FINANCIAL MANAGEMENT

1. INDIAN FINANCIAL SYSTEM WITH REFERENCE TO MONEY AND CAPITAL MARKETS

2. OBJECTIVE OF FINANCIAL MANAGEMENT.

DONE BY : HARSHIT VERMA

INDIAN FINANCIAL SYSTEM WITH REFERNECE TO : CAPITAL MARKETS

-- The Indian financial system comprises of all these financial constituents. There are two types of financial institutions‒ banking and non-banking. Financial markets are divided into two categories ‒ money market and capital market. Capital market are further divided into three categories namely corporate securities, government securities and derivatives. Capital markets in India form an essential part of the financial system. -- Capital market is a market which consists of long-term debt instruments and equity shares. Capital funds are raised by the entrepreneurs in the form of debt and equity instruments only.

FUNCTION OF A CAPITAL MARKET

CAPITAL FORMATION. ECONOMIC GROWTH. MOBILIZATION OF THE SAVINGS. AVAILABILITY OF FUNDS. OPTIMUM UTILIZATION OF

RESOURCES.

CLASSIFICATION OF CAPITAL MARKETS IN: PRIMARY AND SECONDARY MARKETS

PRIMARY MARKETS :-

In the primary market, the securities be it shares, bonds and debentures are offered to the public for subscription for the purpose of raising capital. The issue of certificates is regulated by the Securities and Exchange Board of India and the Companies Act. The primary market is further classified into 'public issue market' and 'private issue market'. SECONDARY MARKETS :- In the secondary market, the securities are purchased

and sold once it is first offered to the public in the primary market or once they are listed in the stock exchanges. The secondary markets comprises of equity markets and debt markets. It is an avenue where already existing securities are bought and sold amongst the investors. The secondary market can function as an auction market or as a dealer market.

INDIAN FINANCIAL SYSTEM WITH REFERENCE TO : MONEY MARKETS As per RBI definitions “ A market for short terms

financial assets that are close substitute for money, facilitates the exchange of money in primary and secondary market”.

The money market is a mechanism that deals with the lending and borrowing of short term funds (less than one year).

A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.

FUNCTIONS OF A MONEY MARKET Transaction have to be conducted without the

help of brokers. It is not a single homogeneous market, it

comprises of several submarket like call money market, acceptance & bill market.

The component of Money Market are the commercial banks, acceptance houses & NBFC (Non-banking financial companies).

In Money Market transaction can not take place formal like stock exchange, only through oral communication, relevant document and written communication transaction can be done.

FINANCIAL

MARKETS

MONEY MARKET

CAPITAL MARKET

MONEY MARKET

DEBT

CAPITAL MARKET

DEBT / EQUITY

PERIOD OF 1 YEAR

OBJECTIVES OF FINANCIAL MANAGEMENT

The objective provide a framework for optimum financial decision making. They are concerned with designing a method of operating the internal investment and financing of a firm.there are two widely discussed approaches under this, these are:

Profit MaximisationWealth Maximisation

PROFIT MAXIMIZATION

Profit /EPS maximization should be undertaken and those that decrease profits or EPS are to be avoided. Profit is the test of economic efficiency. It leads to efficient allocation of resources, as resources tend to be directed to uses which in terms of profitability are the most desirable. Financial management is mainly concerned with the efficient economic resources namely capital. The main technical flaws of this criteria are :

Ambiguity Timing of benefits Quality of benefits.

WEALTH MAXIMIZATION

Wealth maximization is also known as Value or Net present worth maximization. Its operational features satisfy all the three requirements of the operational of the financial course of action namely, exactness, quality of benefits, and the time value of money. Two important issues related to the value/share price maximization are:

Focus on stakeholders ,stakeholders include groups such as employees, customers, suppliers, creditors, owners and others who have a direct link to the firm.

EVA (Economic Value Added) –EVA is equal to the after-tax operating profits of a firm less the cost of the firm to finance investments.

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