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