Transcription
What's up everyone, welcome back to the channel, guys. Yesterday, we completed our Financial Management. Today, it's the turn of Financial Markets. And then, we'll have only one chapter left, Marketing and Consumer Protection, which has already been provided to you. So, let's start quickly and finish Financial Markets today. So, this is going to be an amazing Sunday. Although Sundays are for rest, when it's exams, there are no days off. We have to work. So, let's start quickly. Financial Markets is a very interesting chapter. I'll explain it thoroughly and finish it. Let's begin [music].
Children, in Financial Management, you learned quite a bit about money, how money is utilized, how it's arranged, how dividends are distributed or saved. Now, this chapter is all about stock markets. This chapter will mainly teach you about the types of markets, how a company raises funds for the short term or long term, and what are the ways in which investors as well as companies are protected. Which bodies are there, like SEBI? So, we will be reading all that in this chapter. It's very practical, needs to be understood very carefully, and I will explain it very well. Study it completely stress-free. So, let's start, children. The very first topic that is coming up is, what is a financial market?
To explain financial markets, I will have to take the example of a bank because it is exactly like a bank. Exactly like a bank. Let me tell you. Suppose we are individuals, we are households, right? We have some extra funds, we have our savings. Well, we spend some of the money we earn, and the rest is utilized in different ways. Some people keep it at home, some keep it in the bank, some buy gold, some buy silver, some buy real estate in different ways, or real estate means buying property. Many children then ask me later, there is another way, what is it? That is, we can give that money to companies. Sir, like Tata, invest this money, and from the returns, give us a share too, because our money is also invested. If you did a business of 1 crore rupees, and my 1 lakh rupees is invested in it, then I have also invested 10 percent, haven't I? So, whatever profit there is, give me 10 percent of that too. So, this is how the market is a place where companies are coming who need money, and people are also going who have extra funds. So, the market has brought both together. Whom did the market bring together? One, savers who have money, and two, borrowers who need money. So, the place that brings together two types of people: one, those who have surplus funds, and two, those who have extra funds, is called markets. Banks also do this, children. You deposit your money in the bank. If you think the bank keeps your money safe, saves it for you, it's not like that. The bank also invests that money further in markets, and from there, returns come. It gives a small part to you and keeps the rest for itself, earning money well.
So, what is a financial market? A financial market is a link, children. Link, meaning a path or a point where it will bring both people together: savers and borrowers. This market transfers money or capital from those who have surplus money to those who need investment. Financial markets act as a link between surplus and deficit units and bring together borrowers and lenders. Okay, perfect, sir.
Now, children, this function that the market is performing, that money is going from one place to another, this is what we call the allocative function. What does allocative function mean? Allocative function means properly allocating funds, taking funds from one place to another, right? Now, let's see what other functions the markets perform. There are a lot of other functions that markets perform. Like, what are the functions?
Number one: Mobilization of savings and channeling them into the most productive uses. What does this mean, children? Its simple meaning is that the market moves your savings. Moves them, meaning if I have kept my money in my pocket, I am not able to use that money much. I have just kept it, right? On the other hand, if I give it to a business, it does business with it, earns money, and my money multiplies further. So, isn't that what the market is doing? It is moving my money, moving savings, and channeling them. Channeling means giving a path to the most productive use, that if money is here, it will grow, right? Financial markets act as a link between savers and investors. The market transfers savings of savers to the most appropriate uses.
Number two: Providing liquidity to financial assets. What does this mean? See, the market's job is not just to get your money invested. The market's job is also to convert securities into cash. Like, if you already have some shares, some debentures, some securities, if you want to sell them, then you need a market to sell them, right, son? If there is no market, how will I sell? So, what is the market's job? One, to get your money invested, and the second job of the market is to convert your securities into cash. If I need liquidity, meaning cash, then I can sell them, can't I? We don't just buy in the market, we sell too. So, the market provides liquidity to my assets. In financial markets, financial securities can be bought as well as sold. So, the market is a platform through which you can convert securities into cash, child.
