Submitted By:

Tarique Husen
F4E: Market
 Contents
• What is Finance
• Financial System
• Indian Financial System
• The Capital Allocation Process
• Financial System: Flow of Funds
• How is capital transferred between savers and borrowers ?
• What is Market ?
• The Importance of Financial Markets to Economic Growth
• Types of financial markets
• References.
 What is Finance
• Finance is the study of how people allocate scarce
resources over time.
– Decisions are made across time

– Decisions are made in an environment of uncertainty

– Decisions are made in the context of a financial system

 Financial System
• The financial system is the set of markets and other
institutions used for financial contracting and the exchange of
assets and risks.
– Markets for stocks, bonds and other financial instruments.

– Financial intermediaries such as banks and

insurance companies.
– The regulatory bodies that govern all of these
institutions.
Indian Financial System
 The Capital Allocation Process
• The financial system allows for the transfer of funds from
surplus units (such as savers) that have excess resources to
deficit
units, such as businesses that need resources.
• This can happen either through the market, as when an
individual uses his savings to buy shares issued by a
corporation.
• Or through intermediaries, as when an individual deposits
money in his banking account, and the bank then lends this
Financial System: Flow of Funds

M a rk e t s

Surplus Units Deficit Units

In t e r m e d i a rie s
How is capital transferred between
savers and borrowers ?
• Direct transfers – stocks and
bonds, securities
• Investment banking house -
Underwriting
• Financial intermediaries –
banks and mutual funds
 What Is Market?
• A market a venue where goods and services are
is
• exchanged.
A financial market is a market in which people and entities
can trade financial securities, commodities, and other items
of value at low transaction costs and at prices that reflect
supply and demand.
• Securities include stocks and bonds, and commodities
include precious metals or agricultural goods.
The Importance of Financial Markets
to Economic Growth
• Well-functioning financial markets facilitate the flow of
capital from investors to the users of capital.
– Markets provide savers with returns on their
money saved/invested, which provides them
money in the future.
– Markets provide users of capital with the necessary funds
to finance their investment projects.
• Well-functioning markets promote economic growth.
• Economies with well-developed markets perform better
than economies with poorly-functioning markets.
 Types of financial markets
• Physical assets vs. Financial assets

• Money (short) vs. Capital (long)

• Primary (proceeds go to firm) vs. Secondary Mkt. for

outstanding securities
• Spot (cash) vs. Futures

• Public (exchange-traded) vs. Private (banks)

• Derivatives – Futures and options

• Foreign Exchange – Currency

 Types of Market
• Money Market : The Money market refers to the market
where borrowers and lenders exchange short-term funds to
solve their liquidity needs.
• Capital Market : The Capital market is a market for financial
investments that are direct or indirect claims to capital. It is
wider than the Securities Market and embraces all forms of
lending and borrowing, whether or not evidenced by the
creation of a negotiable financial instrument.
 Types of Market
• Securities Market : The Securities Market, however, refers
to the markets for those financial
instruments/claims/obligations that are commonly and readily
transferable by sale.
• The Securities Market has two interdependent and
inseparable segments, the new issues (primary) market and
the stock (secondary) market.
 Types of Market
• Primary Market : The Primary market provides the channel for
sale of new securities. The issuer of securities sells the securities
in the primary market to raise funds for investment and/or to
discharge some obligation.
• Secondary Market : The Secondary market deals in securities
previously issued. The secondary market enables those who hold
securities to adjust their holdings in response to charges in their
assessment of risk and return. They also sell securities for cash
to meet their liquidity needs.
 Types of Market
• This secondary market has further two components.

• Spot Market : the spot market where securities are traded for
immediate delivery and payment.
• Forward Market : The other is forward market where
the securities are traded for future delivery and payment.
• This forward market is further divided into Futures and Options
Market (Derivatives Markets).
 REFERENCES

• Printed material –Author –

Hull
• www.google.com

• http://www.nse-india.com

• www.rbi.org.in

• NCFM module