Key Points
Key Points: Concept of Financial Market
- Finance is managed as personal, corporate and public finance.
- Financial markets are a key part of the Indian financial system.
- Financial market deals in assets like bonds, stocks and government securities.
- It links surplus investors with deficit business enterprises.
- Main functions: channelising savings, price determination, liquidity and low transaction cost.
- Financial markets are divided into money market and capital market based on maturity.
Distinction Between Capital Market and Money Market
| Basis | Capital Market | Money Market |
|---|---|---|
| Time span | Long- and medium-term securities with maturity more than one year. | Short-term instruments with maturity up to one year. |
| Liquidity | Tradable on stock exchanges; less liquid than money market instruments. | Highly liquid due to an active ready market. |
| Returns | Higher potential returns over a longer period. | Lower expected returns because of shorter maturity. |
| Instruments | Equity shares, preference shares, bonds, debentures. | Commercial papers, treasury bills, certificates of deposit. |
| Risk | Relatively risky for both return and principal repayment. | Relatively safe, issued for short duration by sound entities. |
Key Points: Securities and Exchange Board of India (SEBI)
- SEBI was established in 1988 and became a statutory body in 1992 under the SEBI Act, 1992.
- SEBI regulates, supervises and promotes the securities market while protecting investors' interests.
- The main objectives of SEBI are regulation, investor protection, prevention of malpractices and enforcement of a code of conduct.
- SEBI performs three major functions: Protective, Developmental and Regulatory.
- The major intermediaries regulated by SEBI are stock exchanges, stock brokers, merchant bankers, depositories, credit rating agencies and mutual funds.
- The two major depositories in India are NSDL and CDSL, while the major stock exchanges are BSE and NSE.
- The leading credit rating agencies are CRISIL and ICRA, and the oldest mutual fund in India is UTI.
Key Points: Secondary Market/Stock Exchange
- Secondary market is the stock exchange / stock market.
- It deals in existing or second-hand securities.
- Stock exchange is a platform for trading securities.
- Companies Act 1850 was introduced to promote investment in corporate securities.
- First stock exchange: Bombay, 1875, later called BSE.
- Other exchanges came up in Ahmedabad, Calcutta and Madras.
- Post-1991, Indian secondary market has a three-tier structure: Regional Stock Exchanges, NSE and OTCEI.
Important Questions [7]
- Attempt the Following:State the Characteristics of Money Market.
- The Company Has to Obtain Consent of ............................ If Issue of Debentures Exceeds Rs. 1 Crore.
- Explain the following term/concept. Primary market
- State whether the following statement is True or False: The securities market is an unorganized marketplace in India.
- Distinguish between the following: Primary market and Secondary market
- Correct the underlined word/s and rewrite the following sentence. Companies sell fresh shares for the first time to the public in the secondary market.
- Select the Correct Answer from the Possible Choices Given Below and Rewrite the Statement :
