FINANCIAL MARKET

DEFINITION:
A financial market is a market in which people trade financial securities and
derivatives such as futures and options at low transaction costs. Securities include
stocks and bonds, and precious metals.
The term "market" is sometimes used for what are more strictly exchanges,
organizations that facilitate the trade in financial securities, e.g., a stock
exchange or commodity exchange. This may be a physical location (like
the NYSE, BSE, LSE, JSE) or an electronic system (like NASDAQ). Much trading of
stocks takes place on an exchange; still, corporate actions (merger, spinoff) are
outside an exchange, while any two companies or people, for whatever reason, may
agree to sell stock from the one to the other without using an exchange.

Source: Wikipedia!
TYPES OF FINANCIAL MARKET
 1- CAPITAL MARKET
INTRODUCTION:

• A capital market is a financial market in which long-term debt (over a year) or equity-
backed securities are bought and sold.[6]Capital markets channel the wealth of savers to
those who can put it to long-term productive use, such as companies or governments
making long-term investments.[a] Financial regulators like the Bank of England (BoE) and
the U.S. Securities and Exchange Commission (SEC) oversee capital markets to protect
investors against fraud, among other duties.
• Modern capital markets are almost invariably hosted on computer-based electronic
trading systems; most can be accessed only by entities within the financial sector or the
treasury departments of governments and corporations, but some can be accessed
directly by the public.[b] There are many thousands of such systems, most serving only
small parts of the overall capital markets. Entities hosting the systems include stock
exchanges, investment banks, and government departments. Physically, the systems are
hosted all over the world, though they tend to be concentrated in financial centres like
London, New York, and Hong Kong also.
DEFINITION OF CAPITAL MARKET:
• A capital market can be either a primary market or a secondary market. In
primary markets, new stock or bond issues are sold to investors, often via a
mechanism known as underwriting. The main entities seeking to raise long-term
funds on the primary capital markets are governments (which may be municipal,
local or national) and business enterprises (companies). Governments issue only
bonds, whereas companies often issue both equity and bonds. The main entities
purchasing the bonds or stock include pension funds, hedge funds, sovereign
wealth funds, and less commonly wealthy individuals and investment banks
trading on their own behalf. In the secondary markets, existing securities are sold
and bought among investors or traders, usually on an exchange, over-the-
counter, or elsewhere. The existence of secondary markets increases the
willingness of investors in primary markets, as they know they are likely to be
able to swiftly cash out their investments if the need arises.[7]
• A second important division falls between the stock markets (for equity
securities, also known as shares, where investors acquire ownership of
companies) and the bond markets (where investors become creditors).
 TYPES OF CAPITAL MARKET
PRIMARY MARKET:
"Primary market" may also refer to a market in art valuation.
The primary market is the part of the capital market that deals with issuing of new securities. Primary markets create long term
instruments through which corporate entities raise funds from the capital market.
In a primary market, companies, governments or public sector institutions can raise funds through bond issues and corporations can
raise capital through the sale of new stock through an initial public offering (IPO). This is often done through an investment
bank or finance syndicate of securities dealers. The process of selling new shares to investors is called underwriting. Dealers earn a
commission that is built into the price of the security offering, though it can be found in the prospectus.
Instead of going through underwriters, corporations can make a primary issue or right issue of its debt or stock, which involves the
issue by a corporation of its own debt or new stock directly to institutional investors or the public or it can seek additional capital
from existing shareholders.
Once issued, the securities typically trade on a secondary market such as a stock exchange, bond market or derivatives exchange.

Features

The main features of primary markets are:

•This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time.
Therefore, it is also called the new issue market (NIM).
•In a primary issue, the securities are issued by the company directly to investors.
•The company receives the money and issues new security certificates to the investors.
•Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing
business.
•The primary market performs the crucial function of facilitating capital formation in the economy.
•The new issue market does not include certain other sources of new long term external finance, such as loans from financial
institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known
as "going public."
its share can be issue in face value, premium value & par value.
SECONDARY MARKET:
The secondary market, also called the aftermarket and follow on public offering is the financial market in which previously
issued financial instruments such as stock, bonds, options, and futures are bought and sold.[1] Another frequent usage of
"secondary market" is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac.
The term "secondary market" is also used to refer to the market for any used goods or assets, or an alternative use for an existing
product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food
production and feedstock, but a "second" or "third" market has developed for use in ethanol production).
With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly
from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the
case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market.
The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to
very liquid. The major stock exchanges are the most visible example of liquid secondary markets - in this case, for stocks of
publicly traded companies. Exchanges such as the New York Stock Exchange, London Stock Exchange and Nasdaq provide a
centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured
products trade “over the counter,” or by phoning the bond desk of one’s broker-dealer. Loans sometimes trade online using a Loan
Exchange.
 FEATURES OF SECONDAY MARKET:

