Chapter 2

Market)

Financial Markets I ( Money

MEANING OF MONEY MARKET:A money market is a market for borrowing and lending of
short-term funds. It deals in funds and financial instruments
having a maturity period of one day to one year. It is a
mechanism through which short-term funds are loaned or
borrowed and through which a large part of financial
transactions of a particular country or of the world are cleared.
It is different from stock market. It is not a single market but
a collection of markets for several instruments like call money
market, Commercial bill market etc. The Reserve Bank of India
is the most important constituent of Indian money market. Thus
RBI describes money market as the centre for dealings, mainly
of a short-term character, in monetary assets, it meets the
short-term requirements of borrowers and provides liquidity or
cash to lenders.

Definition:
1) One of the sections of a financial market where securities
and financial instruments with short-term maturities are traded
is called the money market. Financial assets like treasury bills,
certificates of deposits, commercial paper and bankers'
acceptance are some of the short-term debt securities traded in
the money market.
2) Network of banks, discount houses, institutional investors,
and money dealers who borrow and lend among themselves for
the short-term (typically 90 days). Money markets also trade
in highly liquid financial instruments with maturities less than
90 days to one year (such as bankers'
acceptance, certificates of deposit, and commercial paper),
and government securities with maturities less than three years
(such as treasury bills), foreign exchange, and bullion.

Unlike organized markets (such as stock exchanges) money

markets are largely unregulated and informal where
most transactions are conducted over phone, fax,
or online. Long-term borrowing and lending markets
are called capital markets.

Characteristics of Indian Money Market

1. Co-existence of organized and unorganized sectors:
The peculiar feature of the Indian Money Market is the coexistence of organized and unorganized sectors. The organized
sector consists of the Reserve Bank of India, State Bank of India
and its affiliates, Commercial Banks, etc., The Reserve Bank of
India supervises these banks. Indigenous bankers and others
belong to unorganized sector and this sector is not coming
under the purview of Reserve Bank of India. We can notice the
lack of co-operation and co-ordination between these two
sectors.
2. Lack of Integration: Indian Money Market is divided into
several segments. They are loosely connected to each other.
The various segments of Indian Money Market are not well coordinated. It leads to unhealthy competition among the
segments.
3.High volatile money market: The important feature of the
Indian Money Market is the seasonal stringency of funds. The
demand for money in the Indian Money Market is of seasonal in
character. The money rates fluctuate from one period to
another because during busy season more money is
demanded.
4. Diversified money rates of interest: Diversified money
rates of interest is an important feature of Indian Money
Market. Since funds cannot move freely from one section to
another, money rates of interest differ. Lack of co-ordination
among various segments of money market is also responsible
for diversified money rates of interest. But in recent years
Reserve Bank of India is making all efforts to bring down the
diversity in interest rates.
5. Absence of well organized bill market: Bill market in
India is not organized and well developed. The market for

government and semi government securities is also not

popular. Treasury Bill Market is also not well developed.
6. Lack of well organized banking system: Existence of
organized commercial banking system is pre requisite of a
developed money market. In India, the development of
commercial banking is uneven and not adequate. There are
only few big banks in the country which are extremely smaller
in number.
7. Limited availability of credit instruments: The Indian
Money Market does not have adequate short term credit
instruments. The important credit instruments are call money
market and treasury bills. However after 1988, Reserve Bank of
India started introducing new instruments like 182 days
treasury bill, 364 days treasury bill, certificate of deposits,
commercial papers etc.,
8. Few Lenders: The lenders in the Indian Money Market are
few. Entry into the money market is strictly regulated. But the
borrowers are large in number. Therefore this market is not very
active and vibrant.
9. Easy flow of foreign funds: Since 1991 foreign funds is
easily flowing into India. Inspire of the flow it is not enough to
meet the funds requirements of the country.
10. Shortage of capital: Indian Money Market is facing the
problem of capital shortage. Hence it cannot meet the
requirements of trade and commerce. Shortage is mainly due
to low level of savings, inadequate banking facilities etc.
11. Variety of Financial Institutions:
The Indian market is characterised by the presence of a large
number of financial institutions such as non-banking financial
intermediaries, cooperative banks, Export-Import banks. They
cater to the financial needs of different sectors.

