Financial Markets Test - 3

An ideal capital market is defined by a set of five assumptions.

1: capital markets are frictionless

2: All market participants share homogenous expectation, valuerelevant information is costlessly available to all market participants.

3: All market participants are atomistic. No single market participant can affect the market price of a security via trades.

4: The firm’s investment program is fixed and known.

5: The firm’s financing is fixed. Once chosen, the firm’s capital structure is fixed.

A rights issue is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive pro rata way to raise capital.

The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with the launch of index futures on June 12, 2000. The futures contracts are based on the popular benchmark Nifty 50 Index.

Only institutional investors can participate in money market. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods, typically up to thirteen months.

The minimum capital requirement for a company to be listed on the OTCEI is Rs 3 crores and the maximum is Rs 50 crores.

As money became a commodity, the money market became a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less.

There are various methods of floating new issues in the primary market:

(i) Offer Through Prospectus This involves inviting subscription from the public through issue of prospectus.

(ii) Offer for Sale Under this method securities are not issued directly to the public but offered for sale through intermediaries like issuing houses or stock brokers.

(iii) Private Placement Private placement is the allotment of securities by a company to institutional investors and some selected individuals.

(iv) Rights Issue This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company.

(v) e-IPOs A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange.

The clearing and settlement operations of NSE are carried out by NSCCL. NSCCL (National Securities Clearing Corporation Ltd.) was incorporated in August, 1995 and it commenced its clearing operations for NSE in April, 1996.

The money market yield will be lower than the yield on stocks and bonds because of the low risk.

In India, shares and securities are held electronically in a dematerialized (Demat) account, instead of the investor taking physical possession of certificates. A Demat account is opened by the investor while registering with an investment broker (or sub-broker).