Chapter 2 Financial Markets I ( Money Market)

MEANING OF MONEY MARKET:-A money market is a market for borrowing and lending of short-term funds. It deals in funds and financial instruments having a maturity period of one day to one year. It is a mechanism through which short-term funds are loaned or borrowed and through which a large part of financial transactions of a particular country or of the world are cleared.It is different from stock market. It is not a single market but a collection of markets for several instruments like call money market, Commercial bill market etc. The Reserve Bank of India is the most important constituent of Indian money market. Thus RBI describes money market as the centre for dealings, mainly of a short-term character, in monetary assets, it meets the short-term requirements of borrowers and provides liquidity or cash to lenders.

Definition:1) One of the sections of a financial market where securities and financial instruments with short-term maturities are traded is called the money market. Financial assets like treasury bills, certificates of deposits, commercial paper and bankers' acceptance are some of the short-term debt securities traded in the money market.2) Networkofbanks,discount houses,institutional investors, andmoneydealerswho borrow and lend among themselves for theshort-term(typically 90days). Moneymarketsalsotrade inhighlyliquidfinancial instrumentswithmaturitiesless than 90 days to one year (such asbankers' acceptance,certificatesofdeposit, andcommercial paper), andgovernment securitieswith maturities less than three years (such astreasury bills),foreign exchange, and bullion. Unlikeorganizedmarkets (such asstock exchanges) money markets are largely unregulated and informal where mosttransactionsare conducted over phone, fax, oronline.Long-termborrowingandlendingmarkets arecalledcapital markets.

Characteristics of Indian Money Market

1.Co-existence of organized and unorganized sectors:The peculiar feature of the Indian Money Market is the co-existence of organized and unorganized sectors. The organized sector consists of the Reserve Bank of India, State Bank of India and its affiliates, Commercial Banks, etc., The Reserve Bank of India supervises these banks. Indigenous bankers and others belong to unorganized sector and this sector is not coming under the purview of Reserve Bank of India. We can notice the lack of co-operation and co-ordination between these two sectors.2.Lack of Integration:Indian Money Market is divided into several segments. They are loosely connected to each other. The various segments of Indian Money Market are not well co-ordinated. It leads to unhealthy competition among the segments.3.High volatile money market:The important feature of the Indian Money Market is the seasonal stringency of funds. The demand for money in the Indian Money Market is of seasonal in character. The money rates fluctuate from one period to another because during busy season more money is demanded.4.Diversified money rates of interest:Diversified money rates of interest is an important feature of Indian Money Market. Since funds cannot move freely from one section to another, money rates of interest differ. Lack of co-ordination among various segments of money market is also responsible for diversified money rates of interest. But in recent years Reserve Bank of India is making all efforts to bring down the diversity in interest rates.5.Absence of well organized bill market:Bill market in India is not organized and well developed. The market for government and semi government securities is also not popular. Treasury Bill Market is also not well developed.6.Lack of well organized banking system:Existence of organized commercial banking system is pre requisite of a developed money market. In India, the development of commercial banking is uneven and not adequate. There are only few big banks in the country which are extremely smaller in number.7.Limited availability of credit instruments:The Indian Money Market does not have adequate short term credit instruments. The important credit instruments are call money market and treasury bills. However after 1988, Reserve Bank of India started introducing new instruments like 182 days treasury bill, 364 days treasury bill, certificate of deposits, commercial papers etc.,8.Few Lenders:The lenders in the Indian Money Market are few. Entry into the money market is strictly regulated. But the borrowers are large in number. Therefore this market is not very active and vibrant.9.Easy flow of foreign funds:Since 1991 foreign funds is easily flowing into India. Inspire of the flow it is not enough to meet the funds requirements of the country.10.Shortage of capital:Indian Money Market is facing the problem of capital shortage. Hence it cannot meet the requirements of trade and commerce. Shortage is mainly due to low level of savings, inadequate banking facilities etc.11. Variety of Financial Institutions:The Indian market is characterised by the presence of a large number of financial institutions such as non-banking financial intermediaries, cooperative banks, Export-Import banks. They cater to the financial needs of different sectors. STRUCTURE OF INDIAN MONEY MARKETMoney market is not a homogeneous market. It is composed of heterogeneous sub-markets, each specialising in a specific short- term credit instrument. The following are the important constituents of money market:1. Call Money Market:The call money market deals with very short-period or call loans. Bill brokers and dealers in the stock exchange generally borrow money at call from the commercial banks.These loans are granted for a very short period, not exceeding seven days in any case. The borrowers have to repay the loans immediately whenever the banks call them back. No collateral securities are required against these loans.

