Post on 10-Apr-2018
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Capital MarketsCapital Markets
Functions And InstrumentsFunctions And Instruments
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IntroductionIntroduction
What is a capital market ?What is a capital market ? Market for securities (debt and equity)Market for securities (debt and equity)
Business Enterprises and governments can raise longBusiness Enterprises and governments can raise long
term loansterm loans
Money provided for more than a year Money provided for more than a year Eg. Stock market (equity), Bond market (debt)Eg. Stock market (equity), Bond market (debt)
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Primary MarketsPrimary Markets
Deals with the issue of new securitiesDeals with the issue of new securities
Companies can obtain funds by sale of bondsCompanies can obtain funds by sale of bonds
This is the market for new long term equity capital. TheThis is the market for new long term equity capital. The
primary market is the market where the securities are sold for primary market is the market where the securities are sold for
the first time.the first time.
In a primary issue, the securities are issued by the companyIn a primary issue, the securities are issued by the companydirectly to investors.directly to investors.
The company receives the money and issues new securityThe company receives the money and issues new security
certificates to the investors.certificates to the investors.
Primary issues are used by companies for the purpose of Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing thesetting up new business or for expanding or modernizing the
existing business.existing business.
Facilitates capital formation in the economy.Facilitates capital formation in the economy.
The financial assets sold can only be redeemed by theThe financial assets sold can only be redeemed by theori inal holder.ori inal holder.
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Advantages of Primary MarketAdvantages of Primary Market
It helps in mobilization of savings.It helps in mobilization of savings.
The mobilized savings is been utilized for productiveThe mobilized savings is been utilized for productivepurpose .purpose .
Huge money can be raised by floating new shares in theHuge money can be raised by floating new shares in the
market.market.
It helps in achieving rapid industrial growth of anIt helps in achieving rapid industrial growth of aneconomy.economy.
A primary market provides good avenues for investmentA primary market provides good avenues for investment
in financial assets.in financial assets.
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Disadvantages of PrimaryDisadvantages of Primary
MarketMarket There are ample scope for attracting the investors byThere are ample scope for attracting the investors bygiving misleading information.giving misleading information.
There is lack of post issue seriousness.There is lack of post issue seriousness.
The merchant bank does not pay an adequate attentionThe merchant bank does not pay an adequate attentionto the technical, managerial and feasibility aspects whileto the technical, managerial and feasibility aspects whileappraising the project appraisal.appraising the project appraisal.
The market is subject to volatility based on numbers of The market is subject to volatility based on numbers of exogenous factors.exogenous factors.
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Secondary MarketsSecondary Markets
It refers to a market where securities are traded after It refers to a market where securities are traded after
being initially offered to the public in the primary marketbeing initially offered to the public in the primary market
and/or listed in the Stock Exchangeand/or listed in the Stock Exchange
It is also known as After MarketIt is also known as After Market
It deals with those securities that are already issued inIt deals with those securities that are already issued in
an initial public offering in the primary marketan initial public offering in the primary market
It is an equity trading avenue in which alreadyIt is an equity trading avenue in which already
existing/preexisting/pre-- issued securities are traded amongstissued securities are traded amongstinvestors.investors.
The secondary market is quite healthy and there areThe secondary market is quite healthy and there are
flexible options for timing & pricing trades.flexible options for timing & pricing trades.
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Types of Investors In SecondaryTypes of Investors In Secondary
MarketsMarkets Investors investing in stocks in the secondary market areInvestors investing in stocks in the secondary market are
either growth investors or value investors.either growth investors or value investors.
Growth investors are those that are investing in thoseGrowth investors are those that are investing in those
companies that have a revenue growth rate faster thancompanies that have a revenue growth rate faster thanthe industry growth rate.the industry growth rate.
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Products in Secondary MarketProducts in Secondary Market
Equity SharesEquity Shares
Rights IssueRights Issue
Bonus SharesBonus Shares
Preference sharesPreference shares
Cumulative Preference SharesCumulative Preference Shares
Cumulative Convertible Preference SharesCumulative Convertible Preference Shares
Participating Preference ShareParticipating Preference Share
Security ReceiptsSecurity Receipts
Government securitiesGovernment securities
DebenturesDebentures
BondBond
Treasury BillsTreasury Bills
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Functions of CapitalFunctions of Capital
marketmarket Allocation of riskAllocation of risk
Pooling of resourcesPooling of resources
Payment and settlement systemPayment and settlement system
Managing the incentive problemManaging the incentive problem
Providing informationProviding information
Transfer of resources across time andTransfer of resources across time and
spacespace
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Capital market is one of the most important inventionsCapital market is one of the most important inventions
of the modern societyof the modern society Its primary task is to move scarce loanable funds fromIts primary task is to move scarce loanable funds from
those who save to those who borrow to buy goods andthose who save to those who borrow to buy goods and
services and to make investments in new equipment andservices and to make investments in new equipment and
facilities so that the overall economy can grow andfacilities so that the overall economy can grow andincrease the standard of living enjoyed by the citizens.increase the standard of living enjoyed by the citizens.
Without the Capital market and the funds it supplies,Without the Capital market and the funds it supplies,
each of us would lead a much less enjoyable life.each of us would lead a much less enjoyable life.
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Capital market instrumentsCapital market instruments
Responsible for generating fundsResponsible for generating funds
Used by investors to make a profit out of the investmentUsed by investors to make a profit out of the investment
Capital market is also known as ³securities market´Capital market is also known as ³securities market´
Basic capital market instrumentsBasic capital market instruments
(a) Stocks(a) Stocks
(b) Bonds(b) Bonds
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Capital Market InstrumentsCapital Market Instruments
StocksStocks
BondsBonds
DebenturesDebentures
Treasury billsTreasury bills
Foreign exchangeForeign exchange
Fixed depositsFixed deposits
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Difference Between Capital MarketDifference Between Capital Market
&Money market&Money market
Money marketMoney market
Short term loansShort term loans
Financing for currentFinancing for current
business operationsbusiness operations Major institutionsMajor institutions
Do not have secondaryDo not have secondarymarketmarket
Transactions takes placeTransactions takes place
over phoneover phone There are no brokersThere are no brokers
involvedinvolved
Capital marketCapital market
Long term fundsLong term funds
Financing for fixed capitalFinancing for fixed capital
requirement of trade &requirement of trade &commercecommerce
Major institutionsMajor institutions
Have secondary marketsHave secondary markets
Transactions takes placeTransactions takes place
at a formal placeat a formal place Authorized dealers areAuthorized dealers are
there to carrythere to carrytransactionstransactions
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Done by:Done by:--
Varun ShahVarun Shah
Kajal SavlaKajal Savla
Niren PatelNiren Patel
Pooja ShahPooja Shah
Dhwani ShahDhwani Shah