and that gives rise to price determination provides liquidity to financial assets as they could be negotiated and transferred
So, you must have heard like I am selling my shares or I want to buy that share or I’m selling this bond,
These instruments are transferable you can transfer them from one person to another at different time origins whenever you feel like whatever is the maturity period of the related financial assets,
It could be a shorter period, it could be a longer period, and it helps you in saving the cost
What is the financial market answer in one sentence?
The cost of the transaction involves various costs like the cost and searching for that asset in gathering information about that asset, the time involved in locating the customer,
But what if there is no presence of the market there are no shops which you are aware of what you would do, you would search for that product which you wanted to purchase you would search for the shop where you can get that from it would involve a lot of time like you would be moving from one place to another and searching for that.
This is what the financial market facilitates it provides your platform necessarily doesn’t mean it’s the physical location; it could be an online process also.
Whether interested in investing in bonds, interested in investing in commodity or currencies or equity
You can be a part of this financial market. Does it act as a pool between savers investors and borrowers just take an example of a bank what does the bank do?
Bank takes you’re money because you’re having extra savings. You deposit that into the bank, what does the bank do then it keeps a certain percentage of the amount
What is the financial market explain its importance?
As a cash reserve ratio which is mandatory by the RBI rest of the market would invest somewhere in the corporate the other financial institutions or to other commercial banks.
From there it would earn some interest rates and who are that who are taking the money they are termed as the borrowers they would act as a borrower was at that particular period would be paying a certain interest rate on that and this interest rate would be again paid to the customers who had deposited their money to the banks Obviously
There would be differences in the margins because that is what the income for various parties involved in that market.
Does it is acting as a pool between us investors and borrowers? It involves various parties like governments, banks, financial institutions, insurance companies, mutual funds, corporate, and all the parties all the parties together form this financial market because they are involved in the exchange process of the financial assets
What is the money market means money market facilitates the trading of financial assets the short term maturities like you wanted to invest or you wanted to buy the assets for a shorter period,
So, whenever you are in requirement of the cash or whenever you are in requirement for the funds, you can just sell that asset and get that amount instantly.
What is a Financial Market?
Many markets have seen that the capital market is trading in long term securities for a long period which is further divided into the stock market and bond a market where the stock market helps
you in dealing with equity trading as you know equity involves higher risk and does give you higher returns while the bond market deals with bond trading where it involves
A moderately lower risk than equity and it gives you a lower return than the equity market then there is the Forex market, the Forex markets help you in making
The exchange process the buying and selling and speculating on currencies as you know the value of currencies also keeps on fluctuating trading on currencies to gain some profit from there Now Forex trading is generally done
in currency pairs like US Dollar and Indian Rupee or Euro and Indian Rupee when you want to gain some US in that process you can do some Indians can pay Rs. dollar
and then you estimate the increase in value of that dollar after a certain period of time. You are making sure that you are agreeing to buy a property with the expectation that its value will increase over a certain period of time
What is the meaning of the Financial Market?
And the future, whether the value would rise or would fall, would depend totally upon you because you are making contracts at this period.
This is what the market is it derives its value from the underlying assets, it could be anything it could be query it could be a currency, it could be any commodity also or a simple negotiable bill also
The commodity market helps you trading and primary products like agricultural products, the gold mines oil,
You know the value of oils minds and goals is these values could make you very profitable if you are good at speculating on these values.
Commodity the market helps you in facilitating and exchanging with these products let’s go-to money market and talk something about that as I already told money market helps you
But let’s see what happens right now the regulator is the controller is in the hands of RBI the money market helps industries secure short term loans
To meet their working capital requirement through the short term finance those are commercial papers, it has an earning income along with liquidity maintenance.
When you need instant funds when the banks when the cooperate need instant funds to meet the requirements
Of their working capital to meet various other requirements what they do, they, they trade-in money market because the maturity period is less you can instantly get the money,
You can get the money back with a rising rate of interest within a few days or a few months or up to one year.
Define Financial Market
Whatever be the tenure, whatever you need, understand that it has liquidity maintenance as well as earnings. Let us see what is call money, the way commercial banks borrow from each other. ,
The cash reserve ratio is decided by the ratio to be maintained and the interest rate paid on the call money is called the call rate, the recent call rate being between 6.5 to 7% between two commercial banks or the exchange process. Money trading facility is available.
where one bank needs the funds while the other bank is ready to give those funds.
But will be charging a certain interest rate from the other bank. This is what happens if you are certain if you are getting a shortage of funds,
You are in certain need to maintain your obligations, then what you would do you would go to another bank and you would ask for that amount of funds and if the bank is ready
To give you that fund, they would be charging a certain interest rate that is what we call the call rate and the recent call rate is between 6.5 to 7% this call when the maturity is very shorter,
It is for one to two days, you can think of it as an urgent need or urgent need by the bank which is for one to two days, you can think of it as an urgent need or urgent need by
the bank Money by which is talking about treasury bill by another bank, it is from government it is to be issued by RBI to cover deficit balance from RBI or to control money supply in the market.
This comment can also go on deficit budget as you know.
Expenditure is the budget of various expenditure and then there is a way in which the government gets revenue.
Which is generated from tax and other sources, if the government has budget. And he wants to meet his expenses,
What will he do that he will try to take money out of it, try to make money from there,
He will issue some bill which is known as Treasury Bill, it will supply money in the market the government thinks that there is too much money supply in the market,
Definition of financial market
Is giving rise to the question it will try to control that money supply from the market for this reason, it would do it would provide certain treasury bills
Which would be bought by the which were bought by various institutions the public and that would help in controlling the money Supply in the market because they would be providing their money to the government by purchasing those bills.
What is the feature of this it is issued at discount and repayable at par value? So, just think of it like the value is 500 the value of the bar of the bill is 500.
Would be paying only say 450 for that bill and then after the maturity period, he would be getting 500 it is being issued at a discounted value and you would be getting the actual value at maturity.
For this reason, also known as a zero-coupon bond, it is negotiable and freely transferable. You can transfer your bills and the value will remain the same you can sell it and then you can redeem it. and get that amount. Generally issued in three variants which are 91 days, 182 days and 364 days unless T bills are showing maturity period on these days, you can choose maturity period of 91, 182 or 364 days depending on your requirement can choose.
Return which you get is about six to 7% from these tables coming to the commercial papers unsecured promissory note unsecured because it is issued by corp orates to generate fund.
Now corporate are in requirement of funds to meet there to meet their investing activities to meet their projects and which they thought of investing
But they’re running out of budget what they would do, would issue commercial papers with a maturity period of up to 12 months.
They can do it either directly through either directly or also through the banks what issued by the corporate and it is a little riskier because it is for a shorter period?
Generally, the public doesn’t go for commercial papers most of the banks and financial institutions purchase these promissory notes and provide funds.
To keep that fund as a deposit, what bank in return would give, it would provide a certificate of deposit that certificate would provide