Financial institutions and markets: structure, by L M Bhole · Financial institutions and markets: structure, growth and innovations. by L M Bhole; Jitendra. Financial institutions and markets: structure, by L M Bhole. Financial institutions and markets: structure, growth and innovations. by L M Bhole; Jitendra. Financial Institutions and Markets by L. M. Bhole, , available at Book Depository with free delivery worldwide.
|Language:||English, Spanish, French|
|Genre:||Science & Research|
|Distribution:||Free* [*Sign up for free]|
Download Free Book Financial Markets And Institutions By Lm Bhole PDF File at our Ebook Library. Filename: Financial Markets And Institutions By Lm Bhole. L M Bhole is the author of Financial Institutions and Markets ( avg rating, 0 ratings, 0 reviews) and FINANCIAL INSTITUTION AND MARKETS ( avg ratin. On the basis of activities, according to dersdolcemana.ml, "financial institutions are L. M. Bhole, Financial Institutions and Markets, 4"" ed., Tata McGraw-Hill.
It deals not capital goods but concerned with rising of money capital for investment. In the capital market the supply of funds largely from individual savings, corporate savings, banks, insurance companies, specialized financing agencies and Government. The demand for long term capital comes mainly from private sector industries and Government. The researchers have presented Introduction and investment, Role of investment in economic development of the nation, Developments in the Indian capital markets, SEBI and the regulation of securities markets, Report of the committee under the chairmanship of Justice D.
Wadhwa with an aim to know the role of capital market in India. This paper deals with and highlights the process of capital market reforms, Role of capital market, Importance and growth of capital market in India. The capital market is the source of funds for corporates, governments and provides opportunities to savers to park their long-term savings. The capital market comprises of two segments- the primary and the secondary markets.
The primary market allows the flow of long-term funds from the surplus sector to governments, corporates, banks and NBFCs. It helps in the creation of net fixed assets. Initial public offers IPOs , private placements, rights issues, preferential issues are the important instruments of the primary market.
In recent years, there is a considerable widening and deepening of the primary market with PSBs, financial institutions, PSUs, mutual funds entering the markets as borrowers and the merchant banks, investment and consulting agencies and registrars to the issues as the managers. Broad term describing any market place where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial Markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees and market forces determining the prices of securities that trade.
In economics, typically, the term market means the aggregate of possible buyers and sellers of a certain good or service and the transactions between them. The term "market" is sometimes used for what are more strictly exchanges, organizations that facilitate the trade in financial securities, e. The regulators financial institutions and most importantly the investors keep trade of the development in the global capital markets.
It is observed that the United States, Europe and Japan are the major contributors to the global financial stock. Due to the increasing depth in financial markets, both businessmen and investors are enthusiastic to enter capital markets and make profits. The U. S led the race with 37 percent share followed by the U.
K, Japan and Vol. Capital market is a market for long term funds. The demand for long term capital comes mainly from private sector industries. Capital markets have observed volatility of capital flows, contributing of financial developments in India have played a critical role is promoting industrialization, facilitating the mobilization of capital for large investments. A financial market consists of investors or buyers, sellers, dealers and brokers and does not refer to physical location.
The participants are linked with formal trading rules and communication networks for originating and trading of financial services. Financial investments can be used to raise resources in the capital market. To know the Factors Responsible for Growth and Development of capital market 3. The information is collected from libraries and websites. The literature is cross checked and validated to gives the latest information. For a speedy economic development adequate capital formation is necessary.
The significance of capital market in economic development is explained below:- Mobilisation of Savings and Acceleration of Capital Formation In developing countries like India the importance of capital market is self-evident. In this market, various types of securities helps to mobilise savings from various sectors of population. The twin features of reasonable return and liquidity in stock exchange are Vol. This accelerates the capital formation in the country. Ready and Continuous Market The stock exchange provides a central convenient place where buyers and sellers can easily purchase and sell securities.
Easy marketability makes investment in securities more liquid as compared to other assets. Technical Assistance An important shortage faced by entrepreneurs in developing countries is technical assistance.
By offering advisory services relating to preparation of feasibility reports, identifying growth potential and training entrepreneurs in project management, the financial intermediaries in capital market play an important role. Raising Long - Term Capital The existence of a stock exchange enables companies to raise permanent capital.
The investors cannot commit their funds for a permanent period but companies require funds permanently. The stock exchange resolves this dash of interests by offering an opportunity to investors to buy or sell their securities, while permanent capital with the company remains unaffected. Foreign Capital Capital markets makes possible to generate foreign capital. Indian firms are able to generate capital funds from overseas markets by way of bonds and other securities. This not only brings in foreign capital but also foreign technology which is important for economic development of the country.
Easy Liquidity With the help of secondary market investors can sell off their holdings and convert them into liquid cash. Commercial banks also allow investors to withdraw their deposits, as and when they are in need of funds.
