Introduction

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 purchase of raw materials — as well as its fixed capital requirements, such as buying machinery and buildings or expanding production capacity. A growing company can raise these funds from various sources and in different ways, and financial markets are one of the most important of them.

This chapter of the NCERT Class 12 Business Studies course explains the mechanism through which a business organisation mobilises finance for both its short-term and its long-term needs. It looks at the concept and functions of a financial market, the two broad segments — the money market and the capital market — the working of the stock exchange and the process of trading and settlement, and the role of the Securities and Exchange Board of India (SEBI) in protecting investors and regulating the securities market.