Financial Market and Insurance Awareness Chapter 1

Chapter 1

Indian Financial Market

We are fully aware that business units have to raise short-term as well as long-term funds to meet their working and fixed capital requirements from time to time. This necessitates not only the ready availability of such funds but also a transmission mechanism with the help of which the providers of funds (investors/lenders) can interact with the borrowers/users (business units) and transfer the funds to them as and when required. This aspect is taken care of by the financial markets which provide a place where or a system through which, the transfer of funds by investors/lenders to the business units is adequately facilitated.

Main functions of Financial Market:-

(a) It provides facilities for interaction between the investors and the borrowers.

(b) It provides pricing information resulting from the interaction between buyers and sellers in the market when they trade the financial assets.
(c) It provides security to dealings in financial assets.
(d) It ensures liquidity by providing a mechanism for an investor to sell the financial assets.
(e) It ensures low cost of transactions and information.

Types of Financial Market

A financial market consists of two major segments:

(a) Money Market

A money market is a component of a financial market where short-term borrowing can be issued. This market includes assets that deal with short-term borrowing, lending, buying, and selling.

(b) Capital Market

A capital market is a component of a financial market that allows long-term trading of debt and equity-backed securities.

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