STRUCTURE OF INDIAN MONEY MARKET

Money market is not a homogeneous market. It is composed of
heterogeneous sub-markets, each specialising in a specific

short- term credit instrument. The following are the important

constituents of money market:
1. Call Money Market:
The call money market deals with very short-period or call
loans. Bill brokers and dealers in the stock exchange generally
borrow money at call from the commercial banks.
These loans are granted for a very short period, not exceeding
seven days in any case. The borrowers have to repay the loans
immediately whenever the banks call them back. No collateral
securities are required against these loans.

2. Collateral Loan Market:

Collateral loan market refers to a market for loans secured
against collateral securities like stocks and bonds. The
collateral is returned to the borrower at the time when he
repays the loan. In case the borrower fails to repay the loan,
the collateral becomes the property of the lender.
Collateral loans are mostly granted by the commercial banks to
private parties in the market and for a short period of a few
months. Sometimes smaller banks also receive collateral loans
from bigger banks.
3. Acceptance Market:
Acceptance market is a market for bankers acceptances. A
banker's acceptance is a draft drawn by a business firm upon a
bank and accepted by it whereby the bank is required to pay to
the order of a specific party or to the bearer a specific sum of
money at a specific future date.

Bankers acceptances are used mostly in financing the

commercial transactions both within and outside the country.
The banker's acceptance is different from a cheque in that
while the former is payable at a specified future date, the letter
is payable on demand. Bankers acceptance can be easily sold
or discounted in the money market, called acceptance market.
4. Bill Market:
Bill market specializes in the sale and purchase of different
types of short-term papers or bills. The important types of bills
are: (a) bills of exchange and (b) Treasury bills. Since
discounting of bills is the main business in the bill market, it is
also known as discount market.
It should be noted that the bill market does not deal with longterm treasury bonds and other long-term papers which involve
long-term lending,
(I) Bill of exchange:
The bill of exchange is a written unconditional order signed by
the drawer (seller) requiring the drawee (buyer) to pay on
demand or at a fixed future date a definite sum of money. After
the bill has been drawn by the drawer (seller), it is accepted by
the drawee (buyer).
Once the buyer puts his acceptance on the bill, it becomes a
legal document. Such bills of exchange are discounted and rediscounted by the commercial banks for lending credit to the
bill brokers or for borrowing from the central banks.
(ii) Treasury Bills:
While the bill of exchange is a commercial paper, the Treasury
bill is government paper. The treasury bills are short-term
government securities generally of three months' duration.
They are sold by the central bank on behalf of the government.
They bear no interest rate and are offered on the basis of
competitive bidding. Thus those who are satisfied with the

lowest interest rate will be allotted the bills. Treasury bills,

being government papers, inspire greater confidence among
the investors.

Role/Function of Money Market

A well-developed money market is essential for a modern
economy. Though, historically, money market has developed as
a result of industrial and commercial progress, it also has
important role to play in the process of industrialization and
economic development of a country. Importance of a developed
money market and its various functions are discussed below:
1. Financing Trade:
Money Market plays crucial role in financing both internal as
well as international trade. Commercial finance is made
available to the traders through bills of exchange, which are
discounted by the bill market. The acceptance houses and
discount markets help in financing foreign trade.
2. Financing Industry:
Money market contributes to the growth of industries in two
ways:
(a) Money market helps the industries in securing short-term
loans to meet their working capital requirements through the
system of finance bills, commercial papers, etc.
(b) Industries generally need long-term loans, which are
provided in the capital market. However, capital market
depends upon the nature of and the conditions in the money
market. The short-term interest rates of the money market
influence the long-term interest rates of the capital market.
Thus, money market indirectly helps the industries through its
link with and influence on long-term capital market.
3. Profitable Investment:

