Lecture Notes: Financial Markets

Summary

Today's lecture covered the concept of Financial Markets in Business Studies, exploring how these markets function to facilitate the exchange of funds between those with surplus (investors) and those in need of funds (businesses and other entities). Different types of financial markets, their functions, types of instruments involved, and the roles of SEBI (Securities and Exchange Board of India) in regulating these markets were discussed.

Key Points from the Lecture

Introduction to Financial Markets

• Financial markets help in transferring surplus funds from savers to institutions needing capital.
• Two main participants:
  • Those with surplus funds wanting to invest for better returns.
  • Entities requiring funds to expand or operate their businesses.

Functions of Financial Markets

1. Allocative Function:
   • Allocates funds efficiently to assist in generating returns for investors.
2. Price Discovery:
   • Prices of securities are determined based on the demand and supply within the market.
3. Safety of Transactions:
   • Ensures that the transactions are secure and the parties involved are vetted.
4. Providing Flexibility:
   • Offers the flexibility to invest or divest funds when needed.
5. Providing Information:
   • Provides essential information about securities and companies to potential investors.

Main Types of Financial Markets

1. Money Market:
   • Deals with short-term funds (maturity less than a year).
   • Involves instruments like Treasury bills, commercial paper, certificates of deposit, and call money.
2. Capital Market:
   • Involves medium to long-term funds.
   • Handles both debt instruments and equity.
   • Includes instruments like shares, debentures, and bonds.

Divisions within the Capital Market

• Primary Market: Where new securities are issued for the first time directly from the company.
• Secondary Market: Existing securities are traded between investors without company involvement.

Stock Exchange Functions

• Provides liquidity and marketability to securities.
• Responsible for pricing securities based on supply and demand.
• Contributes to the economy by enabling capital growth for businesses.

SEBI (Securities and Exchange Board of India)

• Objective:
  • Regulates stock exchanges.
  • Protects investor rights and interests.
  • Works against fraudulent activities.
• Functions:
  • Developmental: Promotes training for brokers, conducting research, and spreading market awareness.
  • Regulatory: Develops rules and regulations for market operations.
  • Protective: Guards against unfair trade practices and manages insider trading.

Trading Procedures

• Opening a Demat Account: Investors need to approach a registered broker to open a Demat account.
• Trading Steps:
  • Place orders through a broker, price matching on the stock exchange.
  • Confirmation of trade and legal documentation provided post-transaction.

Summary of Key Terms

• Dematerialization: Conversion of physical shares into electronic form.
• Depositories in India:
  • CDSL (Central Depository Services Limited)
  • NSDL (National Securities Depository Limited)
  • Serve as secure storage for digital securities and aid in smoother transaction processes.

Conclusion

The lecture concluded with the emphasis on the importance of financial markets and regulatory bodies like SEBI in maintaining an efficient and secure market environment. There was also a nod towards the next topic, Financial Management, which will be covered in the upcoming sessions.