Revival of Sick Units The Commercial and Financial Institutions provide timely financial assistance to viable sick units to overcome their industrial sickness. To help the weak units to overcome their financial industrial sickness banks and FIs may write off a part of their loan.
The existence of such an institution encourages people to invest in productive channels.
Thus it stimulates industrial growth and economic development of the country by mobilising funds for investment in the corporate securities. Reliable Guide to Performance The capital market serves as a reliable guide to the performance and financial position of corporates, and thereby promotes efficiency. Proper Channelization of Funds The prevailing market price of a security and relative yield are the guiding factors for the people to channelize their funds in a particular company.
This ensures effective utilisation of funds in the public interest. Provision of Variety of Services The financial institutions functioning in the capital market provide a variety of services such as grant of long term and medium term loans to entrepreneurs, provision of underwriting facilities, assistance in promotion of companies, participation in equity capital, giving expert advice etc.
Development of Backward Areas Capital Markets provide funds for projects in backward areas. This facilitates economic development of backward areas. Long term funds are also provided for development projects in backward and rural areas. In , 14 major commercial banks were Vol. Another 6 banks were nationalised in The distinction between the money and capital market is based on the difference in the period of maturity of the financial assets. The distinction of one year between money and capital market is arbitrary but one year dividing point is mostly accepted.
The demand for long term funds comes from individuals, institutions, central government, state-governments, local self-government and private corporate sector. Funds are raised through issue of shares, debentures and bonds which constitute the new issue market.
Apart from raising funds directly from savers, the deficit units obtain long term funds from public financial institutions and investment institutions also.
The supply of funds mainly comes from individuals household sector , institutions, banks and industrial financial institutions. The capital market plays a significant role in the financial system. Savings and investment are vital for economic development and growth of an economy. Generally, units which save and invest are different, capital market provides a bridge by which savings of surplus units are transmitted into long term investments by deficit units. The pace of economic development alongwith other things depends upon the rate of long term investment and capital formation in a country.
The rate of capital formation depends upon the rate of savings, rate of investment and financial markets. The capital market plays a vital role in mobilising the savings and making them available to the enterprising investors. The primary capital market helps government and industrial concerns in raising funds by issuing various kinds of securities. An active capital market; through its price mechanism allocates the scarce financial resources to the most productive uses at a low cost.
The system of allocation of funds works through incentives and penalties. Usually, the cost of capital is comparatively low for the large and efficient companies as their securities are subject to lesser risk. Share of high growth companies command a premium in the market while the companies with poor performance face problems in selling their securities and may have to issue securities at a discount to raise additional funds.
As you can see from Figure 1. Similarly there exists a primary and secondary market for capital market instruments. All securities whether short-term or long-term are initially traded in the primary market and then in the secondary market. Money market primarily exists as a means of liquidity adjustment. In contrast, capital markets principal function is to serve as a link between long term investors and long term borrowers. Money markets and Capital market instruments also differ in terms of risk.
Money market instruments generally carry low default credit risk and low market risk. Money market financial instruments are of high quality and short maturity which reduces the price fluctuations because of changes in interest rate. In contrast, both 12 default and market risk in capital market instruments are often substantial. Capital ignoumbasupport. Financial System Investment in equity issues are much more risky in comparison to the debentures of same company.
The quality of debt instruments, risk wise, ranges from government securities and highly rated corporate issues with limited default risk to unrated bonds and debentures of small and new ventures with substantial default risk. In addition, capital market instruments are long term in nature, with the result that interest rate risk, purchasing power risk, market risk, financial risk and business risk also rises in these instruments. Money market is dominated by one set of financial institutions, i.
The rates and prices of capital market instruments are much more complex. In capital market, no single institution may dominate the market as commercial banks dominate in money market.
No doubt, certain monetary policy influences are transmitted to capital market. This market is comparatively more sensitive to inflationary pressures, corporate profits and liquidity, business activity, economic, social and political environment of a country. The money market instruments are short term in nature and their maturity is measured in days, weeks or months.
Maturity period of capital market instruments is comparatively long and is usually measured in years and the instruments like equity shares have no defined maturity period till the company is going on. There is no essential difference between capital and money markets regarding transferring of resources as both perform the same functions, i. There is a close nexus between money and capital markets.
Commercial banks are active in money market while non-banking financial institutions and public financial institutions are active in capital market. There is a considerable degree of overlap in the function of different financial institutions, e. Non-banking financial institutions are primarily long term lenders, they all have the need for participation to a limited degree in money market in order to adjust their liquidity positions.
Financial institutions operate on both sides of the market borrowing and lending and participate in both money and capital market. There is a substantial flow of funds between capital and money markets.
