Sunday, 6 April 2014

Financial Market


Money Market

Money market is the place for trading in money and short term financial assets which gets rolled over within a span of 1 year.

1) Certificate of Deposit (CD)

CD is a marketable receipt of fund deposited in a bank for a specified period at a specified rate of interest. It is a important source of mobilization of funds for a commercial bank. CD can be transferred to any person through endorsement and delivery.

Minimum  Size- 1Lakh and multiples of 1Lakh.

Period- minimum- 14days. maximum- 1 year.

Note: On the other hand Fixed Deposits are not negotiable.

2) Commercial Paper (CP)

CP is a short term debt instrument in the form of a unsecured promissory note issued by highly rated companies to raise short term funds. Issue is privately placed through agency banks or financial institutions.

While Debentures are long term instruments.

Requirements:
  • Net worth of companies- 4 Crores.
  • Working Capital- 4 Crores.
  • Shares listed on one or more stock exchamges.
  • Required specified rating by approved credit rating agencies.
  • Minimum Period- 15 days, Maximum Period- 1 year.
  • Minimum Amount- Rs 5 Lakhs and multiples of Rs 5 Lakhs.

 3) Treasury Bills (T-Bills)

T-Bills are promissory notes issued by Union Government for a period from 91 days to 364 days.

It is issued at a discount. (Say a T-Bill of Rs 10,000 is sold at Rs 9,000 and  on maturity customer receives the full value).

Maturity- 91 days, 182 days, 364 days.

Main investors are Banks to meet their SLR requirements.

Amount- minimum 1 Lakh and multiples of 1 Lakh.

Capital Market

Markets for financial assets that have long or indefinite maturity.

1) Primary Market

  • New issues are made of primary market.
  • When a company wishes to raise fresh capital by issuing securities it goes to the primary market.

2) Secondary Market.

Market for already issued shares.

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