(1) It Creates Liquidity:

The most important feature of the secondary market is to create liquidity in securities. Liquidity means
immediate conversion of securities into cash. This job is performed by the secondary market.

(2) It Comes after Primary Market:

Any new security cannot be sold for the first time in the secondary market. New securities are first sold in the primary market
and thereafter comes the turn of the secondary market.

(3) It has a Particular Place:

The secondary market has a particular place which is called Stock Exchange. However, it must be noted that it is not essential
that all the buying and selling of securities will be done only through stock exchange.
Two individuals can buy or sell them mutually. This will also be called a transaction of the secondary market. Generally, most
of the transactions are made through the medium of stock exchange.

(4) It Encourages New Investment:

The rates of shares and other securities often fluctuate in the share market. Many new investors enter
this market to exploit this situation. This leads to an increase in investment in the industrial sector of
the country.
DIFFERENCE BETWEEN PRIMARY AND SECONDARY MARKET:
DIFFERENCE IN SHORT:
FINANCIAL INSTRUMENTS

Money Market Instruments:

The money market can be defined as a market for short-term money and financial assets that are near substitutes for money.
The term short-term means generally a period up to one year and near substitutes to money is used to denote any financial asset
which can be quickly converted into money with minimum transaction cost. Some of the important money market instruments
are briefly discussed below:

1. Call /Notice-Money Market Call/Notice money is the money borrowed or lent on demand for a very short period. When
money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded
for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of
intervening holidays) is "Call Money". When money is borrowed or lent for more than a day and up to 14 days, it is "Notice
Money". No collateral security is required to cover these transactions.

2. Inter-Bank Term Money Inter-bank market for deposits of maturity beyond 14 days is referred to as the term money market.
The entry restrictions are the same as those for Call/Notice Money except that, as per existing regulations, the specified
entities are not allowed to lend beyond 14 days.

3. Treasury Bills. Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of
the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of
issue(91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value
is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.
4. Certificate of Deposits Certificates of Deposit (CDs) is a negotiable money market instrument and issued in
dematerialized form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for
a specified time period. 5. Commercial Paper CP is a note in evidence of the debt obligation of the issuer. On issuing
commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately
placed with investors at a discount rate to face value determined by market forces.

Capital Market Instruments The capital market generally consists of the following long term period i.e., more than one year
period, financial instruments; In the equity segment Equity shares, preference shares, convertible preference shares, non-
convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.

Hybrid Instruments Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as
hybrid instruments. Examples are convertible debentures, warrants etc.
2- COMMODITY MARKET

A commodity market is a market that trades in primary economic

sector rather than manufactured products. Soft commodities are
agricultural products such as wheat, coffee, cocoa, fruit and sugar.
Hard commodities are mined, such as gold and oil. Investors access
about 50 major commodity markets worldwide with purely financial
transactions increasingly outnumbering physical trades in which goods
are delivered. Futures contracts are the oldest way of investing in
commodities. Futures are secured by physical assets.[2] Commodity
markets can include physical trading and derivatives trading using spot
prices, forwards, futures, and options on futures. Farmers have used a
simple form of derivative trading in the commodity market for centuries
for price risk management.[3]
STOCK MARKET:
A stock market, equity market or share market is the aggregation of buyers and sellers (a loose network of
economic transactions, not a physical facility or discrete entity) of stocks (also called shares), which represent
ownership claims on businesses; these may include securities listed on a public stock exchange as well as those
only traded privately. Examples of the latter include shares of private companies which are sold
to investors through equity crowdfundingplatforms. Stock exchanges list shares of common equity as well as other
security types, e.g. corporate bonds and convertible bonds.

