1.1.2 Characteristic Features of the Financial Markets

This topic describes the features of the financial markets.

Table 1-2 Financial Market

Financial Market	Purpose	Players	Regulator
Money Market	Short-term rupee finance	Banks, Governments FIs Corporates FIIs MFs individuals	Central Bank
Capital Market	Long-term rupee finance	Corporates Banks FIs individuals MFs FIIs	E.g. US SEC
Forex Market	Short/Long-term foreign currency finance	Banks corporates forex dealers	Central Bank
Credit Market	Short/long-term rupee finance	Banks FIs NBFCs	Central Bank

Within the above-mentioned sub-markets, based on the transactions, financial markets can further be classified into open markets and negotiated markets. The basic distinction between these two types of markets is based on how the securities are bought and sold. In an open market, the securities can be offered to a large number of investors who can buy and sell them any number of times before the maturity period.

The public issue of securities takes place in an open market. On the other hand, the negotiated market have only a selected group of investors to whom the securities are offered and sold. It will generally be a private contract between the seller and the buyer. A bought-out deal and a car loan are good examples of transactions in a negotiated market.

Another useful and important distinction between markets in the financial system is the primary market and the secondary market. A primary market is a place for the fresh issue of securities. Corporates, banks, FIs, and the government can issue new securities and raise funds for investment purposes. The secondary market deals in securities previously issued in the primary market thereby providing liquidity to the investors. Investors can buy and sell securities in the secondary market on a continuous basis. Due to this, the volume of transactions taking place in the secondary market is far greater than those taking place in the primary markets.

Except for the capital market, the other sub-markets present in the financial system either do not have a secondary market or their operations in the same are negligible. The secondary market transactions of the capital market take place at the stock exchanges. All securities that are issued in the primary market have to be listed on the stock exchanges to enable trading activity. The secondary market helps in undertaking maturity inter-mediation by bringing together savers and users with conflicting maturity targets.