Академический Документы
Профессиональный Документы
Культура Документы
Search InvestingAnswers
Search
[If you're ready to buy a home, use our Mortgage Calculator to see what your monthly
principal and interest payment will be.]
If XYZ Bank sells the mortgage, it gets cash to make other loans. So let's assume that XYZ
Bank sells your mortgage to ABC Company, which could be a governmental, quasi-
governmental, or private entity. ABC Company groups your mortgage with similar
mortgages it has already purchased (referred to as pooling the mortgages). The mortgages
in the pool have common characteristics (i.e., similar interest rates, maturities, etc.).
ABC Company then sells securities that represent an interest in the pool of mortgages, of
which your mortgage is a small part (called securitizing the pool). It sells these MBS to
investors in the open market. With the funds from the sale of the MBS, ABC Company can
purchase more mortgages and create more MBS.
When you make your monthly mortgage payment to XYZ Bank, they keep a fee or spread
and send the rest of the payment to ABC Company. ABC Company in turn takes a fee and
passes what's left of your principal and interest payment along to the investors who hold
the MBS.
There are two kinds of MBS. The first, called pass-throughs or participation certificates
(PCs), represent a direct claim on the pool of mortgage loans. The second kind, called
collateralized mortgage obligation mortgage obligations (CMOs) or real estate mortgage
investment conduits (REMICs) are more complicated. These securities essentially take the
interest and principal payments from several MBS and create additional securities with
varying maturities and coupons.
Capital Market Instruments in India
Posted By: adminon: March 12, 2013In: FinanceNo Comments
In this article we will tell you about Capital Market Instruments in India. Here’s the details.
Now we will discuss about the Capital Market and their Instruments, which are used by
various investors for getting better return. Before going into depth about capital market
instruments, we will briefly define the meaning of capital market. Let us have a look
Capital market refers to a type of financial market, where individuals and institutions are
trading in financial securities. Public and private institutions or organisations usually list
their securities for selling among investors and for raising their funds. This kind of a market
is made for both primary and secondary market. In this market, long term maturity
instruments are listed, which have a period of more than one year.
Investors are investing their money for long periods of time. Various financial institutions
provide the investing facility in capital markets, such as IDBI, UTI, ICICI, LIC, etc. These
agencies play a role of intermediaries or lenders. Capital market has various instruments for
investment.
Capital market is classified into two categories, first one is Primary market and second is
Secondary market. In primary market, the all new shares are traded in market and , on the
other hand, in the secondary market, the existing securities are traded. The institutions of
capital market facilitate foreign exchange loans, underwriting, consultancy, rupee loans, etc.
Capital market provides equity finance and long term debt to government or corporate.
Capital Market Instruments in IndiaWell, after discussing about capital market, here we will
discuss about various instruments of capital market, which are used by investors.
Shares
Shares are a unit of ownership in an organisation or corporation. It is a part of the
company’s capital. Those individuals who are getting shares from any company, are called
Shareholders. When a company wants to borrow and increase their capital, they issue their
shares in the stock market (exchange) for their investors.
However, companies also require to refund the amount from their Net Profit. Therefore,
shares play a significant role in the lives of companies and investors / shareholders.
Companies can issue two types of shares, which they offer to investors/shareholders. The
two types of shares are:
(a) Equity shares
(b) Preference shares
Bonds
Bonds are issued by the banks, organisations and financial institutions. They issue bonds for
getting an amount of money from public (as a loan) and commit them a refund with an
actual interest and within a maturity period. They issue their bonds for financing their
capital expenses and their various projects or activities.
This is one of the most frequently used methods for increasing their capital and profits.
When companies offer their bonds to public, they define a specified interest rate and
maturity period in an applicant form.
Bonds have various types( i.e risk free bonds, high interest bonds, etc.) and different
companies issued various types of bond to public
Debentures
Debenture is an instrument which is used by the Corporations and Government for getting a
loan from public and it is given under the company’s Stamp Act. Corporations and
Government can secure their debenture on company assets which it issues as long term
loans. In Debentures, companies are required to announce a fixed return at the time of
issuing.
Therefore, holders know that, how much amount they will get in future by issuer.
Debentures have various advantages for holders and issuers. It implies that holders know
that how much amount they will get in future, therefore they do not worry about their
payment and, in general, debentures are freely transferable by their holder to others.
Therefore, holders have a right to transfer their shares to anyone before their redemption.
Fixed Deposit
Fixed Deposit is that kind of bank account, where the amount of deposit is fixed for a
specified period of time. All Commercial banks are given these opportunities to their
customers for opening a fixed account in their bank. In a Fixed account, the amount of
deposit is fixed, which means we cannot withdraw an unlimited amount from this account,
therefore it is also called a Fixed Deposit.
If an account holder wants to withdraw a small amount of money from their account, then
he will require closing of the Fixed deposit account. The main purpose of account holders to
open this account, is to earn interest money from their actual money, which is given by the
banks during a specified period of time.
In the Forex market, we are dealing with different currencies of countries. We are not
dealing with only one currency at one time, we have to deal with a couple of currencies at
one time, for example USD/INR. In the example, the left side currency is called a Base
currency and the right side currency is called a Quote/Counter currency.
A price of one currency expressed in terms of the currency of another country is called as
the exchange rate. For example, the ratio of both currencies is 53.9, which implies that one
unit of US Dollar can buy or equals 53.9 Rupees of India. In that case, the US Dollar is a base
currency and the Indian Rupee is quote currency.
Gold ETF
Gold ETF is one of the most popular funds as it does not get influenced due to stock
fluctuations or inflation. Gold ETF fund is a fiscal instrument which works as a mutual fund
and whose prices are depending upon the market price of gold. When the market price of
gold increases, gold ETF prices also increase.
