Unit IV

Capital Market

4.1 New Issue Market (b) Secondary market, Functions and role of Stock Exchange (BSE, NSE), Important Provisions of SEBI (Listing procedure and legal requirements, pricing and marketing of Public Issue).

New Issue Market (b) Secondary market

Stock Market: New Book Market and Liquidity Market!

The stock market deals with both private and government long-term securities. It is the most important element of the capital markets. The latter deals with all kinds of long-term funds, whether they are raised through open market securities or through negotiated loans that do not bring market paper.

Public market securities are securities that are openly bought and sold in the market (or market paper) (like marketable commodities) and can change hands over and over again. The negotiated loan must be negotiated directly (or through a broker) between the borrower and the lender. They only appear in the lender's books and borrower's promissory notes that are not sold in the market.

The stock market is made up of several different markets for securities. The most important difference is the difference between the corporate securities market and the government securities market. Corporate securities are a means of raising long-term corporate capital from the general public.

Stock market organizations offer separate arrangements for the issuance of new securities and the buying and selling of old securities. The former market is known as the "new issue market" and the latter market is known as the "secondary market". Both types of markets are essential to serving corporate borrowers and investors.

New problem market:

The essential function of the new issue market is to arrange for new capital to be raised by companies, old and new. This includes attracting new investable resources to the enterprise sector and allocating them to alternative uses and users. Either way, the role is very important.

How fast a company's industrial sector grows, apart from its own internal savings, is highly dependent on the influx of resources into that sector. Equally important is the move of sufficient venture capital to new manufacturing areas, which are essential for the balanced growth of the economy and industry in the new region, in order to promote balanced regional development.

New issuance may take the form of shares, preferred stock, or corporate bonds. The company raising the funds may be a new company or an existing company planning to expand. A new company does not necessarily have to be a completely new company. They may be private companies already in business, but they are "listed" to expand their capital base. "Initial public offering" means becoming a public limited company with the right to raise funds from the general public in the open market.

In order for the public to invest their savings in new issues, they need the services of a network of specialized institutions (underwriters and stock brokers). The more highly developed and efficient this network is, the greater the influx of savings into the organized industry. Until the establishment of the Indian Industrial Credit Investment Corporation (ICICI) in 1955, this type of underwriting was severely underwritten in India. Instead, a special institutional arrangement known as the governing body system has grown. It's a thing of the past now.

ICICI was established in 1955 as a new institutional arrangement began for new corporate issues to replace the distrusted management agency system. Immediately after that (1956), LIC joined hands. The new system is already in adulthood under the leadership of the Indian Industrial Development Bank (IDBI).

Apart from key participants in ICICI and other new issue markets, there are major term lending institutions such as UTI, IFCI and commercial banks. General Insurance Corporation (GIC) and its subsidiaries, stockbrokers and investment trusts. Foreign institutional investors from the World Bank and its affiliates, the International Development Association (IDA) and the International Finance Corporation, are also sent through all-Indian term lending institutions (IDBI, ICICI, IFCI).

To manage the success of the emergence of new issues, you need three different services:

i) Origination,

(ii) Underwriting and

(iii) Distribution of new issues.

Origination requires careful investigation of the feasibility and prospectus of the new project. This includes technical evaluation of proposals from a technology manufacturing perspective, availability of technical know-how, land, electricity, water and critical inputs, locations, management capabilities, and surveys of market demand for products. .. , Domestic and overseas, financial forecast of expected costs and returns over time, appropriateness and structure of financial arrangements (promoter's capital, public capital, debt-capital ratio, short-term funds, liquidity ratio, foreign countries If there are foreign exchange requirements and availability), delays in pregnancy, etc., and any deficiencies in the project proposal, contact the promoter for corrective action.

All this calls for well-skilled and capable staff. Careful scrutiny and approval of recent difficulty proposals with the aid of using well-installed economic establishments acknowledged for his or her abilities and integrity will extensively enhance their recognition with the aid of using the general public and different economic establishments wherein they invest. This is in particular authentic for troubles with completely new agencies.

Underwriting way making certain and shopping a brand new difficulty at a set rate and a exact amount. The buy can be bought to the general public (for the functions of one's portfolio or each. If the commonly anticipated sale isn't achieved, the underwriter will soak up the unsold stocks of his portfolio. You take the danger of this fee, called the underwriter's fee.