Next, what is it? Facilitating price discovery. Now, see, son, if the price of anything needs to be set, how is the price set? From demand and supply. It's the same in the market. We see how much demand there is for a share. Let's suppose this is demand. Demand usually slopes downwards. This is supply. So, wherever these two intersect, the price in front of it, let's suppose 20, 40, 60, suppose they intersect here, then its price comes to ₹10, right? Now, if the demand increases for this. Now, use your common sense. If the demand for something increases, increases, increases, what is the impact on its price? If demand increases, it becomes more expensive. So, if demand increases, the demand curve will shift to the right. See, now it intersects here, so look at its price now, it's 80. In fact, it will be 85, it will be higher. So, son, the price goes up and down due to demand and supply. So, in the market, who are the people demanding? Those who are buyers. Who are the people supplying? Those who are sellers. So, both buyers and sellers meet in the market, and securities are bought and sold at the best price. So, the market's job is also to give a price to any security. The price of anything depends on demand and supply. Demand and supply of financial assets in financial markets help in deciding the price.
Next comes, children, reducing the cost of transactions. What does reducing the cost of transactions mean? Reducing the cost of transactions means the market provides you with complete information. If you go to the stock market, nowadays everything is online. You don't have to go anywhere. You check online, you will find the price of every security, availability, all the things will be known. How many shares are there, how many people are selling, how many people are going to buy, you will also get this kind of data. So, how much cost is saved, you think. If this market didn't exist, then companies would have to search for people who have extra money, and people would have to search for companies that need money. So, how much expense would there be? Markets have saved all this expense. So, see, it is written: Financial markets provide complete information regarding price, availability, cost of various securities, so investors and companies do not have to spend much on getting this information as it is readily available. Everything is already available. Okay, children? So, take a screenshot of this. These are the functions of financial markets.
Now, what is coming is, how many types of financial markets are there? So, see, children, we have two types of financial markets. We have two types of markets: one I call the Money Market, and one I will tell you is the Capital Market. One is the Money Market, and one is the Capital Market. Now, sir, what is the difference between the Money Market and the Capital Market? Children, companies, institutions, governments have two types of requirements for money. Some people need money for the short term, which they will return in 3 months, 6 months, 8 months, meaning within 12 months. And some projects require money for the long term, meaning at least for 5 years or for 10 years. So, separate markets have been created for both these transactions, for short-term transactions, and for medium and long-term transactions. So, if companies, financial institutions need money for the short term, then for that, there is the Money Market. So, the Money Market, children, deals in short-term securities. Here, all securities are debt securities, okay? Debt means mainly borrowed funds are involved, meaning you won't get loans, not shares for such a short term. So, there are short-term securities, debt securities, unsecured. Unsecured means no security is kept against them. Right? So, they are quite unsecured, there is very little paperwork in them. So, if short-term securities are needed, debt funds are needed, unsecured are needed, then for that, there are Money Markets. For medium and long term, we have Capital Markets. Capital Markets deal in medium-term, long-term. They deal in both debt and equity. They deal in both debt and equity. Let me tell you one more point: the Money Market has no physical presence. It has no physical presence. You won't see this market anywhere. It all runs through online transactions, just runs over the internet. But the Capital Market is physically present. You see many markets, right? Bombay Stock Exchange, National Stock Exchange. There are 21-22 stock exchanges in India. So many stock exchanges, but only two are the most popular: BSE and NSE. You can go and see them. These are also called stock markets, right? So, for medium and long term, for debt and equity, they also have a physical presence. They also have a physical presence. We call them Capital Markets, children.
Now, Capital Markets are also of two types: Primary Markets and Secondary Markets. Primary Markets and Secondary Markets. Sir, which is the Primary Market? The Primary Market is, children, in which securities will be issued for the first time. Meaning, a company is issuing securities for the first time. New securities. New securities are traded in it. Absolutely new securities. And in this, second-hand securities. In this, second-hand securities. Sir, what is the difference between the two? Briefly explain a little more. Yes, son, come, I'll explain a little more. Children, I am a company, I am issuing shares. So, I am issuing for the first time, right? So, two parties will be involved: one, the company, and two, the person who will buy. So, the company will directly give this particular share to that investor and collect money. Now, later, if the investor wants to sell these shares after two years, three years, six months, they can sell them. So, now the company is not involved here. Here is one person who bought the share, and then there will be someone else who will buy the share. So, both investors are involved. See? So, this security has become second-hand. So, when someone who has already bought a share is selling that share, in which market will they go? They will go to the Secondary Market. The company is issuing, it will go to the Primary Market. Take a screenshot quickly.
