Financial Markets Class 12 Notes CBSE Business Studies Chapter 10 (Free PDF Download)

Introduction: Financial Market

• Financial market is a market which facilitates creation of assets and exchange of securities to provide short, medium and long term business finance.

• It mobilizes funds between savers and investors.

• It locates funds into the most productive investment opportunities.

• There are two types of Financial Markets:

• Money Market

• Capital Market
  
  

Functions of Financial Market

• Mobilisation of savings and channeling them into the most productive uses: A financial market performs the allocative function by linking the savers and investors, thus mobilising savings and channelising them to make the most use of these idle savings. 

• Facilitating price discovery: The interaction between the households (supplier of funds) and business firms helps to establish a price for the traded financial asset in the market.

• Providing liquidity to financial assets: Financial assets can be easily converted into cash as financial markets provide facility of purchase and sale of financial assets.

• Reducing the cost of transactions: Financial markets provide information about the traded securities and save time, effort and money of both the buyers and sellers of a financial asset.

A. MONEY MARKET: 

It is a market which deals in short term securities and whose maturity period is less than one year.

Money Market Instruments

B. Capital Market: 

It is a market which deals in medium and long term securities with a maturity period of more than one year.

Distinction between Capital Market and Money Market

Capital market is of further two types:

1. Primary Market

2. Secondary Market

Primary Market

• Primary market deals with the securities which are issued for the first time in the market and is also known as new issues market.

• Banks, financial institutions, insurance companies, mutual funds and individuals are the main participants in the primary market.

Methods of Floatation

• Offer through prospectus: The public companies issue prospectus to raise funds from the public by issuing financial instruments like shares, debentures, etc., through an advertisement in the newspaper and magazines.

• Offer for sale: Public companies offer securities for sale to the brokers or issuing houses at an agreed price and in turn, these intermediaries resell them to the investors.

• Private placement: Private placement means issue and allotment of shares to the selected individuals and companies privately and not to the general public through public issue.

• Rights issue: Rights issue refers to issue of new shares to the existing shareholders in accordance to the terms and conditions of the company.

• e-IPOs: A company can raise funds by issuing capital to the public through the online system of stock exchange and this is called an initial public offer (IPO).

Secondary Market

• Secondary market is a market which deals with the sale and purchase of existing securities. It is also called the stock market or stock exchange.

• SEBI prescribes the framework within which all the securities are traded, cleared and settled.

• It provides opportunities of disinvestment and reinvestment to investors by exchange of securities.

Difference between Primary and Secondary Market:

Stock Exchange

According to Securities Contract (Regulation) Act 1956, defines stock exchange as a body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities.

Functions of a Stock Exchange

• Providing liquidity and marketability to existing securities: Stock exchange provides a continuous market for sale and purchase of  existing securities.

• Pricing of securities: The forces of demand and supply determine the share prices for securities in the stock exchange.

• Safety of transaction: Trading within the regulatory framework of SEBI ensures safety of financial transactions.

• Contributes to economic growth: Process of disinvestment and reinvestment channelizes savings into most productive investments contributing to capital formation and economic growth.

• Spreading of equity cult: Providing constant information about securities traded through stock exchange educates investors.

• Providing scope for speculation: Fluctuations in prices due to demand and supply forces allows for restricted and controlled speculations.

Trading and Settlement Procedure

• In traditional time: Outcry or auction system.

• In modern time: Electronic trading system for screen based trading. In this system transactions are carried on the computer screen and both the parties are able to see the prices of all shares going up and down all the time during business hours of the stock exchange.

Advantages

• Ensure transparency

• Increases efficiency of operation and information.

• Large number of participants, which improves liquidity.

• Single trading platform.

Steps in trading and settlement procedure

1. Selection of broker: As a first step, an investor needs to select a broker who is registered with the stock exchange and sign a trading agreement with him/her. He also needs to provide information about his PAN number, Birth date, address, qualifications, occupation, residential status, bank account information

2. Opening Demat Account: It involves opening a demat account with a depository participant and a bank account for cash transactions.

3. Placing the order: As next step, the investor has to place an order with the appointed broker to trade in securities giving him clear instructions regarding number and price at which securities must be traded.

4. Executing the order: On receipt of order, the broker goes online and executes the order matching the price and securities needed by the client. On completion of the transaction he/she issues a contract note to the investor giving all the details of the transaction.

5. Settlement: After receipt of contract note and a day before the final settlement, the investor delivers the securities sold or makes payment for securities purchased, which is called pay in day. On T+2 day the broker delivers payment or securities to the exchange.

Dematerialisation and Depositories:

Dematerialisation

It refers to the process of cancelling the physical form of securities and converting them into electronic form. It was introduced under the Depositories Act 1966.

Working of Demat System

• Identify depository participants either bank, broker or financial institution.

• An account opening form and formalities related to other documentation like PAN card details, photograph, etc. is completed.

• The physical certificate related to existing securities is given to the depository along with a dematerialisation form.