2. Collateral Loan Market:Collateral loan market refers to a market for loans secured against collateral securities like stocks and bonds. The collateral is returned to the borrower at the time when he repays the loan. In case the borrower fails to repay the loan, the collateral becomes the property of the lender.Collateral loans are mostly granted by the commercial banks to private parties in the market and for a short period of a few months. Sometimes smaller banks also receive collateral loans from bigger banks.3. Acceptance Market:Acceptance market is a market for bankers acceptances. A banker's acceptance is a draft drawn by a business firm upon a bank and accepted by it whereby the bank is required to pay to the order of a specific party or to the bearer a specific sum of money at a specific future date.Bankers acceptances are used mostly in financing the commercial transactions both within and outside the country.The banker's acceptance is different from a cheque in that while the former is payable at a specified future date, the letter is payable on demand. Bankers acceptance can be easily sold or discounted in the money market, called acceptance market.4. Bill Market:Bill market specializes in the sale and purchase of different types of short-term papers or bills. The important types of bills are: (a) bills of exchange and (b) Treasury bills. Since discounting of bills is the main business in the bill market, it is also known as discount market.It should be noted that the bill market does not deal with long-term treasury bonds and other long-term papers which involve long-term lending,(I) Bill of exchange:The bill of exchange is a written unconditional order signed by the drawer (seller) requiring the drawee (buyer) to pay on demand or at a fixed future date a definite sum of money. After the bill has been drawn by the drawer (seller), it is accepted by the drawee (buyer).Once the buyer puts his acceptance on the bill, it becomes a legal document. Such bills of exchange are discounted and re-discounted by the commercial banks for lending credit to the bill brokers or for borrowing from the central banks.(ii) Treasury Bills:While the bill of exchange is a commercial paper, the Treasury bill is government paper. The treasury bills are short-term government securities generally of three months' duration. They are sold by the central bank on behalf of the government.They bear no interest rate and are offered on the basis of competitive bidding. Thus those who are satisfied with the lowest interest rate will be allotted the bills. Treasury bills, being government papers, inspire greater confidence among the investors.

Role/Function of Money MarketAwell-developed money market is essential for a modern economy. Though, historically, money market has developed as a result of industrial and commercial progress, it also has important role to play in the process of industrialization and economic development of a country. Importance of a developed money market and its various functions are discussed below:1. Financing Trade:Money Market plays crucial role in financing both internal as well as international trade. Commercial finance is made available to the traders through bills of exchange, which are discounted by the bill market. The acceptance houses and discount markets help in financing foreign trade.2. Financing Industry:Money market contributes to the growth of industries in two ways:(a) Money market helps the industries in securing short-term loans to meet their working capital requirements through the system of finance bills, commercial papers, etc.(b) Industries generally need long-term loans, which are provided in the capital market. However, capital market depends upon the nature of and the conditions in the money market. The short-term interest rates of the money market influence the long-term interest rates of the capital market. Thus, money market indirectly helps the industries through its link with and influence on long-term capital market.3. Profitable Investment:Money market enables the commercial banks to use their excess reserves in profitable investment. The main objective of the commercial banks is to earn income from its reserves as well as maintain liquidity to meet the uncertain cash demand of the depositors. In the money market, the excess reserves of the commercial banks are invested in near-money assets(e.g.short-term bills of exchange) which are highly liquid and can be easily converted into cash. Thus, the commercial banks earn profits without losing liquidity.4. Self-Sufficiency of Commercial Bank:Developed money market helps the commercial banks to become self-sufficient. In the situation of emergency, when the commercial banks have scarcity of funds, they need not approach the central bank and borrow at a higher interest rate. On the other hand, they can meet their requirements by recalling their old short-run loans from the money market.5. Help to Central Bank:Though the central bank can function and influence the banking system in the absence of a money market, the existence of a developed money market smoothens the functioning and increases the efficiency of the central bank.Money market helps the central bank in two ways:(a) The short-run interest rates of the money market serves as an indicator of the monetary and banking conditions in the country and, in this way, guide the central bank to adopt an appropriate banking policy,(b) The sensitive and integrated money market helps the central bank to secure quick and widespread influence on the sub-markets, and thus achieve effective implementation of its policy.