Money market enables the commercial banks to use their

excess reserves in profitable investment. The main objective of
the commercial banks is to earn income from its reserves as
well as maintain liquidity to meet the uncertain cash demand of
the depositors. In the money market, the excess reserves of the
commercial
banks
are
invested
in
near-money
assets (e.g. short-term bills of exchange) which are highly liquid
and can be easily converted into cash. Thus, the commercial
banks earn profits without losing liquidity.
4. Self-Sufficiency of Commercial Bank:
Developed money market helps the commercial banks to
become self-sufficient. In the situation of emergency, when the
commercial banks have scarcity of funds, they need not
approach the central bank and borrow at a higher interest rate.
On the other hand, they can meet their requirements by
recalling their old short-run loans from the money market.
5. Help to Central Bank:
Though the central bank can function and influence the banking
system in the absence of a money market, the existence of a
developed money market smoothens the functioning and
increases the efficiency of the central bank.
Money market helps the central bank in two ways:
(a) The short-run interest rates of the money market serves as
an indicator of the monetary and banking conditions in the
country and, in this way, guide the central bank to adopt an
appropriate banking policy,
(b) The sensitive and integrated money market helps the
central bank to secure quick and widespread influence on the
sub-markets, and thus achieve effective implementation of its
policy.
IMPORTANCE OF MONEY MARKET

If the money market is well developed and broad based in a

country, it greatly helps in the economic development of a
country. The central bank can use its monetary policy
effectively and can bring desired changes in the economy for
the industrial and commercial progress in the country. The
importance of money market is given, in brief, as under:
(I) Financing Industry: A well developed money market helps
the industries to secure short term loans for meeting their
working capital requirements. It thus saves a number of
industrial units from becoming sick.
(ii) Financing trade: An outward and a well knit money
market system play an important role in financing the domestic
as well as international trade. The traders can get short term
finance from banks by discounting bills of exchange. The
acceptance houses and discount market help in financing
foreign trade.
(iii) Profitable investment: The money market helps the
commercial banks to earn profit by investing their surplus funds
in the purchase of. Treasury bills and bills of exchange, these
short term credit instruments are not only safe but also highly
liquid. The banks can easily convert them into cash at a short
notice.
(iv) Self sufficiency of banks: The money market is useful
for the commercial banks themselves. If the commercial banks
are at any time in need of funds, they can meet their
requirements by recalling their old short term loans from the
money market.
(v) Effective implementation of monetary policy: The well
developed money market helps the central bank in shaping and
controlling the flow of money in the country. The central bank
mops up excess short term liquidity through the sale of
treasury bills and injects liquidity by purchase of treasury bills.
(vi) Encourages economic growth: If the money market is
well organized, it safeguards the liquidity and safety of financial
asset This encourages the twin functions of economic growth,

savings and investments.

(vii) Help to government: The organized money market
helps the government of a country to borrow funds through the
sale of Treasury bills at low rate of interest The government
thus would not go for deficit financing through the printing of
notes and issuing of more money which generally leads to rise
in an increase in general prices.
(viii) Proper allocation of resources: In the money market,
the demand for and supply of loan able funds are brought at
equilibrium The savings of the community are converted into
investment which leads to pro allocation of resources in the
country.

Chapter 3
Financial Market I ( Capital
Market)
Meaning of Capital Market:Capital Market is one of the significant aspect of every financial
market. Hence it is necessary to study its correct meaning.
Broadly speaking the capital market is a market for financial
assets which have a long or indefinite maturity. Unlike money
market instruments the capital market instruments become
mature for the period above one year. It is an institutional
arrangement to borrow and lend money for a longer period of
time. It consists of financial institutions like IDBI, ICICI, UTI, LIC,
etc. These institutions play the role of lenders in the capital
market. Business units and corporate are the borrowers in the
capital market. Capital market involves various instruments
which can be used for financial transactions. Capital market
provides long term debt and equity finance for the government
and the corporate sector. Capital market can be classified into
primary and secondary markets. The primary market is a
market for new shares, where as in the secondary market the
existing securities are traded. Capital market institutions
provide rupee loans, foreign exchange loans, consultancy
services and underwriting.

