Q.1..

Financial market: Financial markets refers to a marketplace where buyer & seller
participate in the trade. It is a marketplace where bonds, equity, securities, currencies
are traded. It serves as an agent between the investors and collector by mobilizing
capital between them.
These markets facilitates - the flow of Capital, price discovery, and provide liquidity
for invertors and businesses. example - stock markets, bond markets and foreign
exchange market.
Function.1. *Price Discovery:* financial markets facilities the determination of prices for
various financial instruments—stocks, bonds, currencies etc
2. *Fund Mobilization:* financial market provides a platform for business Government and
individual to raise capital. companies can issue stocks or bonds to raise funds for investmen.
3. *Risk Sharing:* financial markets allow for risk transfer and sharing. Through the
instruments like –insurance, derivatives, investors can manage and spread risk
4. * Intermediatary function:* financial markets facilitate transaction between buyer and
sellers
5. *Capital Formation:* financial markets play a crucial role in fostering economic growth by
channeling saving into productive investment.
6. *Liquidity:* financial markets enhance the liquidity of assets, It provides liquidity for
buying and selling
7. *Market Efficiency:*financial markets contribute to the efficient allocation of resources.
8. Save Time and Money: Efficient processes and resource optimization contribute to time and cost
savings.
Types of Financial Markets
1. Over the Counter (OTC) Market – They manage public stock exchange, which is
not listed on the NASDAQ, American Stock Exchange, and New York Stock
Exchange. The OTC market dealing with companies are usually small companies
that can be traded in cheap and has less regulation.
2.Bond Market – The bond market is a financial market where participants can
buy and sell debt securities, known as bonds. Bonds are essentially loans that
investors provide to entities such as governments, municipalities, or corporations.
In return, the issuer pays periodic interest and returns the principal amount at
maturity
3. Money Markets – The money market is a financial market where short-term
borrowing and lending take place, typically involving highly liquid and low-risk
instruments. It includes various financial instruments like Treasury bills,
commercial paper
4. Derivatives Market – The derivative market is a financial market where
derivative instruments are bought and sold. Derivatives are financial contracts
whose value is derived from an underlying asset, index, or rate. These
instruments include options, futures, forwards, and swaps .
Forex Market – It is a financial market where investors trade in currencies. In
the entire world, this is the most liquid financial market.

Q.2…Classification of Financial Market

The financial market can be classified into three different forms.
1. By Nature of Claim
a. Debt Market – It is a market where fixed bonds and debentures or bonds are
exchanged between investors.
b. Equity Market – It is a place for investors to deal with equity.
2. By Maturity of Claim
a. Money Market – It deals with monetary assets and short-term funds such as a
certificate of deposits, treasury bills, and commercial paper, etc. which mature
within twelve months.
b. Capital Market – It trades medium and long term financial assets.
3. By Timing of Delivery
a. Cash Market – It is a market place where trade is completed in real-time.
b. Futures Market – Here, the delivery or compensation of products are taken in
the future specified date.
4. By Organizational Structure
a.Exchange-Traded Market – It has a centralised system with a patterned
procedure.
b. Over-the-Counter Market – It has a decentralised organisation with customised
procedures
Q.3..CAPITAL MARKET is a market for long-term securities that includes both debt and
equity. Companies and governments can raise long term funds (more than a year)
through this market. Capital market channelizes the funds from those who have excess
capital to those who need it.
FUNCTIONS OF CAPITAL MARKET

