Indian Financial Market: The financial market in India is a place where financial products and services are bought and sold on a regular basis.
The market deals in the purchase and sale of different types of investments, financial services, loans, etc.
What is the Indian Financial Market?
- The Indian financial market is a place where financial products and services can be bought and sold on a regular basis.
- The Indian financial market is divided into two types of markets, such as the following:
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The following are the main important points that will provide the basic banking awareness notes:
- The demand and supply of financial instruments are dynamic as the financial instruments will determine the prices.
- These markets will also bridge the gap between borrowers and lenders.
Structure of the financial markets in India:
- The financial market is divided into two components, such as the money market and the capital market.
- The capital market is further divided into the following:
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1. Money Market:
- The money market will work as a marketplace for short-term borrowing and lending.
- At the wholesale level, this will also include large-volume transactions between traders and institutions.
- At the retail level, this will involve mutual funds that are bought by individual investors and also the accounts that are opened by bank customers.
- The assets of the money market are risk-free and highly liquid.
- Because the maturity period is shorter, the risk of volatility is also lower, and the returns are also lower.
- Some of the most common instruments that are traded in the money markets are treasury bills, commercial papers, banker’s acceptances, certificates of deposit, etc.
2. Capital Market:
- Capital markets are dealing in long-term securities.
- These markets include securities that will have a maturity period of more than one year.
- This market will trade in both debt-oriented and equity-oriented securities.
- The main participants of the capital market are foreign institutional investors (FII), financial institutions, NRIs, individuals, and so on.
- The capital market is also further divided into primary and secondary markets.
- The following are the main differences between the primary market and the secondary market:
|Basis||Primary Market||Secondary Market|
|Also known as||New Issue Market (NIM)||After Issue Market (AIM)|
|Examples||IPO, bonus and right share issues, private placements, preferential allotment, etc.||Stocks, bonds, derivatives, etc.|
|Functions||Origination, underwriting, and distribution||Buying or selling of securities between investors without any involvement of the issuing company|
|Fixed at par value||Price of shares||Changes depending upon the demand and supply of shares|
|Role/ Importance||Stocks are issued for the first time||Stocks are traded that are once issued|
|Sale of securities||Directly by the companies to its investors||Bought as well as purchased among the traders and investors|
Other types of financial markets in India:
The other main types of financial markets in India include the following:
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1. Commodity market:
This market will deal in the trading of commodities such as gold, metals, pulses, silver, oil, grains, etc.
2. Derivatives market:
This market is a marketplace where futures and options are traded.
3. OTC market:
This market deals with companies that are generally small and can also be traded without any sort of regulations.
4. Foreign Exchange market:
- This market will deal in the trading of different currencies.
- It is also considered to be the most liquid market as the currencies can be sold and purchased easily.
- The fluctuating rates of the currencies will benefit the traders who are eager to derive profits by selling at a higher rate and then buying at a lower one.
5. Bond market:
- This market will facilitate the trading of government and corporate bonds that will be offered by the companies as well as the government to raise capital.
- These bonds are also considered debt instruments with a fixed return.
- They also have a specific nature, and hence these markets lack liquidity.
6. Banking market:
This market consists of banks and non-banking financial entities that will provide various types of banking services, such as the collection of deposits, offering loans, etc.
Main functions of the financial market:
The following are the main functions or services that are offered by the financial market:
- It will provide a platform for buyers and sellers to trade different types of financial products.
- It will also help to mobilize the funds from the investors toward the borrowers.
- These markets will help to determine the price of the financial instruments that are traded in them, and this price will be determined by the demand and supply of the instruments.
- It will also affect the economic growth of the country.
- This market will facilitate the buyers’ acquisition of funds when they need financial assistance.
- It will also require the investors to provide liquidity at the time of selling off the investments for the funds.
Regulators of the financial markets:
The regulators of the financial market have a very special status in the Indian economy.
The following are the main regulators that will abide by the laws and regulations of trading:
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1. Reserve Bank of India (RBI):
- The RBI serves as both a chief executive and a major regulatory authority for banks and non-banking financial institutions.
- It is also considered to be the Central Bank of India that is responsible for formulating monetary policies, credit policies, foreign exchange policies, etc.
- All the banks as well as non-banking financial institutions in India are required to follow the rules and guidelines as set by the RBI in order to stay operational in the market.
2. Securities & Exchange Board of India (SEBI):
- SEBI is the prime regulator of the capital market, which means that it is responsible for regulating the primary as well as secondary capital markets.
- All trading and transactions in the capital market are governed and regulated by the rules and regulations established by the SEBI.
3. Insurance Regulatory & Development Authority:
- IRDA acts as the chief governor of the insurance companies as well as their intermediaries.
- IRDA is also in charge of regulating the insurance market in India, which includes both the life insurance market and the general insurance market.
We hope that the above blog has given you clarity about the Indian financial market.
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