Dr.RANM ARTS AND SCIENCE COLLEGE�Affiliated to Bharathiar University , Accredited with “ B+” NAAC

Mrs.D.Mageswari M.Com(CA).,Mphil.,B.Ed.,MBA.,

Assistant Professor,

Department of Commerce (CA)

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Course Name : Financial markets & Institutions

Welcome You All

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Meaning of Capital Market

Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, and stocks.

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Meaning and Definition

Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, and stocks. The buying/selling is undertaken by participants such as individuals and institutions. Capital market forms an important core of a country’s financial system.

Characteristics of Capital Market

Following are the nature/characteristic of a capital market:

(I) Securities Market

(ii) Price

 (iii) Participants

 (iv) Location

Instruments of capital market

Capital markets teem with diverse financial instruments, each having its own role and significance. When businesses and Governments need to raise capital, they issue securities that investors can purchase. There are three main instruments in the capital market:

*Equities (stocks, shares),

*Bonds, and

*Derivatives

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Ordinary shares

These are the most popular type of shares because they shareholders a voting right. While ordinary shareholders have the highest potential financial gains, they are the last to pay if the company is to go bankrupt.Non-voting ordinary shares. These are ordinary shares that don’t give the holder a voting right.

Preference shares

Preference shares carry no voting right though their holders can receive preferential treatment when it comes to dividends. Preference shareholders often receive a fixed dividend.

Cumulative preference shares

Cumulative preference shares allow the holders to receive the dividend cumulatively. This means that if a dividend is not paid this year, it will be paid in successive years as long as the company still makes profits.

Redeemable shares

Redeemable shares are sold on the agreement that the company can buy them back at a later date. Companies can’t issue redeemable shares alone, they must also issue other non-redeemable types of shares.

Bonds

Bonds, on the other hand, are debt securities. Governments and corporations issue bonds to borrow money from investors for a specified period. You're essentially lending money to the issuer when you purchase a bond. For instance, buying a US government bond is akin to lending money to the US government. The issuer promises to repay the bond's face value upon maturity and often makes periodic interest payments

Bonds are loans the government or companies issued to fund their future spending or investment.The two main types of bonds are corporate bonds and government bonds. In addition, there are foreign bonds and municipal bonds..

Types of Bonds

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Corporate bonds

Government bonds

Foreign bonds

Municipal bonds

Foreign exchange market:

The Foreign Exchange Market is a global decentralized marketplace where currencies are bought and sold. It is the largest and most liquid financial market in the world, with trading volumes exceeding $6 trillion per day. The forex market facilitates international trade and investment by enabling businesses to convert one currency into another. 

The forex market operates 24 hours a day, 5 days a week, with trading taking place in major financial centers around the world. The market is driven by various factors, including economic data, geopolitical events, and central bank policies. The exchange rate, which is the value of one currency relative to another, is determined by supply and demand forces in the market. 

The foreign exchange market has several advantages and disadvantages. Understanding these can help traders make informed decisions about their participation in the market.

Advantages of Foreign Exchange Markets

High liquidity

Accessibility

   Diverse trading options 

    Low transaction costs 

Leverage

  Global market 

    Transparency

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Disadvantages of Foreign Exchange Markets

Volatility: 

  High competition: 

    Limited regulation: 

    Complex market: 

    Economic and political events: 

     High barriers to entry:

Derivatives

Derivatives, another type of financial instrument, derive their value from underlying assets like stocks, bonds, commodities, currencies, interest rates, or market indexes. Options, futures, and swaps are common types of derivatives. They serve as tools for hedging risk or speculating on future price movements.

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For example, a wheat farmer might use futures contracts to lock in a price for their crop months before it's harvested, providing some protection against price swings in the commodity markets.

FUNCTIONS OF DERIVATIVES

1. Hedgers

2. Speculators

3. Arbitrageurs

TYPES OF DERIVATIVES

1.Futures

2.Options

(a)call option

(b)put option

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3. Forward

4.Swaps

Thank You