1. Coordinator :The Capital Market functions as coordinator between savers and

investors. It mobilises the savings from those who have surplus fund and divert them to
the needy persons or organizations
2. Motivation to Savings: By offering avenues for investment with potential returns,
capital markets encourage individuals to save and participate in economic growth.
3. Transformation to Investments:They convert saved funds into productive
investments, driving innovation, job creation, and economic expansion.
4. Enhances Economic Growth:Capital markets play a vital role in providing the
necessary funding for businesses, thereby contributing significantly to overall economic
growth
5. Stability :The Capital Market provides a stable security prices in the stock market. It
tends to stabilise the value of stocks and securities. It reduces the fluctuations in the
prices to the minimum level.
6. Advantages to Investors: Capital markets offer investors diverse options, from stocks
to bonds, allowing for portfolio diversification and potential financial gains.
7.Barometer :The development of the Capital Market is the indicator of the
development of a nation. The prosperity and wealth of a nation depends, upon
the dynamic capital market
Short Note 5+5
1. Equity Market
Shares of a company which are also termed as equities make the person or
organisation holding them as the shareholder of the company. Most of the
investors prefer to invest in them because equities have the proven track record of
outperforming other forms of the investments. The value of most of the equities
tends to increase over a period of time. But this does not mean that all equities
would be giving similar higher returns. Being high risk investments equities need
to be studied carefully and patiently. As investors have bear higher risk in
equities companies reward them back by paying dividend annually. Dividend is a
percentage of the face value of a share that a company returns to the shareholders
from its annual profits.
3. Debt Market
Debt Market is that part of secondary market where investors buy and sell debt
securities which are mostly in the form of bonds. It is the market where fixed
income securities are issued and traded. For a developing economy like India,
debt markets are crucial source of capital funds. Indian Debt Market is almost
third largest in the world and one of the largest in Asia. It includes government
securities, public sector undertakings, other government bodies, financial
institutions, banks and companies. Total size of the Indian Debt Market is in the
range of $92 billion to $100billion i.e. approximately 30% of GDP.

Q.4. DERIVATIVES MARKET is financial marketplace where financial instruments,

such as options and futures are traded. There are four participants in Derivatives
markets - Hedgers, Speculators, Arbitrageurs, and Margin Traders.
Types Of Derivatives
Forwards :A forward contract is customised contract between two entities, where
settlement takes place on a specific date in future on today's pre-agreed price.
Futures :A future contract is an agreement between two parties to buy or sell an
asset at a certain time in future at a certain price. They are special kind of
forwards contracts in the sense that former are standardised exchange traded
contracts.
Options :Options are of two types - calls and put option. Call option gives the
buyer the right but not the obligation to buy a given quantity of the underlying
asset, at a given price on or before a given future date. On the other the put option
gives the buyer the right, but not the obligation to sell a given quantity of the
underlying asset at a given price on or before a given future date.
Swaps :Swaps are private agreements between two parties to exchange cash flows
in the future according to a prearranged formula. They can be regarded as
portfolios of forward contracts.
Q.. Participants in derivatives market
1.Hedgers: He is a person who undertakes a position in future and other markets
for purpose of reducing exposure to one or more types of risk.
2.Speculator: Speculators are operators who are willing to take a risk by taking
future position with the expectation to earn profits.
3.Arbitrageurs: They are the operators who deal in different markets
simultaneously for profit and eradicate the mispricing of securities across
different markets.
4.Spreaders: He is a person who believes in lower expected return at the reduced
risk

Q…Debentures
Debentures are also debt financial instruments like bonds. Organisations use these
instruments to get funding for their daily needs. They are generally not secured by any
physical assets of the issuers, which makes them riskier than bonds. They also carry a
fixed or floating interest rate. The debenture holders get first preference over
shareholders of a company when it comes to the payment of interests/dividends. The
interest rate on debentures is generally higher than bonds because they are not secured
by the physical assets of a company.

Q..Investment refers to the allocation of money or resources with the expectation of

