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The Different Functions Of Financial Markets

814 words - 4 pages

Financial Markets

Meaning: A financial market is a market for the creation and exchange of financial assets like equity shares , debentures, bonds, treasury bills, commercial papers etc. The financial market helps to link the savers and the between them. Financial markets influence both the quality and the pace economic development through mobilization of savings and their channelisation to productive uses. It is market for creation and exchange of financial asset.

When the allocation of the funds is done performed well the it has two consequences

i)The rate of return offered to household would be higher
ii) scarce resources are allocated to those firms which have the highest ...view middle of the document...

Financial markets are of two types

A Money Markets B. Capital Markets

Meaning of money markets: It is a market which deals in short term securities which could be encashed in a short period of time. It is a mechanism through which short term funds are loaned and borrowed through which a large part of financial transactions of a of a p[particular country are cleared.

Features of a money market

1. It deals in short term securities which can be converted into cash within a short period .
2. It has no physical location
3. It has high liquidity.
4.It enables the raising of short term funds for meeting the temporary shortage of cash obligations and the temporary deployment of excess funds for earning returns
5. The major participants in the money markets are the RBI,Commercial Banks, Non-Banking Finance companies, State governments etc.
6, It consists of many sub markets such as , inter-bank call money market , treasury bill market etc.
7.Dealings in market may be conducted with or without the help of brokers and intermediaries

Money Market Instruments:

Treasury Bills:
i) It is issued by the RBI on behalf of the central government to meet its short term financial needs.
ii)It matures in less than one year.
iii)They are also known as Zero coupon bonds
iv)The maturity period of these bills maybe 14days , 91days , 182days or 364days, They are highly liquid in nature and have negligible risk of...

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