The services of Gold ETF fund transfers is available in few stock exchanges, such as Mumbai,
Paris, Zurich and New York. Gold ETF fund provides a variety of advantages to their holders,
such as Low cost, Tax advantage, Gold purity, there is no need to worry about safety, Issue
of selling gold bars and also beneficial in short term investments.
Home
Finance
OTCEI | Definition | Need | Features | Listing requirements
Definition of OTCEI
Over The Counter Exchange of India (OTCEI) can be defined as a stock exchange without a
proper trading floor. All stock exchange have a specific place for trading their securities
through counters. But the OTCEI is connected through a computer network and the transactions
are taking place through computer operations. Thus, the development in information
technology has given scope for starting this type of stock exchange.
OTCEI is recognized under the Securities Contract (Regulation) Act and so all the stocks listed
in this exchange enjoy the same benefits as other listed securities enjoy.
(Image: OTCEI Meaning)
Need for starting OTCEI:
Many small companies in India are finding it difficult to raise adequate capital through Stock
Exchanges as the conditions stipulated by them could not be fulfilled. The companies must
have run for minimum three years and they must have earned profit and the minimum capital
requirement for listing is also quite high. Hence by promoting a new Stock exchange with
flexible conditions, the small and medium companies in India will be able to raise sufficient
capital. Once these companies enlarge their resources, they can list themselves in the regular
stock exchanges.
Promotion of OTCEI:
OTCEI has been incorporated under Section 25 of the Companies Act. As a result of which the
word ‘Limited’ need not be used since it is promoted for a common cause of promoting the
interest of small and medium companies. This privilege has been given to the company by the
Central Government.
This company was promoted by a group of financial institutions owned by the Government of
India, consisting of UTI, ICICI, IDBI, SBI Capital Market, IFCI, LIC, GIC; and Can Bank
Financial Services (which is a subsidiary of Canara Bank).
Constituents of OTCEI
OTCEI commenced its operations in 1992. In OTCEI, we have the following parties taking
part in various transactions. They are
Companies
Dealers
Members
Investors
Custodian or Settlers
Transfer agents
OTCEI
Government and
SEBI.
How are transactions done in OTCEI?
The members of the OTCEI will invite companies to list on the exchange for raising capital.
There are dealers who perform the dual role of a broker and market maker. A broker acts on
behalf of buyer or seller, while a market maker has a responsibility to make available toe
particular share in the maker for transactions and to maintain reasonable price through supply
and demand forces.
Example: The market makers will prevent abnormal fluctuations in the price of securities by
regulating the supply and demand forces of securities in such a manner than acute scarcity or
abundant supply of any security will be avoided. If 1000 shares are demanded among different
categories so that the price will not fluctuate abnormally.
The custodian or a settler is one who validates the trading documents, stores the trading
documents and also arranges for the clearing of daily transaction. It is the settler who gives the
net monetary position of each member with regard to the market as a whole. The registrar and
transfer agents ensure share transfers and allotments of shares and also inform the
developments of various companies in the market.
Once a company lists its securities in the market, it cannot delist its securities for a
minimum period of 3 years.
There are certain norms to be fulfilled by companies for sale of equity shares or any other
securities under bought out deal (i.e., a company at its early stage may issue shares with
an understanding that it will buy back after 5 years at the market price from out of its
profits.)
20% of the issued capital should be retained by the promoters for a period of not less
than 3 years.
There should be two market makers as per the guidelines of OTCEI.
Indigenous bankers are classified into four main sub groups, i.e.,
Gujarati Shroffs, Multani-or Shikarpuri Shroffs, Chettiars and
Marwari, Kayast. Gujarati Shroffs are mostly operating in Mumbai,
Kolkata and in industrial and trading cities of Gujarat. The Multani
or Shikarpuri Shroffs are operating mainly in Mumbai and Chennai.
The Chettiars are mostly found in the South.
There are various types of chit funds in India. They are doing
business in almost all the states but the major portion of their
business is concentrated in Tamil Nadu and Kerala. Moreover, there
are ‘nidhis’ operating in South India which are a kind of mutual
benefit funds restricted to its members.
(iii) Moneylenders:
Moneylenders are advancing loans to small borrowers like marginal
and small farmers, agricultural labourers, artisans, factory and
mine workers, low paid staffs, small traders etc. at very high rates of
interest and also adopt various malpractices for manipulating loan
records of these poor borrowers.
In India, the RBI is the major holder of the treasury bills, which is
around 90 per cent of the total. In India, ad-hoc treasury bills have
now been replaced by ways and means Advances since April 1, 1997,
so as to finance temporary deficits of the Central Government.
Maturity period of CDs varied between three months and one year.
In India, six financial institutions, viz., IDBI, ICICI, IFCI, IRBI,
SIDBI and Export and Import Bank of India were permitted in 1993
to issue CDs for period varying between 1 to 3 years.
Although the RBI has tried to bring the indigenous bankers under
its direct control yet all the attempts have failed. Thus, as the
indigenous bankers remained outside the organised money market,
therefore, RBI’s control over the money market is quite limited.
(iv) DFHI:
The Discount and Finance House of India (DFHI) was set up on
April 25, 1988 as a part of the reform package for strengthening
money market. The main function of DFHI is to bring the entire
financial system consisting of the scheduled commercial banks, co-
operative banks, foreign banks and all- India financial institutions,
both in the public and private sector, within the fold of the Indian
money market.
This House will normally buy bills and short term papers from
different banks and financial institutions in order to invest all of
their idle funds for short periods. DFHI has also started to buy and
sell government securities from April 1992 in limited quantity with
the necessary refinance support from the RBI.