Stock exchange

A stock exchange is an exchange (or bourse)[note 1] where stock brokers and traders can buy and
sell shares of stock, bonds, and other securities. Many large companies have their stocks listed on a stock
exchange. This makes the stock more liquid and thus more attractive to many investors. The exchange may also
act as a guarantor of settlement. Other stocks may be traded "over the counter" (OTC), that is, through a dealer.
Some large companies will have their stock listed on more than one exchange in different countries, so as to
attract international investors.[7]
Stock exchanges may also cover other types of securities, such as fixed interest securities (bonds) or (less
frequently) derivatives which are more likely to be traded OTC.
TRADE:
Trade in stock markets means the transfer for money of a stock or security from a seller to a buyer. This
requires these two parties to agree on a price. Equities (stocks or shares) confer an ownership interest in
a particular company.
Participants in the stock market range from small individual stock investors to larger trader investors, who
can be based anywhere in the world, and may include banks, insurance companies, pension
funds and hedge funds. Their buy or sell orders may be executed on their behalf by a stock exchange
trader.
Some exchanges are physical locations where transactions are carried out on a trading floor, by a
method known as open outcry. This method is used in some stock exchanges and commodity
exchanges, and involves traders shouting bid and offer prices. The other type of stock exchange has a
network of computers where trades are made electronically. An example of such an exchange is
the NASDAQ.
A potential buyer bids a specific price for a stock, and a potential seller asks a specific price for the same
stock. Buying or selling at the market means you will accept any ask price or bid price for the stock. When
the bid and ask prices match, a sale takes place, on a first-come, first-served basis if there are multiple
bidders or askers at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers,
thus providing a marketplace. The exchanges provide real-time trading information on the listed
securities, facilitating price discovery.
The New York Stock Exchange (NYSE) is a physical exchange, with a hybrid market for placing orders electronically
from any location as well as on the trading floor. Orders executed on the trading floor enter by way of exchange
members and flow down to a floor broker, who submits the order electronically to the floor trading post for
the Designated Market Maker ("DMM") for that stock to trade the order. The DMM's job is to maintain a two-sided
market, making orders to buy and sell the security when there are no other buyers or sellers. If a spread exists, no
trade immediately takes place – in this case the DMM may use their own resources (money or stock) to close the
difference. Once a trade has been made, the details are reported on the "tape" and sent back to the brokerage firm,
which then notifies the investor who placed the order. Computers play an important role, especially for program
trading.
The NASDAQ is a virtual exchange, where all of the trading is done over a computer network. The process is similar
to the New York Stock Exchange. One or more NASDAQ market makers will always provide a bid and ask price at
which they will always purchase or sell 'their' stock.
The Paris Bourse, now part of Euronext, is an order-driven, electronic stock exchange. It was automated in the late
1980s. Prior to the 1980s, it consisted of an open outcry exchange. Stockbrokers met on the trading floor of the
Palais Brongniart. In 1986, the CATS trading system was introduced, and the order matching process was fully
automated.
People trading stock will prefer to trade on the most popular exchange since this gives the largest number of potential
counterparties (buyers for a seller, sellers for a buyer) and probably the best price. However, there have always been
alternatives such as brokers trying to bring parties together to trade outside the exchange. Some third markets that
were popular are Instinet, and later Island and Archipelago (the latter two have since been acquired by Nasdaq and
NYSE, respectively). One advantage is that this avoids the commissions of the exchange. However, it also has
problems such as adverse selection.[8] Financial regulators are probing dark pools.[9][10]
Early history of stock market:

In 12th-century France, the courretiers de change were concerned with managing and regulating the
debts of agricultural communities on behalf of the banks. Because these men also traded with debts,
they could be called the first brokers. A common misbelief[citation needed] is that, in late 13th-
century Bruges, commodity traders gathered inside the house of a man called Van der Beurze, and in
1409 they became the "Brugse Beurse", institutionalizing what had been, until then, an informal
meeting, but actually, the family Van der Beurze had a building in Antwerp where those gatherings
occurred;[20] the Van der Beurze had Antwerp, as most of the merchants of that period, as their primary
place for trading. The idea quickly spread around Flanders and neighboring countries and "Beurzen"
soon opened in Ghent and Rotterdam.
In the middle of the 13th century, Venetian bankers began to trade in government securities. In 1351 the
Venetian government outlawed spreading rumors intended to lower the price of government funds.
Bankers in Pisa, Verona, Genoa and Florence also began trading in government securities during the
14th century. This was only possible because these were independent city-states not ruled by a duke
but a council of influential citizens. Italian companies were also the first to issue shares. Companies in
England and the Low Countries followed in the 16th century.
Function and purpose of stock market:

The stock market is one of the most important ways for companies to raise money, along with debt markets which are
generally more imposing but do not trade publicly.[44] This allows businesses to be publicly traded, and raise additional
financial capital for expansion by selling shares of ownership of the company in a public market. The liquidity that an
exchange affords the investors enables their holders to quickly and easily sell securities. This is an attractive feature of
investing in stocks, compared to other less liquid investments such as property and other immoveable assets. Some
companies actively increase liquidity by trading in their own shares.
History has shown that the price of stocks and other assets is an important part of the dynamics of economic activity,
and can influence or be an indicator of social mood. An economy where the stock market is on the rise is considered to
be an up-and-coming economy. The stock market is often considered the primary indicator of a country's economic
strength and development.[47]
Rising share prices, for instance, tend to be associated with increased business investment and vice versa. Share
prices also affect the wealth of households and their consumption. Therefore, central banks tend to keep an eye on the
control and behavior of the stock market and, in general, on the smooth operation of financial system functions.
Financial stability is the raison d'être of central banks.[48]
Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and
guarantee payment to the seller of a security. This eliminates the risk to an individual buyer or seller that
the counterparty could default on the transaction.[49]
.[53]
The smooth functioning of all these activities facilitates economic growth in that lower costs and enterprise risks
promote the production of goods and services as well as possibly employment. In this way the financial system is
assumed to contribute to increased prosperity, although some controversy exists as to whether the optimal
financial system is bank-based or market-based.[50]
Recent events such as the Global Financial Crisis have prompted a heightened degree of scrutiny of the impact
of the structure of stock markets[51][52] (called market microstructure), in particular to the stability of the financial
system and the transmission of systemic risk.
Over-the-counter (OTC) or off-exchange trading:

Over-the-counter (OTC) or off-exchangei trading s done directly between two parties, without the supervision of
an exchange. It is contrasted with exchange trading, which occurs via exchanges. A stock exchange has the benefit
of facilitating liquidity, providing transparency, and maintaining the current market price. In an OTC trade, the price
is not necessarily published for the public.
OTC trading, as well as exchange trading, occurs with commodities, financial instruments (including stocks),
and derivatives of such products. Products traded on the exchange must be well standardized. This means that
exchanged deliverables match a narrow range of quantity, quality, and identity which is defined by the exchange
and identical to all transactions of that product. This is necessary for there to be transparency in trading. The OTC
market does not have this limitation. They may agree on an unusual quantity, for example.[1] In OTC, market
contracts are bilateral (i.e. the contract is only between two parties), and each party could have credit risk concerns
with respect to the other party. The OTC derivative market is significant in some asset classes: interest rate, foreign
exchange, stocks, and commodities.[2]
In 2008 approximately 16 percent of all U.S. stock trades were "off-exchange trading"; by April 2014 that number
increased to about forty percent.[1] Although the notional amount outstanding of OTC derivatives in late 2012 had
declined 3.3% over the previous year, the volume of cleared transactions at the end of 2012 totalled
US$346.4 trillion.[3]"The Bank for International Settlements statistics on OTC derivatives markets showed that
notional amounts outstanding totalled $693 trillion at the end of June 2013... The gross market value of OTC
derivatives – that is, the cost of replacing all outstanding contracts at current market prices – declined between end-
2012 and end-June 2013, from $25 trillion to $20 trillion."[4]
Contracts

