Significance of secondary markets, Financial Management

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.

 

Posted Date: 9/10/2012 7:46:25 AM | Location : United States







Related Discussions:- Significance of secondary markets, Assignment Help, Ask Question on Significance of secondary markets, Get Answer, Expert's Help, Significance of secondary markets Discussions

Write discussion on Significance of secondary markets
Your posts are moderated
Related Questions
Mistakes in Linton's evaluation (1) The preliminary investment in working capital should be offset by a working capital release in the final year, assuming a constant level of

What are the misconceptions about Financial Management?

Question 1: i) Activity Based Costing is better than the Traditional Product Costing. Discuss, by making use of empirical evidence ii) The replacement of cash-based accounti

Basic Assumptions of Cost of Capital The Cost of Capital is a dynamic concept affected by a multiplicity of economic and firm factors and assumes the following assumptions rela

Factors to consider in a takeover/ merger Before a company decides to merge or acquire the following considerations should be taken: Rejection of bid by ta

Hedging Using Commodity Futures Producers of agricultural commodities are faced with price risk and production risk over a period of time and within a marketing year. In case o

explain in detail the primary function of taxation in relation to public fianace

Analytical procedures of auditors Auditors must apply analytical procedures at the planning and overall review stage of audit. Analytical procedures include the considerati

Q. Distinguish between Management Accounting and Financial Management with clear mention of basis of differences. How does the traditional financial manager differ from the mode

Current Liabilities: A liability is an obligation to convey assets or do services at some future date. For purposes of balance sheet analysis, it is important to create a dist