Definition:Capital market is a market where buyers and sellers engage in

trade of financial securities like bonds, stocks, etc. The
buying/selling is undertaken by participants such as individuals
and institutions.

Sources of Long Term Capital/fixed capital:The main sources of Long Term capital are depicted below.

The sources of fixed capital or long term finance are:

Issue of Equity and Preference shares.
Issue of Right shares.
Private placement of shares.
Issue of debentures.
Term loans.
Retained earnings.

Lease financing.
Now let's briefly discuss each source of fixed capital or long
term finance.

Source 1. Issue of shares

Issue of shares is the most important source of fixed capital.
Most companies collect fixed capital by issuing shares.
Generally, there are two types of shares, these are depicted
below.

These two types of shares are briefly described as follows:

(I) Equity share:
Equity share carries ownership rights of the company, and it
doesn't carry a fixed rate of dividend.
Equity shares are more popular than preference shares. The
face value of an equity share is decided by the company.
This share is also called ordinary share. This is because
shareholders are the real owners of the company.
The share capital is also called risky capital. This is so because
there is no guarantee for getting a dividend. Similarly, if the
company winds up or shut down, there is no guarantee for
getting repayment of capital.

(ii) Preference share:

A preference share carries ownership rights of the company,
and it carries a fixed rate of dividend.
A preference share has two main advantages over equity
shares viz.;
They get a fixed rate of dividend before the equity shares, and
If the company winds up or shut down, they get repayment of
capital before the equity shares.

Source 2. Issue of Right shares

Rights issue of shares means the company issues shares to its
existing shareholders. According to provisions of law, a
company must first issue shares to its existing-shareholders.
If the existing shareholders do not want to buy the shares, then
the company can sell its shares to the outsiders.
The existing shareholders are given first preference to buy the
company's fresh issue of shares.
In an event of rights issue of shares, the share capital increases
but the numbers of shareholders do not increase.
Generally, rights issue is very economical to collect fixed
capital.

Source 3. Private placement of shares

Private placement of shares means the company sell its shares

directly to a small-group of investors like bank, insurance
companies, financial institutions, mutual, etc.
Here, the company does not sell the shares to the public.
It is a very simple and economical method as it does not
involve issue of a prospectus, no need of brokers and
underwriters, etc.
Fixed capital is also collected from private placement of shares.

Source 4. Issue of debentures

Debenture represents the borrowed capital of the company.
Fixed capital is also collected from issue of debentures.
Debenture holders get interest for the capital contribution
made by them to the company.
Debenture holders are the long-term lenders of the company.

Source 5. Term loans

Term loans are secured or unsecured loans obtained by the
company. The company has to pay interest on these term
loans.
The company gets term loans from banks and financial
institutions like Deutsche, HSBC, YES, ICICI, HDFC, AXIS, and so
on, by submitting its project analysis report.
The shareholders do not lose ownership control of the company
by obtaining term loans. Fixed capital is also collected from
term loans.

Source 6. Retained earnings

Retained earnings is a part of undistributed profits earned by
the company. Since, the company does not distribute all of its
profits to the shareholders.
Company saves a part of its profits. This saved profit is called
retained earnings, self-financing or ploughing back of profits.
It is very economical because no interest payment is to be
made.
Retained earnings is the cheapest source of fixed capital.

Source 7. Lease financing

In lease financing, there are two parties, viz;
1. Lessor, who is the owner of an asset, and
2. Lessee, who is the user of an asset.
The lessor is the owner of an asset. Lessor gives the asset on a
lease-basis to the lessee. The lessee uses the asset and in
return, pays rent for using that asset to the lessor.
The lessor and lessee enter into an agreement. This agreement
is called lease-agreement.
The lessee need not spends money for purchasing the assets.
Lessee hires (takes) the asset on a lease or rent so that he/she
can use the available money for working capital requirements.
Lease financing is very simple and economical.
So, these are the sources of long term capital.

Constituents of Capital Market

Any Capital Market has two logical segments viz. primary and
secondary.

