Financial Innovation in Capital Market

3017 Words Jun 30th, 2011 13 Pages
Dr.C.Meera ** Mr.R.S.Mohan ***T.Ramesh

Financial innovation has been a continuous and integral part of growth of the capital markets. Greater freedom and flexibility have enabled companies to reinvent and innovate financial instruments. Many factors such as increased interest rate, volatility, frequency of tax and regulatory changes etc. have stimulated the process of financial innovation. The deregulation of financial service industry and increased competition within investment banking also led to increased activities to design new products, develop better processes, and implement more effective solution for increasingly complex
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It creates possibilities for their full subscription by the investors and also turns out to be cheaper for the issuing company.
The relationship between the underlying spot market, index funds, index futures and index options, the prerequisites for an index fund are program trading facilities and an index where all components are liquid and convenient to trade. Index funds fulfilling these conditions have now come to exist in India.
Technology Driven Financial Innovations:
Advancements in Information Technology have facilitated a number of innovations, such as new methods of underwriting securities, assembling portfolios of stocks, new markets for securities, new means of executing security transactions .New intellectual technologies, such as derivative pricing models, are credited with stimulating the growth and popularization of a variety of new contracts. Many new forms of derivatives have been made possible because business people could have some confidence in the methods of pricing and hedging the risks of these new contracts. Various forms of innovations such as new risk management systems and measures, on-line retirement planning services and new valuation techniques were clearly facilitated by both intellectual and information technology innovations.
Classification of Financial Products Product Elements
1 Payment products Retail, corporate and trade-related products, and financial/securities products.
2 Trade finance
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