Financial market is a market for creation and exchange of financial assets i.e., shares, debentures, treasury bills etc. It facilitates exchange of financial instruments between business firms (investors) and households (savers). Financial market can be of two types: capital market or money market. Capital market provides medium to long-term funds i.e., having maturity period of more than one year whereas money market provides short term funds i.e., having maturity period up to one year. Money market instruments are treasury bill, commercial paper, call money, certificate of deposit, etc. Capital market can be primary (deals in new issue) or secondary (purchase & sale of existing securities). Offer through prospectus, offer for sale, private placement, right issue and e-IPO are the methods of floatation in primary market.
Stock exchange means body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating or controlling the business of buying and selling in securities. Functions of stock exchange are liquidity and marketability, pricing of securities, safety of transactions, etc. Stock market index reflects market direction and day to day fluctuation in stock prices, etc. BSE, NSE and OTCEI are the exchanges in India. Steps in trading procedure on stock exchange are selection of broker, opening a demat account, selection of securities, placement of order, execution of order and settlement. The advantages of electronic trading system are that it ensures transparency, increases efficiency of information and operation, improves liquidity of stock market, etc. Depository is an institution which holds securities, like shares, debentures, bonds, mutual funds, etc. in electronic form. Demat account is dematerialised account for trading in listed securities in electronic form, as required by SEBI. Brokers, jobbers, bull and bear are the type of operators in market. Other terms used in stock exchange are sensex, nifty, ex-dividend, cum-dividend, spot delivery and forward delivery. SEBI is established to promote orderly and healthy growth of securities market and to protect investors from malpractices. SEBI performs regulatory functions, development functions and protective functions.