The organisation issuing the brand new difficulty concurs to endure this extra price of financing. This ensures the finances and offers the underwriter the undertaking of promoting the stocks to the overall public or others. In maximum cases, underwriting is accomplished with the aid of using a set of underwriters, one or extra of whom might also additionally act as organization leaders. Group (or consortium) underwriting distributes the danger of underwriting amongst more than one underwriters and significantly complements the cappotential of the device to adopt essential issues.

Distribution way promoting stocks to the general public. Fixed-time period lenders, LICs, UTIs, and a few different economic establishments commonly tackle new demanding situations as direct funding of their personal portfolios. For them, there's no hassle promoting stocks to the overall public. However, beneath the law, a number of the brand new public troubles need to be supplied to the overall public. It is positioned for inventory agents who've a device those invitations subscriptions to new troubles from the overall public.

It is commonly their cap potential to distribute that determines the diploma of public participation in new troubles. During the inventory marketplace boom, the call for brand new troubles from the overall public can even boom. New troubles in famous houses and troubles undertaken with the aid of using effective establishments commonly have a terrific public response.

What stays the Achilles heel of the brand new hassle marketplace is the position of issues for SMEs. New marketers want to be recommended to loosen the grip of monopoly housing at the country's commercial economy. To do so, unique efforts to power small troubles want to be in addition strengthened.

Broadly speaking, there are 3 fundamental methods to deliver up new troubles.

(i) By issuing a prospectus to the general public

(ii) Private placement and

(iii) According to a rights difficulty to present shareholders.

The above is the primary method. The difficulty of the general public prospectus, which offers information about the organisation, the difficulty, and the underwriter, is the very last act of the drama and is a public invitation to the overall public to enrol in the difficulty. Private placement way that this difficulty isn't provided to the overall public for subscription however is privately positioned with a small variety of essential economic establishments.

This lets in the organisation to store at the price of public placement. It's additionally faster. A rights difficulty way issuing the right (invitation) to difficulty a few or all the new stocks to the present shareholders of the vintage employer at a set rate. Such troubles are usually provided at a set discounted rate from the marketplace rate of the inventory of the traded organisation.

Discounts are the character of bonuses to shareholders. Obviously, the rights difficulty is open simplest to present public confined agencies, now no longer to new agencies. Older agencies additionally boom their capital (paid-in capital) with the aid of using putting forward bonuses to shareholders. In different words, we can difficulty a set ratio to the stocks that preserve new stocks and could now no longer price the rate. This is a manner to transform a number of the collected reserves into paid-in capital of the organisation.

Old hassle secondary marketplace:

This marketplace offers with present securities. Its fundamental feature is to offer liquidity to such securities. Asset liquidity way that you could effortlessly convert to coins with a short observes at the same time as minimizing the lack of capital value. This liquidity is supplied with the aid of using presenting a non-stop marketplace for securities, that is, a marketplace wherein protection carts are sold and bought at any time at some point of enterprise hours with small transaction charges and comparatively small fluctuations from the closing quote.

Of course, this simplest applies to "active" securities which have customers and dealers available in the marketplace in any respect times. "Activity" is a feature of character securities, now no longer the marketplace. The cap potential to offer liquidity to vintage shares is essential each in attracting new finances and in different methods. It encourages destiny buyers to spend money on securities, vintage and new. Because they recognise they are able to visit the marketplace and promote them every time they need to get coins from them.

Without a prepared securities marketplace, this isn't without problems feasible. Therefore, traders circulate far from securities. Second, the secondary marketplace gives anybody concerned the possibility to spend money on securities. This paves the manner for non-stop inflows into the marketplace.

This is particularly crucial for traders who do now no longer need to treat their cash with the aid of using making an investment in new ventures however are inclined to make investments completely withinside the securities of a going concern. On the alternative hand, a few project traders are making an investment in new troubles withinside the wish of gaining capital profits after new issues were completely established.

In a sense, they season new troubles and promote them off once they end up extra marketplace-acceptable. With their cash free of the sale in their vintage holdings, they could circulate directly to different new troubles at the marketplace. Therefore, funding in new troubles is substantially facilitated with the aid of using the operation of the secondary marketplace.

New investments also are affected in different approaches with the aid of using what's going on withinside the secondary marketplace. The latter serves as an crucial indicator of the funding weather withinside the economy. As the inventory rate of present securities rises and the extent of buying and selling interest withinside the secondary marketplace increases, new issuance will boom as new issuance markets (underwriters, inventory agents, traders) end up extra proactive and extra proactive. Tend to do. Accept new troubles. This is likewise an excellent possibility for businesses to elevate new troubles.