This is because lenders and borrowers of funds have access to both capital and money market. Most of the suppliers of funds prefer to operate in both the markets. Within the framework of their investment policies, they have an access to both the markets and they invest where the best opportunities exist.
Investors simultaneously invest in various investment opportunities like; savings bank, units, fixed deposits, national saving certificate schemes, life insurance, government and industrial securities, real estate, bullion, etc. Short and long term rates of interest are interdependent. Generally, rise in interest rate in money market influences long term interest rates also.
Hence, in practice it is difficult to categories the institutions as belonging to money or capital market. The unorganised money market consists of indigenous bankers and money lenders. The unorganised money market differs from organised market in many respects like organisation, operations, interest rate structure, etc. The indigenous bankers and money lenders are active in the small towns and villages, and partly in big cities, where farmers, artisans, small traders does not have an access to the modern banks.
They are outside the control of the Central Bank. The rates of interest differ in the unorganised sector from those in the organised sector.
The organised money market in India consists of Reserve Bank of India, State Bank of India and its subsidiaries, commercial banks, finance corporations, bill market and bullion market.
Mumbai, Kolkata and Delhi are the principal centers of the organised money markets. The presence of head office of Reserve Bank of India, some of the commercial banks, leading stock exchanges, well organised market for gilt edged securities, bullion market have made Mumbai the prominent centre of finance. The banking system is the most dominant force in the Indian money market. The banks can be broadly classified into two parts: scheduled banks and non-scheduled banks.
The scheduled banks consist of state cooperative banks and scheduled commercial banks. Scheduled commercial banks comprise both foreign banks and Indian banks. The scheduled banks have both public sector banks and private sector banks. The share of non-scheduled banks is very small in term of aforementioned banking indicators.
Within the Scheduled commercial banks the public sector banks, i. Thus, government owns the major part of the banking business in India. The nationalisation of major 14 banks in July, , whose deposits were more than Rs. The Regional Rural Banks are primarily sponsored by commercial banks. Their primary objective is to provide credit for agriculture purpose, to small entrepreneurs engaged in trade and industry and other productive activities in rural areas.
They also cater to the needs of weaker sections of the society. The Reserve Bank of India, has wide powers to control money and credit through various monetary and credit instruments. Indigenous bankers and money lenders constitute the unorganised sector of the capital market. The organised capital market consists of non-banking institutions and public financial institutions.
The development banks alongwith finance provide consultancy, technical know-how and training, i. The development banks derive most of their funds from the government and the Central Bank of the country. They were not strongly linked with the saving units in our economy but recently they have changed their strategy. In a developing country like India, where there exist certain bottlenecks, the development banks perform the following tasks: a Stimulating the capital market; b Providing risk capital and seed capital; c Direct subscription and underwriting the issues; d Promoting broad-based entrepreneurship; e Encourage new industries, modernising the existing industries, encouraging export promotion and import substitution industries; and f Promoting backward area and regional development.
At the same time, the necessity to establish 15 ignoumbasupport. In , the Industrial Credit and Investment Corporation of India ICICI was established with the main object to enlarge underwriting facilities for public issue of capital, foreign currency loans and direct subscription to share and debentures.
At the state level, after , a number of state governments set up SIDCs to undertake developmental and promotional function.
The Export-Import Bank of India EXIM Bank was also established in to cater to the financial needs of the importers and exporters for financing international trade. Reserve Bank of India 2. A financial security is a legal instrument that represents either an ownership or a creditorship claim. The ownership securities are equity shares and preference shares while creditorship securities are bonds and debentures.
A debt security is used to raise a loan and promises to repay the borrowed money. The owner of a debt security is a creditor. Securities can be classified into: a Government Securities, and b Industrial Securities. The government securities market happens to be an overwhelmingly significant part of the stock market in India. As in UK it is much larger than the industrial securities market. The instruments of raising funds in the industrial securities market are bonds, debentures, preference shares and equity shares.
The size of the industrial securities market in India is relatively much smaller because of investment habits, level of education and industrial structure. The investment of the household sector in the form of industrial securities in the same year was 0. Thus, industrial securities are not a popular mode of investing their savings among individuals.
The size of industrial securities market is relatively much smaller than that of the other industrialised countries. The securities market, like financial markets, is divided into primary or new issue market and secondary market. The new issues of government and private corporate sectors are floated in the primary market. The secondary market provides liquidity to the outstanding securities or existing securities.
In the primary market, new issues are traded through public offer, offer for sale, private placement and right issues. The underwriters also play a vital role in floating the new issues. Once these new issues are floated and subscribed by the public, then these are traded in the secondary market.
The securities market consists of organised stock exchanges and over the counter exchange. The stock exchange is a place where members on their own or on behalf of their clients buy and sell securities. Stock exchanges are auction markets. The exchange neither buys nor sells the securities but merely provides a trading place, where members through bids and offers, trade in securities. In the stock exchange, only listed securities which are permitted by the governing body of the stock exchange are traded.