IMPORTANCE OF MONEY MARKET

If the money market is well developed and broad based in a country, it greatly helps in the economic development of a country. The central bank can use its monetary policy effectively and can bring desired changes in the economy for the industrial and commercial progress in the country. The importance of money market is given, in brief, as under:

(I) Financing Industry:A well developed money market helps the industries to secure short term loans for meeting their working capital requirements. It thus saves a number of industrial units from becoming sick.

(ii) Financing trade:An outward and a well knit money market system play an important role in financing the domestic as well as international trade. The traders can get short term finance from banks by discounting bills of exchange. The acceptance houses and discount market help in financing foreign trade.

(iii) Profitable investment:The money market helps the commercial banks to earn profit by investing their surplus funds in the purchase of. Treasury bills and bills of exchange, these short term credit instruments are not only safe but also highly liquid. The banks can easily convert them into cash at a short notice.

(iv) Self sufficiency of banks:The money market is useful for the commercial banks themselves. If the commercial banks are at any time in need of funds, they can meet their requirements by recalling their old short term loans from the money market.

(v) Effective implementation of monetary policy:The well developed money market helps the central bank in shaping and controlling the flow of money in the country. The central bank mops up excess short term liquidity through the sale of treasury bills and injects liquidity by purchase of treasury bills.

(vi) Encourages economic growth:If the money market is well organized, it safeguards the liquidity and safety of financial asset This encourages the twin functions of economic growth, savings and investments.

(vii) Help to government:The organized money market helps the government of a country to borrow funds through the sale of Treasury bills at low rate of interest The government thus would not go for deficit financing through the printing of notes and issuing of more money which generally leads to rise in an increase in general prices.

(viii) Proper allocation of resources:In the money market, the demand for and supply of loan able funds are brought at equilibrium The savings of the community are converted into investment which leads to pro allocation of resources in the country.

Chapter 3Financial Market I ( Capital Market)

Meaning of Capital Market:-

Capital Market is one of the significant aspect of every financial market. Hence it is necessary to study its correct meaning. Broadly speaking the capital market is a market for financial assets which have a long or indefinite maturity. Unlikemoney market instrumentsthe capital market instruments become mature for the period above one year. It is an institutional arrangement to borrow and lend money for a longer period of time. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market. Capital market involves various instruments which can be used for financial transactions. Capital market provides long term debt and equity finance for the government and the corporate sector. Capital market can be classified into primary and secondary markets. The primary market is a market for new shares, where as in the secondary market the existing securities are traded. Capital market institutions provide rupee loans, foreign exchange loans, consultancy services and underwriting.

Definition:-Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.

Sources of Long Term Capital/fixed capital:-The main sources ofLong Term capital are depicted below.

The sources of fixed capital or long termfinanceare:Issue of Equity and Preference shares.Issue of Right shares.Private placement of shares.Issue of debentures.Term loans.Retained earnings.Lease financing.Now let's briefly discuss each source of fixed capital or long term finance.

Source 1. Issue of sharesIssue of shares is the most important source of fixed capital. Most companies collect fixed capital by issuing shares.Generally, there are two types of shares, these are depicted below.

These two types of shares are briefly described as follows:(I) Equity share:Equity share carries ownership rights of the company, and it doesn't carry a fixed rate of dividend.Equity shares are more popular than preference shares. The face value of an equity share is decided by the company.This share is also called ordinary share. This is because shareholders are the real owners of the company.The share capital is also called risky capital. This is so because there is no guarantee for getting a dividend. Similarly, if the company winds up or shut down, there is no guarantee for getting repayment ofcapital.(ii) Preference share:A preference share carries ownership rights of the company, and it carries a fixed rate of dividend.A preference share has two main advantages over equity shares viz.;They get a fixed rate of dividend before the equity shares, andIf the company winds up or shut down, they get repayment of capital before the equity shares.