When the secondary marketplace is sluggish, the brand new hassle marketplace additionally declines. Underwriters are reluctant to underwrite, and inventory agents are reluctant to take duty for promoting new shares to the public. Second, businesses also are suggested to put off new troubles for a higher time.

There are segments withinside the secondary marketplace.

(A) Organized Stock Exchange,

(B) Over-the-counter marketplace.

The latter offers with securities which might be now no longer "listed" on prepared inventory exchanges. These are SME securities and the marketplace is limited. Their costs are decided with the aid of using direct negotiations among stockbrokers, instead of open bidding as withinside the case of "listed" securities at the inventory exchange. The principal interest of the inventory marketplace is focused on those exchanges. I will in brief give an explanation for their configuration and functions.

Functions and role of Stock Exchange (BSE, NSE),

Functions of Bombay Stock Exchange (BSE)

1. The Bombay Stock Exchange has contributed significantly to India's rapid growth in GDP from 2002 to 2007, and has also contributed to the introduction of technology into the financial sector.
2. BSE acts as a continuous market for securities that investors and traders trade and buy and sell on the stock market.
3. The Bombay Stock Exchange acts as a first-level regulator of the securities market. From focusing on transparency, monitoring the market and establishing a monitoring mechanism that can detect stock price fraud and manipulation.
4. The exchange guarantees liquidity. Speaking of other institutions like banks and LIC, they can always invest money in the stock market, make a profit in a short period of time, and sell it immediately if they need it.
5. BSE also provides counterparty risk management for all transactions made on the trading platform through clearing and settlement services.
6. The stock exchange encourages both companies and investors to buy and sell stocks, providing opportunities for capital formation that will lead to the growth of the Indian economy in terms of attracting foreign investors and industrial development.

Role of BSE

India's BSE Stock Exchange is huge in terms of number of listed companies and market capitalization. Prior to the existence and regulation of international capital markets, BSE had created its own comprehensive rules and regulations for Indian capital markets. It was after independence that the exchange established the best trading tradition for Indian capital markets. It was highly valued by the global capital markets.

Permanent approval was granted under the Bombay Stock Exchange Securities Contract Regulation Act of 1956. The exchange is governed by a board of directors headed by the managing director. The Board of Directors consists of a group of prominent experts, trading member representatives, and public representatives who play important roles in its operation.

Few companies in India do not use BSE for their capital. BSE is considered a symbol of India's capital markets. BSE Sensex is a benchmark equity index that reflects the movements of the country's economy and financial markets. BSE is a leader in many areas and is internationally equivalent.

Functions of National Stock Exchange of India (NSE)

NSE was founded with the explicit purpose of fulfilling the following functions:

1. Establish a nationwide trading facility for stocks, debt and other hybrid products.
2. Ensuring equal access to investors across the country through an appropriate communications network
3. Providing investors with a fair, efficient and transparent securities market using electronic trading systems
4. Enables shorter payment cycles and book entry payment systems, meet current international standards in the securities market

NSE has successfully performed these functions by establishing the country's first electronic stock market. NSE has been instrumental in creating the first depository in the country, National Securities Depository Limited (NSDL), allowing investors to hold and trade securities electronically. This not only made investment easier, but also increased transparency. Price information, previously available to only a few traders on the exchange, is now widely broadcast and available to everyone at their remote location.

Prior to the system introduced by NSE, investors who wanted to trade securities not listed on the nearest exchange had to route their orders to the appropriate exchange via a series of correspondent brokers. As a result, uncertainty increased and transaction costs increased. NSE has enabled investors to access the same markets and purchase orders at the same cost as all other investors, regardless of location. NSE trading terminals are currently located in 363 cities and towns across India and can be accessed through brokers from anywhere in the world.

Role of National Stock Exchange of India

Effective Mobilization of Savings Stock exchanges provide an organized market for institutional investors as well as individual investors.

They regulate transactions with appropriate rules and regulations to ensure the protection of investors. This helps strengthen the trust of investors and small savers. Therefore, stock exchanges attract small savings, especially for large numbers of investors in the capital markets.