Upto June, there are 23 recognised stock exchanges. A detailed discussion on stock exchanges and the trading of various instruments in these exchanges is given in Block 2 of this course. It handles both primary issues and secondary transactions especially of those 17 ignoumbasupport.
The Over the Counter market is a Markets and Services negotiated market, because prices are settled through individual bargaining between buyers and sellers. In OTC market the business is not conducted at any one place designated as market place.
Some stocks trade in the Over the Counter Market because the company is small or unknown or the company simply does not wish to list the security on a stock exchange or stock is closely held. Thus, over the counter market is the only place where certain stocks can be purchased or sold.
Small companies or companies that do not meet exchange listing requirements are traded in over the counter market that have limited marketability and liquidity. The market is not well organised. The base line software adopted by the NSE is already functioning in a number of exchange, viz.
The satellite communication network that is in the process of implementation will enable NSE not only to integrate the national market but also provide access to investors abroad as and when it is facilitated by policy changes.
The brokers can sit in their own offices and trade on the system which offers versatile trading solutions. The trading software provides all the options which are available on a trading floor or through telephone trades. The screen provides entire market information at the press of a button which the existing telephone trade or trading floor cannot provide instantaneously.
As the system provides for concealment of the identity of a market information continuously on a real time basis, it is a significant improvement over all the existing traditional trading systems.
The screen gives all the required information about the depth of the market, the types of orders floating into the system, the best buy order value, the best buy price, the best sell price, the order value available at the best sells price, the last traded price, all previous trade that have taken place, outstanding orders of the concerned trading member, etc.
Informations are dynamically updated. As market participants sit in their own offices they have all advantages of the back office support and facility to get in touch with their constituents. Third Market Till , the New York Stock Exchange required its members to trade in listed stock and to charge fixed commission.
For large institutions, this was very expensive due to required minimum commission. Brokerage firms that were not members of the exchange faced no restriction on the commissions. They could charge and thus compete effectively for large trades in listed stocks of NYSE.
Such transactions were said to take place in the third market. Later on their rules were relaxed and member of an organised stock exchange can deal in the third market. The third market refers to Over the Counter Trading in listed stock. Shares traded are the same as those traded on the stock exchange. Prices are fixed through negotiations and dealers have no responsibility of making the market.
The existence of such a market is enhanced today by the fact that their trading hours are not fixed unlike organised exchange and they continue their activities when trading is halted in the exchange. The relationship in organised exchanges and OTC is depicted in Figure 1. Such investors believe that they can reduce their costs, get better prices, more rapid transactions in the third market than at organised exchanges.
They can buy and sell the listed stock at negotiated prices. Private individual and small odd lot customers also transact business through the third market.
The services offered by the third market are very less in comparison to the organised market, i. Thus, these overhead costs tend to be lower. These cost savings are usually reflected in lower net costs to the investors.
As might be expected, some large stock transactions are conducted in third market in order to benefit from lower commissions. Fourth Market The fourth market refers to institutions and wealthy investors who directly buy and sell Securities among themselves and completely dispense with the brokerage services.
Since these are direct deals, only two partners buyers and sellers and perhaps the third party who helped in finalising the deals are involved. The fourth market is eventually a communication network among block traders. These members in the fourth market are usually one individuaI and a few persons who communicate the buy and sell desires of their clients to block traders and thus facilitate direct deal to a negotiated price.
Many institutions have dispersed with brokers and exchange all together for transactions in listed stocks. The main advantages of the fourth market are less commission, better price through direct negotiation, and rapid execution of the deal. These advantages suggest that the role of fourth market may become more wide spread in the future, especially as the role of financial services and big financial institutions grows. In the United States, these transactions are facilitated by computer communications system Instill.
This system automatically provides quotation and executions. The subscriber can enter the limit order in the computer where it can be noted by other subscriber who can, in turn, express their desire to take it, whenever two orders are matched the system automatically records the transaction and sets up the paper work for its completion.
Subscriber can also use the system to find partners for a trade and then conduct negotiations by telephone. A monitor system exists in U. Unlike other well developed capital markets, the Indian capital market has not developed in that manner.
The capital market has become almost synonymous with 19 ignoumbasupport. The debt market which is many times bigger than equity market in Markets and Services developed countries such as the U. The government securities market is confined only to banks and institutions and to some extent provident funds.
Bulk of the investment in government securities has been to meet the statutory requirements. A genuine government securities market could not be developed in India until recently due to the fact that the yields of government securities are not market related.
With the increasing alignment of yield rates on government securities with market rates, government securities are being absorbed even by corporate investors who have temporary liquid funds to manage.
The corporate debt market has not grown in the country because of several reasons.