An over-the-counter is a bilateral contract in which two parties (or their brokers or bankers as intermediaries) agree
on how a particular trade or agreement is to be settled in the future. It is usually from an investment bank to its
clients directly. Forwards and swaps are prime examples of such contracts. It is mostly done online or by
telephone. For derivatives, these agreements are usually governed by an International Swaps and Derivatives
Association agreement. This segment of the OTC market is occasionally referred to as the "Fourth Market." Critics
have labelled the OTC market as the "dark market" because prices are often unpublished and unregulated.[1]
Over-the-counter derivatives are especially important for hedging risk in that they can be used to create a "perfect
hedge." With exchange traded contracts, standardization does not allow for as much flexibility to hedge risk
because the contract is a one-size-fits-all instrument. With OTC derivatives, though, a firm can tailor the contract
specifications to best suit its risk exposure.[6]
Importance of OTC derivatives in modern banking

OTC derivatives are significant part of the world of global finance. The OTC derivatives markets grew exponentially
from 1980 through 2000. This expansion has been driven by interest rate products, foreign exchange instruments
and credit default swaps. The notional outstanding of OTC derivatives markets rose throughout the period and
totalled approximately US$601 trillion at December 31, 2010.[11]
In their 2000 paper by Schinasi et al. published by the International Monetary Fund in 2001, the authors observed
that the increase in OTC derivatives transactions would have been impossible "without the dramatic advances in
information and computer technologies" that occurred from 1980 to 2000.[12] During that time, major internationally
active financial institutions significantly increased the share of their earnings from derivatives activities. These
institutions manage portfolios of derivatives involving tens of thousands of positions and aggregate global turnover
over $1 trillion. At that time prior to the financial crisis of 2008, the OTC market was an informal network of bilateral
counterparty relationships and dynamic, time-varying credit exposures whose size and distribution tied to important
asset markets. International financial institutions increasingly nurtured the ability to profit from OTC derivatives
activities and financial markets participants benefitted from them. In 2000 the authors acknowledged that the growth
in OTC transactions "in many ways made possible, the modernization of commercial and investment banking and
the globalization of finance."[12] However, in September, an IMF team led by Mathieson and Schinasi cautioned that
"episodes of turbulence" in the late 1990s "revealed the risks posed to market stability originated in features of OTC
derivatives instruments and markets.[13]
The NYMEX has created a clearing mechanism for a slate of commonly traded OTC energy derivatives which allows
counterparties of many bilateral OTC transactions to mutually agree to transfer the trade to ClearPort, the
exchange's clearing house, thus eliminating credit and performance risk of the initial OTC transaction counterparts.
The bond market (also debt market or credit market) is a financial market where participants can issue new debt,
known as the primary market, or buy and sell debt securities, known as the secondary market. This is usually in the
form of bonds, but it may include notes, bills, and so on.
Its primary goal is to provide long-term funding for public and private expenditures.[1] The bond market has largely
been dominated by the United States, which accounts for about 44% of the market.[2] As of 2009, the size of the
worldwide bond market (total debt outstanding) is estimated at $82.2 trillion,[3] of which the size of the outstanding
U.S. bond market debt was $31.2 trillion according to Bank for International Settlements (BIS), or alternatively
$35.2 trillion as of Q2 2011 according to Securities Industry and Financial Markets Association (SIFMA).[3]
The bond market is part of the credit market, with bank loans forming the other main component. The global credit
market in aggregate is about 3 times the size of the global equity market.[1] Bank loans are not securities under the
Securities and Exchange Act, but bonds typically are and are therefore more highly regulated. Bonds are typically
not secured by collateral (although they can be), and are sold in relatively small denominations of around $1,000 to
$10,000. Unlike bank loans, bonds may be held by retail investors. Bonds are more frequently traded than loans,
although not as often as equity.[1][4][5]
Nearly all of the average daily trading in the U.S. bond market takes place between broker-dealers and large
institutions in a decentralized over-the-counter (OTC) market.[6] However, a small number of bonds, primarily
corporate ones, are listed on exchanges. Bond trading prices and volumes are reported on FINRA's Trade
Reporting and Compliance Engine, or TRACE.[4][5]
An important part of the bond market is the government bond market, because of its size and liquidity. Government
bonds are often used to compare other bonds to measure credit risk. Because of the inverse relationship
between bond valuation and interest rates (or yields), the bond market is often used to indicate changes in interest
rates or the shape of the yield curve, the measure of "cost of funding". The yield on government bonds in low risk
countries such as the United States or Germany is thought to indicate a risk-free rate of default.[4][5] Other bonds
denominated in the same currencies (U.S. Dollars or Euros) will typically have higher yields, in large part because
other borrowers are more likely than the U.S. or German Central Governments to default, and the losses to
investors in the case of default are expected to be higher. The primary way to default is to not pay in full or not pay
on time.[1][4][5]
 What is 'Forex - FX‘

Forex (FX) is the market in which currencies are traded. The forex market is the largest, most liquid market in the
world, with average traded values that can be trillions of dollars per day. It includes all of the currencies in the world.