A primary market is that segment of the market where new securities

are issued. These issues may not just be equity issues, they can also be debt
securities issued by companies in the form of bonds.

Secondary market is that segment of the market where trading of

securities issued in primary market happens.

An efficient capital market of a country has many important player

each playing a vital role in smooth functioning of the market. Above is the
pictorial representation of the constituents in any mature capital market.
Stock Exchange: A stock exchange is a body which facilitates trading of
securities (shares, derivatives, currencies etc). Read more about Stock
Exchange and its functions

Merchant Bankers: A merchant banker is responsible for offering

consultation services for mergers and acquisition, capital raising via equity
or debt, giving advice to businesses that plan to enter the international
market and helping small businesses expand for a bigger target market.

Investors: Investors are the most important part of the capital market as
they are the ones who spend capital in the subscribing to the issue issued by
issuers like IPOs, FPOs, Right Issues etc.

Stock Brokers: A stock broker is responsible for buying and selling

securities for both retail and individual clients through a stock exchange.
One cannot directly trade securities on stock exchanges and instead have to
do it though the registered member of the stock exchange popularly known
as stock brokers.

Depositories: A securities depository is like a bank which maintains

investor's accounts having securities such as shares, mutual fund units,
bonds etc. The primary function of a depository is to facilitates the
exchange of securities and maintain the book entry. In simple words a
depository helps in transferring the ownership of securities from one
account to another when trade takes place between the buyer and the seller
of the security. Read more about Security depositories and its
function.

Depository Participants: As an investor you never deal with a

depository directly but indirectly through a depository participant (DP)
which is a member of the depository. All major banks and stock brokers are
members of country's security depository. For example Wells Fargo, Bank
of America, Scott Trade etc are depository participants or members of
DTCC in U.S. while ICICI Securities, India Info line, Reliance Money,

Relegate Capital etc are depository participants of NSDL and CSDL in

India.

Market Regulator: Like any major industry all mature capital markets
have respective regulators such as SEC in U.S, SEBI in India etc.

Issuers: Issuers are the issuers of securities like shares, bonds etc. They
raise capital from investors and usually employ merchant bankers who
advise them on the timing, pricing, market etc.

ROLE AND IMPORTANCE OF CAPITAL MARKET IN

INDIA :Capital market has a crucial significance to capital
formation. For a speedy economic development adequate
capital formation is necessary. The significance of capital
market in economic development is explained below :1. Mobilisation Of Savings And Acceleration Of Capital
Formation :In developing countries like India the importance of
capital market is self evident. In this market, various types of
securities helps to mobilise savings from various sectors of
population. The twin features of reasonable return and liquidity
in stock exchange are definite incentives to the people to invest
in securities. This accelerates the capital formation in the
country.
2. Raising Long - Term Capital :The existence of a stock exchange enables companies to raise
permanent capital. The investors cannot commit their funds for
a permanent period but companies require funds permanently.
The stock exchange resolves this dash of interests by offering
an opportunity to investors to buy or sell their securities, while
permanent capital with the company remains unaffected.

3. Promotion Of Industrial Growth :The stock exchange is a central market through which
resources are transferred to the industrial sector of the
economy. The existence of such an institution encourages
people to invest in productive channels. Thus it stimulates
industrial growth and economic development of the country by
mobilising funds for investment in the corporate securities.
4. Ready And Continuous Market :The stock exchange provides a central convenient place where
buyers and sellers can easily purchase and sell securities. Easy
marketability makes investment in securities more liquid as
compared to other assets.
5.
Technical Assistance :An important shortage faced by entrepreneurs in developing
countries is technical assistance. By offering advisory services
relating to preparation of feasibility reports, identifying growth
potential and training entrepreneurs in project management,
the financial intermediaries in capital market play an important
role.
6. Reliable Guide To Performance :The capital market serves as a reliable guide to the
performance and financial position of corporate, and thereby
promotes efficiency.
7. Proper Channelization Of Funds :The prevailing market price of a security and relative yield are
the guiding factors for the people to channelize their funds in a
particular company. This ensures effective utilisation of funds in
the public interest.
8. Provision Of Variety Of Services :The financial institutions functioning in the capital market
provide a variety of services such as grant of long term and
medium term loans to entrepreneurs, provision of underwriting
facilities, assistance in promotion of companies, participation in
equity capital, giving expert advice etc.
9. Development Of Backward Areas :Capital Markets provide funds for projects in backward areas.
This facilitates economic development of backward areas. Long
term funds are also provided for development projects in
backward and rural areas.
10. Foreign Capital :-

Capital markets makes possible to generate foreign capital.

