Money Market and Capital Market
Category : Banking
Money Market and Capital Market
Financial Market
Financial Market is a transfer process between lender and debtor through which the transfer of financial fund can be done easily. It provides safe exchange of financial assets. It provides liquidity to investors in the sale of financial assets and also ensures the minimum cost of exchange and related information.
Components of Indian Financial Market
Components of Indian financial market are as follows
Money Market
The cluster of financial institutions that deal in short term securities and loans, gold and foreign exchange are termed as money market. The money market is a key component of the financial system, as it is the function of monetary operations conducted by the Central Bank in its pursuit of Monetary policy objectives. It is a market for short term funds with maturity ranging from overnight to one year and includes financial instruments that are deemed to be close substitutes of money.
Functions of Money Market
The money market performs three broad functions which are as follows
Types of Money Market
In Indian money market. Reserve Bank of India plays the central role, as it regulates and controls the money market. Indian money market is mainly divided into two parts
Sub-Markets and Instruments
A specialised sub-division of a market is known as sub-market. In Indian money market, sub-market is an inevitable part. It includes call money market, bill market, etc.
Call Money Market
The call/notice money market forms an important segment of the Indian money market. It is an amount borrowed or lent on demand for a very short period.
If the period is greater than 1 day and upto 14 days, it is called the notice money otherwise, the amount is known as call money.
No collateral security is needed to cover these transactions. This is a completely interbank market. Interest rates are market determined. In view of the short tenure of these transactions, both borrowers and lenders are required to have current accounts with Reserve Bank of India (RBI).
Bill Market
The underlying purpose of developing the bill market was to enable banks and other financial institutions to invest their surplus funds profitably by selecting appropriate maturities.
Some types of bill market are as follows
On the one hand, T-bills provide the government with a highly flexible and relatively cheap means of borrowing money to meet its fluctuating needs for cash and on the other, the bills provide a sound security for dealings in the money market. The Reserve Bank of India, being the banker to the government, issues treasury bills at a discount.
There are four types of treasury bills
The Reserve Bank now auctions 91 days T-bills on a weekly basis and 182 days T-bills (re-introduced in April, 2005) and 364 days T-bills on a fortnightly basis, on behalf of the Central Government. The Reserve Bank has been paying special attention to this market segment.
These papers have a maturity of minimum 7 days and maximum of upto 1 year from the date of issue. These are negotiable and transferable by endorsement.
Particular forms of promissory notes, known as commercial paper, can be bought and sold. They are usually issued by large corporations, but in some countries. Promissory notes are a common form of small business finance.
Unorganised Money Market
The sector consists of unregulated non-bank financial intermediaries such as moneylender s chit funds, nidhis, etc. Chit funds are savings institutions. They are of various types and do not have any standardised form. Chit funds have regular members, who make periodic contributions,
Organised chit funds are regulated by the Registrar of Chit Funds and the relevant legislation in this regard is the Chit Funds Act, 1982. There is however, regulatory confusion since Collective Investment Schemes (CIS) are to be registered and regulated by SEBI. Many chit funds take advantage of the regulatory loopholes.
Money in Financial Market
Money is an object or record that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context of country. Any kind of object or secure variable record that fulfills these functions can be considered as money.
Adjacent Money
It is not exact money, but near to money. Because it's nature of liquidity is more in comparison to others like bond, government debenture, etc.
Different Types of Money
Three main types (forms) of money in a modern economy: metallic money, paper money and credit money. Economists, however, further classify money into many other forms.
The important types of money are explained below
Metallic Money
Money made up of any metal is called metallic money. It refers to coins that are made up of various metals like gold, silver, nickel, copper, etc. The right of minting coins, is the monopoly of the state.
Metallic money is further classified into
Standard Money Standard money or full bodied money is that money whose face value (value as money) is equal to the intrinsic value (value as commodity). Standard money/coins are generally made up of gold and silver.
Token Money Token money is that money whose face value (value as money) is greater than its intrinsic value (value as commodity). Token money/coins are generally made up of cheaper metals like copper, nickel etc; (Indian
Rs. 1 coin is token money).
Subsidiary money The purpose of subsidiary money is to help the token money. All coins from 50 paise to Rs. 10 is the subsidiary money. It is legal money.
Paper Money
Money made up of paper is called paper money. Paper money consists of currency notes issued by the government or the Central Bank of a country.
Paper money is of following types
Acceptable Money
On the basis of general acceptability, money can be categorised into legal tender money and non-legal tender money (optional money).
