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Stuck with financial markets that seem like a jumble of stocks, bonds, and trading rules? Don’t worry, this chapter is way easier once you see the big picture. It’s all about how money moves, how businesses raise funds, and how people invest smartly - that’s the core.
From money vs. capital markets to stock exchanges, SEBI’s role, and even online trading trends, everything fits once the basics are clear. So if you’re looking for no-fluff, exam-ready Class 12 Business Studies Financial Markets Notes, this is exactly where you should be.
NCERT Business Studies Chapter 10 Financial Market Notes
If you’re tired of flipping pages and getting lost in definitions - pause right here. These Financial Markets Class 12 Notes break down the chapter step by step.
In this chapter you learn about financial markets - basically where people with extra money (investors, banks) lend it to those who need it (businesses or the government). They keep money moving, help companies grow, and give you a chance to invest smartly.
Key points:
- Money Market: Deals with short-term funds (less than a year).
- Capital Market: Handles long-term investments.
- Primary Market: Companies sell new shares to raise money.
- Secondary Market: Old shares are bought and sold on stock exchanges.
- Stock Exchanges: Make trading smooth and prices clear for everyone.
- SEBI: Keeps the market fair and protects investors.
- Trends: Online trading and Demat accounts make investing faster and simpler.
Introduction to Financial Markets
A financial market is a place where people and organizations come together to trade financial assets like shares, bonds, debentures, and other securities.
These markets play a very important role in an economy by mobilizing savings and directing them towards productive investments.
They help in price discovery, provide liquidity to assets, and reduce the cost of transactions.
Without financial markets, it would be difficult for businesses to raise funds or for investors to find reliable avenues to invest their savings.
Functions of Financial Markets
1. Mobilization of savings and channelizing them into the most productive uses.
2. Facilitates price discovery of financial assets.
3. Provides liquidity to financial assets.
4. Reduces cost of transactions and information.
Financial Markets Class 12 Notes - Types of Financial Markets
There are mainly two types of financial markets:
Money Market: It is where short-term funds (with a maturity of less than one year) are borrowed and lent. It is used mostly by governments, banks, and large corporations to manage their short-term liquidity needs.
Capital Market: It deals with long-term financial instruments like shares and debentures. It provides companies with long-term funds needed for expansion and development. Features includes:
- Provides long-term funds.
- Risk is higher than the money market.
- Instruments include shares, debentures, bonds, etc.
Class 12 Financial Market Notes - Capital Market Classification
The capital market helps in raising long-term funds.
A. Primary Market (New Issue Market)
- Where new securities are issued for the first time.
- Companies raise fresh capital through this market.
Methods of Floatation in Primary Market:
In the primary market, companies can raise funds through various methods of floatation.
- One common method is Offer through Prospectus, where the company invites the general public to buy its shares through a widely advertised prospectus. This is the most popular method for public issues.
- Another method is the Offer for Sale, where securities are first sold to intermediaries like brokers or investment banks, who then offer them to the public.
- Private Placement involves selling shares to a select group of investors, such as financial institutions or high-net-worth individuals, without a public offering, this is quicker and less costly.
- The Rights Issue allows existing shareholders to buy additional shares at a discounted price, usually in proportion to their current holdings.
- Lastly, e-IPOs or electronic Initial Public Offerings enable companies to issue shares online through a recognized stock exchange platform, making the process faster, more transparent, and efficient for both the company and investors.
B. Secondary Market (Stock Exchange)
- Existing securities are traded here.
- Provides liquidity and a platform for price discovery.
Financial Markets Notes Class 12 - Functions of a Stock Exchange
It is an organized marketplace for buying and selling of securities.
Examples: NSE, BSE
Functions:
- Provides liquidity and marketability to existing securities.
- Pricing of securities.
- Safety and transparency in transactions.
- Contributes to economic growth.
- Spreads equity culture.
- Offers a regulated platform.
Trading Procedure in a Stock Exchange:
The trading procedure in a stock exchange involves a systematic and electronic process that ensures smooth and transparent buying and selling of securities. To begin trading, an investor must first open a Demat account, which holds shares in electronic form, and a trading account, which allows transactions on the stock exchange. These accounts can be opened through registered brokers or financial institutions.