Source 2. Issue of Right shares

Rights issue of shares means the company issues shares to its existing shareholders. According to provisions of law, a company must first issue shares to its existing-shareholders.If the existing shareholders do not want to buy the shares, then the company can sell its shares to the outsiders.The existing shareholders are given first preference to buy the company's fresh issue of shares.In an event of rights issue of shares, the share capital increases but the numbers of shareholders do not increase.Generally, rights issue is very economical to collect fixed capital.

Source 3. Private placement of shares

Private placement of shares means the company sell its shares directly to a small-group of investors likebank, insurance companies, financial institutions, mutual, etc.Here, the company does not sell the shares to the public.It is a very simple and economical method as it does not involve issue of a prospectus, no need of brokers and underwriters, etc.Fixed capital is also collected from private placement of shares.

Source 4. Issue of debentures

Debenture represents the borrowed capital of the company. Fixed capital is also collected from issue of debentures.Debenture holders get interest for the capital contribution made by them to the company.Debenture holders are the long-term lenders of the company.

Source 5. Term loans

Term loans are secured or unsecured loans obtained by the company. The company has to pay interest on these term loans.The company gets term loans from banks and financial institutions like Deutsche, HSBC, YES, ICICI, HDFC, AXIS, and so on, by submitting its project analysisreport.The shareholders do not lose ownership control of the company by obtaining term loans. Fixed capital is also collected from term loans.

Source 6. Retained earningsRetained earnings is a part of undistributed profits earned by the company. Since, the company does not distribute all of its profits to the shareholders.Company saves a part of its profits. This saved profit is called retained earnings, self-financing or ploughing back of profits.It is very economical because no interest payment is to be made.Retained earnings is the cheapest source of fixed capital.Source 7. Lease financingIn lease financing, there are two parties, viz;1. Lessor, who is the owner of anasset, and2. Lessee, who is the user of an asset.The lessor is the owner of an asset. Lessor gives the asset on a lease-basis to the lessee. The lessee uses the asset and in return, pays rent for using that asset to the lessor.The lessor and lessee enter into an agreement. This agreement is called lease-agreement.The lessee need not spendsmoneyfor purchasing the assets. Lessee hires (takes) the asset on a lease or rent so that he/she can use the available money for working capital requirements.Lease financing is very simple and economical.So, these are the sources of long term capital.Constituents of Capital Market

Any Capital Market has two logical segments viz. primary and secondary. A primary market is that segment of the market where new securities are issued. These issues may not just be equity issues, they can also be debt securities issued by companies in the form of bonds. Secondary market is that segment of the market where trading of securities issued in primary market happens. An efficient capital market of a country has many important player each playing a vital role in smooth functioning of the market. Above is the pictorial representation of the constituents in any mature capital market.

Stock Exchange:A stock exchange is a body which facilitates trading of securities (shares, derivatives, currencies etc). Read more aboutStock Exchange and its functions

Merchant Bankers:A merchant banker is responsible for offering consultation services for mergers and acquisition, capital raising via equity or debt, giving advice to businesses that plan to enter the international market and helping small businesses expand for a bigger target market.

Investors:Investors are the most important part of the capital market as they are the ones who spend capital in the subscribing to the issue issued by issuers like IPOs, FPOs, Right Issues etc.

Stock Brokers:A stock broker is responsible forbuyingand selling securities for both retail andindividual clients through a stock exchange. One cannot directly trade securities on stock exchanges and instead have to do it though the registered member of the stock exchange popularly known as stock brokers.

Depositories:A securities depository is like a bank which maintains investor's accounts having securities such as shares, mutual fund units, bonds etc. The primary function of a depository is to facilitates the exchange of securities and maintain the book entry. In simple words a depository helps in transferring the ownership of securities from one account to another when trade takes place between the buyer and the seller of the security. Read more aboutSecurity depositories and its function.

Depository Participants:As an investor you never deal with a depository directly but indirectly through a depository participant (DP) which is a member of the depository. All major banks and stock brokers are members of country's security depository. For example Wells Fargo, Bank of America, Scott Trade etc are depository participants or members of DTCC in U.S. while ICICI Securities, India Info line, Reliance Money, Relegate Capital etc are depository participants of NSDL and CSDL in India.

Market Regulator:Like any major industry all mature capital markets have respective regulators such as SEC in U.S, SEBI in India etc.

Issuers:Issuers are theissuersof securities like shares, bonds etc. They raise capital frominvestors and usually employ merchant bankers who advise them on the timing, pricing, market etc.

