Significance of secondary markets, Financial Management

Assignment Help:

Significance of Secondary Markets:

High liquidity and constant demand in the market need a diversified investor base with different preferences of demand, maturity and risk. Apart from the present players like banks, PDs and mutual funds, if the retail investors and foreign investors are also allowed to enter, the investor base can be widened. One of the significant aspects of the overall plan to develop a more diversified investor base is to meet the needs of retail investors, as it often reduces volatility in the market and ensures stable demand.

The liquidity in the secondary market can be increased by developing the repo markets, the role of benchmarks in the market valuation, and short selling in the market, etc. Some markets have prohibited the short selling of securities and the rationale behind this act should be recognized. Though the short selling has a positive effect on the liquidity and price efficiency in the market it may also increase the market volatility and risks particularly so if the market takes larger position than what it is capable of handling.

The RBI has initiated many measures to better the secondary market liquidity in the Government Securities market. Some of them allow a variety of participants, like reopening of bonds, Liquidity Adjustment Facility (LAF), repo market, setting up of Clearing Corporation of India Ltd., negotiated dealing system for trading, Delivery vs Payment system for settlement of Government Securities in scripless form, and communication of information relating to all Government Securities traded in the market on a daily basis.

Initially, the RBI was the announcer of the yield curve but now FIMMDA, a self-regulatory organization, announces the yield curve, based on a methodology that is approved by the RBI. Incidentally, banks are holding around 37% of their liabilities in Government Securities as against the Statutory Liquidity Ratio (SLR) of 25 percent. The Reserve Bank of India (RBI) has taken steps and given a direction to banks to achieve the targeted reserve created for investment fluctuation.

 


Related Discussions:- Significance of secondary markets

What are the aspects of receivables management, Q. What are the Aspects of ...

Q. What are the Aspects of Receivables Management? Scope or else Aspects or Receivables Management: - Extent of receivables management is quite wide. It comprises the following

Determine the term- time value of money, Determine the term- Time Value of ...

Determine the term- Time Value of Money If an individual behaves rationally, then he wouldn't equate money in hand today with same value a year from now. As a matter of fact, h

Bankruptcy and bondholder rights, The holder of a corporate debt inst...

The holder of a corporate debt instrument is preferred to equity shareholders in the bankruptcy proceedings. However, secured/senior creditors are preferred to no

Yield curve shift, The relative change in the yield for each treasury...

The relative change in the yield for each treasury maturity is known as a shift in the yield curve. When the change in the yield for all the maturities is same, t

Stream of expected returns, Stream of Expected Returns Investment retur...

Stream of Expected Returns Investment returns can take many forms. An investor must consider all these forms to evaluate an investment option accurately. A brief description of

Why do analysts calculate financial ratios, Why do analysts calculate finan...

Why do analysts calculate financial ratios? The comparative measures are known as Ratios. Since the ratios show relative value, they permit financial analysts to compare inform

Define financial management, Financial management is that division of manag...

Financial management is that division of managerial process which is concerned with the planning and controlling of firm's financial resources. It is concerned with the procurement

Methods of workers participation in management, Methods of workers particip...

Methods of workers participation in management: the various methods of workers participation in management are as follows: 1. Informative participation: it refers to sharing of

Price-yield relationship in bonds, Typically in a bond, we find...

Typically in a bond, we find an inverse relation between the price and the required yield. We know that the price of the bond is the present val

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd