byju economy preview


 Financial Markets refers to the system consisting of financial institutions, financial instruments, regulatory bodies and organisations
 It facilitates flow of debt and equity capital
 Financial Institutions (Banks), Development financial Institutions (NABARD, SIDBI, IDBI etc.) and Non- Banking Financial Institutions form Financial Institutions.
 Financial Instruments are shares, bonds, debentures etc.
 There are two types of Capital Flow – Lending and Borrowing

Financial markets consist of two major segments:
(l) Money Market:  the market for short term funds;
(2)Capital Market:  the market for long and medium term funds.

 According to the RBI, "The money market is the centre for dealing mainly of short character, in
monetary assets; it meets the short term requirements of borrowers and provides liquidity or cash to
the lenders.
 It is a place where short term surplus investible funds at the disposal of financial and other
institutions and individuals are bid by borrowers, again comprising institutions and individuals and
also by the government."

Functions of Money Market
 To maintain monetary equilibrium. It means to keep a balance between the demand for and supply  of money for short term monetary transactions.
 To promote economic growth. Money market can do this by making funds available to various  units in the economy such as agriculture, small scale industries, etc.
 To provide help to Trade and Industry. Money market provides adequate finance to trade and  industry. Similarly it also provides facility of discounting bills of exchange for trade and industry.
 To help in implementing Monetary Policy. It provides a mechanism for an effective implementation  of the monetary policy.
 To help in Capital Formation. Money market makes available investment avenues for short term  period. It helps in generating savings and investments in the economy.
 Money market provides non-inflationary sources of finance to government. It is possible by issuing treasury bills in order to raise short loans. However this does not leads to increases in the prices.

  • Money Market consists of all the organizations and institutions which deal or facilitate dealings in short term debt instruments. These institutions include RBI, commercial banks, cooperative banks, non-banking financial companies like LIC, GIG, UTI and special institutions like Discount and Finance House of India (DFHI). The important money market instruments or securities (financial assets) are as follows.

Stock Exchange 

 It is an organisation which facilitates buying and selling of shares of listed companies.
 Listed companies are those companies which are registered with stock exchange.
 Only old shares are bought and sold because it is a secondary market.
 Price is based on demand and supply.
 Shares are auctioned.
 Demand and supply of shares are constructed on the bidding of people.
 Demands are created by buyers. 

Major stock exchanges of India  

Bombay Stock Exchange (BSE)                     
 Oldest stock exchange of India as well as Asia (established in 1875) 
 Approximately 5000 companies are listed in BSE
Important Indices 

o 1. Sensex             (Based on 30 companies)
o 2. BSE-100          (Based on 100 companies)
o 3. BSE-200          (Based on 200 companies)
o 4. Dollex              (Based on dollar value of BSE-200 companies) 
o 5. Bankex            (Based on shares of banks only)
o 6. Reality index  (Based on shares of real estate companies) 

Sensex (Sensitive Index) - Most important index of BSE - Index of a stock exchange measures change in market capitalisation 

Criteria for selection of 30 companies
 Based on shares of large companies
 Shares must be frequently bought and sold
 There should be atleast one leading company from each sector’          

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