Banking Awareness Study Material
Financial Markets in India
Financial market is a mechanism that allows people to but and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods) and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis. Typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them.
The term “market” is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e.g. a stock exchange or commodity exchange. This may be a physical location (like the NYSE) or an electronic system (like NASDAQ). Much trading of stocks takes place on an exchange; still, corporate actions (merger, spinoff) are outside an exchange, while any two companies or people, for whatever reason, may agree to sell stock from the one to the other without using an exchange.
The financial markets can be divided into two different categories :
- Money markets
- Capital markets
Structure of the Indian Money Market
Structurally Indian Money Market consists of financial institutions and financial instruments.
- Financial Institutions Financial Institutions of Indian Money Market are divided into organized and unorganized sectors.
- Organized Sector Organized sector of Indian Money Market is that sector whose part and activities are systematically coordinated by the monetary authority. It comprises of the following institutions :
- Reserve Bank of India : At the apex of Indian money market is the Reserve Bank of India. It is the Central Bank of the country.
- Commercial Banks : The Commercial Banks dominate the organized sector. It includes (a) Public Sector Banks (State Bank of India + Its Associate Banks + Nationalized Banks + Regional Tural Banks) and (b) Private Sector Banks (Scheduled Banks + Non-Scheduled Banks + Foreign Banks).
- Cooperative Banks : They are a part of cooperative credit institutes that have a three-tier structure. At the top there are State Cooperative Banks. At the district level, there are Central Cooperative Banks. At local level, there are rural primary Cooperative Banks and Urban Cooperative Banks.
- Unorganized Sector The Unorganized market is that market whose activities are not systematically coordinated by the monetary authority. It is largely made up of (1) Indigenous Bankers, (2) Money lenders, (3) Chit funds, (4) Nidhis, etc.
- Financial Instruments Financial instruments provide short-term credit. These include (1) Bills, (2) Treasury Bills, (3) Promissory Notes, (4) Hundies, (5) Certificates of Deposits(CD) and (6) Commercial Papers. .
Organization of Indian Money Market
Indian money market includes the following organizations :
- Call Money Market The call/notice money market forms an important segment of the Indian money market. Under call money market, funds are transacted for the period between 2 days and 14 days.
- Banker’s Acceptance Market A banker’s acceptance (BA) is a short-term credit investment created by non-financial firm and guaranteed by a bank to make payment. Acceptances are traded at discounts from face value in he secondary market. By acceptance market, we mean the market for bankers acceptance which arise out of trade transactions, both domestic and foreign.
- Collateral Loan Market In this market, loan is often secured against collateral security. Security may be in any dorm, viz, pledge, mortgages, etc. Thus, the market for loans secured by collateral security is called the collateral loan market.
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