Indian firms are able to generate capital funds from overseas
markets by way of bonds and other securities. Government has
liberalised Foreign Direct Investment (FDI) in the country. This
not only brings in foreign capital but also foreign technology
which is important for economic development of the country.
11. Easy Liquidity :With the help of secondary market investors can sell off their
holdings and convert them into liquid cash. Commercial banks
also allow investors to withdraw their deposits, as and when
they are in need of funds.
12. Revival Of Sick Units :The Commercial and Financial Institutions provide timely
financial assistance to viable sick units to overcome their
industrial sickness. To help the weak units to overcome their
financial industrial sickness banks and FIs may write off a part
of their loan.

Chapter 4
Working of Stock Exchanges

Stock exchange is an organized market where

Government securities, shares, bonds and debentures of the
trading units are regularly transacted. Stock exchange provides
a place to the buyers and sellers of the shares and securities.
Stock exchange indicates about the good or bad health of

economy. If the share prices are rising it means country is

running on the path of development and prosperity.

Definitions of Stock Exchange

According to Husband and Dockerary,
"Stock exchanges are privately organized markets which are
used to facilitate trading in securities."
The Indian Securities Contracts (Regulation) Act of
1956, defines Stock Exchange as,
"An association, organization or body of individuals, whether
incorporated or not, established for the purpose of assisting,
regulating and controlling business in buying, selling and
dealing in securities."

Functions of Stock Exchange

1. Economic Barometer:
A stock exchange is a reliable barometer to measure the
economic condition of a country.

Every major change in country and economy is reflected in the

prices of shares. The rise or fall in the share prices indicates the
boom or recession cycle of the economy. Stock exchange is also
known as a pulse of economy or economic mirror which reflects
the economic conditions of a country.
2. Pricing of Securities:
The stock market helps to value the securities on the basis of
demand and supply factors. The securities of profitable and
growth oriented companies are valued higher as there is more
demand for such securities. The valuation of securities is useful
for investors, government and creditors. The investors can
know the value of their investment, the creditors can value the
creditworthiness and government can impose taxes on value of
securities.

3. Safety of Transactions:
In stock market only the listed securities are traded and stock
exchange authorities include the companies names in the trade
list only after verifying the soundness of company. The
companies which are listed they also have to operate within the
strict rules and regulations. This ensures safety of dealing
through stock exchange.
4. Contributes to Economic Growth:
In stock exchange securities of various companies are bought
and sold. This process of disinvestment and reinvestment helps

to invest in most productive investment proposal and this leads

to capital formation and economic growth.
5. Spreading of Equity Cult:
Stock exchange encourages people to invest in ownership
securities by regulating new issues, better trading practices
and by educating public about investment.
6. Providing Scope for Speculation:
To ensure liquidity and demand of supply of securities the stock
exchange permits healthy speculation of securities.
7. Liquidity:
The main function of stock market is to provide ready market
for sale and purchase of securities. The presence of stock
exchange market gives assurance to investors that their
investment can be converted into cash whenever they want.
The investors can invest in long term investment projects
without any hesitation, as because of stock exchange they can
convert long term investment into short term and medium
term.
8. Better Allocation of Capital:
The shares of profit making companies are quoted at higher
prices and are actively traded so such companies can easily
raise fresh capital from stock market. The general public
hesitates to invest in securities of loss making companies. So
stock exchange facilitates allocation of investors fund to
profitable channels.