Legal Tender Money
It refers to that money which the state and the people accept as means of payment in discharge of debts. Legal tender money is enforced by law. No one can refuse to accept it as a means of payment.
Legal tender money may be of two types
Non-Legal Tender Money
It is also known as optional money. It refers to that money which may or may not be accepted as a means of payment. Optional money has no legal sanction. No one can be forced to accept optional money. Different credit instruments like cheques, bankdrafts, bill of exchange, treasury bills, insurance policies, bonds etc; are examples of optional money.
Demonetisation
Demonetisation is the act of Banning/taking back of a currency unit of its status as legal tender. Demonetisation is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.
History of Demonetisation in India
PM Narendra Modi has demonetised Rs. 500 and Rs. 1000 notes from 9th Nov, 2016 similar banknote demonetisation have been taken in the past. In January 1946, banknotes of Rs. 1000 and Rs. 100 were withdrawn and new notes of Rs. 1000, Rs. 50 and Rs. 10000 were introduced in 1954. The Janata Party coalition government had again demonetised banknotes of Rs. 1000, Rs. 5000 and Rs. 10000 on 16 Jan, 1978 as a means to curb counterfeit money and black money.
Monetary Standards
It refers to the commodity that fixes the value of the standard money used in a country. Monetary standard, on the other hand, relates to commodity by which the standard money unit is determined.
A sound monetary standard aims at the following
(i) Stability in the internal value of the currency through internal price stability.
(ii) Stability in the external value of the currency through exchange rate stability.
Monetary Standards in India
These are as follows
This standard, was used till 1914-15 but after the first world war put to an end the volatility of money in gold.
Capital Market
Capital market is one of the most important segments of the Indian financial system. It is the market available to the companies for meeting their requirements of the long term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending funds. In other words, it is concerned with the raising of capital money for purposes of making long term investments.
The demand for long term capital comes predominantly from private sector manufacturing industries, agriculture sector, trade and the government agencies, while the supply of funds for the capital market comes largely from individual and corporate savings, banks, insurance companies, specialised financing agencies and the surplus of governments.
The Indian capital market is broadly divided into the following
Securities Exchange Board of India (SEBI)
The regulatory authority under the SEBI Act, 1992 was established on 12 April, 1992 in order to protect the interests of the investors in securities as well as to promote the development of the capital market. SEBI has its headquaters at Mumbai and its regional offices in New Delhi, Kolkata, Chennai and Ahmedabad respectively.
It involves regulating the business in stock exchanges supervising the working of stock brokers, share transfer agents, merchant bankers, underwriters etc, as well as prohibiting unfair trade practices in the securities market.
Function of SEBI
The main functions of SEBI are as follows
SEBI’s Guidelines in 1999
The SEBI, had issued guidelines in 1999 (referred to as ESOP Guidelines) to provide a regulatory framework for the listed companies to implement security based compensation schemes.
New Law of SEBI, 2014
In August 2014, the Securities Laws (Amendment) Act, 2014, gave SEBI additional powers, including to order the arrest of violators and seek call data records of individuals under investigation.
The new law gave SEBI the powers to search and obtain information, including call records, about any suspected entity from within or outside the firm.
The main objectives of SEBI Amendment Act, 2014 are as follows
Indian Capital Market
The capital market in India is a market for securities, where companies and government can raise long term funds. It is a market designed for the selling and buying of stocks and bonds.
This market refers to the market which deals in equities and debentures of the corporates.
It is further divided into two parts
Primary Market
Primary market (new issues market) deals with 'new securities', i.e. securities which were not previously available and are offered to the investing public for the first time. It is the market for raising fresh capital in the form of shares and debentures.
It provides the issuing company with additional funds for starting a new enterprise or for either expansion or diversification of an existing one and thus, its contribution to company financing is direct. The new offerings by the companies are made either as an Initial Public Offering (IPO) or rights issue.
Initial Public Offering (IPO) or Stock Market Launch is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange for the first time. Through this process, a private company transforms into a public company.
Secondary Market
Secondary market/Stock market (old issues market or stock exchange) is the market for buying and selling securities of the existing companies. Under this, securities are traded after being initially offered to the public in the primary market and/or listed on the stock exchange. The stock exchanges are the exclusive centres for trading of securities.
Security market is an economic institute within which the sale and purchase transactions of securities take place between subjects of the economy on the basis of demand and supply.