ROLE AND IMPORTANCE OF CAPITAL MARKET IN INDIA:-Capital market has a crucial significance to capital formation. For a speedy economic development adequate capital formation is necessary. The significance of capital market in economic development is explained below :-

1. Mobilisation Of Savings And Acceleration Of Capital Formation:-In developing countries like India the importance of capitalmarket is self evident. In this market, various types of securities helps to mobilise savings from various sectors of population. The twin features of reasonable return and liquidity in stock exchange are definite incentives to the people to invest in securities. This accelerates the capital formation in the country.2. Raising Long - Term Capital:-The existence of a stock exchange enables companies to raise permanent capital. The investors cannot commit their funds for a permanent period but companies require funds permanently. The stock exchange resolves this dash of interests by offering an opportunity to investors to buy or sell their securities, while permanent capital with the company remains unaffected.3. Promotion Of Industrial Growth:-The stock exchange is a central market through which resources are transferred to the industrial sector of the economy. The existence of such an institution encourages people to invest in productive channels. Thus it stimulates industrial growth and economic development of the country by mobilising funds for investment in the corporate securities.4. Ready And Continuous Market:-The stock exchange provides a central convenient place where buyers and sellers can easily purchase and sell securities. Easy marketability makes investment in securities more liquid as compared to other assets.5. Technical Assistance:-An important shortage faced by entrepreneurs in developing countries is technical assistance. By offering advisory services relating to preparation of feasibility reports, identifying growth potential and training entrepreneurs in project management, the financial intermediaries in capital market play an important role.6. ReliableGuide To Performance:-The capital market serves as a reliable guide to the performance and financial position of corporate, and thereby promotes efficiency.7. Proper Channelization Of Funds:-The prevailing market price of a security and relative yield are the guiding factors for the people to channelize their funds in a particular company. This ensures effective utilisation of funds in the public interest.8. Provision Of Variety Of Services:-The financial institutions functioning in the capital market provide a variety of services such as grant of long term and medium term loans to entrepreneurs, provision of underwriting facilities, assistance in promotion of companies, participation in equity capital, giving expert advice etc.9. Development Of Backward Areas:-Capital Markets provide funds for projects in backward areas. This facilitates economic development of backward areas. Long term funds are also provided for development projects in backward and rural areas.10. Foreign Capital:-Capital markets makes possible to generate foreign capital. Indian firms are able to generate capital funds from overseas markets by way of bonds and other securities. Government has liberalised Foreign Direct Investment (FDI) in the country. This not only brings in foreign capital but also foreign technology which is important for economic development of the country.11. Easy Liquidity:-With the help of secondary market investors can sell off their holdings and convert them into liquid cash.Commercialbanks also allow investors to withdraw their deposits, as and when they are in need of funds.12. Revival Of Sick Units:-The Commercial and Financial Institutions provide timely financial assistance to viable sick units to overcome their industrial sickness. To help the weak units to overcome their financial industrial sickness banks and FIs may write off a part of their loan.

Chapter 4Working of Stock ExchangesStock exchange is an organized market where Government securities, shares, bonds and debentures of the trading units are regularly transacted. Stock exchange provides a place to the buyers and sellers of the shares and securities. Stock exchange indicates about the good or bad health of economy. If the share prices are rising it means country is running on the path of development and prosperity.Definitions of Stock Exchange

According toHusband and Dockerary,"Stock exchanges are privately organized markets which are used to facilitate trading in securities."The Indian Securities Contracts (Regulation) Act of 1956, defines Stock Exchange as,"An association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities."

Functions of Stock Exchange1.Economic Barometer:A stock exchange is a reliable barometer to measure the economic condition of a country.Every major change in country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy. Stock exchange is also known as a pulse of economy or economic mirror which reflects the economic conditions of a country.2. Pricing of Securities:The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government and creditors. The investors can know the value of their investment, the creditors can value the creditworthiness and government can impose taxes on value of securities.

