Overview

Fundamentals of Financial Markets — how this chapter fits your Year 2 Commerce paper

Fundamentals of Financial Markets is the chapter in the Andhra Pradesh Intermediate second-year Commerce syllabus that shifts the discussion away from a single business's own internal finance (already covered in your Basics of Business Finance and Sources of Finance chapters in Year 1) to the wider, organised MARKETPLACE in which businesses, governments and individual savers actually meet to lend, borrow and invest. It is a frequently tested chapter in the BIEAP Class 12 Commerce examination, appearing through objective-type questions on instruments and definitions as well as short and long descriptive answers, and it deliberately sets up the very next chapter, Stock Exchange and SEBI, by first laying the groundwork of what a financial market is before that next chapter goes deep into one particular part of it.

The chapter covers, in the order you will meet it here: the meaning of a financial market and its two-way classification into the money market and the capital market on the basis of the TIME period for which funds are dealt in; the meaning and features of the money market; the principal money-market instruments (Treasury Bills, Commercial Paper, Certificates of Deposit, Call Money and Commercial Bills); the meaning and features of the capital market; the principal capital-market instruments (equity shares, preference shares, debentures and bonds); the further split of the capital market into the primary market (where securities are issued for the first time) and the secondary market (where already-issued securities are subsequently traded); and finally the functions a financial market performs for the economy as a whole.

The ideas in this chapter are not unique to Andhra Pradesh — a money market instrument like a Treasury Bill or a capital market instrument like an equity share works exactly the same way whether you are studying the Andhra Pradesh Intermediate Commerce syllabus, any other Indian state board, or a national commerce course, because these are the same instruments that actually operate in India's own financial system, regulated nationally by the Reserve Bank of India and the Securities and Exchange Board of India. What the Andhra Pradesh Board of Intermediate Education DOES require is that you reproduce the exact classification, the exact list of instruments and the exact chapter sequence set out in the BIEAP Class 12 Commerce syllabus for a Fundamentals of Financial Markets exam answer, which is exactly what the sections below walk through in order — so that a student preparing from Andhra Pradesh's own Intermediate second-year Commerce textbook has everything needed here, without having to fall back on any outside book.