Ch 1Financial Markets — Class 12 Commerce, concept-first.

A business needs finance from the very moment an entrepreneur decides to start it. It needs money to meet its working capital requirements — day-to-day payments such as wages, salaries and the purchas…

A business is part of an economic system that has two main sectors — households, which save funds, and business firms, which invest these funds.

Financial markets play an important role in the allocation of scarce resources in an economy by performing the following four important functions.

The money market is a market for short-term funds which deals in monetary assets whose period of maturity is up to one year. These assets are close substitutes for money.

The main instruments traded in the money market are treasury bills, commercial paper, call money, certificates of deposit and commercial bills.

The term capital market refers to the facilities and institutional arrangements through which long-term funds — both debt and equity — are raised and invested.

Although both are segments of the financial market, the capital market and the money market differ on several important counts, as the comparison below shows.

The primary market, also known as the new issues market, deals with new securities being issued for the first time.

The secondary market, also known as the stock market or stock exchange, is a market for the purchase and sale of existing securities.

A stock exchange is an institution that provides a platform for the buying and selling of existing securities.

The efficient functioning of a stock exchange creates a healthy environment for both the primary and the secondary markets. Its important functions are:

Trading in securities is now executed through an on-line, screen-based electronic trading system — all buying and selling of shares and debentures is done through a computer terminal.

Since all trading is now done through computer terminals, the buying and selling of securities is settled through an electronic book-entry form.

The National Stock Exchange (NSE) is the latest, most modern and technology-driven exchange. It was incorporated in 1992, recognised as a stock exchange in April 1993, and began operations in 1994 wit…

BSE Ltd (formerly the Bombay Stock Exchange Ltd) was established in 1875 and was Asia's first stock exchange.

The Securities and Exchange Board of India (SEBI) was established by the Government of India on 12 April 1988 as an interim administrative body to promote the orderly and healthy growth of the securit…

The overall objective of SEBI is to protect the interests of investors and to promote the development of, and regulate, the securities market. This may be elaborated as follows:

SEBI was entrusted with the twin task of the regulation and the development of the securities market, and it also has certain protective functions.

As SEBI is a statutory body, there has been a considerable expansion in the range and scope of its activities.

- Financial Market — a market for the creation and exchange of financial assets, which links savers and investors.

- A financial market is a market for the creation and exchange of financial assets. It helps mobilise and channel savings into their most productive uses, aids price discovery, and provides liquidity…