Difference between Money Markets and Capital Markets
|
|
Money Markets |
Capital Markets |
|
Duration |
It is for short term funds (1 year or less). |
It is for long term funds (more than 1 year |
|
Instruments |
Instruments are T-bill, commercial papers, certificates of deposit, etc. |
Instruments are shares, debentures, bonds, etc. |
|
Institutions |
Central Banks, commercial banks, acceptance houses, non-banking financial institutions, bill brokers, etc. |
Stock exchanges, Commercial Banks and non-banking institutions such as insurance companies, mortgage banks, building societies, etc. |
|
Broker |
Transaction without the help of broker. |
Transaction have to be conducted with the help of broker. |
|
Market Regulation |
Commercial banks are closely regulated. |
The institutions are not much regulated. |
Major Capital Markets Bond Market
It is defined as the environment in which the issuance and trading of debt securities occurs. The bond market primarily includes government issued securities and corporate debt securities and facilitates the transfer of capital from servers to the issuers or organisations requiring capital for government projects, business expansions and ongoing operations.
Types of Bond Markets
The Securities Industry and Financial Markets Association (SIFMA) classified the broad bond market into five specified bond markets.
They are
Bond Market Participants
These participants are similar to participants in most financial markets
Stock Market
An equity market or stock market is the aggregation of buyers and sellers (a loose network of economic transactions, not a physical facility or discrete entity) of stocks (share), these are securities listed on stock exchange as well as those only traded privately.
Share Market
A share is one unit into which the total share capital is divided. Share capital of the company can be explained as a fund or sum with which a company is formed to carry on the business and which is raised by the issue of shares. Shares are the marketable instruments issued by the companies in order to raise the required capital. These are very popular investments which are traded every day in the stock market and the value of the share at the end of the day decides the value of the firm.
D-Mat Account
In India, shares and securities are held electronically in a Dematerialised account (D-Mat account) instead of the investor taking physical possession of certificates. A Dematerialised account is opened by the investor while registering with an investment broker (or sub-broker).
The Dematerialised account number is quoted for all transactions to enable electronic settlements of trades to take place. Every shareholder will have a Dematerialised account for the purpose of transacting shares.
Types of Shares
The shares which are issued by companies are of two types
It depends on the amount of profits made by the company. The Board of Directors decides on how much of the dividends will be given to equity shareholders. Shareholders can accept to it or reject the offer during the annual general meeting. Equity shareholders have the right to vote on any resolution placed before the company.
Fixed rate of dividends are paid to the preference shareholder as in case of debentures, irrespective of the profits earned company is liable to pay interest to preference shareholders.
Debentures
Debentures are creditorship securities representing long term indebtedness of a company. A debenture is an instrument executed by the company under its common seal acknowledging indebtedness to some person or persons to secure the sum in advance.
Debentures are usually secured by the company by a fixed or floating debentures at periodical intervals, generally 6 months and the company agrees to pay the principal amount at the expiry of the stipulated period according to their terms of issue. Like shares, they are issued to the public at part, at a premium or at a discount. Debenture holders are creditors of the company.
They have no voting rights, but their claims rank prior to preference shareholders and equity shareholders. Their exact rights depend upon the nature of debentures they hold.
Advantages of Debentures
It involves less cost to the firm than the equity financing because
Types of Debentures
The major types of debentures are as follows
Stock Exchanges in India
Bombay Stock Exchange (BSE), the oldest stock exchange in Asia, was established in 1875. It is synonomous with Dalal Street. BSE was corporatised and renamed BSE Limited in 2005. In 1894, the Ahmedabad Stock Exchange was started to facilitate dealing in the shares of textile mills. In 1908, Calcutta Stock Exchange was started to facilitate market for shares of plantations and jute mills. At present, there are 21 stock exchanges in the country.
List of Approved Stock Exchanges in India
Approved stock exchanges in India are as follows
Tit-Bits
National Stock Exchange (NSE)
NSE was promoted by leading financial institutions at the behest of the Government of India and was incorpoiated in November, 1992 as a tax-paying company unlike other stock exchanges in the country. On the basis of the recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated in November, 1992.
Indices of NSE
MIBOR and MIBID
NSE had developed MIBID (Mumbai Inter Bank Bid Rate) and MIBOR (Mumbai Inter Bank Offer Pate) for the overnight market. This was launched sometime in 1998. They are the reference rates, then NSE launched the 14 days MIBID/MIBOR and then the 1 month and the 3 months MIBOR and MIBID. Thus, all the 4 categories of MIBOR and MIBID are now available.
