Secondary Markets

Secondary Markets

• Secondary markets give you liquidity. It helps in price discovery. A market with more shares being traded fetches better share price. Volume in a market helps in price discovery.
• If the price of an asset/share is not known, the asset’s/share’s demand is driven by company’s performance.
• Secondary market Exchanges- buyers and sellers meet in one central location to conduct trades
• OTC Market is still prevalent in India
• Government Securities give us the risk-free rate. It has an important relevance with monetary policies in open economies. It helps in maintaining the liquidity in market. Call-Money rate-rate at which banks lend and borrow is a good indicator of liquidity in the market. If call money rate
• RBI increased incremental CRR to 100% during demonetization to maintain call money rate well above repo rate. The bank money got parked with RBI but they did not earn any interest. The profitability of banks would have gone down and share prices as well. The market stabilization bonds are floated by the government which pays interest on them as well. Variable reverse repo-RBI started accepting money from banks at higher rate. Variation between call money rate and repo rate was 25 bps

G-Sec

• OTC matkets
• NDS Order matching
• Stock exchanges
• Negotiated Dealing System
• Flow of deals in OTC market- Market Participant→Bank→

Money Market-

• Market for trading of instruments which are less risky, more liquid and mature in very short term.
• Have shorter fluctuation prices
• Good places to park temporary surplus
• Eg. Treasury Bills, Call Money market, commercial bills

Factors affecting Financial Markets

• Global and domestic markets affect the financial markets
• The global incidents can affect the FMs as well due to continuous data flow.
• FIIs investment limit in Indian companies?? 24% in case of paid up capital but 20% in case of PSB including SBI
• NRIs/PIO (person of indian origin) investment limit- 10% of paid up capital but there is provision to raise it upto 24%
• FII in Indian Government Securities include State Dev loan??? – INR 2.893 lakh cr but 83% of the limit utilized as on Nov 7, 2017
• Capital convertible- people can take upto $250000 outside in a year

International Bond Markets Foreign bonds, Euro Bonds, Eurocurrencies, Eurodollar

• Foreign bonds- Indians raising money outside. Bonds sold in foreign currency and are denominated in the currency of the country sold
• Euro bonds- For foreign mkt but denominated in different country

Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency. The first Masala bond was issued by the World Bank backed International Finance Corporation in November 2014 when it raised 1,000 crore bon to fund infrastructure projects in India

• Eurocurrencies-A variant of Euro bonds

Financial Intermediates-

• Depository Banks- Commercial and Cooperative banks
• Contractual saving Institution
• Investment Institutions
• Function of these intermediaries are- reduce due diligence costs, reduce the transaction costs, reduce the cost of liquidity
• Help diversify the portfolio
• Reduce Moral Hazard

Components of Financial System-

• Participants
• Instruments
• Regulations