15 Questions
What is the focus of financial market regulations and regulators?
Streamlining activities related to fund transfers
According to the SCRA, 1956, what is included in the term 'Securities'?
Shares, stocks, bonds, derivatives, and units of Collective Investment Schemes
Which of the following is covered under the definition of 'Securities' in the SCRA, 1956?
Shares, debentures, derivatives, and security receipts of incorporated companies or other body corporate
What is the function of financial markets in the economy?
To ensure efficient transfer and allocation of financial resources
Who are the users of funds in the financial markets?
Businesses, governments, and households
What is the role of intermediaries in the financial markets?
To channelize available surplus funds from lenders to the users
Why is providing liquidity and exit options an important function of financial markets?
To enable participants to review their funding decisions given new information
What are the two interdependent segments of the securities market according to the text?
Primary and secondary market
Which of the following is NOT included in the definition of 'Securities' as per the SCRA, 1956?
Mortgage properties
What is the purpose of securities markets, as stated in the text?
To facilitate transfer of resources from those with idle resources to others who have a productive need for them
What is an 'Electronic Gold Receipt' as per the Securities and Exchange Board of India?
An electronic receipt issued on the basis of deposit of underlying physical gold
What is the primary purpose of the primary market?
Raising capital from investors through IPOs, rights issues, or FPOs
What distinguishes the primary market from the secondary market?
Direct contact between issuer and investor
How does an active secondary market promote capital formation?
By providing liquidity and a continuous market for investors
What is the function of the secondary market?
Trading and settlement of securities between two investors
Study Notes
Focus of Financial Market Regulations and Regulators
- The primary focus of financial market regulations and regulators is to protect the interests of investors and maintain the stability of the financial system.
Definition of Securities
- According to the SCRA, 1956, the term 'Securities' includes debentures, stocks, bonds, shares, and government securities.
- The definition of 'Securities' also covers derivative contracts, warrants, certificates, and other instruments that create a right or obligation to buy or sell securities.
Function of Financial Markets
- The primary function of financial markets is to facilitate the flow of capital from savers to investors and to provide a platform for trading in financial assets.
- Financial markets play a crucial role in the economy by enabling the allocation of resources, facilitating risk management, and providing a mechanism for price discovery.
Users of Funds
- The users of funds in the financial markets are businesses, governments, and individuals who require capital to finance their activities.
Role of Intermediaries
- Intermediaries, such as banks, stock exchanges, and investment banks, play a vital role in the financial markets by facilitating the flow of capital between savers and investors.
Importance of Liquidity and Exit Options
- Providing liquidity and exit options is an important function of financial markets as it enables investors to buy and sell securities quickly and at a fair price.
Segments of the Securities Market
- The securities market is divided into two interdependent segments: the primary market and the secondary market.
Purpose of Securities Markets
- The primary purpose of securities markets is to provide a platform for companies to raise capital and for investors to invest in securities.
Electronic Gold Receipt
- An 'Electronic Gold Receipt' is a dematerialized gold receipt issued by the Securities and Exchange Board of India, which allows investors to hold and trade gold in electronic form.
Primary Market
- The primary market is where new securities are issued by companies to raise capital from investors.
- The primary purpose of the primary market is to facilitate the issuance of new securities and to provide a platform for companies to raise capital.
Distinction between Primary and Secondary Markets
- The primary market is distinct from the secondary market in that it involves the issuance of new securities, whereas the secondary market involves the trading of existing securities.
Function of Secondary Market
- The secondary market provides a platform for investors to buy and sell existing securities, facilitating the trading of securities and providing liquidity to investors.
- An active secondary market promotes capital formation by providing a mechanism for investors to exit their investments and by enabling the pricing of securities based on market forces.
Test your knowledge about the functions and roles of financial markets and intermediaries in the allocation and transfer of financial resources. Learn about the entities that seek and provide surplus funds for productive activities in the economy.
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