generating income or profit over time. It typically involves purchasing assets such as
stocks, bonds, real estate, or starting a business, with the aim of achieving capital
appreciation, dividends, interest, or other financial gains. The goal is to increase the
value of the invested capital over the long term.
Q..Features of Investment
1.Safety Of Principal: An investment tool is termed as adequate if it ensures the safety of
the principal to investors
2.Capital Appreciation :Capital appreciation is an important feature of every
investment tool. Every investment is expected to rise in its value over a period of
time which is a key determinant for making deploying funds in it.
3.Expectation Of Return: The investment provides returns from time to time to
investors which varies as per the market conditions
4.Marketability: Marketability refers to the ease with which the investment
securities can be purchased and sold or can be transferred in the market.
5.Purchasing Power Stability: Every investor before making an investment
considers the future purchasing power of their funds
6.Tax Benefits: Tax implications on the income provided by investment programs
are seriously taken into consideration by investors
7.Legality :Investment securities must be evaluated from legal aspects before
selecting them. Only such securities which are approved by law should be chosen
as illegal securities will land investor in trouble
Q..Importance of Investment
Generates Income :Investment serves as an efficient tool for providing periodic
and regular income to people
Wealth Creation :Creation of wealth is another important role played by an
investment activity. It helps investors in wealth creation through appreciation of
their capital over the time
Tax Benefits: It enables peoples in availing various tax benefits and saving their
incomes
Economic Development: Investment activities have an efficient role in the overall
development of the economy. It helps in efficient mobilization of ideal lying
resources of peoples into productive means
Meet Financial Goals: Investment activities support peoples in attaining their
long term financial goals. Individuals can easily grow their funds by investing
their money in long term assets
Q..ENVESTMENT EVALUATION: Investment evaluation is the process of assessing
the potential profitability, risks, and overall viability of an investment
opportunity. This analysis typically involves examining financial metrics, market
conditions, and other relevant factors to make informed decisions about whether
to invest in a particular asset, project, or business. The goal is to determine the
potential return on investment and to weigh it against potential risks and
uncertainties.

INVESTMENT DECISION PROCESS……

1. Defining the investment objective :Investment objective may vary from
person to person .it should be stated in terms of both risk and return
2. Analyzing securities: The second steps of analyzing securities enable the
investor to distinguish between underpriced and overpriced stock. Research and
analyze individual securities such as stocks, bonds, or other investment options.
3. Construct a Portfolio: Combine selected securities into a diversified portfolio to
spread risk. Balance the portfolio based on factors like asset allocation, industry
exposure, and geographic considerations.
4. Evaluate the Performance of Portfolio: The performance evaluation of the portfolio
done on the in terms of risk and return.Regularly assess the portfolio's performance
against the investment objectives.
5. Review the portfolio :It involves the periodic repetition of the above steps. The
investment objective of an investor may change overtime and the current
portfolio may no longer be optimal for him. so the investor may form a new
portfolio by selling certain securities and purchasing others that are not held in
the current portfolio.

Q. Bonds
Bonds are debt financial instruments that both public and private sector companies use
to raise funds for their operations. The government agencies, financial institutions as
well as private enterprises issue these instruments to investors. Bonds are secured by
their physical assets. The holder of these bonds is the lender, while the issuer of these
bonds is the borrower. The borrower can issue these bonds to the lender, only by
promising to pay back the loan at a specific maturity date with a fixed interest rate. This
interest rate is generally lower than debentures because the physical assets of a
company secure bonds whereas the debentures are unsecured instruments

Q ..TYPES OF ORDERS
The most common types of orders……
1. A market order is an order to buy or sell a security immediately. This type of
order guarantees that the order will be executed, but does not guarantee the
execution price. A market order generally will execute at or near the current bid
price.
2. A limit order is an order to buy or sell a security at a specific price or better. A
buy limit order can only be executed at the limit price or lower, and a sell limit
order can only be executed at the limit price or higher
3. A stop order, also referred to as a stop-loss order is an order to buy or sell a
stock once the price of the stock reaches the specified price, known as the stop
price. When the stop price is reached, a stop order becomes a market order
4. A buy stop order is entered at a stop price above the current market price.
Investors generally use a buy stop order to limit a loss or protect a profit on a
stock that they have sold short.

Investment alternatives refer to various options available to investors for

allocating their funds. These alternatives can vary in terms of risk, return,
liquidity, and other characteristics. Here are some common investment
alternatives:
1.Stocks: Ownership shares in a company, offering the potential for capital
appreciation and dividends. They typically carry higher risk but also the potential
for higher returns.
2.Bonds: Debt securities issued by governments, municipalities, or corporations.
Bonds pay periodic interest and return the principal at maturity, providing a
more stable income stream than stocks with lower risk.
3.Mutual Funds: Pooled funds from multiple investors, managed by
professionals who invest in a diversified portfolio of stocks, bonds, or other
securities.
4.Real Estate: Investment in physical properties such as residential or commercial
real estate. Returns can come from rental income and property appreciation.

