Financial Market Flashcards
Functions of Financial Markets
Finance minister Manmohan Singh is invited to a function being held in the middle of a market.
1. Mobilisation of Savings and Channeling them into Productive Uses - He goes inside a mobile vendor, where he is shown a mobile where he can save and TV channel and use it during unproductive time.
2. Providing Liquidity to Financial Assets - The vendor provides the finance minister with a small bottle of black liquid and tells him that he can pour it on the asset as it is liquid resistant.
3. Reducing the Cost of Transactions - When minister asks cost, the phone is very expensive. The minister requests to reduce cost of transaction.
4. Facilitating Price Discovery - When vendor says no, minister threatens to put him on ph__asi (hanging) if price is not reduced. Further, he says that the body of the vendor will also be thrown in the river so no one can discover it.
Money Market Instruments
I go to the market with two wallets, completely full of money to buy instruments.
1. Treasury Bill - The first instrument is a sun-shaped guitar, which when I pluck the strings of, a treausure chest appears in front of me out of which bill clinton crawls out.
2. Commercial Paper - I look down and see my shoes have changed to musical shoes that make music as I walk. I see a commerce paper sticking out of the shoe which I pull out.
3. Call Money - The commerce paper suddenly turns into a tree shaped flute, which when I play, money starts raining everywhere and everyone starts using their phone to call their friends to come and collect the money.
4. Certificate of Deposit - I run away to the town hall building. On the door is a box where I deposit my birth certificate and a cheque.
5. Commercial Bill - Bill clinton suddenly starts running behind me with a giant knife in his hands asking for my commerce paper.
Difference Between Money Market and Capital Market
There are two parties going on. On the left side there is a cap party where everyone is wearing caps and on the right side there is money party where everyone is swimming in money.
1. Participants - The party is going on and everyone is wearing orange pant. The sea is on the other side. (party-sea-pant) - both have financial institutions, banks/corporates. C**ap market has foriegn investors/individuals. Money market has finance companies, RBI
2. Instruments - Everyone starts playing snake charming bagpipes (instrument). James bond goes to the cap party wearing a top hat, and distributes equity shares of his company. Cap market has equity shares, bonds, debentures.
3. Investment Outlay - Both parties have wasted lots of money so they are trying to think of how to out the remaining money and invest it properly. Caps are very cheaply available Rs. 10, Rs. 100 etc. but money market requires to invest huge sums of money at once.
3. Duration - Days and nights pass, money market people quickly get their money back in 1 year only as it starts raining money. Cap market has to wait medium to long term.
4. Liquidity - Drought has struck cap market, and their is low liquidity, as they cannot find buyer easily for their caps. In Money market party, money continues to rain every single day and their is high liquidity. DFHI provides ready market.
5. Safety -Both parties fill money in a giant vicks boxes and put in their respective safes. Cap market safe is ghetto and doesn’t close properly (riskier in returns, riskier in principal payments), Money market safe closes very properly.Cap market issuing companies may defraud. Money market minimum risk of defaualt, issuers financially sound.
6. Expected Return - A crowd of walking-talking ovens look at both parties. Some ovens go to Money market, but most of the ovens go to cap market. Cap markets higher returns, capital gains from equity shares, high dividends and bonus issues. Money market comparitively lower returns, often fixed.
Methods of Floatation
Ambani brothers come out of a field with metal crops wearing hoodies, and start floating in the air using flying carpets.
1. Offer Through Prospectus - They float to a sun shaped shop. They enter and offer shares of their companies and show their prospectus.
2. Offer For Sale - They offer new shoes for sale to those that buy shares. Furhter, they say that their companies will sale shoes.
3. Private Placement - They get accepted so they throw a private pool party under a gigantic tree. They place the decorations carefully and lure onlookers to come in by offering polo mints.
4. Rights Issue - Once they have enough people, they issue a gaurd outside door and only those people get the right to enter who have issued a pass.
5. E-IPOS - Ambani brothers use knife and threaten everyone to buy their latest IPODS. They open a giagantic projector on the night sky showing there new product online.
Functions of Stock Exchange
You’re in an empty function hall where lots of old stock of clothes is stores.
1. Providing Liquidity and Marketability to Existing Securities - One monring, you see the sun rising on a window on the second floor. You climb a ladder to look closer, and see that in the terace there are a bunch of liquids ready to be taken to market and are gaurded by armoured security gaurds.
2. Pricing of Sercurities - You look down and see that the security gaurds have giant price tags on their shoes. Further, a digital price appears above their head.
3. Contributes to Economic Growth - You break the window on your left and escape and see a tree where Economics Anekant Sirs are growing. They grow say hi and go away.
4. Safety of Transaction - On the other side of the tree is a wooden door, you open it to find that a transaction is going on between to mice. Gold is being kept in a safe and being secured using a safety pin.
5. Spready of Equity Culture - You run away and see a street butcher shop where people are using knives to cut equity shares and spread them on their tables like butter.
6. Providing Scope for Speculation - Everything starts getting blurry. You take out some vicks and take an ice scream scope and put it on your spectacles, to see more clearly.
Trading Procedure on a Stock Exchange
You and your padosi go to a teller with a very funny moustache to trade in stock exchange.
1. Selection of a Broker - There are 4 sun-shaped buttons on the window and each are for a different broker. You press one.
2. Opening DEMAT Account with Depository - Suddenly you are made to lie down on a D shaped mat, and the teller starts threating you to open an account and make a deposited in a shoe.
3. Placing the Order - You run and hide behind a tree and call your assasian to place an order to kill the teller.
4. Executing the Order - The big brawny assasian goes and cuts down the door of the bank using an axe and executes the teller.
5. Settlement - The associate takes out a knife and asks the executor to settle this once and for all. They settle down and start a life together.
Functions of SEBI
Three seb (apples) are cut in a function and everyone starts cheering.
1. Regulatory Functions - A fan regulator and referee come out of the first seb.
- Registration of Brokers anad Sub-Brokers and Other Players in the Market - Football players start playing with the apple like it is a football and it gets juiced. The referee registers the name of all the breakers and subsitute breakers and other players in the market.
- Regulation of Take Over Bids by Companies - Many companies hear about the news about the regulator coming out and appear at the scene to bid to take over the football players.
- Levying Fee and Other Charges for Carrying Out the Purposes of the Act - Governmetn officials come to the scene to levy fees and charges to the winning bidders. The football players are made to act in a play.
- Performance and Excercising Power Under Securities Ccontracts (Regulation) Act 1956, As May Be Delegated By The Government of India - People who are shown the performance start clapping and suddenly there is a power cut in the theater. Security gaurds go on stage and start excercising, as per instructions of government of india.
2. Development Functions - Dev D comes out of the second seb.
- Training of Intermediaries of the Securities Market - He starts fitness training of intermediaries and security comes and kicks him out.
- Conducting Research and Publishing Information Useful to All Market Participants - He runs to a research lab_,_ and starts conducting research. He finishes his resarch and publishes the information and sells at a shop in the market.
- Undertaking Measures to Develop The Capital Markets by Adapting a Flexibile Approach - He unplugs an adaptor and uses its flexible cable to measure a cap’s diamater. He then wears the cap and starts doing yoga showing his flexibility.
3. Protective Function - A protractor comes out of the third seb.
- Controlling Insider Trading by Imposing Penalties - The proctractor falls down to the ground and grows in size. A remote control is used to make sure no one comes inside the protractor.
- Undertaking Steps For Investor’s Protection - A small protractor tied to a chain is given to all investors trying to come inside the protractor for their protection.