Okay, sir, let's move on. This is done. Come, see. Capital Markets, Money Markets. Money Market is a market for short-term. Capital Market for Primary, Secondary. Come, Money Market has come first. Children, what is the Money Market? The Money Market is a market for short-term funds. First, short-term funds mean for use for a period of up to one year. Generally, the Money Market is a source of finance for working capital. See, two types of capital are needed, you read in the last chapter: working capital for day-to-day operations, and fixed capital for regular, large amounts, huge amounts needed to set up a business. So, this money will not work for fixed capital, it will be insufficient. You don't get a very large amount for the short term. So, the market for working capital is the Money Market.
What are the features, children, of the Money Market? See, the features of the Money Market are these. First, it will be for the short term. This is for the short term. They do not have any fixed geographical location. I have already told you. Mainly, who are involved in it? RBI, commercial banks, LIC, GIC, such bodies are involved in it. What are the common instruments used in it? Call money, treasury bills, commercial paper, certificate of deposit, commercial bills. Now, children, although these instruments are not mentioned in our syllabus, meaning it is not written separately to study them in detail, I am still telling you what these things are.
First, comes Call Money. What is Call Money, son? Call Money is basically when one bank needs money from another bank, then we call it Call Money. So, always remember that a bank needs money for the short term, for two-four days, 10 days, because, see, banks have to maintain some reserves. You must have read in Economics that banks, if they receive a deposit of ₹10 lakhs, they cannot lend all ₹10 lakhs. They have to keep a small portion with themselves, save it. So, sometimes banks get emotional and lend more loans, and they don't have reserves left. Now, RBI is very strict. It will say, "You are not following the rules." Rules have to be followed. So, one bank takes money from another bank for the short term. The bank says, "The bank will open tomorrow morning, we will create reserves again. We need money for the short term." So, when one bank takes money from another bank, it is called Call Money. Similarly, what do we have? Treasury Bill. What is a Treasury Bill, children? When the government needs money. This means a Treasury Bill is something in which the government needs money for the short term, but who issues it on behalf of the government? RBI. So, RBI basically helps the government raise short-term funds and issues which instrument? Treasury Bill. Just like shares are issued, that a company gives you a share, you give money. Similarly, RBI gives a Treasury Bill, money comes. This is called a Treasury Bill. So, Call Money is for banks, Treasury Bills are for the government. After that, we have Commercial Paper. CP is Commercial Paper. What is Commercial Paper? When some companies with good creditworthiness need money. When a company needs money, then there are very trustworthy companies. Because these are all unsecured, so a new company will not get money. If a very trustworthy company needs money, then it can raise funds by issuing Commercial Paper for the short term. After that, we have Certificate of Deposit. Certificate of Deposit is when a bank takes money from the public. Call Money is when a bank takes money from a bank. So, Certificate of Deposit is basically that you will be given a Certificate of Deposit, and you will give money to the bank. This is called a Certificate of Deposit. The last is Commercial Bills. Commercial Bills, you all know about Bills of Exchange, Bills Receivable, Bills Payable. So, whenever we talk about Commercial Bills, we are talking about BR, BP. So, although you don't have to study these in detail, just knowing the names is enough. I have told you anyway. So, these are all the features of the Money Market.
What's next? What will be Capital Markets, sir? So, I have also told you that this will be for medium and long term. All organizations, institutions, and instruments that provide long-term and medium-term funds will operate in this. All shares, debentures, etc., are dealt with in this. This is the main market. Okay.
So, sir, what are the types of Capital Markets? I have also told you that there are two types of Capital Markets. If it's new securities, then Primary Market. If it's old securities, then Secondary Market. See, what is written? Primary Market is called New Issue Market. And what is the Secondary Market called? Stock Exchange. Remember the names, children. The name of the Primary Market is New Issue Market. See, it is written: Primary Market is also known as New Issue Market, as in this market, securities are sold for the first time, that is, new securities are issued by the companies. The Primary Market directly contributes to capital formation. It directly contributes to capital formation, meaning investment, because the public is directly giving money to companies, investing. This also leads to growth in the economy, children. Any company that raises money from the public will use it for business, develop infrastructure, the standard of living of people will increase, so it will definitely lead to growth in the economy. What else is written? In the Primary Market, companies go directly to investors and utilize these funds for investment in buildings, plants, machinery, etc. A completely new market will be called the Primary Market. The Secondary is the stock market. In this, what will happen? It is the market for sale and purchase of previously issued or second-hand securities. What does second-hand mean, children? Old securities, not new ones. Old securities. In the Secondary Market, securities are not directly issued by the company, but who does it? Existing ones. Although I have explained everything, you can still see it once.
