Financial Markets Class 12

The term finance may scare some of us as it requires practical knowledge and utmost dedication and sincerity to understand, especially for students with commerce subjects. The chapter on Business Studies on Financial Markets will let you know more about the financial market structure of India, the different types of the financial market, functions of SEBI, etc. so if you want to score more and revise this chapter on Financial Markets class 12, this blog will be of great help to you!

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What is a Financial Market? 

According to the chapter of Business Studies on financial markets class 12, the term financial market or markets refer to a link between surplus and deficit units. In other words, a financial market is a place that brings lenders and borrowers together. 

Functions of Financial Markets

According to the chapter of Financial Market class 12, the various functions of financial markets are listed down below: 

• Mobilisation and channelling of savings into most efficient uses
• Encourages and facilitates price discovery
• Creates liquidity for financial assets
• Decreases transaction costs

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Financial Market Classification 

On the basis of the chapter of Business Studies of financial markets class 12, there are 2 segments of the financial market namely:

Money Market

This is a market for short-term funds which are meant for dealing in monetary assets and whose period of maturity is less than one year. The features of this market are:

• It is a market for short term funds requirements.
• There is no fixed geographical location. 
• The main institutions involved in the money market are RBI, commercial or private banks etc.  

Instruments of the Money Market

• Call money 
• Treasury bill 
• Commercial bills 
• Commercial paper 
• Certificate of deposits etc. 

Capital Market

The other type of market is called as capital market. This is a market for medium to long term funds and hence includes all the organisations and institutions that provide long term or/and medium-term funds to the business. The features of the capital market are: 

• It creates a link between savers and investment opportunities
• Helps to deal in long term investments
• Utilises intermediaries
• The determinant of capital formation for a business
• Government rules and regulation.

Types of Capital Market

• Primary market: Which is also known as the new issue market, where securities are held for the first time and new securities are issued for the business or company. Methods of floatation under the primary market are:
  • The public issue though the prospectus
  • Offer for sale
  • Private placement
  • Right issue (for existing companies)
  • e-IPOs

• Secondary market: The other market is the secondary market which is also known as the stock exchange as well and deals with the sale and purchase of previously issued or second-hand securities. As per the chapter of financial markets class 12, the stock exchange is an organisation or bodies of individuals that are established for the purpose of assisting, regulating and controlling business and company in buying, selling and dealing in securities. Some of the features of the secondary market are: 
  • Creates liquidity
  • Has a fixed location
  • Comes after the primary market
  • Encourages new investment

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Important Functions of Stock Exchange

As per the chapter of financial markets class 12, the important functions of the stock exchange include the following points: 

• Stock exchange gives liquidity and marketability to the existing securities and shares. 
• Economic barometer
• Pricing of securities
• Providing scope for speculation
• Liquidity
• Safety of transactions
• Contributes to economic growth
• Spreading of the equity cult
• Better allocation of capital
• Promotes the habits of savings and investment

Types of Operators in a Stock Exchange

According to the chapter of financial markets class 12, here is a list of different types of operators in stock exchange: 

• Brokers
• Jobbers
• Bulls
• Bears
• Stag

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Trading Procedure on a Stock Exchange

There is a particular procedure for trading on a stock exchange as per the chapter on financial markets class 12. The entire procedure is mentioned below. 

• Selection of the broker: The first and the foremost step in the trading procedure on a stock exchange is selecting and choosing the right broker who must be a member of the stock exchange.
• Placing the order: After selecting a broker for the trading, the next step is to place the order. The investors may specify the number and type of securities that he/she wants to trade. 
• Executing the order: After the order has been placed to the broker by the investor, the broker will then buy or sell the securities as per the instructions and information given by the investor. 
• Settlement: After the execution of the order by the broker, the transactions are carried out accordingly. It can be carried out either on a cash basis or carryover basis. The amount of time during which transactions are carried forward is referred to as accounts ranging from one quarter to one month. All transactions made in the course of a single account shall be resolved by payment for sales and by the issuance of share certificates, which is evidence of the individual’s ownership of the securities.

All India Stock Exchange

As per the chapter on Financial Markets class 12, India has 2 all India stock exchanges namely:

• The National Stock Exchange of India or NSEI: NSEI was recognised in n1992 and started its operations in 1994. Having said that, it had launched the capital market segment in the month of November 1994 along with an option segment in June 2000. The main objectives of the NSE are:
  1. To provide securities for bot the market i.e., capital as well as the money market. 
  2. To make the payment and delivery in 15 days of the time period.

• Over The Counter Exchange of India or OTCEI is another category of All India Stock Exchange which was incorporated in 1990, but trading and operations were started in 1992. It was established on the lines of NASDAQ the OTC exchange in the USA. The main objectives of OCTEI are: 
  1. Compulsory market makers to provide liquidity. 
  2. To make the complete settlement within one week’s time. 

Securities Exchange Board of India 

The Securities Exchange Board of India also known as SEBI was set up in 1998 in order to regulate the functions of the securities in the market. It aims at promoting orderly and healthy development in the stock market. The main objectives of SEBI are: 

• To protect the interest of the investors 
• To promote and develop the stock exchange dealings 
• To regulate and facilitate dealings

Functions of SEBI

As per the chapter of financial markets class 12, there are 3 broad categories of functions of SEBI namely:

• Protective Functions
• Developmental Functions
• Regulatory Functions

Protective Functions	Developmental Functions	Regulatory Functions
It checks price rigging Strictly prohibits insider trading Also, prohibits frauds or fraudulent or unfair practises of trading.	It rightfully promotes the training of intermediaries of the securities market. SEBI has also permitted internet-based trading through or via registered stock brokers.	SEBI has framed rules and regulations along with a strict code of conduct to regulate the work and activities of intermediaries such as merchant bankers, brokers, etc. It also registers and regulates the working of mutual fund securities and more. It also regulates the take over of the companies and businesses. From time to time, it conducts enquiries and audits of stock exchanges and financial accounts.

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With this, we have finished revising this chapter on Financial Markets class 12. We hope that this blog may prove helpful for you all for that extra last moment revision. Check out our other blogs and study notes of different subjects, and stay tuned with Leverage Edu. If you need help on to which course to choose after class 12th commerce, get in touch with our experts who will guide you every step of the way! Sign up for a free session today!