• If investors plan to apply for shares in the IPO, then details of depository participant and demat account has to be provided in the application form. The allotted shares automatically get credited to the demat account.

• If shares are sold through to a broker then the depository participant is to be instructed to debit the account with the number of shares the broker then gives instruction to his depository to deliver the shares to the stock exchange the broker receives payment from the buyer and paste them to the seller of securities.

• The entire transaction is completed within a period of 2 days the delivery of shares and receipt of payment from the buyer is on T + 2 basis settlement period.

Depository: 

It is an organization which provides an electronic storage system to store electronic forms of securities.

There are two depositories:

• NSDL: National Securities Depositories Limited.

• CDSL: The Central Depository Services Limited.

Depository Participants: Depository participants are intermediaries electronically connected with the depository. They act as a connect point between the depository and the investor.

National Stock Exchange of India (NSE)

Incorporated in 1992, National Stock Exchange was recognised as a stock exchange in April 1993. It operates in the wholesale debt market segment and capital market segment.

Objectives of NSE

• To provide a nationwide trading facility for securities.

• To set up a communication network to provide equal access to investors.

• To set up an electronic trading system to provide a fair, efficient and transparent securities market. 

• To ensure that the settlement cycles are short.

• To enable book entry settlements.

• To meet international benchmarks and standards.

Market segments of NSE

Exchange provides trading in following segment:

• Wholesale debt market segment

• Capital market segment

Over the Counter Exchange of India (OTCEI)

It is the counter market where buyers and sellers seek each other to purchase/sell securities of small and medium companies as per terms and conditions. OTCEI was incorporated in 1992 under the Companies Act, 1956.

Advantages of OTC Market

• Trading platform to small companies.

• Cost effective method for businesses.

• Trade in both primary and secondary markets.

• Gives freedom of choice to investors.

• Transparent system of trading.

• Free flow of information.

BSE (Bombay Stock Exchange Limited)

It was Asia's first stock exchange and was established in 1875. It provides a platform for raising capital which has contributed to the growth of the corporate sector. Permanent recognition to BSE was granted as per the Securities Contract (Regulation) Act, 1956.

Objectives of BSE

• Efficient and transparent market for trade.

• Trading platform for equities.

• Ensure active trade.

• Services to capital market participants.

• Conform to international standards.

Securities and Exchange Board of India (SEBI)

• SEBI was established by the Government of India on 12th April, 1988 and given statutory powers in 1992 being passed by the Indian Parliament.

• SEBI has its headquarters at the business district of Bandra-Kurla complex in Mumbai and it has regional offices in New Delhi (northern), Kolkata (eastern), Chennai (southern), and Ahmedabad (western).

• SEBI works as an interim administrative body which aims to promote growth of the securities market as well as protect the interest of the investors.

Reasons for the Establishment of SEBI

• To control unfair trade practices and malpractices in trading securities such as rigging of prices, violation of rules, unofficial private placements, etc.

• To protect the interest of the investors.

Purpose and Role of SEBI

• Issuers: To the issuers, it provides a market for raising finance in an easy, fair, cost effective and efficient manner.

• Investors: To the investors, to protect the interest of the investors by disclosing accurate information on a continuous basis.

• Intermediaries: To the intermediaries, to offer a competitive and professional market with efficient infrastructure.

Objectives of SEBI

• To regulate the stock exchange and the securities industry in order to promote orderly functioning of capital markets.

• To protect the rights as well as the interests of the investors.

• To prevent and keep a check on any unfair trading malpractices 

• To maintain and create a balance between self and statutory regulations.

• To attend investor’s complaints, liaise with the issuers, intermediaries and other stock exchanges in the region through its regional offices.

Functions of SEBI 

SEBI performs the task of regulation and development of the securities market. The functions performed by SEBI are:

1. Regulatory Functions

1. Registration of brokers, sub-brokers and other intermediaries.

2. Registration of collective investment schemes.

3. Regulation of Stock Bankers, underwriters, portfolio exchanges, and merchant bankers.

4. Regulation of takeover bids by companies.

5. Undertakes inspection, conducts enquiries and audits of stock exchange and intermediaries.

6. Changing fee or other charges for carrying out the purposes and operations of the Act.

7. Performing and exercising powers under Securities Contracts (Regulation) Act 1956, delegated by the Government of India.
   
   

2. Development Functions

1. Educating and training investors and intermediaries of the securities market.

2. Conduct research and publish information related to trading of securities.

3. Taking measures for the development of the capital market through the adoption of a flexible approach.
   
   

3. Protective Functions

1. Prohibiting fraudulent and unfair trade practices.

2. Controlling insider trading and imposing penalties for malpractices.

3. Educate and protect the investors.

4. Promoting fair trade practices and a strict code of conduct in the securities market.

The Organisation Structure Of SEBI

SEBI has five operational departments headed by the Executive Director. It is advised or assisted in policy formation by two advisory committees – 

• The primary market advisory committee 

• The secondary market advisory committee

Objectives of Advisory Committees

• To advise SEBI on matters related to regulations.

• To advise SEBI on development and regulation of the primary market.