Once the accounts are active, the investor needs to choose a broker who is a member of a recognized stock exchange such as NSE or BSE. The broker acts as a middleman between the investor and the stock exchange. The investor then places a buy or sell order through the broker, either online or via phone. These orders specify details like the number of shares and price.
After the order is placed, it enters the exchange’s electronic trading system, where it is matched with a counter-order. If the prices match, the order is executed, and a trade confirmation is sent to both parties.
Finally, the settlement and delivery of shares and money take place electronically through clearing corporations, generally within T+1 working day (Transaction day + 1 day). This fast and automated process ensures security, transparency, and efficiency in the Indian stock market.
Notes of Financial Market Class 12 - Securities and Exchange Board of India (SEBI)
To regulate and monitor the securities market in India, the Securities and Exchange Board of India (SEBI) was established in 1988 and became a statutory body in 1992. SEBI’s main aim is to protect the interests of investors, promote the development of the securities market, and regulate its functioning.
Objectives of SEBI:
- Protect the interests of investors.
- Promote healthy development of the securities market.
- Regulate the market to ensure fair practices.
Functions of SEBI:
A. Protective Functions:
- Prevent insider trading.
- Prohibit fraudulent activities.
- Promote fair practices.
B. Developmental Functions:
- Investor education.
- Training intermediaries.
- Encourage e-trading and innovations.
C. Regulatory Functions
- Regulates stock exchanges and intermediaries.
- Registers and regulates mutual funds.
- Conducts inquiries and audits.
Recent Trends in Financial Markets (Optional/Additional)
- Online Trading Platforms: Fast and easy transactions through websites/apps.
- Dematerialization of Securities: Shares now held in electronic form via Demat accounts.
- Real-Time Settlement: T+1 system (Transaction + 1 day).
- The role of technology is increasing via automation, AI, etc.
Key Definitions to Remember
"Some concepts are like the building blocks here - if you get these definitions right, the rest of the chapter feels easier.
Key points:
- Money Market: Deals with borrowing and lending for less than a year. Example: Treasury bills, commercial papers.
- Capital Market: For long-term funds and investments. Example: shares, debentures, bonds.
- Primary Market: Where companies issue new shares to raise fresh money.
- Secondary Market: Where already issued shares are traded among investors (stock exchanges).
- Stock Exchanges: Platforms like NSE or BSE that make trading easy, fair, and help discover the right price of shares.
- SEBI (Securities and Exchange Board of India): Regulates the market, keeps it transparent, and protects investors from fraud.
- Trends: Online trading and Demat accounts have made investing super fast, paperless, and accessible to everyone.
Conclusion
And that’s a wrap on Financial Markets, no more scary jargon or confusing terms. From knowing how businesses raise money to how investors grow their wealth, you’ve now seen the full cycle. This chapter is a glimpse into how the financial world really works, and trust us, it’s more relevant than it first seems.
If you’ve followed along, taken it topic by topic, and connected the dots, you’re already ahead. Just revise smartly, focus on the key terms like money market, capital market, primary and secondary market, and SEBI’s functions, and you’re good to go.
So next time someone talks about shares, IPOs, or trading, you won’t feel lost, you’ll get it. That’s the power of clear understanding. Keep the momentum going, and who knows, you might just enjoy this world of finance more than you expected!
FAQs
Q1. What is a financial market in Class 12 Business Studies?
Ans. It’s basically a place where money and financial products are traded. In your syllabus, you’ll study two types – money market (short-term) and capital market (long-term).
Q2. What are the main functions of a financial market?
Ans. Simple – it collects savings, gives funds to businesses, sets prices of securities, and makes buying–selling of money easy.
Q3. What are the components of financial markets in Class 12?
Ans. Only two: Money Market (short-term borrowing) and Capital Market (long-term funds like shares & debentures).
Q4. Why is the financial market important?
Ans. Because it keeps money moving in the economy – from savers to investors – so businesses can grow.
Q5. What are money market instruments in Class 12?
Ans. Things like Treasury Bills, Commercial Papers, Call Money, and Certificates of Deposit – all used for short-term borrowing.
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