It is the simple average of the quotes by the various participants in the market banks, PDs, institutions polled on a daily basis.
LIBOR (London Inter-Bank Offered Rate) It is the average of interest rates provided by leading banks in London that they would be charged while borrowing from other banks, it is used as a global benchmark interest rate by many banks around the world.
World’s Most Important Index
|
Index |
Place |
|
DOLLEX, SENSEX,S and P CNX-NIFTY FIFTY BANKEX |
Mumbai |
|
Dow Jones |
New York |
|
Nikkei |
Tokyo |
|
MIDDAX |
Germany |
|
HONG SENG |
Hongkong |
|
SIMEX, STRAITS TIMES |
Singapore |
|
KOSPI |
Korea |
|
SET |
Thailand |
|
TAIEN |
Taiwan |
|
SHANGHAI COM |
China |
|
NASDAQ |
USA |
|
S and P |
Canada |
|
BOVESPA |
Brazil |
|
MIBTEL |
Itali |
|
IPC |
Mexico |
Bombay Stock Exchange (BSE)
It was established in 1875, BSE Limited (formerly known as Bombay Stock Exchange Limited), is Asia's first stock exchange and one of India's leading exchange groups. Over the past 137 years, BSE has facilitated the growth of the Indian corporate sector by providing it an efficient capital raising platform.
Major BSE Indices
Five share indices are working under BSE which are as follows
(i) SENSEX It is measured by sensory index and at present 30 companies are notified under it.
(ii) BSE 500 This new index started operation in the year 1999 by BSE and it is the biggest base index.
(iii) National Index 100 companies are there in this index and it is coated by the regional share markets.
(iv) BSE 200 It is the share index of 200 biggest base companies. It is also called Dollex as it also depicts the value of the American Dollar.
(v) Indo Next It is established by BSE and Federation of India Stock Exchange (FISE) with the aim of liquidity among small companies encouraging.
BSE-GREENEX
Bombay Stock Exchange on 22nd Feb. 2012 has launched a new index called 'BSE-GREENEX' which measures the performance of the company s interims of Carbon Emissions. The top-ranking companies from each sector like power, steel, cement have made it to the new index called BSE-GREENEX. Greenex has 20 companies from the broader BSE 100 index that meet energy efficiency norms, allowing investors to derive benefit from the related cost savings.
Over the Counter Exchange of India (OTCEI)
Traditionally, trading in stock exchanges in India followed a conventional style, where people used to gather at the exchange offices and bids and offers were made by open outcry. This old-age trading mechanism in the Indian stock markets used to create many functional in efficiencies. OTCEI was incorporated in 1990, under the Companies Act, 1956.
OTCEI is the first screen based nationwide stock exchange in India created by Unit Trust of India (UTI), Industrial Credit and Investment Corporation of India (ICICI), Industrial Development Bank of India (IDBI), SBI capital markets, Industrial Finance Corporation of India (IFCI), General Insurance Corporation (GIC) and its subsidiaries and bank financial services.
Residex
Keeping in view, the prominence of housing and real estate as a major area for creation of both physical and financial assets and its contribution in overall national wealth, a need was felt for setting up of a mechanism which could track the movement of prices in the residential housing segment. Regular monitoring of the house prices can be useful inputs for the different interest groups.
Futures Market
A futures market is an auction market in which participants buy and sell commodity and future contracts for delivery on a specified future date. Examples of future markets are the New York Mercantile Exchange, the Kansas City Board of Trade, the Chicago Mercantile Exchange, the Chicago Board of Options Exchange and the Minneapolis Grain Exchange. Originally, trading was carried on though open yelling and hand signals in a trading pit, though in the 21st century, like most other markets, future exchanges were mostly electronic.
Merging of SEBI and Future Market Commission
With the Forward Markets Commission (FMC) formally got merged with SEBI on 28th Sep, 2015. The first priority would be to develop trust in the commodities market and then the focus would be on developing the market.
MCX Stock Exchange (MCX-SX)
It is a private stock exchange headquartered in Mumbai, which was founded in 2008. Now, it is a MCX-SX full-fledged stock exchange. Securities and Exchange Board of India (SEBI) on 10th July, 2012 granted permission to MCX Stock Exchange (MCX-SX) to operate as full-fledged stock exchange. MCX-SX would be able to offer additional asset classes such as equity and equity F and 0 (Futures and Options) interest rate futures and wholesale debt segments. SEBI has not allowed the exchange to operate in segments other than currency derivatives. This move of
SEBI will bring more competition in the market.
