CBSE Class 12 Business Studies Financial Markets Notes Set B

Introduction :
Financial Market is a market for creation and exchange of financial assets like share, bonds etc. It helps in mobilising savings and channelising them into the most productive uses. It helps to link the savers and the investors by mobilizing funds between them. The person / Institution by which allocation of funds is done is called financial intermediaries.

Functions of Financial Market.

1. Mobilisation of Savings and challenging them into the most productive uses: Financial market facilitates the transfer of savings from savers to investors and thus helps to channelise surplus funds into the most productive use.

2. Help in Price Determination: Financial Market helps in interaction of savers and investors which in turn helps in the determination of prices of the financial assets such as shares,
debentures etc.

3. Provide Liquidity to Financial Assets: Financial market facilitate easy purchase and sale of financial assets. Thus, it provide liquidity to them so that they can be easily converted into cash whenever required.

4. Reduce cost of transactions : Financial market provide valuable information about securities which helps in saving time, efforts and money and thus it reduces cost of transactions.
Stock Exchange / Share Markets A stock Exchange is an institution which provides a platform for buying and selling of existing securities. It facilitates the exchange of a security i.e. share, debenture etc. into money and vice versa.

Following are some of the important functions of a stock Exchange

1. Providing liquidity and Marketability to Existing Securities: Stock Exchange provide a ready and continuous market for the sale and purchase of securities.

2. Pricing of Securities: Stock Exchange helps in constant valuation of securities which provide instant information to both buyers and sellers and thus helps in pricing of securities which is based on the forces of demand & supply.

3. Safety of transaction: The members of a stock exchange are well regulated, who are required to work within the legal framework. This ensures safety of transactions.

4. Contributes to Economic Growth: Stock exchange provide a platform by which saving get channelised into the most productive investment proposals, which leads to capital formation & economic growth.

5. Spreading of Equity cult: Stock exchange helps in educating public about investments in securities which leads to spreading of Equity culture.

Securities and Exchange Board of India (SEBI)
SEBI was established by Government of India on 12 April 1988 as an interim administrative body to promote orderly and healthy growth of securities market and for investor protection. It was given a statutory status on 30 January 1992 through an ordinance, which was later replaced by an Act of Parliament known as the SEBI Act, 1992.

Objectives of SEBI

1. To regulate stock exchange and the securities market to promote their orderly functioning.

2. To protect the rights and interests of investors and to guide & educate them.

3. To prevent trade malpractices such as internal trading.

4. To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc.