A very famous article was published in a finance magazine.

A portion of that
article is present
here:
Financial market is not a usual market where you buy commodities but a special
place where
one can have all the necessary information about the different securities traded in
the market.
The buyers on the one hand get to know about the securities and they get a place
where
securities are sold helping reduce the wastage of time, effort and money. The
financial experts
say otherwise the job of the people involved in the securities transactions would
have been
really difficult. Securities get a buyer on the one hand and the seller on the other
hand on a
common platform—this helps in easy conversion of securities into cash. In the
economies
where there is no stock exchange the funds remain blocked. The money trapped in
the houses
should come out and flow in the economy and when they are invested in the shares
of a
company they have the capability to attain the maximum value. People would
always like to
sell securities on their own conditions. No government intervention can predict the
price of
securities. The stock market is a place which runs on the forces of demand and
supply thus
giving a security its price depending upon its demand. One wonders how the
economy of a
company can grow without the existence of financial market.
Identify explain the functions of financial market discussed in the above case.
Answer:
The various functions of financial market highlighted in the above case are:
1. Financial market reduces the cost of transactions. The buyers on the one
hand get to know about the securities and they get a place where securities are
sold helping reduce the wastage of time, effort and money.
2. Financial market provides liquidity to financial assets. Securities get a buyer
on the one hand and the seller on the other hand on a common platform-this
helps in easy conversion of securities into cash.
3. Financial market helps in mobilization of savings and channelises them to
the most productive use. The money trapped in the houses should come out
and flow in the economy and when they are invested in the shares of a company
they have the capability to attain the maximum value.
4. Financial market helps in facilitating price discovery of financial assets.
The stock market is a place which runs on the forces of demand and supply thus
giving a security its price depending upon its demand
A very famous article was published in a finance magazine. A portion of that
article is present
here:
Financial market is not a usual market where you buy commodities but a special
place where
one can have all the necessary information about the different securities traded in
the market.
The buyers on the one hand get to know about the securities and they get a place
where
securities are sold helping reduce the wastage of time, effort and money. The
financial experts
say otherwise the job of the people involved in the securities transactions would
have been
really difficult. Securities get a buyer on the one hand and the seller on the other
hand on a
common platform—this helps in easy conversion of securities into cash. In the
economies
where there is no stock exchange the funds remain blocked. The money trapped in
the houses
should come out and flow in the economy and when they are invested in the shares
of a
company they have the capability to attain the maximum value. People would
always like to
sell securities on their own conditions. No government intervention can predict the
price of
securities. The stock market is a place which runs on the forces of demand and
supply thus
giving a security its price depending upon its demand. One wonders how the
economy of a
company can grow without the existence of financial market.
Identify explain the functions of financial market discussed in the above case.
Answer:
The various functions of financial market highlighted in the above case are:
1. Financial market reduces the cost of transactions. The buyers on the one
hand get to know about the securities and they get a place where securities are
sold helping reduce the wastage of time, effort and money.
2. Financial market provides liquidity to financial assets. Securities get a buyer
on the one hand and the seller on the other hand on a common platform-this
helps in easy conversion of securities into cash.
3. Financial market helps in mobilization of savings and channelises them to
the most productive use. The money trapped in the houses should come out
and flow in the economy and when they are invested in the shares of a company
they have the capability to attain the maximum value.
4. Financial market helps in facilitating price discovery of financial assets.
The stock market is a place which runs on the forces of demand and supply thus
giving a security its price depending upon its demand
1. A very famous article was published in a finance magazine. A portion of that
article is present here: Financial market is not a usual market where you buy
commodities but a special place where one can have all the necessary information
about the different securities traded in the market. The buyers on the one hand get
to know about the securities and they get a place where securities are sold helping
reduce the wastage of time, effort and money. The financial experts say otherwise
the job of the people involved in the securities transactions would have been really
difficult. Securities get a buyer on the one hand and the seller on the other hand on
a common platform—this helps in easy conversion of securities into cash. In the
economies where there is no stock exchange the funds remain blocked. The money
trapped in the houses should come out and flow in the economy and when they are
invested in the shares of a company they have the capability to attain the maximum
value. People would always like to sell securities on their own conditions. No
government intervention can predict the price of securities. The stock market is a
place which runs on the forces of demand and supply thus giving a security its
price depending upon its demand. One wonders how the economy of a company
can grow without the existence of financial market. Identify explain the functions
of financial market discussed in the above case.
Answer: The various functions of financial market highlighted in the above case
are:
1. Financial market reduces the cost of transactions. The buyers on the one hand
get to know about the securities and they get a place where securities are sold
helping reduce the wastage of time, effort and money.
2. Financial market provides liquidity to financial assets. Securities get a buyer on
the one hand and the seller on the other hand on a common platform-this helps in
easy conversion of securities into cash.
3. Financial market helps in mobilization of savings and channelizes them to the
most productive use. The money trapped in the houses should come out and flow
in the economy and when they are invested in the shares of a company they have
the capability to attain the maximum value.
4. Financial market helps in facilitating price discovery of financial assets. The
stock market is a place which runs on the forces of demand and supply thus giving
a security its price depending upon its demand.