Q….TRADING AND SETTLEMENT PROCEDURE …

1] Selecting a Broker or Sub-broker :When a person wishes to trade in the stock
market, it cannot do so in his/her individual capacity. The transactions can only
occur through a broker or a sub-broker. So according to one’s requirement, a
broker must be appointed.
2] Opening a Demat Account :Since the reforms, all securities are now in
electronic format. There are no issues of physical shares/securities anymore. So
an investor must open a dematerialized account, i.e. a Demat account to hold and
trade in such electronic securities. your broker will open a Demat account with
the depository participant
3] Placing Orders :And then the investor will actually place an order to buy or
sell shares. The order will be placed with his broker, or the individual can transact
online if the broker provides such services
4] Execution of the Order :Once the broker receives the order from the investor,
he executes it. Within 24 hours of this, the broker must issue a Contract Note. This
document contains all the information about the transactions, like the number of
shares transacted, the price, date and time of the transaction, brokerage amount.
5] Settlement :Here the actual securities are transferred from the buyer to the
seller. And the funds will also be transferred. Here too the broker will deal with
the transfer. There are two types of settlements,
a) On the Spot settlement: Here we exchange the funds immediately and the
settlement follows the T+2 pattern
b) Forward Settlement: Simply means both parties have decided the settlement
will take place on some future date.

Q…SPECULATION: It is the transaction of members to buy or sell securities on stock

exchange with a view to make profits to anticipated raise or fall in prices of securities.
SPECULATOR: The dealer in stock exchange who indulge in speculation are called
speculators. They do not take delivery of securities purchased or sold by them, but only
pap or rescue the difference between the purchase price and sale price
Types…1.BULL (Tejiwala)
..He is a speculator who expects the future raise in price of securities.
..He buys the securities to sell them at future date at the higher price.
.. He is called as bull because his activities resembles as a bull,as the bull tends to throw
its victims up in the air through its horns.
2.BEAR(Mandiwala) • He is speculator who expects future fall in prices.
• He does an agreement to sell securities at future date at the present market rate.
• He is called as bear because his altitude resembles with bear, as the bear tends to
stamp its victims down to earth through its paws.
3.Stag: Stags are short-term investors who anticipate quick profits by buying into an IPO
(Initial Public Offering) and then selling their shares shortly after the public trading
begins.
4.Lame Duck: This term typically refers to someone who holds a long position in a
security that's unlikely to yield profits or has become unprofitable

Q..FUNDAMENTAL ANALYSIS :Fundamental analysis is a method of finding out

the future price of a security which an investor wants to buy. The objective of
fundamental analysis is to raise the intrinsic value of a security. This is an
intrinsic value for each security and it can be determined by making an analysis
of the fundamental factors relating to the company, industry and economy.
The fundamental analysis is an attempt to estimate the real worth of the
security by considering the earnings potential of a company
TYPES…1.MACROECONOMIC ANALYSIS: Macroeconomic analysis is crucial for investors
to evaluate the economy before making investment decisions. The state of the economy,
including the likelihood of a recession, significantly impacts the stock market. Both debt
and ownership securities are closely tied to economic activity. Economy analysis includes
GDP of the country,level of saving an investment ,inflation rate ,interest rate, tax
structure,demographic factors, government budget
2. INDUSTRY ANALYSIS: Industry analysis involves studying growing sectors for ideal
investments, such as entertainment and computer software in India. Understanding
industry classification, characteristics, problems, and practices is crucial. Factors like
labor costs, social habits, government regulations, and automation impact industries'
competitive positions..
3. COMPANY ANALYSIS: Company analysis is crucial for selecting investment
opportunities within an industry. It involves assessing a company's competitive position,
earning capacity, and profitability to determine its intrinsic value. Internal and external
information, including financial statements (income statement, balance sheet, and
statement of changes in financial position), are key components. Various tools, such as
trend analysis, ratio analysis, fund flow analysis, common size statement analysis, and
technical analysis, aid in evaluating a company's performance and potential for
investment. The accuracy of financial statements is verified through auditors' reports.
Approach…
1.Top-down approach: Starts with the analysis of the broader economy, then narrows
down to specific industries and finally to individual companies within those industries.
2.Bottom-up approach: Focuses on analyzing individual stocks without considering
broader economic factors. It assesses a company's financial health, management quality,
competitive advantages, etc.