9. Promotes the Habits of Savings and Investment:

The stock market offers attractive opportunities of investment
in various securities. These attractive opportunities encourage
people to save more and invest in securities of corporate sector
rather than investing in unproductive assets such as gold,
silver, etc.

Role of Stock Exchanges

Role of Stock Exchanges are varied and highly important in the
development of economy of a country. They measure and
control the growth of a country.
Stock markets are the places, where exactly you do your
business. Your stock trading transactions are executed at the
stock exchanges through your broker, unless you have a
membership with that exchange, which enable you to trade
directly.
Stock exchange apart from being hub of primary and secondary
market, they have very important role to play in the economy
of the country. Some of them are listed below.

Raising capital for businesses

Exchanges help companies to capitalize by selling shares to
the investing public.

Mobilizing savings for investment

They help public to mobilize their savings to invest in high
yielding economic sectors, which results in higher yield, both
to the individual and to the national economy.

Facilitating company growth

They help companies to expand and grow by acquisition or
fusion.

Profit sharing

They help both casual and professional stock investors, to get

their share in the wealth of profitable businesses.

Corporate governance
Stock exchanges impose stringent rules to get listed in them.
So listed public companies have better management records
than privately held companies.

Creating investment opportunities for small

investors
Small investors can also participate in the growth of large
companies, by buying a small number of shares.

Government capital raising for development

projects
They help government to rise fund for developmental
activities through the issue of bonds. An investor who buys
them will be lending money to the government, which is more
secure, and sometimes enjoys tax benefits also.

Barometer of the economy

They maintain the stock indexes which are the indicators of
the general trend in the economy. They also regulate the stock
price fluctuations.

NSE ( National Stock Exchange ):Formation of National Stock Exchange of India Limited
(NSE) in 1992 is one important development in the
Indian capital market. The need was felt by the industry and
investing community since 1991. The NSE is slowly becoming
the leading stock exchange in terms of technology, systems
and practices in due course of time. NSE is the largest and most

modern stock exchange in India. In addition, it is the third

largest exchange in the world next to two exchanges operating
in the USA.
The NSE boasts of screen based trading system. In the NSE, the
available system provides complete market transparency of
trading operations to both trading members and the
participates and finds a suitable match. The NSE does not have
trading floors as in conventional stock exchanges. The trading
is entirely screen based with automated order machine. The
screen provides entire market information at the press of a
button. At the same time, the system provides for concealment
of the identify of market operations. The screen gives all
information which is dynamically updated. As the market
participants sit in their own offices, they have all the
advantages of back office support, and facility to get in touch
with their constituents.
Wholesale debt market segment,
Capital market segment, and
Futures & options trading.

Bombay Stock Exchange( BSE):BSE is the leading and the oldest stock exchange in India as
well as in Asia. It was established in 1887 with the formation of
"The Native Share and Stock Brokers' Association". BSE is a
very active stock exchange with highest number of listed
securities in India. Nearly 70% to 80% of all transactions in the
India are done alone in BSE. Companies traded on BSE were
3,049 by March, 2006. BSE is now a national stock exchange as
the BSE has started allowing its members to set-up computer
terminals outside the city of Mumbai (former Bombay). It is the
only stock exchange in India which is given permanent
recognition by the government. At present, (Since 1980) BSE is

located in the "Phiroze Jeejeebhoy Towers" (28 storey building)

located at Dalal Street, Fort, Mumbai. Pin code - 400021.
In 2005, BSE was given the status of a full fledged public
limited company along with a new name as "Bombay Stock
Exchange Limited". The BSE has computerized its trading
system by introducing BOLT (Bombay On Line Trading) since
March 1995. BSE is operating BOLT at 275 cities with 5 lakh (0.5
million) traders a day. Average daily turnover of BSE is near Rs.
200 crores.

