Financial Management

MBA ZG 521

BITS Pilani Krishnamurthy Bindumadhavan, CFA, FRM

Associate Professor, Management - Finance
Pilani Campus
Email: k.bindumadhavan@pilani.bits-pilani.ac.in
 BITS Pilani
Pilani|Dubai|Goa|Hyderabad

Foundations of Financial Management

Introduction - Part 5
Financial markets

• The main goal of financial markets is to

take the savings from those who do not
wish to consume (savings surplus units)
and to channel them to those who wish to
invest more than what they presently have
(saving deficit units)

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Financial markets and
financial system
Financial system
Return on
Return on
investments
Financial investments
markets
money money

Saving surplus Saving deficit

units (savers) units (investors)

money money
Ф Financial
intermediaries
Return on Return on
investments investments

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

5
Financing decisions

Financing
decisions

Internal corporate External sources

financing of funds

Direct financing Indirect financing

Retained
(financial markets (financial
earnings
Instruments) Intermediaries)

Stocks Loans

Debt instruments
(bonds, CPs etc.)

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Financial markets

Financial markets

Organized
Primary markets Money market exchanges
Secondary markets Capital market Over-the-counter

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Primary and secondary
markets
• Primary market – primary issues of
securities are sold, allows governments,
banks, corporations to raise money by
directly selling financial instruments to the
public. Such issues are referred as IPO’s

• Secondary market – allows investors to

trade financial securities among
themselves. Examples: BSE, NSE, etc.

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Money and capital markets

Money market instruments – short-term assets

(typically maturity less than 1 year):
• Certificates of deposits (CDs)
• Commercial papers (CPs)
• Treasury bills

Capital markets – long-term assets (maturity longer

than 1 year) are traded:
• Stocks
• Corporate bonds
• Long-term government bonds

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Organized exchanges and
over-the-counter
• Organized exchanges – most stocks, bonds and
derivatives are traded on organized exchanges. It has a
trading floor where floor traders execute transactions in the
secondary market for their clients.

• Stocks not listed on the organized exchanges are traded in

the over-the-counter (OTC) market. OTC market
facilitates secondary market transactions and unlike an
organized exchange, the OTC market doesn’t have a
trading floor. The buy and sell orders are typically
completed through a telecommunications/ computer
network.

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Recent Developments

• Digital Disruption!

• Peer to Peer Lending (P2P) – Online platform that

eliminates the middle man.

• Instead of the bank acting as a intermediary, the

platform brings lenders and borrowers together so
that both can benefit

• Lending Club

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Indian Financial System

•Banking - RBI, Commercial banks, Co-operative banks, Post

office savings banks

•Non-banking - LIC, GIC, UTI, Housing development finance

companies-HDFC, HUDCO

•Developmental - ICICI, IDBI, IFCI, NABARD, SIDBI, Tourism

finance corporation SFCs

•Regulatory Institutions - SEBI, RBI, IRDA- Insurance Regulatory

and Development Authority, etc.

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Pre-class assignment

• Review the relevant chapters from textbook

• Look at mission statement of Google, your organization,

others that you are interested in and note down your
observations

• Make sure you have access to laptop/ computer with Excel;

we will need it for experiential learning components in
subsequent classes. (Excel 2007 or later versions preferred.)

• Email me your expectations from this course:

• k.bindumadhavan@pilani.bits-pilani.ac.in

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Thank You

14
BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956