2. A bank named ‘Dhan Sangraha Karta’ allows Kapoor family to deposit their in the form of
interest. To get this interest the money stored in the household of Kapoor family gets entry into
this bank. Nearby there is a stock exchange, Mr. Raj an Kapoor, who is the head of the family,
goes there and buys securities. He says that in this way more return in earned by him on his
saved money though the risk is also there.1. Identify the process in above case performed by the
bank and the stock exchange.2. What are the roles of the bank and the stock exchange with
respect to each other?
3. Name a condition for the bank to perform its role in this process.4. Name a condition for the
stock market to perform its role in this process.

Answer:
1. The process performed by the bank and the stock exchange is ‘Financial
Intermediation.
2. The bank and the stock exchange are competing intermediaries in the financial
system. The household is making a choice between the bank and the stock
exchange and this choice is given by the financial system to them.
3. The bank should provide a higher rate of return to the household saving then
what it would get by lying passive in the household itself. Since the money will
only decrease in value there will be no return.
4. The stock exchange will help the household invest money in a company’s
security. The chances of growth of money could be highest here as the money is
generally invested in companies which show the chances of the best possible
growth.
3. Identify the type of financial market in the following cases:
1. The value of securities issued by a company is low. It has not set up a huge
financial outlay. Mr. Manuj has purchased 100 units of shares with the value of ?
8G each. Though he has small savings yet he is able to invest money in this
financial market.
2. A financial market deals only in short term securities. The securities in the
market may even be issued for a single day.
3. A financial market deals in medium and long term securities such as equity
shares and debentures.
4. The participants in this financial market are institutions like banks, corporations,
large sized companies and members of the public.
5. The securities in this financial market yield low rate of return.
6. The securities return in this market is riskier in relation to both the returns as
well as principal amount. The reason is the performance of the issuing companies.
When these companies perform well there are chances of high return but when the
other way round happens the returns may go down and result in loss of money to
the investors.
7. In this financial market there is a higher degree of liquidity of the financial
instruments available to the investors as there is an institute which takes guarantee
of this action. The name of this institute is DFHI (Discount Finance House of
India).
8. There is minimum risk of default in this financial market. There is shorter
duration of investment and this provides financial stability to the investors. The
issuing houses have a very good history of creditworthiness.

Answer:
The type of financial market in
the above mentioned cases are:
1. Capital Market
2. Money Market
3. Capital Market
4. Capital Market
5. Money Market
6. Capital Market
7. Money Market
8. Money Marke
Answer:
The type of financial market in the above mentioned cases are:
1. Capital Market
2. Money Market
3. Capital Market
4. Capital Market
5. Money Market
6. Capital Market
7. Money Market
8. Money Market
5. A business firm issues a money market instrument to finance its working capital
requirements. In order to finance the credit sales of the firm it issues this
instrument. A textile firm which is taking goods on credit from this firm promises
to buy on the 25th of the next month. The selling business firm makes use of this
instrument when the’ date arrives.
1. Which money market instrument is highlighted in the above case?
2. What is the role of commercial bank in the above process?3. Explain the above
process in detail.
Answer: 1. The money market instrument which is highlighted in the above case is
‘Commercial Bill’.
2. When the trade bill is accepted by a commercial bank it becomes a commercial
bill.
3. When the goods are sold on credit the buyer has to make payment on a specific
date in the future. The seller now has an option either to make payment on the
specified date or make use of bill of exchange. Here the seller is known as the
drawer (he draws the bill) and the buyer is known as the drawee (he accepts the
bill). As soon as the bill is accepted it becomes a trade bill. These bills can be
given to a bank or these bill could be discounted with the bank which makes it a
commercial bill as soon as it accepts it. Here onwards the bank takes the
responsibility of taking money from the buyer. The seller gets a little less than the
actual value. The bills receivable are handed over to the bank.