3.Safety of Transactions:In stock market only the listed securities are traded and stock exchange authorities include the companies names in the trade list only after verifying the soundness of company. The companies which are listed they also have to operate within the strict rules and regulations. This ensures safety of dealing through stock exchange.4.Contributes to Economic Growth:In stock exchange securities of various companies are bought and sold. This process of disinvestment and reinvestment helps to invest in most productive investment proposal and this leads to capital formation and economic growth.5.Spreading of Equity Cult:Stock exchange encourages people to invest in ownership securities by regulating new issues, better trading practices and by educating public about investment.6.Providing Scope for Speculation:To ensure liquidity and demand of supply of securities the stock exchange permits healthy speculation of securities.7.Liquidity:The main function of stock market is to provide ready market for sale and purchase of securities. The presence of stock exchange market gives assurance to investors that their investment can be converted into cash whenever they want. The investors can invest in long term investment projects without any hesitation, as because of stock exchange they can convert long term investment into short term and medium term.8.Better Allocation of Capital:The shares of profit making companies are quoted at higher prices and are actively traded so such companies can easily raise fresh capital from stock market. The general public hesitates to invest in securities of loss making companies. So stock exchange facilitates allocation of investors fund to profitable channels.9.Promotes the Habits of Savings and Investment:The stock market offers attractive opportunities of investment in various securities. These attractive opportunities encourage people to save more and invest in securities of corporate sector rather than investing in unproductive assets such as gold, silver, etc.

Role of Stock ExchangesRole of Stock Exchanges are varied and highly important in the development of economy of a country. They measure and control the growth of a country.Stock markets are the places, where exactly you do your business. Your stock trading transactions are executed at the stock exchanges through your broker, unless you have a membership with that exchange, which enable you to trade directly.Stock exchange apart from being hub of primary and secondary market, they have very important role to play in the economy of the country. Some of them are listed below. Raising capital for businessesExchanges help companies to capitalize by selling shares to the investing public.

Mobilizing savings for investmentThey help public to mobilize their savings to invest in high yielding economic sectors, which results in higher yield, both to the individual and to the national economy.

Facilitating company growthThey help companies to expand and grow by acquisition or fusion.

Profit sharing

They help both casual and professional stock investors, to get their share in the wealth of profitable businesses. Corporate governance

Stock exchanges impose stringent rules to get listed in them. So listed public companies have better management records than privately held companies.

Creating investment opportunities for small investorsSmall investors can also participate in the growth of large companies, by buying a small number of shares.

Government capital raising for development projectsThey help government to rise fund for developmental activities through the issue of bonds. An investor who buys them will be lending money to the government, which is more secure, and sometimes enjoys tax benefits also.

Barometer of the economyThey maintain the stock indexes which are the indicators of the general trend in the economy. They also regulate the stock price fluctuations.

NSE ( National Stock Exchange ):-Formation of National Stock Exchange of India Limited (NSE) in 1992 is one important development in the Indiancapital market. The need was felt by the industry and investing community since 1991. The NSE is slowly becoming the leading stock exchange in terms of technology, systems and practices in due course of time. NSE is the largest and most modern stock exchange in India. In addition, it is the third largest exchange in the world next to two exchanges operating in the USA.The NSE boasts of screen based trading system. In the NSE, the available system provides complete market transparency of trading operations to both trading members and the participates and finds a suitable match. The NSE does not have trading floors as in conventional stock exchanges. The trading is entirely screen based with automated order machine. The screen provides entire market information at the press of a button. At the same time, the system provides for concealment of the identify of market operations. The screen gives all information which is dynamically updated. As the market participants sit in their own offices, they have all the advantages of back office support, and facility to get in touch with their constituents.Wholesale debt market segment,Capital market segment, andFutures & options trading.

Bombay Stock Exchange( BSE):-BSEis the leading and the oldeststock exchangein India as well as in Asia. It was established in 1887 with the formation of "The Native Share and Stock Brokers' Association". BSE is a very active stock exchange with highest number of listed securities in India. Nearly 70% to 80% of all transactions in the India are done alone in BSE. Companies traded on BSE were 3,049 by March, 2006. BSE is now a national stock exchange as the BSE has started allowing its members to set-up computer terminals outside the city of Mumbai (former Bombay). It is the only stock exchange in India which is given permanent recognition by the government. At present, (Since 1980) BSE is located in the "Phiroze Jeejeebhoy Towers" (28 storey building) located at Dalal Street, Fort, Mumbai. Pin code - 400021.In 2005, BSE was given the status of a full fledged public limited company along with a new name as "Bombay Stock Exchange Limited". The BSE has computerized its trading system by introducing BOLT (Bombay On Line Trading) since March 1995. BSE is operating BOLT at 275 cities with 5 lakh (0.5 million) traders a day. Average daily turnover of BSE is near Rs. 200 crores.

