Why isn't the chain on the rear gear in biggest cog for lowest gear I have bought a bike few days ago and I am a new rider as an adult. And, I am a little confused as my rear brake has 7 cogs but the chain is on the second from top cog. 

Shouldnt it be on the biggest cog in gear in 1? If so how would I fix this? 

Similarly, the indicator looks like it is in between  gear 1 and 2.

The front cog when in gear 2 also 
makes a grinding noise. 

Please help me, I am a newbie and would appreciate the help.




**UPDATE: Adjusting the front derailleur **

I have followed accordingly, as per answer below, and found on the front cog the chain looks to be scraping against the second/middle cog of the front three. 

Putting the Front gear in 2 and spinning the pedals the chain doesn't go in the second cog. But, when I was riding it this morning, felt like I was in gear 2 for this gear. 

Also, trying to adjust the derailleur on on the vertical axis - up and down; the screw seems like it is just spinning and no movement. I can easily see the horizontal movement just not the vertical. 

I am lost as to what else needs to be done now.
You rear derailleur is probably just adjusted improperly. The indexing adjustment lines up the derailleur with each sprocket. Your's is so far out that when the shifter shows 1, the chain is on sprocket 2. The grinding noise is because the derailleur is trying to push the chain onto sprocket 1 but cannot move quite far enough.

The Park Tool company has great articles and videos that provide step by step procedures for both rear and front derailleur adjustment. Follow those and see if that fixes the issue.

Some other observations:

Your rear quick release is in backwards. The lever should be on the left side of the bike. If it's on the right side it may interfere with the derailleur. Also you may not be able to close it properly with the derailleur in the way.

You should also trim and re-cap the derailleur cable. The long cable end you have now could catch between the sprockets and chain, or in the derailleur cage which could jam the drivetrain and throw you off the bike.