• It advises SEBI on disclosure requirements for the companies as per the provisions mentioned in the Act.

• To advise SEBI in the legal framework for making dealing in the primary market simple and transparent.
  
  

Financial Markets Class 12 Business Studies Revision Notes Chapter 10

Class 12 Business Studies Chapter 10 Revision Notes

Financial Market is a pivotal concept of the Business Market, from where the funds are acquired to where they are destined investments all are based in this market, hence the study of this chapter ‘Financial Market’ is mandatory. Students are advised to study this important chapter and then revise the chapter with these revision notes side by side. In order to secure high grades, the students cannot afford to get off track from their studies, and these revision notes will help the students to be in sync with the study.

Financial Markets are those markets where investments are routed. In the revision notes, we supplied – Concept of Financial Market, Function of Financial Market, Types of Financial, Distinction between Capital and Money Market, Methods of Floatation, Stock exchange, functions of the stock exchange, dematerialization and depositories, working of DEMAT system, depository, National Stock Exchange, BSE.

Our motive is to provide the students with a brief knowledge of the whole content keeping it short and crisp.

Important Concepts Financial Markets: Revision Notes

Rivision notes make the students equally ready for the exam and to have a strong foothold over the chapter, the important topics revised here as follows:

1. Concept of Financial Market:

The concept of the Financial Market should be clear in the minds of the students. They should know what they study, and what they need to know, hence the concept is vital.

2. Functions of Financial Market:

The functions of the Financial Market are needed to be known to the students, how the market functions, who have access to these markets are all taught in this chapter.

3. Dematerialization:

The new mode of formation that is Dematerialization needs to be introduced to the students, hence this concept is equally helpful.

4. NSE and BSE:

The NSE and BSE are the most popular and authentic financial markets where the investments are routed.

Why These Revision Notes?

Students are advised to follow the revising strategy as this will prepare the students for the HS exam, they should revise side by side of their new learning:

1. With the help of this revision material, the students regain their touch of the earlier studied lessons.

2. The theory is an important one likewise other sections as well hence to note it down in one place and to revise the whole chapter students can easily do it from here.

3. These notes are an ultimate guide for the students before the exam as it recapitulates the whole chapter in a capsule.

4. Students will never fall out from their studies following these revision notes.

5. This is an important chapter that needs frequent revision hence these notes are provided.
   
   

Review on NCERT Solutions Chapter 10 Class 12 Business Studies - Financial Markets

1. Financial Market Financial market is a connecting link between the surplus and deficit units, the financial market brings together the lenders and borrowers.

2. Functions of Financial Markets:

• Mobilisation of savings and channelizing them into the most productive use.

• Facilitates price discovery.

• Provides liquidity to financial assets.

• Reduces the cost of the transaction.

3. Classification of the Financial Market The two segments of the financial market are - Money Market and the Capital market.

• Money Market is a market for short-term funds that are meant for dealing in the monetary assets whose period of maturity is less than one year.
  
  

(a) Features of Money Market

• The market for short-term.

• No fixed geographical location.

• Major institutions involved in the money market are RBI Commercial Banks, LIC, GIC, etc.

• Common instruments of the money market are call money, treasury bills, CP, CD, commercial bills, etc.
  
  

(b) Instruments of Money Market

• Call money

• Treasury bills (T Bills)

• Commercial bills

• Commercial Paper (CP)

• Certificate of Deposits (CD)

(ii) Capital Market: Medium and long-term funds are made available in the market. It includes all the organizations, institutions, and instruments that provide long-term and medium-term funds.

VK Bhalla also talked about this type of market - The capital market is to be defined as the mechanism which channelizes saving into investment or productive use. The capital market distributes the capital resources among the other alternative uses. It acts as an intermediary in the flow of savings of those who save a part of their income to those who want to invest it in productive assets

(a) Features of Capital Market

• Link between savers and investment opportunities.

• Deals in long term investment.

• Utilisés intermediaries.

• Determinant of capital formation.

• Government rules and regulations.

(b) Types of Capital Markets The main components of the capital markets are Primary Market and Secondary Market.

Chapter-wise Revision Notes on Class 12 Business Studies  

• Chapter 1 - Nature and Significance of Management Notes

• Chapter 2 - Principles of Management Notes

• Chapter 3 - Business Environment Notes

• Chapter 4 - Planning Notes

• Chapter 5 - Organising Notes

• Chapter 6 - Staffing Notes

• Chapter 7 - Directing Notes

• Chapter 8 - Controlling Notes

• Chapter 9 - Financial Management Notes

• Chapter 11 - Marketing Notes

• Chapter 12 - Consumer Protection Notes

• Chapter 13 - Entrepreneurship Development Notes

Class 12 Subject-wise Revision Notes

• Class 12 Maths Revision Notes

• Class 12 Physics Revision Notes

• Class 12 Chemistry Revision Notes

• Class 12 Biology Revision Notes

• Class 12 Business Studies Revision Notes

• Class 12 Economics Revision Notes

Subject-wise Solutions for Class 12