7.
Explanation
The Indian financial market is a complex and well-developed system that consists of several segments, each serving specific functions and participants. It can be broadly divided into two main categories: the money market and the capital market.
1. Money Market:
The money market in India is where short-term financial instruments are traded. It serves as a platform for borrowers to meet their short-term funding needs and for investors looking for safe and highly liquid investments. Key components of the money market include:
- Call Money Market: This segment deals with extremely short-term funds, typically for one day. Banks and financial institutions borrow and lend money in this market, primarily to manage their daily liquidity requirements.
- Treasury Bills (T-Bills): T-Bills are short-term government securities with maturities of 91 days, 182 days, and 364 days. They are considered one of the safest investments and are used by both the government for short-term borrowing and investors for low-risk, short-term investments.
- Commercial Paper (CP) and Certificate of Deposit (CD): These are short-term debt instruments issued by corporations and banks, respectively, to raise funds. They provide an avenue for institutions to meet their short-term financing needs and for investors to earn returns on relatively safe investments.
2. Capital Market:
The capital market is where long-term financial instruments are traded, allowing businesses to raise capital for growth and investors to buy and sell long-term securities. It is divided into two segments:
- Primary Market: This is where new securities are issued to the public for the first time. The primary market includes Initial Public Offerings (IPOs), Follow-on Public Offers (FPOs), and debt issuances. Companies raise capital by selling shares or bonds directly to investors.
- Secondary Market: The secondary market involves the trading of previously issued securities among investors. The National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) are the major stock exchanges in India. Investors buy and sell shares, bonds, and other securities in the
secondary market. This market provides liquidity and facilitates price discovery.
3. Regulatory Framework:
The Indian financial markets are regulated by several government and regulatory authorities, including:
- Securities and Exchange Board of India (SEBI): SEBI is the primary regulator for securities markets in India. It formulates rules and regulations to protect investors’ interests and ensure the fair and transparent functioning of the capital market.
- Reserve Bank of India (RBI): RBI regulates the money market and controls monetary policy. It issues T-Bills and governs various aspects of banking and finance in India.
- Ministry of Finance: The Ministry of Finance oversees fiscal policies and acts as an overall financial regulator, setting the economic and financial framework.
- Stock Exchanges: The NSE and BSE, along with other regional stock exchanges, play a significant role in overseeing and regulating the trading of securities.
4. Participants:
The Indian financial markets involve a wide range of participants, including:
- Retail Investors: Individuals who buy and sell securities for personal investment.
- Institutional Investors: This category includes mutual funds, insurance companies, banks, and other financial institutions that invest on behalf of their clients or policyholders.
- Corporations: Businesses that raise capital through the issuance of shares, bonds, or other financial instruments.
- Brokers and Dealers: These are intermediaries who facilitate the buying and selling of securities in the market.
- Regulatory Bodies: SEBI, RBI, and other regulatory authorities oversee and enforce regulations to ensure the integrity of the markets.
The Indian financial market’s structure is a critical component of the country’s economic system, facilitating capital formation, investment, and economic growth. The dynamic and well-regulated market segments provide opportunities for investors and businesses alike, contributing to India’s economic development and financial stability.