Upload
devang-patel
View
223
Download
0
Embed Size (px)
Citation preview
8/7/2019 Ch-2 Investment Environment
1/27
8/7/2019 Ch-2 Investment Environment
2/27
To run business and for some long term
purpose organization required more
money for merger & acquisition etc.Government must borrow large amount
of money to provide the goods and
services that the people demand of them.
So funds can be obtained in three ways:Banks, financial markets, private
placements.
8/7/2019 Ch-2 Investment Environment
3/27
A financial market is a market forcreation and exchange of financial assets( securities).
The two key financial market are theMoney market and Capital market.
Money market are markets for short term,high quality debt securities.
The capital market is the market for longterm securities. It has longer maturity sorisk is also high.
8/7/2019 Ch-2 Investment Environment
4/27
Financial markets can be divided into
Primary and secondary market.
Aprimary market is one in which aborrower issues new securities in
exchange for cash from an investor. New
sales of treasury bills or stocks take place
in primary market. It is called IPO.
8/7/2019 Ch-2 Investment Environment
5/27
When the original purchaser sells their
securities they trade in secondary
market.Financial market can also be divided into
Organized and OTC markets.
8/7/2019 Ch-2 Investment Environment
6/27
The money market exists as a result of
the interaction between the suppliers
and demanders of short term funds.The money market are associated with
the issuance and trading of short term
debt obligations of large corporations
and governments.
8/7/2019 Ch-2 Investment Environment
7/27
Short term debt instruments ( Maturity of
less than 1 year).
Services immediate cash needs:Borrowers need short term working
capital & lender needs interest for their
excess cash.
8/7/2019 Ch-2 Investment Environment
8/27
Low risk
Transaction cost are low
Liquid market provides easy entry andexit.
8/7/2019 Ch-2 Investment Environment
9/27
The capital markets are the markets in
equity and long term debts ( bonds) are
traded. In other words, the markets forlong term capital.
Capital market can be further divided
into primary and secondary market.
In the primary market, securities areoffered to public for subscription for the
purpose of raising capital.
8/7/2019 Ch-2 Investment Environment
10/27
8/7/2019 Ch-2 Investment Environment
11/27
A dealer market is one where dealers
post bid rates ( Buy rates) and offer rates
( sale rates) at which public investors cantrade.
8/7/2019 Ch-2 Investment Environment
12/27
8/7/2019 Ch-2 Investment Environment
13/27
NSE was promoted by leading financial
institutions and the government of India
was incorporated in November 1992.OTCEI which allows listing of small and
medium sized companies. The
regulatory agency which oversees the
functioning of stock market is the SEBI.
8/7/2019 Ch-2 Investment Environment
14/27
Sensex BSE 30 stocks- base value is
100
Nifty- base value 1000- 23 sectors of theeconomy.
8/7/2019 Ch-2 Investment Environment
15/27
Treasury Bill: these are short term
obligations issued by the government. At
present, the GOI issues 4 types of T-billsi.e 14day, 91 days, 182 days and 364 days.
T- bills are issued for a minimum of
Rs.25,000/-
Call Money: these are short term fundstransferred between financial institutions
usually for no more than one day.
8/7/2019 Ch-2 Investment Environment
16/27
The money which lent for one day in call
money market is known as overnight
moneyThe maturity period of call loans vary
from 1 to 14 days.
8/7/2019 Ch-2 Investment Environment
17/27
It is an agreement, which involves a saleof a security with an undertaking to buyback the same security at a
predetermined price and at a future date.A party sells treasury securities but
agrees to buy them back at a certain date( 3-14 days) for a certain price.
The transaction is called repo from thepoint of seller and reverse repo from thepoint of buyer of the security.
8/7/2019 Ch-2 Investment Environment
18/27
It is a short term loan.
8/7/2019 Ch-2 Investment Environment
19/27
8/7/2019 Ch-2 Investment Environment
20/27
These are short term unsecured
promissory notes issued by a company to
raise short term cash. They mature in nomore than 270 days.
Only the largest companies issue these
commercial papers.
Generally companies prefer to issue CP when they feel that rate of interest by
bank is higher than CP.
8/7/2019 Ch-2 Investment Environment
21/27
These are time drafts payable to a seller
of goods, with payment guaranteed by a
bank.Bankers acceptance is essentially a post
dated check on which a bank has
guaranteed payment.
These are commonly used to financeinternational trade transactions.
8/7/2019 Ch-2 Investment Environment
22/27
Shares
Bonds
8/7/2019 Ch-2 Investment Environment
23/27
Derivatives are financial instruments that
have no intrinsic value, but derive their
value from something else.There are two types of derivative
securities that are of interest to most
investors FUTURE & OPTION.
Future contract is an agreement enteredbetween two parties to buy or sell an
asset at a future date for an agreed price.
8/7/2019 Ch-2 Investment Environment
24/27
Option is the right but not the obligation
of the holder, to buy or sell underlying
asset by a certain date at a certain price.There are two types of options: Call
option and put option
Call option is a contract that gives the
owner the right, but not obligation to buythe underlying asset by a specific date at
a specified price.
8/7/2019 Ch-2 Investment Environment
25/27
Put option is a contract that gives the
owner the right, but not obligation to sell
the underlying asset by a specified dateat a specified price.
8/7/2019 Ch-2 Investment Environment
26/27
Financial intermediaries channel the
savings of individuals, businesses and
government into loans or investments.Banks.
8/7/2019 Ch-2 Investment Environment
27/27