BASICCASHMARKETCONCEPT
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ConceptofCashMarket
A market of Commodities or security in which goods are sold for
ready cash and delivered immediately is known as Cash Market.
It is also known as Spot Market.
It is deals with risk free business of trading the goods and security.
The contract in the Spot Market is become immediately effective.
In the context of Securities, The Spot/Cash market is a securities
market in which securities are sold for cash and delivery
immediately.
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MechanicsofCashMarket
In Cash Market after the end of the daily trading cycle, all transactions
are clubbed together, position are netted out and the balance is
settled by payments of cash and delivery of securities.
Investors who are interested in buying and selling securities should
place their orders with the Brokers of the exchange.
These Brokers/Members of exchange execute the Investors orders
and for that they charge the Commission.
The mechanics of cash market means how the cash market works. It
involves the following aspects
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Cont
1.FindingtheBroker
ProvideInformation
AvailableofInvestmentLiterature
Appointcompetentrepresentative
2.KindsoftheBrokersSelection
CommissionBrokers
Jobber
FloorBrokers
OddlotDealer
Arbitrageurs
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Cont
3.OpeningofAccountwithBroker
4.Typesoforders
MarketOrder
LimitOrder
StopOrder
StopLimitOrder
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Cont
5.Exercisingchoiceoforders
LongandShortposition
Spotdelivery
Handdelivery
Specialdelivery
6.Givingthemarginmoneytobrokers
7.ExecutionofOrderinthestockexchange
8.Preparingcontractnoteinthestockexchange
9.SettlementofContract
Readydelivery
Forwarddelivery
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SpotMarketversus FutureMarket
SpotMarket
Commoditiesandsecuritiesaresold
forreadycashanddelivered
immediately.
Nomarktomarketrequired
ThismarketisforInvestors
TherenoCounterpartyrisk.
Thereisnoanyfutureobligationto
perform
Thecontractimmediatelyeffective.
FutureMarket
Commoditiesandsecuritiesarenot
soldforreadycashanddeliveredin
futurepredetermineddate.
Marktomarketrequired
ThismarketisforHedgers,
SpeculatorsandArbitrageurs.
ThereisCounterpartyrisk.
Thereisfutureobligationtoperform.
Thecontracteffectiveat
predeterminedfuturedate.
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Evolutionandgrowthofthe
DerivativeMarketinIndia
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HistoryandbackgroundofDerivativesinIndia
Derivative have been existed from a long time.
In 1875The Bombay Cotton Trade Association started Future trading.
In 1952 Government of India Banned cash settlement and option
trading.
Then, Derivatives trading shifted informally shifted to Forward
market.
Now a days, Government policy formulated in favor of Derivative
Market and Liberalized.
SEBI granted to commence derivatives trading in June 2000 after
getting the recommendation from L. C. Gupta Committee.
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Cont
14Dec,1995NSEaskedSEBIforthepermissiontotradeindexfuture
18Nov,1996SEBIsetupL.C.GuptaCommitteetodraftapolicy
11May,1998 L.C.GuptaCommitteesubmittedreport
7July,1999RBIgavepermissionforOTCFRAandInterestrate
swaps.
25May,2000SEBIgavepermissiontoNSEandBSEforfutureindex
trading
9June,2000BSEcommencedtrading
12June,2000NSEcommencedtrading
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GrowthofFinancialDerivativesinIndia
TheDerivativeMarketgrowthforequityreached$114.1trillion.
Theopeninterestinthefutureandoptiongrewby38%.
WhileInterestratefuturegrewby42%.
Hence,ThesizeofDerivativemarketforfutureandoptionwas$49
trillion.
TheOTCDerivativesmarketsizereachedat$70,000billion.
Thecreditderivativegrewfrom$4.5trillionto$0.7trillionin2001.
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FactorscontributingtotheGrowthDerivative
Market
PriceVolatility
GlobalizationoftheMarket
Technologyadvantages
AdvancedinFinancialTheories
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