BREAKING DOWN 'Forex - FX‘

There is no central marketplace for currency exchange; trade is conducted over the counter. The forex market is
open 24 hours a day, five days a week, except for holidays, and currencies are traded worldwide.
The forex is the largest market in the world in terms of the total cash value traded, and any person, firm or country
may participate in this market.

The Basics of Forex

The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."
The global foreign exchange market is the largest and the most liquid financial market in the world, with average
daily volumes in the trillions of dollars. Forex transactions take place on either a spot or a forward basis. There is no
centralized market for forex transactions, which are executed over the counter and around the clock. The largest
foreign exchange markets are located in major financial centers like London, New York, Singapore, Tokyo, Frankfurt,
Hong Kong and Sydney.
Just How Large Is the Forex Market?
The forex market is unique for several reasons, mainly because of its size. Trading volume is generally very large. As
an example, trading in foreign exchange markets averaged $5.1 trillion per day in April 2016, according to the Bank
for International Settlements, which is owned by 60 central banks, and is used to work in monetary and financial
responsibility.
The world's largest trading centers can be found in London, New York, Singapore and Tokyo.

How to Trade in the Forex Market

The market is open 24 hours a day, five days a week across major financial centers across the globe. This means
that you can buy or sell currencies at any time during the day.
The foreign exchange market isn't exactly a one-stop shop. There are a whole variety of different avenues that an
investor can go through in order to execute forex trades. You can go through different dealers or through different
financial centers, which use a host of electronic networks.
From a historic standpoint, foreign exchange was once a concept for governments, large companies and hedge
funds. But in today's world, trading currencies is as easy as a click of a mouse — accessibility is not an issue, which
means anyone can do it. In fact, many investment firms offer the chance for individuals to open accounts and to trade
currencies however and whenever they choose.
When trading in the forex market, you're buying or selling the currency of a particular country. But there's no physical
exchange of money from one party to another. That's what happens at a foreign exchange kiosk — think of a tourist
visiting Times Square in New York City from Japan. He may be converting his (physical) yen to actual U.S. dollar
cash (and may be charged a commission fee to do so) so he can spend his money while he's traveling. But in the
world of electronic markets, traders are usually taking a position in a specific currency, with the hope that there will be
some upward movement and strength in the currency they're buying (or weakness if they're selling) so they can
make a profit.
Spot Transactions
A spot deal is for immediate delivery, which is defined as two business days for most currency pairs. The major
exception is the purchase or sale of U.S. dollars vs. Canadian dollars, which is settled in one business day. The
business day calculation excludes Saturdays, Sundays and legal holidays in either currency of the traded pair.
During the Christmas and Easter season, some spot trades can take as long as six days to settle. Funds are
exchanged on the settlement date, not the transaction date.
The U.S. dollar is the most actively traded currency. The euro is the most actively traded counter currency, followed
by the Japanese yen, British pound and Swiss franc.
Market moves are driven by a combination of speculation, especially in the short term; economic strength and
growth; and interest rate differentials.

Forward Transactions
Any forex transaction that settles for a date later than spot is considered a "forward." The price is calculated by
adjusting the spot rate to account for the difference in interest rates between the two currencies. The amount of the
adjustment is called "forward points." The forward points reflect only the interest rate differential between two
markets. They are not a forecast of how the spot market will trade at a date in the future.
A forward is a tailor-made contract: it can be for any amount of money and can settle on any date that's not a
weekend or holiday. Transactions with maturities longer than a year are relatively unusual, but are possible. As in a
spot transaction, funds are exchanged on the settlement date.
Futures
A "future" is similar to a forward in that it's for a date longer than spot, and the price has the same basis. Unlike a
forward, it's traded on an exchange, and can only be executed for specified amounts and dates. With a futures
contract, the buyer pays a portion of the value of the contract up front. That value is marked-to-market daily, and the
buyer either pays or receives money based on the change in value. Futures are most commonly used
by speculators, and the contracts are usually closed out before maturity.

