Financial Instrument’s Market

• Primary & Secondary Market

• Equity & Debt Market
• G-Sec
• Bond Market
• Money Market
 Financial Institutions and
Markets
• 1947 to 1965
• 1966 to 1977-----In 1969----12 banks were
nationalised ----In 1973 coal mines was
nationalised----In 1976 word socialist was
added to preamble of constitution.
• 1978 to 1984-----In 1980----6 more banks were
nationalised
• 1984 to 1991
• 1991 to till date
Mr. Rajan Was Unpopular (But Prescient)
at Greenspan Party
• The Wall Street Journal
• By Justin Lahart
• Updated Jan. 2, 2009 12:01 a.m. ET
• To outline his fears about the U.S. economy, Raghuram
Rajan picked a tough crowd.
• It was August 2005, at an annual gathering of high-
powered economists at Jackson Hole, Wyo. -- and that
year they were honoring Alan Greenspan. Mr.
Greenspan, a giant of 20th-century economic policy,
was about to retire as Federal Reserve chairman after
presiding over a historic period of economic growth.
Mr. Rajan Was Unpopular (But Prescient)
at Greenspan Party……
 Mr. Rajan, a professor at the University of Chicago's
Booth Graduate School of Business, chose that
moment to deliver a paper called "Has Financial
Development Made the World Riskier?"
 His answer: Yes.
 Mr. Rajan quickly came under attack as an antimarket
Luddite, wistful for old days of regulation. Today,
however, few are dismissing his ideas. The financial
crisis has savaged the reputation of Mr. Greenspan and
others now seen as having turned a blind eye toward
excessive risk-taking.
 Has Financial Development Made the World Riskier?
Raghuram G. Rajan

• NBER Working Paper No. 11728

Issued in November 2005
NBER Program(s):Corporate Finance, International Finance and Macroeconomics
• Developments in the financial sector have led to an expansion in its ability to
spread risks. The increase in the risk bearing capacity of economies, as well as in
actual risk taking, has led to a range of financial transactions that hitherto were
not possible, and has created much greater access to finance for firms and
households. On net, this has made the world much better off. Concurrently,
however, we have also seen the emergence of a whole range of intermediaries,
whose size and appetite for risk may expand over the cycle. Not only can these
intermediaries accentuate real fluctuations, they can also leave themselves
exposed to certain small probability risks that their own collective behavior makes
more likely. As a result, under some conditions, economies may be more exposed
to financial-sector-induced turmoil than in the past. The paper discusses the
implications for monetary policy and prudential supervision. In particular, it
suggests market-friendly policies that would reduce the incentive of intermediary
managers to take excessive risk.
 Financial Institutions
• Regulatory
• Intermediaries
• Non- intermediaries
• Others
 Market Regulator
Market Regulator
• Capital Market • SEBI
• Money Market • RBI
• Insurance Market • IRDA
• Mutual Fund Market • SEBI & RBI
• Banking Market • RBI
 Intermediaries
• Banks
• Non-Banking Financial Intermediaries (NBFI) /
Non-Banking Financial Corporation (NBFC) e.g.
Micro-Finance Companies, Bajaj Financial
Services, Sahara India etc.
• Mutual Fund Houses
• Insurance Companies
 Non-Intermediaries
• World Bank (WB)
• International Monetary Fund (IMF)
• International Finance Corporation (IFC)
• NABARD
• Industrial Development Bank of India (IDBI)
• Industrial Finance Corporation of India (IFCI)
• Industrial Credit and Investment Corporation
of India Ltd (ICICI)
 Role and Importance of financial
market
• Safety of deposit
• Return on deposit
• Return on investment
• Providing resources to fund seeker
• Allocating financial resources to efficient use
• Diversified product for investment and fund
mobilisation: Debt, Equity, Long term, Short
term.
 Role and Importance of financial
market………….
• Meeting point for all kind of players------
Institution as well as Retail
• Provide service related to Currency,
Commodity etc.
• Provide liquidity by secondary market.
• OTC Market provide liquidity to customize
product
• Provide information to investor----Credit
Rating Agency, Media etc.
 Types of Financial Market (Duration)
• Capital Market:- Equity, Preference,
Debentures, Bond etc.
• Money Market:- Certificates of
Deposits (CDs), Treasury bills, commercial
paper, Call Money Market(LIBOR or
MIBOR)etc.
 Types of Financial Market (Time)
• Spot / Cash Market
• Future Market
• Standardized Market-----Exchange
• Customize Market--------OTC
 Factors affecting Financial Market
• Policy rate
• GDP growth rate
• Liquidity in the economy
• Liquidity of the market
• Availability of Information
• Budget
• Alternative investment avenue
 Linkages between Economy and
Financial Market
• Economy growth reflect in return on the
financial instruments
• Policy rate is increased or decreased as per
economic data such as inflation-----and policy
rate act as base rate for other instruments.
• Unless the economy has well developed
financial market economic growth impossible
because financial market provide funds to
businesses to carry on productive activity.
 Linkages between Economy and
Financial Market………
• Policy rate define the cost of finance and cost
of finance impact the competitiveness of
product in the export market.
 Function of Secondary Market / Stock
Exchanges
• Liquidity
• Continuous Market for Securities
• Evaluation of Securities
• Mobilizing surplus Savings
• No default risk
• Listing of Securities
 Investment Decision
• International Economic Outlook
• National Indicator
• National Economy
• Sector Outlook
• Company Fundamentals
• Liquidity
 National Indicator
• Economic Policy (Socialist or Communist / Liberal)
• Democratic system / Central Control
• Financial / Banking Structure
• Ease of Doing Business Ranking
• Tax Rate
• Stable / Instable Tax Rule
• Regulatory Stability
• Environment Concern
• Corruption Level / Transparency Level
 National Economy
• Interest Rate Scenario
• Per Capita GDP
• Per Capita Income
• Employment Scenario-----Employment Data----
Unemployment Data.
• Inflation (Consumer Price Index / Wholesale
Price Index)
• Real Growth
 National Economy ……
• FDI inflow
• FDI Outflow
• Private Investment
• Capital Formation
• Index of Industrial Production (IIP)
• Bank Credit Growth
• Rupees vs US Dollar rate
• Trade Account
• Current Account
• Fiscal Deficit
 Foreign Capital Issuance
• ADR:- An American depositary receipt (ADR) is a
negotiable certificate issued by a U.S. bank
representing a specified number of shares (or one
share) in a foreign stock traded on a U.S. exchange.
• GDR:- A global depositary receipt (GDR) is a bank
certificate issued in more than one country for shares
in a foreign company. The shares are held by a foreign
branch of an international bank. The shares trade as
domestic shares but are offered for sale globally
through the various bank branches.
 'Foreign Currency Convertible Bond -
FCCB
• A foreign currency convertible bond (FCCB) is a type of
convertible bond issued in a currency different than
the issuer's domestic currency.
• In other words, the money being raised by the issuing
company is in the form of a foreign currency.
• A convertible bond is a mix between a debt and equity
instrument.
• It acts like a bond by making regular coupon and
principal payments, but these bonds also give the
bondholder the option to convert the bond into stock.