Q..Technical analysis involves studying market data, such as prices and trading volume,
to forecast share price behavior quickly. It utilizes charts and graphs to analyze the
historical movements of share prices, aiming to explain and predict changes.
Practitioners of technical analysis believe that share prices are influenced by supply and
demand in the stock market. Investors using this method monitor market actions to
make informed decisions based on price and volume trends.
Technical analysis is based on certain assumptions. These are as follows:
(1) The price of security is related to demand and supply factors operating in the
market.
(2) There are rational as well as irrational factors which affects the supply and
demand factors of a security.
(3) The prices of securities behave in a manner that their movement is continuous
in a particular direction for some length of time.
(4) Trends in the price of securities have been seen to change when there is a shift
in the demand and supply factors.
(5) Whenever there are shifts in demand and supply, they can be detected through
charts prepared specially to show the action of the market.

Basis F.A T.A

relevance For long term investment For short term investment
function Useful for trading and Useful for trading
investing
objective To find out fair value of Determine correct time to enter
security and exit trade
data Use both past and present Use past data only
data
Traders type Long term position trader Swing and short term traders
concepts Return on equity and on Dow Theory and price data
asset

basis investor speculator

Time horizon Plans for longer time horizon Plans for very short period
risk Assumes moderate risk Willing to Undertake high risk
return Likes to have moderate rate of like to have high returns for
return associate with limited assuming high risk
risk
decision Considers fundamental factors Consider inside information
 and evaluates the performance gossips and market behaviour
of the company regularly
funds Uses his own funds and avoid Uses borrowed funds to
borrowed funds supplement his personal resources
safety He chooses the investment Focuses more on return then the
alternative who is has high safety
degree of safety
examples Stocks mutual funds and bonds Foreign currencies momentum
trading etc

basis bonds debentures

1. meaning A financial instrument showing A debt instrument used to race
the indebtedness of the issuing long term finance
body towards its holders
2.security Generally secured by collateral Can be secured or unsecured
3.Rate of interest Law interest rates High interest rates
4. Issued by Issued by Government agencies, Issued by companies
financial institution.etc
5.durability It is for long term It is for short term
6.risk Bones have low risk Debenture has high risk

# Marketable securities are financial instruments that can be easily bought or sold in the
open market. Examples include stocks, bonds, and short-term investments. They are
considered liquid and can be converted to cash quickly.
# Non-marketable securities, on the other hand, are financial instruments that are not
easily traded in the open market. These may include certain types of government savings
bonds or certificates of deposit with restrictions on their transferability. Non-marketable
securities may have limited liquidity compared to marketable ones.
Feature of M.S
1. *High Liquidity:* Marketable securities can be quickly converted to cash without
significant price discounts, providing investors with the ability to access funds promptly.
2. *Easy Transferability:* These securities are easily transferable between investors,
facilitating quick and straightforward transactions in the financial markets.
3. *Lower Rate of Return:* Marketable securities typically offer a lower rate of return
compared to riskier investments. Investors accept this trade-off for the benefits of
liquidity and ease of transfer.
4. *High Marketability:* These securities are readily bought and sold in the market due
to their standardized nature, making them attractive to investors looking for assets with
broad market acceptance.

Importance of M.S
1. *Liquidity Management:* Enables quick conversion to cash, supporting short-term
financial needs.
2. *Diversification:* Spreads risk across investments, minimizing exposure to market
fluctuations.
3. *Income Generation:* Generates income through interest or dividends, enhancing
overall financial returns.
4. *Flexibility:* Offers diverse investment options, catering to specific risk appetites and
objectives.
5. *Capital Preservation:* Certain securities safeguard capital, providing stability during
market uncertainty.
6. *Market Opportunities:* Facilitates seizing unexpected investment opportunities
promptly.
7. *Efficient Portfolio Management:* Enhances overall portfolio efficiency through
strategic allocation.
8. *Risk Mitigation:* Acts as a hedge, reducing the impact of adverse market conditions
on the portfolio.

