea It helps to bridge the gap between capital and knowledge

Money Market Vs. Capital Market