Differences Between Forex and Other Markets

There are some major differences between the forex and other markets:
•Fewer rules: This means investors aren't held to as strict standards or regulations as those in the stock, futures
or options markets. There are no clearing houses and no central bodies that oversee the forex market.
•Fees and commissions: Since trades don't take place on a traditional exchange, you won't find the same fees
or commissions that you would on another market.
•Full access: There's no cut-off as to when you can and cannot trade. Because the market is open 24 hours a day,
you can trade at any time of day.
•Ease: Because it's such a liquid market, you can get in and out whenever you want and you can buy as much
currency as you can afford.
SOME IMPORTANT DEFINITONS:

BONDS: It’s a financial instrument, which can be issued by companies, municipalities, states and sovereign
government , to raise fund from the market for the purpose of funding projects and activities. Individual investing in
bonds, are called debt holders or creditors and they are entitled to get some fixed rate of interest on the principal
amount. Some Bonds also trade like equities over exchange, other trade over the counter (OTC).

Bonds are mostly issued to refinance some existing loan or finance some ongoing project.
Interest which investors are entitled to from time to time are called coupons. Investors get their principal amount
back on the day of maturity. However time of payment and style of payment may differ.
Though the bond is generally issued at far to the face value, however, the market price of bond depends on various
factors like, credit quality of the firm, condition of the economy, time till expiration, coupon rate compared to the
general interest rate of the economy.
Two major feature of a bond is Credit quality and duration. A bond with lower credit quality and loner duration will
trade at a discount and vice-versa.
While buying a bond, one must consider the riskiness of the bond, which can be considered by seeing the duration
(price sensitivity to changes in interest rate) and convexity.

EQUITY: Equity in general is assets minus the liabilities of the firm. Equity on the other hand is the owner’s share
in the asset. For an example if someone buys a house with no loan, then he has 100% equity in the house. It can
also be stated at value of an asset after all debt on the asset has been paid off.

In terms of financial balance sheet, it’s the sum of amount contributed by the owners with any retained earnings;
the other name given to it is stakeholder’s equity.
SHARE: The first thing, which hits our mind when we hear the word share, is share market trading, share market
advisory, ups-down of market.
Apart from being a asset class, shares also hold much larger importance. When an individual owns a share, he
actually owns a percentage of the company. It’s an ownership interest in a corporation that provides equal
distribution of profit as and when declared, in form of dividend.

Earlier, shares were given in physical form known as share certificates. However, in the present days of technology,
shares certificates have also taken electronic form. They are directly transferred to Demat accounts of an
individual, in dematerialized form (electronic form).
If an individual wish to invest in shares, he needs to open a demat account, with any broking firm , like angel
broking, SMC etc. with required documents like PAN CARD, Bank Account, Government issued Identity card. For
advices to put your money into right track there are many advisory companies as well, one of the leading
being AdvisoryMandi, one can subscribe to them. Then one is good to go for investing in shares.

DEBENTURE: Debentures are backed by credit worthiness and reputation of the issuer and is not secured by
physical asset or collateral. Debentures are documented in an indenture. Debentures have some unique features
associated with it. One of them being trust indenture, which is an agreement between the corporation issuing the
bond and the trust managing the interest of the investors. The second being the Coupon rate, that company pays to
the debenture holder. Coupon rate could be fixed, floating; it entirely depends on the credit worthiness of the issuer.

Debentures are of two type’s convertible and non convertible debentures.

Money is any item or verifiable record that is generally accepted as payment for goods and services and
repayment of debts in a particular country or socio-economic context. The main functions of money are
distinguished as: a medium of exchange, a unit of account, a store of value and sometimes, a standard of
deferred payment.[4][5] Any item or verifiable record that fulfills these functions can be considered as money.
https://sol.du.ac.in/mod/book/view.php?id=829&chapterid=481