NBFCs (Hire Purchasing, Leasing, Investment and Finance Companies) Government (PF, NSC) etc., are in the organized sector providing long term finance. Money Market Intermediaries Money Market refers to the market for short term finance. The intermediaries provide short term finance to individuals and corporate customers. RBI, Commercial Banks, Co-operative Banks, Post Office Savings Banks, Government (Treasury Bills) are in the organized sector providing short term finance. FINANCIAL MARKETS The group of individuals and corporate institutions dealing in financial transactions are termed as financial markets. The centres or arrangements that facilitate buying and selling of financial assets, claims and services are the constituents of financial market. Basically they are classified into two categories: 1. Unorganized Market 2. Organized Market Unorganized Market The sector that is not governed by any statutory or legal authority is known as unorganized sector. This sector consists of the individuals and institutions for whom there are no standardized rules and regulations governing their financial dealings. They are not under the supervision and control of RBI or any other regulatory body. Local money lenders, Pawn brokers, Traders, Landlords, Indigenous bankers, etc., who lend money are in the unorganized sector. Organized Market The sector that is governed by some statutory or legal authority is known as organized sector. This sector consists of the institutions for whom there are standardized rules and regulations governing their financial dealings. They are under the supervision and control of RBI and other statutory bodies. They are further classified into two: A. Capital Market B. Money Market C. Foreign Exchange Market A. Capital Market Capital Market refers to the market for long term finance. Financial assets which have a long or indefinite maturity period are dealt in this market. Capital Market is further classified into the following three: a) Industrial Securities Market b) Government Securities Market c) Long-term Loans Market a) Industrial Securities Market – The financial market where industrial securities like equity shares, preference shares, debentures, bonds, etc., are dealt with is called as Industrial Securities Market. In this market, the industrial concerns raise their capital and debts by issuing appropriate securities. This market is again classified into the following two viz., Primary Market and Secondary Market Primary Market – The financial market concerned with the fresh issue of industrial securities is called as primary market. It is also called as new issue market. In this market, industrial securities which are issued for the first time to the public are dealt. Secondary Market – The financial market concerned with the purchase and sale of already existing industrial securities is called as secondary market. In this market, industrial securities which are already held by the individuals and institutions are bought and sold. Generally, these securities are quoted in the stock exchanges. This market consists of all the stock exchanges recognized by the 4 | I n d i a n F i n a n c i a l S y s t e m D r . R . K . S r e e k a n t h Government of India. Securities Contracts (Regulation) Act, 1956 regulates the stock exchanges and Bombay Stock Exchange is the main stock exchange in India which leads the other stock exchanges. b) Government Securities Market or Gilt-edged Securities Market – The financial market where Government securities like stock certificates, promissory notes, bearer bonds, treasury bills, etc., are dealt with is called as Government Securities Market. The long term securities issued by the Central Government, State Governments, Semi-government authorities like City Corporations, Port Trusts, etc., Improvement Trusts, State Electricity Boards, All India and State level financial institutes and public sector enterprises are bought and sold in this market. c) Long-term Loans Market – The financial market where long-term loans are provided to the corporate customers is called as Long-term Loans Market. Development Banks and Commercial Banks play a major role in this market. This market is classified into three categories viz., Term loans market, Mortgages market and Financial guarantees market: Term loans market – This market consists of the industrial financing institutions which supply long term loan to corporate customers. They are created by the Government both at the national level and regional level. They provide term loans to corporate customers and also help them in identifying investment opportunities. They also encourage new entrepreneurs and support modernization efforts. IDBI, IFCI, ICICI, SFCs, etc., come under this market. Mortgages market – This market consists of the institutions which supply mortgage loan mainly to individuals. The term ‘mortgage’ refers to the transfer of interest in a specific immovable property to secure a loan. Financial guarantees market – This market consists of the institutions which provide financial guarantee to individuals and corporate customers. The term ‘guarantee’ refers to a contract whereby one person promises another person to discharge the liability of a third person in case of his default. There are different types of guarantees prominent among them are Performance guarantee and Financial guarantee. B. Money Market Money Market refers to the market for short term finance. Financial assets which have a short period of maturity are dealt in this market. Near money like Trade Bills, Promissory Notes, Short term Government Papers, etc., are traded in this market. Composition of money market (Financial instruments dealt in money market) – The money market comprises of the following: 1. Call money market 2. Commercial bills market 3. Treasury bills market 4. Short-term loan market Call money market – The market where finance is provided just against a call made by the borrower is called call money market. In this market finance is provided for an extremely short period of time. Commercial bills market – The market where finance is provided by discounting of commercial bills is called as commercial bills market. The term ‘commercial bills’ refer to the bills of exchange arising out of genuine trade transactions. Treasury bills market – The market where finance is provided against the treasury bills is called as treasury bills market. The term ‘treasury bill’ refers to the promissory notes or finance bills issued by the government for its short-term finance requirements. Short-term loans market – The market where finance is provided in the form of short term loans is called as short term loans market. The term ‘short-term’ refers to a period less than one year. 5 | I n d i a n F i n a n c i a l S y s t e m D r . R . K . S r e e k a n t h Commercial banks provide short term loans in the form of overdrafts and cash credits. These loans are given to meet the working capital requirements of traders and industrialists. C. Foreign Exchange Market The market where foreign currencies are bought and sold against domestic currency is called foreign exchange market. In other words, the system where the domestic currency is converted into foreign currency and vice-versa is called as foreign exchange market.