A financial market is a mechanism that allows people to buy and sell (trade) 1) financial securities (such as stocks and

bonds) 2)commodities (such as precious metals or agricultural goods)

and other fungible items of value at low transaction costs and at prices that reflect the efficient-market hypothesis

In finance, financial markets facilitate: The raising of capital (in the capital markets) The transfer of risk (in the derivatives markets) International trade (in the currency markets) and are used to match those who want capital to those who have it.

The financial markets can be divided into different subtypes: Capital markets which consist of: Stock markets:which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. Bond markets:which provide financing through the issuance of bonds, and enable the subsequent trading thereof. Commodity markets:which facilitate the trading of commodities. Money markets which provide short term debt financing and investment. Derivatives markets:which provide instruments for the management of financial risk. Futures markets:which provide standardized forward contracts for trading products at some future date; see also forward market. Foreign exchange markets:which facilitate the trading of foreign exchange.

DEFINITIONS A financial instrument is either cash; evidence of an ownership interest in an entity; or a contractual right to receive, or deliver, cash or another financial instrument. BY:-INTERNATIONAL MONETARY FUND Financial instruments can be thought of as easily tradable packages of capital, each having their own unique characteristics and structure. BY:-WIKIPEDIA A real or virtual document representing a legal agreement involving some sort of monetary value.

financial instruments can be classified generally as :equity based, representing ownership of the asset. debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument.

DEFINITIONS:A paper or electronic obligation that enables the issuing party to raise funds by promising to repay a lender in accordance with terms of a contract.

A written promise to repay a debt.

Document that serves as a legally enforceable evidence of a debt and the promise of its timely repayment.

CERTIFICATE OF DEPOSIT
Certificates of Deposit (CDs) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.

COMMERICAL PAPERS CPs represent short term unsecured promissory notes issued by firms with a high credit rating. The maturity of these vary from 15 days to a year. CPs can be issued by companies, which have a minimum net worth of Rs.4 crores and needs a mandatory credit rating of minimum A2 (ICRA), P2 (Crisil), D2 (Duff & Phelps) and PR2 (Credit Analysis & Research).

BONDS:-

Bonds refer to debt instruments bearing interest on maturity. In simple terms, organizations may borrow funds by issuing debt securities named bonds, having a fixed maturity period (more than one year) and pay a specified rate of interest (coupon rate) on the principal amount to the holders.
Used in Bond Market Bonds Issuer of Bonds Bond Holder Principal Amount Issue Price Maturity Date Coupon Coupon Date Meaning in General Terms Loans (in the form of a security) Borrower Lender Amount at which issuer pays interest and which is repaid on the maturity date Price at which bonds are offered to investors Length of time (More than one year) Rate of interest paid by the issuer on the par/face value of the bond The date on which interest is paid to investors-txt

TYPES OF BONDS:ZERO COUPON BONDS. FLOATING RATE BONDS. AMORTISING BONDS

DEBENTURES:DEBENTURES interest debt instruments with varying period of maturity.

It Can either be placed privately or offered for subscription. May or may not be listed on the stock exchange. The period of maturity normally varies from 3 to 10 years.

Types of debentures:Non convertible debentures (NCD) Partially convertible debentures (PCD) Fully convertible debentures (FCD)

DEFINITIONS:A piece of paper that proves the ownership interest of common and preferred stock holders in a company. The ownership interest is represented by shares reflecting the assets and earnings. Document that serves as a legally enforceable evidence of the right of ownership in a firm, such as a share certificate (stock certificate). Types of Equity Instruments

Equity instruments can be further classified into the following categories based on the different characteristics with which they are floated in the market: 1. Equity shares (at par/ premium) 2. Preference shares 3. Depositary receipts (American and Global) 4. Warrants

G.D.R:Global Depositary Receipts mean any instrument in the form of a depositary receipt or certificate (by whatever name it is called) created by the Overseas Depositary Bank outside India and issued to non-resident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company. Reliance Industries Limited was the first company to raise funds through a GDR issue.

Warrants
Warrant is a certificate giving the holder the right to purchase securities at a stipulated price within a specified time limit . The warrant acts as a sweetener because the holder of the warrant has the right but not the obligation of investing in the equity at the indicated rate.

DEFINITION: An unregistered, negotiable bond on which interest and principal are payable to the holder, regardless of whom it was originally issued to. The coupons are attached to the bond, and each coupon represents a single interest payment. The holder submits a coupon, usually semi-annually, to the issuer or paying agent to receive payment. bearee bond also called coupon bond.

Who Issued Bearer Bonds? Bearer bonds were made illegal to issue in the USA in 1982. There are still some older bearer bonds in circulation issued before 1982. Governments and private corporations issued bearer bonds.

A bearer bond is similar to a bearer share in that the ownership is based upon who has the physical possession of the paper. Bearer shares represent ownership in a corporation while bearer bonds represent ownership of debt from the bond issuer. Both are considered negotiable instruments. Bearer Bond Coupons

Many bearer bonds had coupons attached to them. One could clip such a coupon and redeem it for the annual or semi-annual interest by presenting it to the bond issuer for redemption. Coupons were also bearer instruments.

DEFINITION:Legal tender in the form of a banknote that can be used in exchange for goods and services in the euro zone. Euro notes come in 5, 10, 15, 20, 50, 100, 200 and 500 euro denominations. The supply of euro notes is controlled by the European Central Bank, which controls the monetary policy in order to maintain price stability in the European Union. The design of the euro notes was chosen in December 1996. The incorporation of the euro in 1999 has drastically changed the foreign exchange markets and has made the euro one of the most highly liquid and commonly traded currencies in the world. The quantity of euro notes in existence has growth at an annual rate of 32% since 2002, to about 285 billion Euros today. EURO notes have to bear the ECB president's signature.

DEFINITION:Bonds that are issued in a country by a non-domestic entity. Types of international bonds 1.foreign bond 2.euro bond 3.global bond A bond that is issued in a domestic market by a foreign entity, in the domestic market's currency. Foreign bonds are regulated by the domestic market authorities and are usually given nicknames that refer to the domestic market in which they are being offered. investors find FOREIGN BONDS attractive because they can add foreign content to their portfolios without the added exchange rate exposure TYPES OF FOREIGN BONDS

1. bulldog bonds. 2. matilda bonds. 3. samurai bonds

BULLDOG BOND:A sterling denominated bond that is issued in London by a company that is not British. the bulldog is a national symbol of England.

MATILDA BOND:An bond denominated in the Australian dollar and issued on the Australian market by a foreign entity.

Created in 1994

SAMURAI BOND:A yen-denominated bond issued in Tokyo by a non-Japanese company and subject to Japanese regulations. Other types of yen-denominated bonds are Euro yens issued in countries other than Japan.

Eurobond:A Eurobond is an international bond that is denominated in a currency not native to the country where it is issued. It can be categorized according to the currency in which it is issued. London is one of the centers of the Eurobond market, but Eurobonds may be traded throughout the world - for example in Singapore or Tokyo

A bond issued in a currency other than the currency of the country or market in which it is issued.

Global Bond
Bonds that can be offered within the euro market and several other markets simultaneously.

Unlike Eurobonds, global bonds can be issued in the same currency as the country of issuance.
For example, a global bond could be both issued in the United States and denominated in U.S. dollars