What securities will be traded in the Primary Market? New securities. In this, second-hand securities will be traded. Who issues it? The company issues it. Here, investors give to each other. After that, capital formation. Capital formation means investment. In which will it be direct? In which will it be indirect? Children, it will be direct in this. The Primary Market contributes directly to capital formation. In the Secondary Markets, it is indirect because companies do not get any money here; one investor gets it from another investor. Entry: All companies enter the Primary Market. Everyone comes because they will issue shares, right? In the Secondary, only listed companies will come. Listed means, children, those that are already listed on the stock exchange, those that have got themselves listed, those that say that our shares should be sold in the market. So, the stock market, this market, it's not that anyone can go and list their shares. Listing means they will come into the market. You have to get permission from the market first. So, in the Secondary Market, only the shares of those companies will operate for which permission has been granted, children. Geographical location: It has no fixed location. It has a fixed location, you can see it. Price: Here, companies themselves fix the price because the company that is issuing the share for the first time, it sets its own price for the share. In the Secondary Market, there is demand and supply. The more demand, the higher the price. The less demand, the lower the price. It's a straightforward matter.
Take a screenshot of this too, son. Done, sir. Next, there is a difference between Capital Market and Money Market. Now, I have also told you what Capital Market and Money Market are, children. What is the Money Market? For what will the Money Market be? For the short term. Capital for medium and long term. First, participants are coming. Who participates in the Money Market? Financial institutions, banks, public, private companies, foreign and ordinary retail investors do not participate. Be careful, retail investors will not be there. Meaning, those people whose daily business is buying and selling, retail investors will not be there. Mainly institutions are there, children. Here, everyone will be there. Who all? Financial institutions, banks, public, private companies, foreign investors, retail investors, everyone will be there. Duration: Children, this is for medium and long term. This is for short term. After this, what instruments will be used? I have already told you. All those instruments like Treasury Bill, Trade Bill, Certificate of Deposit, Commercial Paper, etc. In this, children, shares, debentures, preference shares, bonds, such securities are dealt with. Take a screenshot of this too.
Next, it is given: Investment Outlay. Investment Outlay Amount. Children, in the Money Market, the amount of securities is quite large. A security is ₹25,000, ₹50,000, and in the normal Capital Market, a share can be ₹10, ₹20, ₹1. So, that also happens in this. Liquidity: Which is more liquid? Which is more liquid, son? So, see, the one that converts into cash quickly is more liquid. So, the Money Market will convert into cash quickly. Money Market instruments enjoy a higher degree of liquidity. Here, there is liquidity, but less liquidity. Safety: In which is there safety? Which is risky, children? So, see, this is considered safe because, one, it is a borrowed security, money has been borrowed. Second, it is for a very short term. In the short term, someone's financial condition does not deteriorate so quickly. Although if there is money, the condition can deteriorate in two days too. There is risk, but there is less risk in this. There is more risk in this because it is for the long term, right? Return: Now, in which will there be more? Now, see, where there is more risk, there is more return. Also, there is a rule of the market. In the short term, if someone is telling you that money will be made in one day, in two days, then they are fooling you. Anyone can pick up photos from anywhere. They will put photos, create channels, and commit fraud. So, abuse such people as much as possible and block them completely. Spam them properly so that these people do not do this with the money of hardworking people. So, children, here it is that short-term instruments do not give much return. Short-term instruments do not give much return. Only long-term will give you good returns. Types of Capital: What kind of capital is here? For fixed capital and for working capital. Okay, child?
So, this was all about the types of markets. Stock Exchange and some small things. We will cover them in the next part. I hope you have understood everything well in the first part. Now, go quickly and take a reading from whatever book you use, or from NCERT. See what is written in the chapter, and your topic will be ready. Thank you so much, guys, for joining in. I will meet you in the second part. Until then, all the very best. Keep growing, keep glowing, and keep smiling. [Music]