Promotion of capital formation

The funds mobilized through the capital markets are provided to industries engaged in the production of various goods and services that are useful to society. This leads to the formation of capital and the development of national assets. Mobilized savings are directed to the right investment vehicle. Wider Ways of Investing Stock exchanges offer a wider way of investing to people and organizations with a surplus of investment. Companies in different industries such as information technology, steel, chemicals, fuels and petroleum, cement and fertilizers offer investors different types of equity and debt securities. Online trading facilities have brought the stock exchange to the gateway to investors through computer networks. Different types of securities are available on the stock exchange for different purposes and concepts of different classes of investors.

The information you need from the stock exchange, available from a variety of sources, will guide investors in effectively managing their investment portfolio. * Investment liquidity The stock exchange provides investors with investment liquidity. Investors can sell out their investment in securities at any time during the trading day and trading hours on the stock exchange. Therefore, the stock exchange provides liquidity for investment. Demat Securities' online trading and online payments allow investors to sell out their investments and generate returns within a day or two.

Even investors can switch from one security to another as capital market scenarios change. * Investment Priorities Stock exchanges help investors prioritize their investments by offering baskets of different types of securities from different industries and companies. He can sell shares of one company or buy shares of another company through the stock exchange at any time. He can manage his investment portfolio to maximize his wealth. * Investment safety

Through the Articles of Incorporation, the Indian Stock Exchange (SEBI) Guidelines, the stock exchange seeks to provide security for investing in industrial securities through transparent procedures. The government has established the National Stock Exchange (NSE) and the Over-the-Counter Exchange (OTCEI) in India for investor safety. Exchange authorities are trying to curb speculative practices and minimize the risk of general investors maintaining self-confidence. * Public and private sector financial resources . The stock exchange makes available financial resources available to the public and private sector industries through various types of securities.

Public issuance of securities by these industries has received a strong response (leading to issuance oversubscription) due to liquidity, marketing support and the security of investment through stock exchanges. Funds for Development The Stock Exchange enables the government to mobilize funds for utilities and utilities involved in the development of electricity projects, shipping, railroads, telecommunications, dams, dams and more.

The stock exchange provides liquidity, marketability, price continuity, and continuous valuation of government bonds. The stock exchange is a symbolic indicator of national industrialization. Productivity, efficiency, economic conditions, and outlooks for each industry and all units within the industry are reflected in the price fluctuations of industrial securities on the stock exchange. The stock exchange sensibilities of various companies and the price fluctuations of securities give an overall picture of changes in the industrial sector. Barometer of the national economy the stock exchange is considered a barometer of the national economy. Each economy is economically symbolized by its most important stock exchange (indicator). The New York Stock Exchange, London Stock Exchange, Tokyo Stock Exchange, and Bombay Stock Exchange are considered barometers in the United States, United Kingdom, Japan, and India, respectively. At both national and international levels, these stock exchanges represent economic progress and status.

Important Provisions of SEBI (Listing procedure and legal requirements, pricing and marketing of Public Issue).

4.2 Money Market: Indian money markets- Composition and Structure, Acceptance and Discount houses and Call money market.

Money Market:

The Money Market is a prepared forex marketplace wherein members can lend and borrow excessive exceptional bonds withinside the quick time period with a median adulthood of twelve months or less. This permits governments, banks, and different big establishments to promote quick-time period securities to fund their quick-time period coins waft needs. Money markets additionally permit person traders to make investments small quantities of cash in a low-danger environment.

Products traded at the cash markets consist of Treasury payments, certificate of deposit, business paper, federal budget, payments of exchange, quick-time period mortgage-subsidized securities and asset-subsidized securities.

Large groups with quick-time period coins waft can borrow immediately from the marketplace via dealers, at the same time as SMEs with extra coins can borrow via cash marketplace mutual budget.

Individual traders who need to benefit from the cash marketplace can make investments via a cash marketplace financial institution account or a cash marketplace mutual fund. Money Market Mutual Funds are professionally controlled budget that buy cash marketplace securities on behalf of person traders.

Composition

Money markets are not a single homogeneous market. It consists of several submarkets that collectively make up the money market. Competition must occur within each submarket and between different submarkets. The main submarkets of the money market are:

1. Call the cash marketplace:

The name cash marketplace is a totally quick-time period marketplace. Stock alternate constructing agents and sellers commonly borrow cash over the tele cell smart phone from a business financial institution. These loans are provided in a totally quick time period now no longer exceeding 7 days beneath any circumstances, however extra regularly handiest day by day or at night, that is, 24 hours a day.