Over-The-Counter Exchange Of India (OTCEI) The OTCEI was incorporated in October, 1990 as a Company
under the Companies Act 1956. It became fully operational in
1992 with opening of a counter at Mumbai. It is recognised by
the Government of India as a recognised stock exchange under
the Securities Control and Regulation Act 1956. It was
promoted jointly by the financial institutions like UTI, ICICI, IDBI,
LIC, GIC, SBI, IFCI, etc.
The Features of OTCEI are :1. OTCEI is a floorless exchange where all the activities are fully
computerised.
2. Its promoters have been designated as sponsor members
and they alone are entitled to sponsor a company for listing
there.
3. Trading on the OTCEI takes place through a network of
computers or OTC dealers located at different places within the
same city and even across the cities. These computers allow
dealers to quote, query & transact through a central OTC
computer using the telecommunication links.
4. A Company which is listed on any other recognised stock
exchange in India is not permitted simultaneously for listing on
OTCEI.

5. OTCEI deals in equity shares, preference shares, bonds,

debentures and warrants.
The Participants of OTCEI are :1. Members and dealers appointed by OTCEI,
2. Companies whose securities are listed,
3. Investors who trade in the OTCEI,
4. Registrar who keeps custody of scrip certificates,
5. Settlement Bank which clears the payment between
counters, and
SEBI and Government who supervise and regulate the working.

National Association of Securities Dealers Automated

Quotation ( NASDAQ):A global electronic marketplace for buying and selling
securities, as well as the benchmark index for U.S. technology
stocks. Nasdaq was created by the National Association of
Securities Dealers (NASD) to enable investors to trade
securities on a computerized, speedy and transparent system,
and commenced operations on February 8, 1971. The term
Nasdaq is also used to refer to the Nasdaq Composite, an
index of more than 3,000 stocks listed on the Nasdaq exchange
that includes the worlds foremost technology and biotech
giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel
and Amgen.
it is an American stock exchange. It is the largest electronic
screen-based equity securities trading market in the United
States. With approximately 3,200 companies, it lists more
companies and has more trading volume per day than any
other stock exchange in the world.
It was founded in 1971 by the National Association of Securities
Dealers (NASD), It is owned and operated by the NASDAQ OMX

Group, the stock of which was listed on its own stock exchange
in 2002, and is monitored by the Securities and Exchange
Commission (SEC).

chapter 5
Special Finance Companies

VENTURE CAPITAL FUNDS:An investment fund that manages money from investors
seeking private equity stakes in start up and small- and
medium-size enterprises with strong growth potential. These
investments are generally characterized as high-risk/highreturn opportunities.
Theoretically, venture capital funds give individual investors the
ability to get in early at a company's start up stage or in special
situations in which there is opportunity for explosive growth. In
the past, venture capital investments were only accessible to
professional venture capitalists. While a fund structure
diversifies risk, these funds are inherently risky.

Mutual Fund:-

A Mutual Fund is formed by the coming together of a

number of investors who hand over their surplus funds to a
professional organization to manage it through investments in
capital market. (Mutual Funds are known as 'Unit Trusts' in
England).
A Mutual Fund is basically a risk reducing tool. Risk reduction is
achieved by diversification of the portfolio. Diversification
means that a Mutual Fund invests in a large number of shares
and financial instruments thereby lowering the overall risk.
Further the fund managers' investment decisions are based on
the basis of intensive research and are backed by informed
judgement and experience.
Although Mutual Fund units are quoted on the market, a Mutual
Fund unit is not same as a share. Each unit of a Mutual Fund
represents a portion of the total corpus it manages under a
scheme.
For example, a mutual fund may float a scheme for collecting
Rs.50 crore for investment in equity shares. Here the total
corpus of the scheme is Rs.50 crore. The corpus may be divided
into five crore units of Rs.10 each. Hence, the unit value of
Fund is Rs.10 each.
The value of shares in which the investment has been made
may have been doubled. If so, the market value of unit may
also rise. Further, a Mutual Fund distributes everything that it
earns to the investors. Expenses relating to the fund however
are charged to the fund.
To sum up, a Mutual Fund collects money from investors and
invests it for their. The fund however has to disclose the full
details of the investment scheme in advance to the investors.
The entire income/profit are distributed to the investors in
proportion to their invest.