Financial Markets and Financial Instruments in Nepal

Topics: Stock, Bond, Stock market Pages: 18 (6683 words) Published: April 7, 2012
Financial Market and Financial Instruments

Market is simply defined as an area for potential exchanges. Thus market is a group of buyers and sellers interested in negotiating the terms of purchase or sales of goods and services. Similarly, financial market is that market is traded- loaned or borrowed-in-terms of different financial assets or instruments stocks and bonds are traded. "Securities" means shares, stock, bond, debenture, debenture stock issued by a corporate body or a certificate to unit saving scheme or group saving scheme issued by any corporate body in accordance with the prevailing laws or negotiable certificate of deposit or treasury bill issued by Nepal Government and it includes the securities issued under full guarantee of Nepal Government by a notification published in the Nepal Gazette or receipts relating to deposits of securities as well as rights and interest relating to securities (Security Exchange Act, 1983). Financial instruments are traded in the financial market. Investors can buy or sell securities immediately at a price that varies little from the financial markets and facilitates the pricing discovery process. Buying and selling orders that flow from investors' demand and supply preferences determine the price of securities in the security market. It plays a significant role in bridging gap between the deficit and surplus units of society. The common stock, preferred stock, debentures and government securities are mainly used in terms of securities in Nepal. The preferred stock and debentures are not commonly used in Nepal. Basically the common stock is traded through NEPSE. The government securities are also important securities, which are issued by Nepal Government through Nepal Rastra Bank (NRB). “Financial assets or simply a security is only a piece of paper that represents the investor’s right to certain prospects or property and the conditions under which he or she may exercise those rights. These rights are transferable to another investor and with it will go all its rights and conditions. So, it is just a legal representation of the rights to receive prospective future benefits under stated conditions”. (Alexander, 1998) Financial market is the common floor that helps creating the trade of financial securities. The major purpose of financial market is to transfer funds from lenders to borrower. They are the intermediary link in facilitating the flow of funds from savers to investors. Financial market is defined as a market mechanism that allows people to buy and sell financial securities, currencies, and foreign exchanges or other exchangeable items of value at low transaction cost and prices reflecting an efficient market system. Financial markets like any other general or specialized market places interested sellers in one place thus making their task easier to find for prospective buyers. The financial market could signify trading in financial products or the raising of capital. The relevant financial market in both the cases would be the stock exchange which facilitates trade in stocks, bonds and warrants. Financial markets can also mean money market which provide for short term debts and investment as well as derivatives markets providing instruments for the management of financial risk. Financial market is used interchangeably with capital markets which may be primary or secondary depending in nature newly issued or existing securities. In financial markets parlance, world financial market or global financial markets is of key importance as it is a compendium of resources for financial markets worldwide including those of those of the developed and the developed and the developing countries. In this context, it can be added that, development of the financial markets into smooth and efficient body is one of the basic features for overall development of the nation. Participants in the financial market commonly distinguish between the capital market and money market, former...
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