There isn't any call for collateral securities for name cash. They manage excessive liquidity. The borrower has to pay the mortgage whilst requested, that is, with a totally quick notice. This is why those loans are called "name cash" or name loans. Therefore, the decision cash marketplace is an vital detail of the cash marketplace.

Investing price range withinside the name marketplace meets your liquidity wishes, however it does now no longer meet your profitability wishes due to the fact hobby charges on name loans are very low and exalter ate numerous instances at some point of the day.

Call loans are handy for business banks as they may be transformed into coins at any time. They are nearly like coins. This is a form of secondary coins reserve for business banks to earn a few incomes.

2. Collateral mortgage marketplace:

It's some other vicinity of ​​know-how withinside the cash marketplace. The marketplace for equities and marketplace-sponsored loans is geographically the maximum diverse and the maximum loosely organized. Loans are commonly lent to non-public sectors withinside the marketplace through business banks.

Collateral loans are sponsored through securities, shares and bonds. Asset-sponsored securities may be in a few precious form, consisting of authorities bonds, which might be incredibly marketable and feature low charge volatility.

The loan can be repaid to the borrower whilst the mortgage is repaid. If the borrower is not able to pay off the mortgage, the collateral turns into the belongings of the lender. These loans are given for numerous months. Borrowers are commonly shares or inventory sellers. But even small business banks can borrow loan loans from massive banks.

3. Acceptance marketplace:

Banker popularity may be vintage from business credit score. The popularity marketplace is the popularity marketplace for bankers concerned in exchange transactions. This marketplace offers with financial institution approvals. This can be described as a draft that the business enterprise has created and accepted through the financial institution.

You ought to pay a sure quantity for a specific birthday celebration or owner's order on a specific date withinside the destiny. These acceptances end result from trade each locally and internationally. A marketplace in which bankers' popularity is effortlessly offered and discounted is referred to as the popularity marketplace.

Raymond P. Kent, in his e-e book Money and Banking, states that banker approval is "a draft created through a character or business enterprise at a financial institution and accepted through the financial institution to pay for the orders of the unique parties.  “To undergo a sure amount of cash at a particular time withinside the destiny.”

I would really like to differentiate among banker popularity and assessments. Bank clerk consent can be paid on the required destiny date; however assessments can be paid on request. Banker approval is effortlessly discounted withinside the cash marketplace as its miles signed through the banker.

In the case of host housing, the financial institution isn't always concerned. The financial institution really introduced that assure to the draft. However, it's miles really well worth noting that banker approvals are specially utilized in global exchange. In London's cash marketplace, there are specialised groups referred to as host housing that be given invoices created through investors in preference to taking gain of authentic debtors.

In the past, host housing turned into very vital in London's cash marketplace, however now it is tons much less vital. These aren't vital withinside the Indian cash marketplace as there may be no receiving marketplace development.

4. Building marketplace:

A marketplace in which quick-time period files and invoices are sold and offered.

The vital forms of quick-time period treatises are:

(A) Exchange bill and

(B) Financial payments.

(A) Exchange bill:

The alternate invoice is business paper. An alternate bill is an unconditional buy order signed through a withdrawal, and the addressee is needed to pay a hard and fast quantity upon request or at a hard and fast time withinside the destiny.

If the purchaser suggests that he / she has agreed to the bill itself, it turns into a felony document. Such payments are discounted or redistributed through business banks to lend credit score to the invoice holder or the borrower from the relevant financial institution.

(B) Financial payments:

Treasury securities are commonly quick-time period authorities’ files / securities for ninety one days. An economic invoice is a central authority promissory word that will pay a particular quantity after a particular period. These are offered through the relevant financial institution on behalf of the authorities.

India's money market was tightly regulated and characterized by a limited number of participants. Limited types and instruments were available. Interest rates on financial instruments were under the control of the Reserve Bank of India. When the government began reforming the financial sector, serious efforts were made to develop the money market.

The money market is a short-term, liquid bond market. These examples include banker consent, repos, certificates of deposit, and Treasury securities with a maturity of one year or less, often 30 days or less. Money market securities are generally very safe investments and are relatively profitable. Low interest rates most suitable for temporary cash storage or short-term needs.

Structure:

Structure of Indian Money Market:

(i)                Broadly speaking, India's money markets consist of two sectors: (a) an organized sector and (b) an unorganized sector.

