RBI Grade – B Exam – A brief of Capital Market

Financial Market-
Any
marketplace where buyers and sellers participate in the trade of assets such as
equities, bonds, currencies and derivatives. Financial markets are typically
defined by having transparent pricing, basic regulations on trading, costs and
fees and market forces determining the prices of securities that trade.

Money Market-
A segment of
the financial market in which financial instruments with high liquidity and for very short time are traded. The money
market is used by participants as a means for borrowing and lending in the
short term, from several days to just under a year. Money market securities
consist of negotiable certificates of deposit (CDs), Treasury bills, commercial
paper and repurchase agreements (repos).
Capital Market-
These are
the financial market for buying and selling of funds for long terms, these
consists of Shares, Debentures, equities etc,
Capital
market is regulated by- SEBI (Securities
and Exchange Board of India)
Lets
understand Capital Market instruments in deep :
Capital
Market consists of two main blocks, they are-
  • Primary Market
  • Secondary Market
Primary Market (New Issue Market)-
A market
that issues new securities on an exchange. Companies, governments and other
groups obtain financing through debt or equity based securities.
Secondary Market-
Secondary
market is basically a reselling market , Here the stocks that are already sold
in the primary market are resold mostly by the stockholders or companies to
gain more returns.
Mr. Bye Bye
(rival of Tata) decided to enter in the Retail industry for this he had 50
percent of funds with him, to raise the remaining amount he decided to take the
route of Primary market, He offered his company shares to public and this step
of offering the securities for the first time in the Capital market is called
as Initial Public Offering (IPO), He can raise the money by the following
means-
Bonds and
Debentures –
The common man which invested in the bond agreement of Mr.
Bye Bye’s company will receive a bond/Debt agreement , this will say that the
common man will get the same amount of money plus interests by Mr. Bye after
the specified time limit . The person subscribing the Bond instrument does not
have a ownership in the company. As a debenture holder, you provide unsecured
loan to the company. It carries a higher rate of interest as the company does
not give any collateral to you for your money. For this reason bond holders
receive a lower rate of interest but are more secure.
Shares/Equities-
Companies
usually divide their capital into small parts of equal value. This smallest
part is known as a share. Companies usually issue shares in the public to raise
capital. People who buy or are allotted shares are called shareholders. If a
person is subscribing the equities issued by Mr. Bye then he will get the same
amount of money that he subscribed plus he will get the additional amount that
will depand on the profit of the company, equity means you are a part of the
company and will get your due if the company earns a big amount of profit in
the financial year, but you are in a danger to loose if the company does not do
well, equities are more dangerous and high returns oriented than the bonds.
ACRONYMS CORNER-
SEBI
Securities and Exchange Board of India
IPO– Initial
Public Offerings