Professional Documents
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Stock and
Commodity Markets
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4 Stock and Commodity Markets
PREFACE
This book is a comprehensive study in stocks and commodities
environment in India. Many changes have taken place since the new
economic reforms in 1991. India is now working towards globalization,
deregulation and liberalization. This book provides information of the
latest developments in the markets in India and in other countries.
The book comprising of five units, Unit I incorporates the
structure of the financial markets, commodities market and the
difference between stock market and commodities market. Unit II
discusses the history, membership and functions and organizations of
stock markets including important stock markets like NSE and BSE. It
also provides the role of SEBI in the securities markets and a brief
description of derivatives in the market.
Unit III is an attempt to explain the method of trading that takes
place in stock markets.
Unit IV and V are completely devoted to the commodities market.
While Unit VI discusses the functions, types of transactions and
differences between physical and futures markets. Unit VII discusses the
pattern of trading that takes place in commodities market.
The book within the structure of the first edition is written in
simple language for students and teachers of management, economics,
chartered accountants and masters in finance and commerce graduates.
The chapters of the book begin with a chapter plan. It has many
types of questions both objective type and long questions and every
chapter has a summary in the form of points to remember at the end of
each chapter.
Thanks are due to Brajendra Kumar for his untiring work in
supporting me for library and data search and typing the manuscript of
this book. I would also like to thank my publishers Himalaya Publishing
House Pvt. Ltd. for their support and continuing relationship with me.
Preeti Singh
Primary Market and Secondary Stock Market 5
SYLLABUS
OBJECTIVE
Skill Development
CONTENTS
UNIT I
AN OVERVIEW OF CAPITAL AND COMMODITIES MARKETS
1. Primary Market and Secondary Stock Market 3 – 23
2. Issue Mechanism in Primary Securities Market 24 – 43
3. Commodities Market 44 – 52
UNIT II
STOCK MARKET
UNIT IV
COMMODITIES MARKET
UNIT V
TRADING IN COMMODITIES MARKETS
DETAILED CONTENTS
2.6 Questions
2.7 Objective Type Questions
2.8 Multiple Choice Questions
3. Commodities Market 44 – 52
3.1 Meaning of Commodities
3.2 What is a Commodity Market?
3.3 Importance of Commodity Market
3.4 Regulatory Mechanism of Commodity
Markets in India
3.5 Distinction between Stock Market and
Commodities Market
3.6 Points to Remember
3.7 Questions
3.8 Multiple Choice Questions
UNIT II: STOCK MARKET
4. Role of Securities and Exchange Board of India 55 – 68
4.1 Introduction
4.2 Guidelines for Investor Protection
4.3 Investor Protection and Guidelines for
Companies
4.4 Listed Companies and Model Code of
Conduct
4.5 Investor Grievances
4.6 Departments of SEBI and their Activities
4.7 OMBUDSMAN 2003
4.8 National Stock Exchange and Arbitration
Facilities
4.9 Investor Education
4.10 Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market
Regulation
4.11 Prohibition of Insider Trading
4.12 Disclosure of Interest
10 Stock and Commodity Markets
4.13 MAPIN
4.14 Investors' Protection Fund
4.15 Points to Remember
4.16 Questions
4.17 Objective Type Questions
5. Stock Market 69 – 107
5.1 Secondary/Stock Markets
5.2 Functions of Stock Markets
5.3 Historical Background
5.4 Governing Body of a Stock Exchange
5.5 Membership Rules in a Stock Exchange
5.6 Listing of Securities
5.7 Important Stock Markets in India: NSE, BSE,
OTCEI, ISE, NCDEX
5.8 Developments in the Stock Market
5.9 Points to Remember
5.10 Questions
5.11 Multiple Choice Questions
6. Derivatives 108 – 144
6.1 Derivatives
6.2 Types of Derivatives
– Commodity, Financial, Basic, Complex,
Exchange Traded
6.3 Characteristics of Derivatives
6.4 Participants in Derivatives Market
6.5 Financial Derivatives
6.6 Types of Transactions
6.7 Forward Contracts
6.8 Options
6.9 Futures
6.10 Swaps
6.11 Derivatives Market In India
6.12 Points to Remember
Primary Market and Secondary Stock Market 11
6.13 Questions
6.14 Illustrations
UNIT I
AN OVERVIEW OF CAPITAL AND
COMMODITIES MARKETS
Chapter
Lead managers
Share brokers
Depositories
Portfolio managers
Investment bankers
Credit rating agencies
Mutual funds
Investment companies
Registrar and share transfer agents
capital market has two separate demarcations. These are the primary
market/new issue market where shares are sold for the first time and
secondary market/stock market where trading takes place. These are
organized markets with SEBI as the main regulator.
countries because they are able to get higher rates of interest than in
their own developed infrastructure. Companies also raise funds through
the floatation of their bonds and equities in the euro capital markets. The
two instruments which are popularly floated by them are Global
Depository Receipts and Foreign Currency Convertible Bonds.
Foreign capital has also come into India through trust companies
which raise funds for investments in Indian securities. The first offshore
fund was floated by the UTI in collaboration with Merrill Lynch
International better known as India Fund; Morgan Stanley floated Indian
Magnum Fund and India Investment Fund. Can Bank floated the
Himalayan fund in collaboration with Indo-Suez Investment
Management Asia. SBI Mutual Fund floated Asian convertibles.
Jardinal Flemming floated the India Pacific Fund. Many more funds
were also floated. These are Bombay Fund, India Opportunities Fund,
India Liberalization Fund, and Lloyd George India Fund.
1.12 QUESTIONS
34 Stock and Commodity Markets
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