(ii)              The organized sectors include the Reserve Bank of India, the State Bank of India with seven affiliates, 20 nationalized commercial banks, other scheduled and unscheduled commercial banks, foreign banks, and local regions. It consists of banks. It is called organization because that part is systematically coordinated by the RBI.

(iii)           Non-bank financial institutions such as LIC, GIC and subsidiaries, and UTI also operate in this market, but they operate only indirectly through banks and not directly.

(iv)            Quasi-government agencies and large corporations also make short-term surplus funds available in markets organized through banks.

(v)              Cooperative credit institutions occupy an intermediate position between the organized and unorganized parts of India's money markets. These institutions have a three-layer structure. At the top is the state co-operative bank. At the local level, there are primary credit unions and urban co-operative banks. Organized sectors should include only state and central co-operative banks, given their size, operating practices, and transactions with RBIs and commercial banks. Co-operatives at the local level are loosely tied to it.

(vi)            The unorganized sector consists of indigenous banks and money lenders. That part of the activity is not systematically coordinated by the RBI and is not organized.

(vii)         Money lenders operate nationwide, but there is no connection between them.

(viii)       Indigenous banks are somewhat more organized as they enjoy re-discount facilities from commercial banks linked to RBI. However, this type of organization represents a loose connection with the RBI.

Acceptance and Discount houses and Call money market.

The host organization is normally a UK organization, specializing withinside the attractiveness and assure of payments of trade, thereby facilitating the lending of cash. Due to the decreased use of the invoice, they're now taking over different capabilities and are returning to the authentic broader capabilities of service provider banking. The City of London's "Receiving Housing" is represented through the Receiving Housing Commission in Westminster, making sure coverage coordination among the Treasury and the Bank of England. Members of the Commission have get admission to to discounted costs on invoices bought through the Bank of England, however this proper is now prolonged to different banks withinside the UK and abroad.

Definition: A monetary organization that ensures payments of trade. As a result, you could get reductions on greater favorable terms. An organization that accepts and respects monetary contraptions withinside the occasion of a borrower defaulting. "

Features:

1. Specializes in accepting trade payments
2. Guarantee bill
3. Charge costs or costs the usage of your monetary reputation
4. Use monetary marketplace expertise
5. Make the invoice negotiable

Function:

Meet each medium- and short-time period monetary necessities to offer banking centers each locally and across the world to offer enough liquidity to the secondary marketplace

The head workplace is particularly close to the important financial institution

Meaning of Discount House

A cut price residence is a cash lender that participates in the acquisition and cut price of payments of trade and different monetary products.

Features of cut price residence

These offer an equipped marketplace for Treasury securities, business paper or different cash marketplace products.

They assure enough liquidity.

They have been based as public agencies and perform independently of all different monetary institutions.

Function and significance of cut price residence

It’s essential feature is to cut price payments of trade and offer liquidity to the marketplace.

Provides a marketplace for monetary payments, business payments and government-assured securities (those securities have a lifespan of about five years or less).

They borrow from banks at a price decrease than the go back on investment; the distinction is referred to as profit.

Discount homes assist stabilize cash marketplace fees and save you monetary losses.

Discount House Workers when a product is bought in credit, the vendor invoices the customer and guarantees to pay the required quantity on the required date. Instead of watching for the adulthood date, the vendor receives a reduction at a business financial institution. After deducting positive discounted fees, the financial institution can pay the vendor. On the adulthood date, the financial institution will price the quantity from the person that acquired the bill.

Discount service

In 1988, the RBI helped business banks provide re-reductions on bill centers to make sure sufficient liquidity withinside the occasion of a financial institution shortage.

Through this facility, RBI furnished monetary help to business banks

However, the established order of DFHI eased the weight on RBI.

Institutions consisting of IDBI, NABARD, EXIM Bank's SIDBI and NHB additionally play an essential function in imparting cut price services.

Call Money Market

All commercial banks in India borrow money from other banks to make up for sudden cash shortages on certain days in the following situations:

Relax temporary funding requirements due to liquid asset and liability mismatches

To meet the required requirements of CRR & SLR, or

To meet the demand for funds resulting from the unexpected outflow of large amounts of funds.

The call money market is only available to upcoming commercial banks and primary dealers. In this market, banks have overnight (one day) loans available to meet short-term liquidity requirements. At the same time, the call money market also provides banks with daily surplus funds with the opportunity to lend and profit from it. In this way, banks that want to take advantage of liquidity approach the call market as borrowers, and banks with excess liquidity join there as lenders.

