Financial Markets

  • Evolution of Stock Markets

    • The stock market is one of the primary sources for the companies to raise capital either for its incorporation or expansion.
    • The liquidity aspect in stock, influences the investor to invest in stock and to earn a return out of it. This is the reason for the evolution and rapid development of stock markets either in India or world wide.
    • Historical and cultural differences explain most of the significant differences in stock-trading practices around the world are because of historical and cultural differences.
    • Among the most famous and popular stock exchanges, Newyork stock exchange and Tokya stock exchange accounts are nnost prominent. The huge annount of average daily trading in these exchanges reflects their irnportance in the world equity markets.

     

    Stock Market Indicators

    • Stock Market Indicators provide a summary measure of the behavior of security prices and the stock market.
    • Security market indices help in analyze the movements of prices of various stocks listed in stock exchanges and are useful indicators of a country's economic health.
    • The stock indices can be organized by weighting the sample of stocks.
    • International stock indices such as CRISIL 500 are of prime importance for fund managers for better asset allocation and performance measurement.
    • Domestic stock indices are broad-based and covering companies from several industries with proper market value weightage. They include BSE 100 Index, BSE 200 and DOLLEX, S & P CNX 50 etc.
    • The stock markets, by their very nature, are very dynamic and hence, the indices should be revised or adjusted periodically to reflect the changed conditions so that they continue to be relevant.

     

    Primary and Secondary Market

    • The stock issuing market in the Indian context refers to the primary market for equity and preference shares.
    • A  company can raise share capital from the primary market in three ways: (i) Public issue (it) Rights issue and (in) Private placement.
    • The book building process is a price discovery mechanism in an Initial Public Offer (IPO).   
    • Listing means admission of securities for trading on a stock exchange through a formal agreement between the stock exchange and the company.
    • Market order is most common form of order is the market order, which means the order to buy or sell at the best current market price.
    • Insider trading refers to transactions in securities of some company insider.

     

    Integration of Stock Exchanges

    • Stock market integration gives an investor freedom to buy and sell shares in different markets across the world, without any restrictions. This also facilitates trading of identical securities at the same price in different markets after foreign exchange adjustment.
    • Various factors such as telecommunication, home country's listing procedure, advanced technology etc influence integration of stock markets.
    • The major benefit of integration of stock markets is availability of border market for trading.
    • Factors such as capital market segmentation, fluctuations in exchange rates, capital account convertibility etc act as barriers to integration of stock markets.
    • In India there are 23 stock exchanges. Most activities are mainly carried out in four major stock exchanges located at Mumbai, Delhi, Kolkata and Chennai that account for nearly 90% of market capitalization.