Explain the following terms/concepts.
1. Financial market :
(1) A financial market Is a market place where trading or exchange of various financial Instruments and assets takes place, The price of these assets Is depend on Its demand and supply in the respective market.
(2) Financial market acts as an Intermediary between investors and borrowers. it represents a financial asset to one party and a financial liability to another party.
2. Capital market :
(1) Capital market is a market for long term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded.
(2) It is the market for borrowing and lending long term capital required by business enterprises. The important division In the capital market is made on the basis of the nature of security traded, i.e. stock market and bond market.
3. Money market:
(1) Money market Is a market for short term loan or financial assets. It meets the short-term requirements of borrowers and provides liquidity or cash to lenders.
(2) It Is an important part of the financial system that helps In fulfilling the short term and very short term requirements of the companies, banks, financial institution, government agencies and so forth.
4. Call money market:
(1) Call money market Is a short-term money market which allows for large financial institutions, such as banks, mutual funds, and corporations, to borrow and lend money.
(2) The call money market Is an essential part of the Indian Money Market, where the day to-day surplus funds (mostly of banks) are traded.
5. Treasury bills:
(1) Treasury bills are short-term securities Issued by RBI on behalf of Government of India. They are the main Instruments of short term borrowing by the Government. They are useful In managing short-term liquidity.
(2) At present, the Government of India Issues three types of treasury bills through auctions, namely 91 days, 182 – days and 364 – days treasury bills. There are no treasury bills Issued by state governments.
6. Commercial bills:
(1) Commercial bill Is a short-term, negotiable, and self-liquidating Instrument with low risk. They are negotiable instruments drawn by a seller on the buyer for the value of goods delivered by him.
(2) When trade bills are accepted by commercial banks, they are called commercial bills.
7. Repurchase agreement
(1) Repurchase agreement Is also known as Repo. A repo or reverse repo Is a transaction In which two parties agree to sell and repurchase the same security.
(2) Under repo, the seller gets immediate funds by selling specified securities with an agreement to repurchase the same at a mutually decided future date and price.
8. Primary market :
(1) Primary Market is a form of the capital market wherein new securities are sold by the companies for the very first time to the Investors, to raise funds. Hence, this market is also known as New Issues Market.
(2) The process of selling the new securities, in the primary market Is called underwriting, which is performed by a group called as underwriters or security dealers.
9. Secondary market:
(1) Secondary market is more commonly known as the stock market or the stock exchange. The secondary market Is a place where trading of existing securities takes place.
(2) in other words, securities which are previously Issued in the primary market are traded here. Here, the securities are bought and sold by the investors.