Financial System of any country consists of financial markets, financial intermediation and financial instruments or financial products

Organized Financial System

Financial Services

Financial Instruments

Financial Markets

Financial Intermediaries

Forex Market

Capital Market

Money Market

Credit Market

Primary Market Secondary Market

Money Market Instrument

Capital Market Instrument

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A Financial Market could be defined as a market in which financial assets are created and transferred. As compared to a real market transaction that involves exchange of money & currency for physical goods or services, a financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments represents a claim for payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. Thus A financial market is simply a market for transacting in financial assets. If we buy or sell financial assets, we will participate in financial markets in some way or the other.

The financial markets exist in an economy because the savings of various individuals, corporations and governments during a period of time are available for investment in certain assets. By real assets we mean such thing as houses buildings equipment inventories and durable goods.

Financial markets play a fundamental role in allocating resources in an economy by performing three important functions: 1. Facilitates transfer of money: It helps in making seekers & givers of money meet each other so that people can use the available financial resources in best possible manner. Well organized financial markets seem to be remarkably efficient in growth of business & economy.

2. Providing liquidity: Investors can readily sell their assets through the mechanism of financial markets. In the absence of financial markets which provide such liquidity, the motivation of investors to save & buy financial assets will be absent. It is possible for companies to raise long term funds from investors. 3. Reduced cost of money: In a developed financial market, there are number of investment options available, to any company looking for finance & cost of money is in relation to the risk involved. Thus a developed market ensures reasonable rate of interest.

There are different ways of classifying financial markets. Most popular way is to classify financial markets by the maturity of claims. Money Market Capital Market

The market for short term whole sale financial assets is referred to as the money market and the market for long term financial claims is called the capital market. Traditionally the cut off between short term and long term financial has been one year. Since short term financial claims are almost invariably debt claims, the money market is the market for short term debt instruments. The capital market is the market for long term debt instruments and equity instruments.

Mobilization of Savings & acceleration of Capital Formation Promotion of Industrial Growth Raising of long term Capital Ready & Continuous Markets Proper Channelisation of Funds Provision of a variety of Services

Indian Capital Market

Market

Instruments

Intermediaries Regulator
SEBI

Primary

Secondary

Brokers Investment Bankers Stock Exchanges Underwriters Hybrid Debt

Equity

Players

Corporate Intermediaries

Individual

Banks/FI

FDI /FII

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Equity

Conv. shares

Conv. Bond

Debt

Equity Shares

Preference Shares

ADR / GDR

Debentures Zero coupon bonds

Deep Discount Bonds

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Market for short-term money and financial assets that are near substitutes for money. Short-Term means generally period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost

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It is a place for Large Institutions and government to manage their short-term cash needs.
It is a subsection of the Fixed Income Market. It specializes in very short-term debt securities.

They are also called as Cash Investments.

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