Introduction

In this article you will know about "Financial Market In India :Its types And Functions ". A financial market is a market where people trade in securities, bonds currencies. Some of financial markets do a security business at a large scale and some are small- scale financial market with less activity. Financial markets plays an important role to the smooth operation of capitalist economies. It is a link between the savers and borrowers. This market transfers the money or capital from those whi have surplus money to those who are in need of investments. Generally, the investors are called surplus units and business enterprises are called deficit units. So financial market transfers money supply from surplus units to deficit units. Financial market acts as a link between surplus and deficit units and brings together the borrowers and lenders. 

There are mainly two ways through which funds can be allocated: (a) Bank (b) Financial markets. The households who are the surplus units may keep their savings in banks, they may buy securities from capital market. The banks and financial market both in turn lend the funds to business firm which is called deficit unit. 





Types of Financial Market

There are so many types of financial markets, some market are small while some others are internationally known, like the New York Stock Exchange (NYSE). Some financial market trade in dollars in one day while some market trade at small scale. There are two segments of financial market : (a) Capital market (b) Money market

Capital Market

Capital market is market for medium and long term funds. It can be defined as the mechanism which channelises saving into investment or productive use. Capital market allocates the capital resources amongst alternative uses. It includes all the organisations, institutions and instruments that provide long term and medium term funds. It does not include the instruments or institutions which provide finance for short period (upto one year). The common instruments used in capital market are shares, debentures, bonds, mutual funds, public deposits, etc. 

The main components of capital market are :
(a) Primary Market 
(b) Secondary Market

Money Market 

Money market is a market for short term funds meant for use for a period of upto one year. Generally, money market is the source of finance for working capital. Transactions of money market include lending and borrowing of cash for a short period of time and also sale and purchase of securities having one year term or which gets redeemed (paid back) within one year period. 
Money market is not a fixed geographical area but it constitutes all organisations nad institutions which deal with short term debts. Major institutions involved in money market are Reserve Bank of India, Commercial Banks, LIC, etc. 


Functions of Financial Market

Financial markets perform following four important functions:-

1. Mobilisation of savings and channelising them into the most productive uses- Financial markets act as a link between savers and investors. Financial markets transfer savings of savers to most appropriate investment opportunities. 

2. Facilitate price discovery- Price of anything depends upon the demand and supply factors. Demand and supply of financial assets and securities un financial markets help in deciding the prices of various financial securities. 

3. Provide liquidity to financial assets- In financial markets financial securities can be bought and sold easily so financial market provides a platform to convert securities in cash. 

4. Reduce the cost of transaction - Financial market provides complete information regarding price, availability and cost of various financial securities . So investors and companies do not have to spend much on getting this information as it is easily available in financial markets . 

Frequently Asked Questions

Question 1. When was financial market introduced in India? 

In 1908,The Calcutta Stock Exchange was formed to facilitate a market for shares of plantation and jute mills and by this financial market introduced in India. 

Question 2. What are the functions of financial market in India? 

The financial markets performs various functions, like price determination, price discovery, mobilisation of savings and channelising them into  most productive uses, providing information to traders, provide liquidity to financial assets etc. 

Question 3. Who controls Indian financial market? 

Reserve Bank Of India (RBI) govern and control Indian financial markets and ensure price stability in the country. 

Question 4. What is the popular financial market? 

The most popular financial market in the world is New York Stock Exchange (NYSE) . 

Question 5. What are some examples of financial market? 

The stock market, the credit market, the bond market, the foreign exchange market, the debt market and the capital market are some examples of financial market.