CAPITAL MARKET

Saurabh Pandey
PGD-ITM/09/006
 FINANCIAL MARKETS
In economics, a financial market is a
mechanism that allows people to buy and sell
(trade).
E.g.
Financial securities (such as stocks and bonds).
Commodities (such as precious metals or
agricultural goods).
And other fungible items of value at low
transaction costs and at prices that reflect the
efficient-market hypothesis.
TYPES OF FINANCIAL MARKETS

CAPITAL MARKET : A capital market is a

market for securities (debt or equity), where
business enterprises (companies) and
goverments can raise long-term funds. It is
defined as a market in which money is
provided for periods longer than a year.

MONEY MARKET: It is created by a financial

relationship between suppliers and
demanders of short term funds which has
maturities of one year or less.
Sources of long term loan:- equity capital, term
loans debentures,
hybrid sources such as preference capital,
convertibles ,warrants ,option.
leasing and hire purchase finance, venture
capital financing.

Sources of short term loan:-Trade credit,

Commercial banks, fixed deposits for a period
of 1 year or less ,advances received from
customers ,various short-term provisions .
 CAPITAL MARKET
Itis a market of long term funds.
Long term funds are securities issues of
business and goverment.
The capital market includes the stock market
(equity securities) and the bond market(debt).
CAPITAL MARKET comprises of -

1. STOCK MARKET OR SECONDARY

MARKETS.
2. NEW ISSUE OR PRIMARY MARKET
 PRIMARY MARKET
The primary market is the part of the capital
markets that deals with the issue of new
securities.
Companies, governments or public sector
institutions can obtain funding through the sale
of a new stock or bond issue.
Methods of issuing securities in the primary
market are:
Initial public offering;
Rights issue (for existing companies);
Preferential issue.
SECONDARY MARKET
The secondary market is the financial
market where previously issued securities
and financial instruments such as stock,
bonds, options, and futures are bought and
sold.
The term "secondary market" is also used to
refer to the market for any used goods or
assets, or an alternative use for an existing
product or asset where the customer base is
the second market.
Participant in securities market :-
1. Issuer of security.
2. Investor
3. Intermediaries

Securities one can invest in?

1. Shares
2. Government securities
3. Derivative products
4. Units of mutual fund
METHODS OF ISSUEING
SECURITIES IN MARKET
INITIAL PUBLIC OFFERING:- An
initial public offering (IPO) referred to
simply as an "offering" or "flotation," is
when a company issues common stock or
shares to the public for the first time
RIGHTS ISSUE :- Under this method
the existing shareholders are offered the
right to subscribe to new shares in
proportion to share they already hold.
BOOK BUILDING METHOD :- In this method
the pricing of the issues is left to the investor. The
investor are required to quote the number of
securities and the price at which they wish to
acquire.
PLACEMENT METHOD :- Under this method
securities are acquired by the issue houses, they are
placed with the clients of the issue houses ,both
individual and institutional investors.
OFFER FOR SALE:- Under this method instead of
the issuing company itself offering its share directly
to the public ,it offers through the intermediary of
issue houses/merchant bank/investment bank.
IMPORTANT TERMS USED IN
SECURITIES MARKET
SHARES :-Certificate representing one unit of
ownership in a corporation, mutual fund, or
limited partnership. It refers to a the ownership
certificates of a particular company.
STOCK:-An instrument that signifies an ownership
position (called equity) in a corporation, and
represents a claim on its proportional share in the
corporation's assets and profits.
It is a general term used to describe the ownership
certificates of any company, in general.
DERIVATIVES:-
Financial instruments like futures,
contracts or options, which are derived
from other forms of assets.
A derivative is an agreement or contract
that is not based on a real, or true,
exchange.
i.e. There is nothing tangible like money,
or a product, that is being exchanged.
TYPES OF DERIVATIVES:-
1. FUTURES:- Futures contract is a standardized contract
between two parties to buy or sell a specified asset of
standardized quantity and quality at a specified future date
at a price agreed today. Futures contracts are not "direct"
securities like stocks, bonds, rights or warrants.
2. OPTIONS:- An option gives its holder the right, but
not the obligation, to buy or to sell some asset (underlying)
on or before the option's expiration at an agreed price, the
strike price. In return for granting the option, the seller
collects a payment (the premium) from the buyer. Granting
the option is also referred to as "writing" the option.
3. FORWARD:- Is an agreement to buy or sell an
asset/security on a specified date for a specified price;
settlement happens at the end of the period. Customize in
nature and are traded outside stock exchanges.
FUTURES TERMINOLOGY:-
1. SPOT PRICE :- The price at which an
instrument /asset trades in the spot market.
2. FUTURE PRICE:- The price at which
the futures contract trade in the future
market.
3. CONTRACT CYCLE:-the period over
which a contract trades.
4. EXPIRY DATE:-It is the date specified
in the future contract at the end of which it
will cease to exist.
PARTICIPANT IN DERIVATIVE MARKET
1. HEDGERS:- They face risk associated
with the price of an asset. They use future or
options market to reduce or eliminate this
risk.
2. SPECULATORS:- They wish to bet on
future movements in the price of an asset.
They use future or options market.
3. ARBITRAGERS:- They work at making
profits by taking advantage of differences
between prices of same product across
different markets.
 STOCK EXCHANGES
BSE :-It is the oldest stock exchange in Asia and
has the third largest number of listed companies in
the world, with 4700 listed as of August 2007.It is
located at Dalal Street, Mumbai, India.
It is the largest stock exchange

in South Asia and the 12th

largest in the world.With over
4700 Indian companies listed.
 The BSE SENSEX also called

the "BSE 30", is a widely used

market index in India and Asia.
NSE:-It is a Mumbai-based stock
exchange. It is the largest stock exchange in
India in terms of daily turnover and number
of trades, for both equities and derivative
trading. NSE has a market capitalization of
around Rs 47,01,923 crore (7 August 2009)
The NSE's key index

is known as the Nifty,

an index of fifty major
stocks weighted by
market capitalisation.
THANK YOU