Over-The-Counter Exchange Of India (OTCEI) -TheOTCEIwas incorporated in October, 1990 as a Company under the Companies Act 1956. It became fully operational in 1992 with opening of a counter at Mumbai. It is recognised by the Government of India as a recognised stock exchange under the Securities Control and Regulation Act 1956. It was promoted jointly by the financial institutions like UTI, ICICI, IDBI, LIC, GIC, SBI, IFCI, etc.TheFeatures of OTCEIare :-1. OTCEI is a floorless exchange where all the activities are fully computerised.2. Its promoters have been designated as sponsor members and they alone are entitled to sponsor a company for listing there.3. Trading on the OTCEI takes place through a network of computers or OTC dealers located at different places within the same city and even across the cities. These computers allow dealers to quote, query & transact through a central OTC computer using the telecommunication links.4. A Company which is listed on any other recognised stock exchange in India is not permitted simultaneously for listing on OTCEI.5. OTCEI deals in equity shares, preference shares, bonds, debentures and warrants.TheParticipants of OTCEIare :-1. Members and dealers appointed by OTCEI,2. Companies whose securities are listed,3. Investors who trade in the OTCEI,4. Registrar who keeps custody of scrip certificates,5. Settlement Bank which clears the payment between counters, andSEBI and Government who supervise and regulate the working.

National Association of Securities Dealers Automated Quotation ( NASDAQ):-A global electronic marketplace for buying and selling securities, as well as the benchmark index for U.S. technology stocks. Nasdaq was created by the National Association of Securities Dealers (NASD) to enable investors to trade securities on a computerized, speedy and transparent system, and commenced operations on February 8, 1971. The term Nasdaq is also used to refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the worlds foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, Intel and Amgen.it is an American stock exchange. It is the largest electronic screen-based equity securities trading market in the United States. With approximately 3,200 companies, it lists more companies and has more trading volume per day than any other stock exchange in the world.It was founded in 1971 by the National Association of Securities Dealers (NASD),It is owned and operated by the NASDAQ OMX Group, the stock of which was listed on its own stock exchange in 2002, and is monitored by the Securities and Exchange Commission (SEC).

chapter 5Special Finance Companies

VENTURE CAPITAL FUNDS:-

An investment fund that manages money from investors seeking private equity stakes in start up and small- and medium-size enterprises with strong growth potential. These investments are generally characterized as high-risk/high-return opportunities.Theoretically, venture capital funds give individual investors the ability to get in early at a company's start up stage or in special situations in which there is opportunity for explosive growth. In the past, venture capital investments were only accessible to professional venture capitalists. While a fund structure diversifies risk, these funds are inherently risky.Mutual Fund:-A Mutual Fund is formed by the coming together of a number of investors who hand over their surplus funds to a professional organization to manage it through investments in capital market. (Mutual Funds are known as 'Unit Trusts' in England).A Mutual Fund is basically a risk reducing tool. Risk reduction is achieved by diversification of the portfolio. Diversification means that a Mutual Fund invests in a large number of shares and financial instruments thereby lowering the overall risk.Further the fund managers' investment decisions are based on the basis of intensive research and are backed by informed judgement and experience.Although Mutual Fund units are quoted on the market, a Mutual Fund unit is not same as a share. Each unit of a Mutual Fund represents a portion of the total corpus it manages under a scheme.For example, a mutual fund may float a scheme for collecting Rs.50 crore for investment in equity shares. Here the total corpus of the scheme is Rs.50 crore. The corpus may be divided into five crore units of Rs.10 each. Hence, the unit value of Fund is Rs.10 each.The value of shares in which the investment has been made may have been doubled. If so, the market value of unit may also rise. Further, a Mutual Fund distributes everything that it earns to the investors. Expenses relating to the fund however are charged to the fund.To sum up, a Mutual Fund collects money from investors and invests it for their. The fund however has to disclose the full details of the investment scheme in advance to the investors. The entire income/profit are distributed to the investors in proportion to their invest.