The call money market is only available to upcoming commercial banks and primary dealers. Call money transactions are conducted through NDS's electronic trading platform. The market works from Monday to Friday. Banks that need funds can borrow money by participating in auctions and negotiations at CMM. The auction is only for interest rates, so anyone ready to set a higher interest rate can take out a loan. Participants are also free to decide interest rates through counterparty negotiations. The average annual interest rate of an overnight fund in the call money market on a particular day is known as the call rate. The money borrowed in this way is repaid with interest at the start of business the next day and is called "call money".

Normally, if the call rate is higher than the fixed repo rate, the RBI repo rate usually acts as the floor rate of the call money because the bank first approaches the RBI on the funding requirements before entering the call money market. .. Similarly, if the call money rate is lower than the reverse repo rate, the bank will first rush to the RBI and park the surplus funds at the fixed reverse repo rate.

Call money market features

Loans are available through auctions / negotiations. The auction is held at interest rates. The highest bidder (ready to give higher interest rates) can take out a loan. The average interest rate on the call market is called the call rate. Call money transactions are conducted through an electronic trading platform called the Negotiated Trading System (NDS). This call money rate is an important variable for the RBI to assess the liquidity of the economy. CMM is known as the most delicate segment of the financial system.

Since the participants are banks, the call money rate indicates the overall liquidity position of the economy. Higher call rates indicate liquidity stress in the economy. In this case, the RBI may follow up on liquidity support measures through monetary policy measures, such as reducing CRR or allowing more repo transactions. Therefore, call money rates are considered an operational goal of monetary policy.

The main purposes of the money market are:

1. We provide short-term funds at reasonable prices to borrowers such as individual investors and government agencies. Because money market securities are short-term, lenders also have the advantage of liquidity.
2. It also allows lenders to turn their idle funds into effective investments. In this way, both lenders and borrowers are benefiting.
3. The RBI regulates the money market. Therefore, in turn, it helps to adjust the level of liquidity in the economy.
4. This is because most organizations lack working capital requirements. Money markets help such organizations secure the funds they need to meet their working capital requirements.
5. It is an important source of funding for the government sector in both domestic and international trade. Therefore, it provides an opportunity for banks to deposit surplus funds.

Key takeaways:

1. The Money Market is a prepared forex marketplace wherein members can lend and borrow excessive exceptional bonds withinside the quick time period with a median adulthood of twelve months or less.
2. Individual traders who need to benefit from the cash marketplace can make investments via a cash marketplace financial institution account or a cash marketplace mutual fund.
3. Money markets are not a single homogeneous market. It consists of several submarkets that collectively make up the money market.
4. Investing price range withinside the name marketplace meets your liquidity wishes, however it does now no longer meet your profitability wishes due to the fact hobby charges on name loans are very low and exalter ate numerous instances at some point of the day.
5. Collateral loans are sponsored through securities, shares and bonds.
6. Banker popularity may be vintage from business credit score.
7. In the case of host housing, the financial institution isn't always concerned.
8. A marketplace in which quick-time period files and invoices are sold and offered.
9. Treasury securities are commonly quick-time period authorities’ files / securities for ninety one days.
10. The money market is a short-term, liquid bond market.
11. Money lenders operate nationwide, but there is no connection between them.
12. The host organization is normally a UK organization, specializing withinside the attractiveness and assure of payments of trade, thereby facilitating the lending of cash.
13. Meet each medium- and short-time period monetary necessities to offer banking centers each locally and across the world to offer enough liquidity to the secondary marketplace
14. Provides a marketplace for monetary payments, business payments and government-assured securities (those securities have a lifespan of about five years or less).
15. Discount House Workers when a product is bought in credit, the vendor invoices the customer and guarantees to pay the required quantity on the required date.
16. All commercial banks in India borrow money from other banks to make up for sudden cash shortages on certain days in the following situations:
17. The call money market is only available to upcoming commercial banks and primary dealers.
18. Loans are available through auctions / negotiations.
19. We provide short-term funds at reasonable prices to borrowers such as individual investors and government agencies.

Reference:

1. Khan, M.Y. & Jain, P. K. : Financial Management Text and Problems
2. Mclaney, E.J.: Financial Services. Business Finance Theory and Practice
3. Pandey, I.M. : Financial Management
4. Van Horne, J.C. : Financial Management and Policy