AWARENESS

 IF YOU GET LOST IN THE EXPLANATIONS PRESENTED HERE, PLEASE DO SCROLL DOWN THE PAGE,I AM WRITING THE EXPLANATION IN SHORT/ SUMMARY OF WHAT I AM EXPLAINING AT THE START OF THE PAGE!

FINANCIAL SYSTEM - Savings mobilisation and promotion of investment arc functions of the stock and capital markets, which are a part of the organised financial system in India. The objective of all economic activity is to promote the well being and standard of living of the people, which depends on the income and distribution of income in terms of real goods and services in the economy. The production of output, which is vital to the growth process in the economy, is a function of the many inputs used in the productive process.These inputs are material inputs (in the form of physical materials, viz., raw materials, plant, machinery, etc.), human inputs (in the form of labor and enterprise) and financial inputs (in the form of capital, cash and credit). The easy availability of financial inputs promotes the growth process through proper coordination between human and material inputs.

          The financial inputs emanate from the financial system, while real goods and services are part of the real system. The interaction between the real system (goods and services) and the financial system (money and capital) is necessary for the productive process. Trading in money and monetary assets constitute the activity in the financial markets and are referred to as the financial system.

           The term "liquidity" is used to refer to cash, money and nearness to cash. Money and monetary assets are traded in the financial system. Thus, provision of liquidity and trading in liquidity are the major functions of the financial system. While cash creation is the function of the RBI, banks do credit creation and financial institutions including the RBI, banks and term-leading institutions, deal in claims on money or monetary assets. These institutions are all a part of the financial system.                   

FINANCIAL MARKETS – A Financial Market is a market for Creation and Exchange of Financial Assets. Various Angles from which Financial Markets May be Classified are:

• NATURE OF CLAIM --  Debt markets and Equity markets ;

                      The Debt Market is where Debt Instruments are traded,which are assets that require a fixed payment to the holder, usually with interest,For Ex.Bonds (Government or Corporate) and Mortgages.The Equity Market (often referred to as the Stock Market) is the market for trading equity instruments. Stocks are securities that are a claim on the earnings and assets of a corporation ,Ex.Of Equity Instrument would be common stock shares, such as those traded on the BSE,NSE.Let's Compare The Two A Bit More :

1.  Equity financing allows a company to acquire funds (often for investment) without incurring debt(eg. By Issuing IPO's(Initial Public Offering, Though As Per Sir Benjamin - It Is 'It's Probably Overpriced'-And I Fully Agree With This)On the other hand, Issuing a Bond does increase the debt burden of the bond issuer because contractual interest payments must be paid— unlike dividends, they cannot be reduced or suspended.
2. Those who purchase equity instruments (stocks) gain ownership of the business whose shares they hold (in other words, they gain the right to vote on the issues important to the firm). In addition, equity holders have claims on the future earnings of the firm.
                 In contrast, bondholders do not gain ownership in the business or have any claims to the future profits of the borrower. The borrower’s only obligation is to repay the loan with interest.
   
3. Bonds are considered to be less risky investments for at least two reasons. First, bond market returns are less volatile than stock market returns. Second, should the company run into trouble, bondholders are paid first, before other expenses are paid. Shareholders are less likely to receive any compensation in this scenario.

             

• MATURITY OF CLAIM – Money market and Capital markets ;

                 (( Money Market deals with instruments having a period of maturity of one year or less like treasury bills, bills of exchange etc. Capital market    deals with all instruments having a period of maturity of above one year like corporate debentures, government bonds, equity (Common shares) and preference shares etc.;Money Market deals in short-term debt, and channel the savings into short-term productive investments like working capital, call money, treasury bills etc.;Position of Money Market in the Indian system has become important with recent liberalization of monetary policies, such as deregulation of lending rates, permitting mutual funds and banks subsidiaries to enter into money market operations. Money Market ensures efficient functioning of Financial System Examples Are - Treasury Bills,Certificate Of Deposit , Commercial papers,Repos ....)
                    Capital Market is the market for financial assets having a period of maturity of more than one year or of an indefinite period. Thus, capital market provides long-term resources needed by medium and large scale industries;The Indian capital market has witnessed an unprecedented boom and undergone sea change with a number of financial services and banking companies, merchant bankers, more stock exchanges, ventures capital funds, private sector mutual funds, Foreign Institutional Investors, over-the-counter exchange,National Stock Exchange, credit rating services, custodial services, portfolio management services, etc.
                    SO TO SAY,STOCK MARKETS ARE JUST THE PART OF A BIG BIG FINANCIAL SYSTEM))

• SEASONING OF CLAIM – Primary and Secondary Markets, ( The market where issuers sell new claims is referred to as the primary market and the market where investors trade outstanding securities is called the secondary market )
  
• TIMING OF DELIVERY – cash ( or spot ) markets , forward ( or futures ) markets,( A cash or spot market is one where the delivery occurs immediately and a forward or futures market is one where the' delivery occurs at a pre-determined time in future. )
  
• ORGANISATIONAL STRUCTURE – Exchange Traded Market;; Over the Counter Market,( An exchange-traded market is characterized by a centralised organisation with standardised procedures. An over-the counter market is a decentralised market with customised procedures.

FINANCIAL SYSTEM FROM AN INVESTOR'S POINT OF VIEW - A Person Earns his money from his Job /Business , Spends On His Monthly Expenses,and saves remaining-His savings Comprise of The Contingency Funds,And His Investments.
Now Before We Talk About Investments,Savings Are Primarily Kept In Savings Acount-POINT TO BE NOTED HERE - INSTEAD OF A NORMAL SAVINGS ACCOUNT ACCOUNT - GET A SWEEP IN - SWEEP OUT ACCOUNT- WHERE ANY AMOUNT ABOVE A PRE-DETERMINED SUM OF MONEY IS TRANSFERRED TO FIXED DEPOSIT - SO YOU GET THE FIXED DEPOSIT RATE OF INTEREST-AND YOU HAVE THE FREEDOM TO TAKE OUT YOUR MONEY ANYTIME(YOU CAN WITHDRAW YOUR MONEY BY ATM/DEBIT CARD TOO).
The Remaining Money (After Taking Out Contingency Funds/F.D.'S Etc.) Is Deployed To Insurance Policies,Investments in ULIPS,MUTUAL FUNDS,ELSS,OR DIRECTLY INVESTING IN STOCK MARKETS-MORE ON ALL THIS REFER MY BLOG << http://retailinvestor420.blogspot.com/ >>,Pages Basic Investor Awareness (2 pages)-GO THROUGH THESE TWO PAGES OF MY BLOG AND I AM SURE YOU WOULD GAIN A LOT.

MOST OF MY BLOG AND MY SITE,I SHALL MOSTLY BE DEALING WITH EQUITY MARKETS.(STOCKS AND STOCK DERIVATIVES)

                Think of the Stock Market as a Huge Auction or swap meet where people buy and sell pieces of paper (now done electronically) called stock. On one side, you have owners of corporations who are looking for convenient way to raise money so that they can hire more employees, build more factories or offices, and upgrade their equipment, on the other side, you have people like you and me who buy shares of stock in these corporations. The place where we all meet is the stock market.When you buy shares of stock in a corporation, you’re commonly referred to as an investor or a shareholder.

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