Class 12 Business studies chapter 10. Financial market important Notes.

 Financial market..........short and easy notes for board exam.

1. What do you mean by money market? what are its characteristics? What are its important instruments?

> Money market is the market of short term funds. It is considered as a market for providing working capital.

Following are its characteristics;

• Short term security are traded in money market.
• It deals in short term funds for a period of one year.
• It focus on meeting of working capital requirements.
• Financial company or institutions are its major participants.
• Security of money market are highly liquid.

Important instrument traded in money market;

• Call money- the day to date surplus fund of bank are traded as call money. It provide temporary shortage of cash. It is also called telephone market. Its maturity period are very short. Sometimes be only few hours.
• Treasury bill- it is issued by RBI on behalf of the government. Its maturity period are of the Government of India. It is issued at a discount. Its maturity period are 14 to 364 days.
• Trade bill- it is unconditional order signed by the marker. It is issued for a period of 90 days. It is freely Transferable.
• Commercial paper- it is used by the company to meet the working capital requirement. Its maturity period 3 months to 12 months. It is generally purchased by the commercial bank, insurance company and UTI.
• Certificate of deposit- It is a time deposit, only a bank can issue. It is issued by the bank against deposit. Its maturity period are 91 days - 1 year.

2. What do you mean by capital market? What are its features?

>Capital market is a market for long term and medium term fund. It provide funds for more than one year period.

Following are its features.

• Long term and medium term funds are deal in capital market.
• Capital market is forum of investor and borrower.
• Equity share, preference share, debenture and commercial certificate are bought and sold.
• The shareholder get dividend and debenture holder get interest in capital market.
• Capital market provides liquidity to investors in security.
• SEBI is the controller of capital market.

3.Write the difference between primary market and secondary market.

Primary market

• New share and security are issued in primary market.
• Security are sold by the company to investors.
• Only buying of security take place.
• Prices are determined by the company.
• It help directly in capital information.
• There is no fixed location.

Secondary market.

• Existing share and debentures are traded in secondary market.
• Security are sold and purchase between the investors.
• Both buy and selling of security can take place.
• Price are determined on the basis of demand and supply.
• It provides liquidity.
• It is located at a specific places.

4. Write the difference between capital market and money market.

Capital market

• Its period of maturity is more than 1 year
• The component of capital market are share and debenture.
• It is controlled by the SEBI.
• Capital market takes more time in transaction.
• It deals with the help of broker
• Capital market provide both the permanent and Temporary working capital..

Money market.

• Its period of maturity is less than 1 year.
• The main component of money market is treasury bill, commercial paper, trade bill etc.
• It is controlled by the RBI.
• Money market takes very little time in transaction.
• There is no need of brocker.
• Money market provide only for working capital.

5. What do you mean by Stock Exchange? What are its functions?

>Stock exchange means market to purchase and sale of shares and debentures. It is also called security market or secondary market. Only the security already issued could be bought and sold.

Following are its functions.

• It provides liquidity to the security.
• Promotes the habit of saving and investment to the general public.
• Protect the interest of investor against dishonesty.
• It help in determining the price of various security through the demand and supply force.
• It ensure safety of fund.
• It is economic barometer of the company.
• It is mirror of the business cycle.
• Stock exchange provide continuous market to the investors.
• It is helpful in distribution of new security.

6. Do you mean by security exchange Board of India (SEBI)? What are its characteristics? What are its functions? What are its objectives?

> SEBI has been set up as a statutory body under the SEBI Act 1992.

Following are its characteristics.

• To protect the interest of investors.
• To promote the development of security market.
• To regulate the functioning of security market.

Following are its objectives.

• To promote fair dealing in a stock exchange.
• To ensure market place.
• To protect and safeguard the interest and right of investors.
• Today gold rate the work of broker, Merchant and bankers.

Following are its functions.

• To check unfair trade practice.
• To check fraudulent practices.
• To educate the investors.
• To provide training for broker and investors.
• To prescribe the role of broker, underwriters and bankers.
• To take suitable action against broker and defaulter.

7. What do you mean by financial market? what are its functions?

>Financial market is a link between the investors and borrower. Financial market can raise fund from various different sources and in different way. It play an important role in the allocation of fund.

Following are its functions

• It gave large choice of different investment.
• It is helpful to the investor in giving them proper price.
• It provides platform to convert security in cash.
• It provides liquidity to the security.
• It provides complete information to the investors and borrowers.
• It also reduces the cost of transactions.

8. What do you mean by Demat account?

>Demat account introduced in 1996. Under this account, it the share of investor held in electronic forms.

Following are its main benefits.

It eliminate the risk of physical transfer.

Any number of security can be transfer in one delivery.

It eliminate the risk of forgery and the loss due to damage.

It also avoid stamp duty.

POINTS;

1. Total number of stock exchange in India are 22.
2. National Stock Exchange of India was established in 1992.
3. The settlement cycle in national stock exchange is T+2 .
4. Money market deal in short term fund and security.
5. Capital market deal in long term security.
6. Money market is controlled by RBI and capital market is controlled by SEBI.
7. Stock exchanges the barometer of a country's prosperity.
8. Only new security are sold in primary market.
9. Maximum period of treasury bill is 1 year.
10. The future of stock exchange in India is bright.
11. The head office of SEBI age in Mumbai.
12. The first stock exchange was established in London.
13. The first stock exchange in India was established in 1887 in Mumbai.
14. The main function of SEBI to regulate the capital market.
15. Regional office of SEBI is in Delhi, Kolkata and Chennai

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