Overview of capital market

 Organisational Structure Of Financial System

Constituent of Financial System

• Financial Market 
• Products
• Market Participants

Financial Market

• These are markets which provide channel for allocation of saving to investment.
• these provide variety of assets to the saver as well as provide various forms in which investor can raise funds.
• The financial market thus  contribute to economic development that the latter depend on the rates of saving and investment.

Money Market

where borrower and lender exchange short term funds to solve their liquidity needs. It contain  instrument of low risk, maturities under one year and highly marketable.

Capital Market

It is a market for financial investment that are direct and indirect to capital claim to capital. It is wider than securities market and embraces all forms of lending and borrowing.

Functions of Capital Market

Need for Capital Market

It plays an extremely role in promoting and sustaining the growth of economy.

• it channelize and  mobilize funds to enterprises(both private and govt).
• it provide effective source of investment in the economy.
• it provide a medium for risk mgt. by allowing the diversification of risk in the economy.
• it plays a critical role in mobilizing saving for investment in productive assets for enhancing long term growth prospectus.
• it provide a currency for acquisition via share swaps.
• it provide and excellent route for disinvestment to take place.
• venture capital and private equity funds investing in unlisted companies gets an exit option when the company get listed on the capital market.

 Securities Market

It refer to the markets for those financial instruments/claims/obligation that are commonly and readily transferable by sale. It has two different inter-dependent & inseparable segment...i.e- new issue(primary)&the stock(secondary)market.

Primary Market

it is the market which provide channel for sale of new securities, while secondary market deals in securities previously issued. The issuer sells securities in the primary market to raise funds for investment and to discharge some obligation.

these resources are required for new project as well as existing project with a view to expansion, diversification & upgradation.

Secondary Market

this market enables those who holds securities to adjust their holding in response to changes in their assessment of risk and return. They also sell securities for cash to meet their liquidity needs.

secondary market essentially comprise of stock exchanges which provide platform for purchase and sale of securities by investor.

this secondary market has two component-

• Spot market- where securities are traded for immediate delivery & payment.
• Future market-where securities are traded for future delivery and payment. another variant is option market where securities are traded for conditional future delivery.

two types of options are traded in option market-

• A put option permits the owner to sell a security to the writer of the option at a predetermined price before a certain date, while
• A call option permits the buyer to purchase a security from the writer of the option at a particular price before a certain date.

Functions of Securities Market

• Is a link between investment and saving.
• Mobilizes and channelize savings 
• Provide liquidity to investors.
• is a market place for purchase and sale of securities.

Key features of the Depositary System in India

• Multi-Depositary system
• Depositary services through depositary participant.
• Dematerialization
• Fungibility
• Registered owner/beneficial owner.
• Free transferability of shares.