Technical analysis involves studying market data, such as prices and trading volume,
to forecast share price behavior quickly. It utilizes charts and graphs to analyze the
historical movements of share prices, aiming to explain and predict changes.
Practitioners of technical analysis believe that share prices are influenced by supply and
demand in the stock market. Investors using this method monitor market actions to
make informed decisions based on price and volume trends.
Technical analysis tools:
1. *Trend Lines:* - Trend lines are drawn on a price chart to help identify the general
direction of the market. - An uptrend is formed by connecting higher lows, while a
downtrend connects lower highs. - Trend lines can act as potential areas of support or
resistance.
2. *Support and Resistance Levels:* - Support levels are price levels where a stock or
market often stops falling as demand increases. - Resistance levels are price levels where
a stock or market often stops rising as supply increases. - Traders use these levels to
make decisions about buying or selling.
3. *Moving Averages:*- Moving averages smooth out price data to create a single
flowing line, helping to identify trends over a specific time period. - Common types
include the simple moving average (SMA) and the exponential moving average (EMA).
- Crossovers of short-term and long-term moving averages can indicate potential trend
reversals.
4. *Trending Volume:* - Volume refers to the number of shares or contracts traded in a
security. - Trending volume is the volume associated with price movements in the same
direction as the prevailing trend. - Increasing volume during an uptrend or downtrend
can signal the strength of the trend.
These tools are often used together to analyze price movements and make
informed trading decisions in financial markets. Traders and analysts rely on these
indicators to gain insights into potential future price movements.

Dow Theory, developed by Charles Dow, categorizes market movements into major
trends lasting over a year, intermediate trends spanning a few months, and minor
movements lasting only hours to days. The theory asserts that stock market measures
tend to move together, with stock prices demonstrating patterns over four to five years.
It suggests that if the industrial average rises, the transportation average should also rise,
indicating a bull market. Conversely, declines in both averages moving in opposite
directions suggest uncertainty. Investors following Dow Theory may liquidate on sell
signals and buy on buy signals. However, critics point out issues such as its reliance on
historical data interpretation, lack of explanation for forecast accuracy, potential lag
between turning points, and its effectiveness during extended market movements.
The Random Walk Theory, pioneered by Samuelson and Mandelbrot, asserts that in
an efficient market with zero transaction costs and freely available information, stock
prices exhibit independent and random behavior. According to this theory, each price
change is influenced by individual pieces of information, and subsequent changes are
independent of one another. For example, a stock's price drop from `40 to `30 due to
news of a strike is considered a separate event from its further decline to `25, which may
be influenced by additional details about the strike. Despite individual independence,
consecutive price changes can collectively indicate a trend, demonstrating the
randomness inherent in market fluctuations.
The Efficient Market Hypothesis (EMH) is based on the idea that financial markets
are perfectly competitive and incorporate all available information into stock prices. The
hypothesis comes in three forms:
1. *Weak Form:* Past stock prices offer no advantage in predicting future prices,
challenging technical analysis.
2. *Semi-Strong Form:* Market prices adjust rapidly to new publicly available
information. Investors can't consistently earn returns higher than what reflects portfolio
risk based on public information
3. *Strong Form:* All information, including inside information, is already reflected in
stock prices. No opportunity exists for extraordinary gains based on any information.
The Capital Asset Pricing Model (CAPM) is a financial model that establishes a linear
relationship between the expected return of an asset and its systematic risk, often
measured by beta. Here are the key components:
1. *Expected Return (ER):* The return an investor anticipates from holding a particular
asset. It is calculated using the risk-free rate, beta (systematic risk), and the market risk
premium.
2. *Risk-Free Rate (Rf):* The theoretical return on an investment with zero risk.
Typically, it is represented by government bonds.
3. *Market Risk Premium (MRP):* The additional return expected for investing in the
overall market rather than a risk-free asset. It is the difference between the expected
return on the market and the risk-free rate.
4. *Beta (β):* A measure of an asset's systematic risk in relation to the overall market. A
beta of 1 indicates the same level of risk as the market, while a beta less than 1 suggests
lower risk, and a beta greater than 1 indicates higher risk.