Commodity Exchange
Future Trading of Foreign Currency
It is exchange where people can trade standardized future contract. That is a contract to buy specific quantities of a. commodity at specified price with delivery set at a specified time in future.
Apart from this, India has (ICE) regional exchanges. All these commodity exchange are overseen by Forward Market Commission (FMC), which was setup in 1953.
Reference Rates
A reference rate is an accurate measure of the market price. In the fixed income market, It is an interest rate that the market respects and closely watches. It plays a. useful role in a variety of situations.
Credit Rating
It is a company that assigns credit ratings to institutions that issue debt obligations i.e. assets backed by receivables on loans, such as mortgage backed securities.
These institutions can be companies, cities; non-profit organisations or national governments and the securities they issue can be traded on a secondary market. Credit Rating Agency at present; there are four credit rating agencies in the country. They are
Credit Rating Information Services of India Limited (CRISIL)
It is a global analytical company providing ratings, research, risk and policy advisory services. CRISIL’s majority shareholder is Standard and Poor's, a division of McGraw Hill financial and provider of financial market intelligence. Headquarter of CRISIL is in Mumbai. CRISIL ratings has rated/assessed over 61000 entities in India.
International Cultivar Registration Authorities (ICRA)
It is an Indian independent and professional investment information and credit rating agency. It was established in 1991 and was originally named Investment Information and Credit Rating Agency of India Limited (IICRA, India). It is second largest Indian rating company in terms of customer base. It was a joint venture between Moody's and various Indian commercial banks and financial services companies. Headquarter of ICRA is Gurugram.
Credit Analysis and Research Ltd. (CARE)
CARE Ratings commenced operations in April, 1993 and over nearly two decades, it has established itself as the second largest credit agency in India. CARE Ratings has also emerged as the leading agency for covering many rating segments like that for banks, sub-sovereigns and IPO gradings.
Various Countries and their Currencies
|
Country |
Currency |
|
Afghanistan |
Afghan Afghani |
|
Algeria |
Algirian dinar |
|
Argentina |
Argentine peso |
|
Australia |
Australian dollar |
|
Austria |
Euro |
|
Bangladesh |
Bangladeshi taka |
|
Belarus |
Belarusian rusle |
|
Belgium |
Euro |
|
Bhutan |
Ngultrum |
|
Brazil |
Brazilian real |
|
Myanmar (Burma) |
Burmese kyat |
|
Canada |
Canadian dollar |
|
Chile |
Chilean peso |
|
China |
Yuan |
|
Cyprus |
Euro |
|
Denmark |
Danish krone |
|
Egypt |
Egyption pound |
|
Fiji |
Fijian dollar |
|
France |
Euro |
|
Germany |
Euro |
|
Hong Kong |
Hong kong dollar |
|
India |
Indian rupee |
|
Indonesia |
Indonesian rupian |
|
Iran |
Iranian rial |
|
Iraq |
Iraqi dinar |
|
Ireland |
Euro |
|
Israel |
Israeli new shekel |
|
Italy |
Euro |
|
Japan |
Yen |
|
Kazakhstan |
Kazakhstani tenge |
|
Libya |
Libyian dinar |
|
Malaysia |
Malaysian rufiyaa |
|
Maldives |
Maldivian rufiyaa |
|
Mauritius |
Mauritian rupee |
|
Mexico |
Mexican peso |
|
Nepal |
Nepalese rupee |
|
New Zealand |
New Zealand dollar |
|
Nigeria |
Nigerian naira |
|
Pakistan |
Pakistani rupee |
|
Philippines |
Philippine peso |
|
Qatar |
Qatari riyal |
|
Romania |
Romanian len |
|
Russia |
Russian ruble |
|
Saudi Arabia |
Sandi riyal |
|
Singapore |
Singapore dollar |
|
South Africa |
South African rand |
|
Sri Lanka |
Sri Lankan rupee |
|
Switzerland |
Swiss franc |
|
Taiwan |
New Taiwan dollar |
|
Thailand |
Thai baht |
|
Turkey |
Turkish lira |
|
Ukraine |
Ukranian hryvnia |
|
UAE |
UAE |
|
United Kingdom |
British pound |
|
USA |
Dollar |
|
Veitnam |
Vietnamese dong |
|
Zimbabwe |
South African rand |
You need to login to perform this action.
You will be redirected in
3 sec
