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Detailed Table of the Chapter 10 Notes – Financial Market Class 12 Notes PDF
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Financial Market Class 12 Notes PDF
Financial Intermediation = process of allocating funds from saving surplus units (E.g. households) to saving deficit units (e.g. industries, government, etc).
- Alternatives = Banks or Financial markets
Financial Markets are the institutional arrangements by which savings generated in the economy are channelized into avenues of investment by industry, business, and the government. It is a market for the creation and exchange of financial assets.
Functions of Financial Market
1. Mobilization of savings and channelizing them into the most productive uses:
- Facilitates transfer of savings from the savers to the investors.
- Financial markets help people to invest their savings in various financial instruments and earn income and capital appreciation.
- Facilitate mobilization of savings of people and their channelization into the most productive uses.
2. Facilitate Price Discovery:
- The price of anything depends upon the demand and supply factors.
- Demand and supply of financial assets and securities in financial markets help in deciding the prices of various financial securities; where business firms represent the demand and the households represent the supply.
3. Provide liquidity to financial assets:
- Financial markets provide liquidity to financial instruments by providing a ready market for the sale and purchase of financial assets.
- Whenever the investors want, they can invest their savings into long-term investments and whenever they want, they can sell the investments/ instruments and convert them into cash.
4. Reduce the cost of transactions:
- By providing valuable information to buyers and sellers of financial assets, it helps to saves time, effort, and money that would have been spent by them to find each other.
- Also, investors can buy/sell securities through brokers who charge a nominal commission for their services. This way financial markets facilitate transactions at a very low cost.
Financial Market Class 12 Notes PDF – Short Notes
Types of Financial Markets
The market for financial securities with a maturity period of less than one year.
- Mkt for low-risk, unsecured, and short-term debt instruments that are highly liquid are traded every day.
• No physical location bye conducted over the telephone and the internet.
• Helps to:
o raise short term funds
o Temporary deployment of funds.
The main instruments of the money market are as follows:
- Treasure Bills: They are issued by the RBI on behalf of the Central Government to meet its short-term requirement of funds. They are issued at a price that is lower than their face value and arc repaid at par. They are available for a minimum amount of Rs.25000 and in multiples thereof. They are also known as Zero Coupon Bonds. They are negotiable instruments i.e. they are freely transferable.
- Commercial Paper: It is a short-term unsecured promissory note issued by large credit-worthy companies to raise short-term funds at lower rates of interest than market rates. They are negotiable instruments transferable by endorsement and delivery with a fixed maturity period of 15 days to one year.
- Call Money: It is short-term finance repayable on demand, with a maturity period of one day to 15 days, used for interbank transactions. Call Money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio as per RBI. The interest rate paid on call money loans is known as the call rate.
- Certificate of Deposit: It is an unsecured instrument issued in bearer form by Commercial Banks & Financial Institutions. They can be issued to individuals. Corporations and companies for raising money for a short period ranging from 91 days to one year.
- Commercial Bill: It is a bill of exchange used to finance the working capital requirements of business firms. A seller of the goods draws the bill on the buyer when goods are sold on credit. When the bill is accepted by the buyer it becomes a marketable instrument and is called a trade bill. These bills can be discounted with a bank if the seller needs funds before the bill maturity.
Facilities and institutional arrangements through which long-term securities are raised and invested- both debt and equity.
• Nature of Capital Markets:
a. Important component of Financial markets b. Two segments(primary and secondary) c. 2 forms(organized and unorganized) d. long-term securities e. Satisfies long-term requirements of funds f. Performs trade-off functions g. Creates dispersion in business ownership h. Helps in capital formation i. Creates liquidity
• Features Of Capital Market Instruments:
a. Provide long term funds
b. Lesser outlay required as the unit value of instruments is low
c. Duration more than 1 year
e. Lower safety
f. Higher expected returns as compared to short term securities
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