Financial Markets Overview
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Questions and Answers

Which of the following statements correctly distinguishes the capital market from the money market?

  • Money market instruments have a maximum tenure of one year or less, while capital market securities have longer durations. (correct)
  • Participants in the capital market typically engage in more excessive trading compared to the money market.
  • Capital market transactions require larger initial investments than money market transactions.
  • The capital market involves short-term securities, while the money market deals with long-term securities.

    • What is a key characteristic of the liquidity of capital market securities?

  • They are considered liquid investments as they can be traded on stock exchanges. (correct)
  • They can only be sold through private transactions with no market presence.
  • They are illiquid and cannot be traded easily.
  • They enjoy a lower degree of liquidity compared to money market instruments.

    • Why are transactions in the money market considered to entail larger sums of money?

  • Due to the higher initial investment required to engage in money market activities.
  • Because they require extensive regulatory compliance and fees.
  • Because money market instruments are usually issued for longer periods.
  • Since the instruments are typically more expensive compared to capital market securities. (correct)

    • Which of the following accurately represents the types of participants typically found in the capital market?

    <p>Private investors, corporations, and government entities.</p> Signup and view all the answers

    What fundamental function does the primary market serve?

    <p>Transferring investible funds from savers to entrepreneurs for new ventures.</p> Signup and view all the answers

    What types of funds are primarily raised and invested in the capital market?

    <p>Equity and long-term debt</p> Signup and view all the answers

    Which of the following instruments is NOT traded in the capital market?

    <p>Treasury bills</p> Signup and view all the answers

    Who primarily participates in the money market?

    <p>Corporate entities and banks</p> Signup and view all the answers

    What is a significant characteristic of an ideal capital market?

    <p>Finance is available at a reasonable cost</p> Signup and view all the answers

    Which of the following accurately differentiates the investment focus between capital and money markets?

    <p>Capital markets deal with equity and long-term debt, while money markets deal with short-term debt instruments.</p> Signup and view all the answers

    Study Notes

    Learning Objectives

    • Explain financial markets
    • Explain money markets and its instruments
    • Understand the nature and types of capital markets
    • Differentiate between money and capital markets
    • Explain stock exchange functions
    • Describe NSEI and OTCEI functions
    • Describe SEBI's role in investor protection

    Financial Markets

    • Link savers with investors
    • Allocate funds to productive uses
    • Two mechanisms for fund allocation: banks and financial markets
    • Rate of return for households is higher
    • Resources allocated to high productivity firms

    Money Market

    • Short-term funds
    • Maturity up to one year
    • Highly liquid
    • Includes treasury bills, commercial paper, call money, and certificates of deposit

    Capital Market

    • Long-term funds
    • Equity and debt instruments
    • Includes primary and secondary markets

    Primary Market

    • New securities issuance
    • Methods of floatation:
      • Offer through prospectus
      • Offer for sale
      • Private placement
      • Rights issue
      • e-IPO

    Secondary Market

    • Existing securities trading
    • Stock exchanges facilitate trading

    Stock Exchange

    • Platform for buying/selling existing securities
    • Facilitates liquidity and marketability
    • Price discovery based on supply and demand forces
    • Reduces transaction costs and time for buyers/sellers
    • Instruments: equity shares, debentures, bonds, and preference shares

    SEBI

    • Regulates and develops securities market
    • Protects investor interests
    • Promotes orderly functioning of stock exchanges
    • Regulates trading malpractices

    Dematerialisation

    • Electronic form of holding securities
    • Eliminates physical share certificates
    • Reduces paperwork and delays
    • Clearing and settlement procedures involve electronic transfers and payments

    Stock Market Indices

    • Barometers of market behaviour
    • Measures overall market sentiment
    • Reflects market direction and fluctuations in stock prices
    • Important indices: SENSEX, Nifty, and others

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    Related Documents

    Chapter 10 Financial Markets PDF

    Description

    This quiz explores the fundamental concepts of financial markets, including the differentiation between money and capital markets. It covers the functions of stock exchanges, the roles of various market instruments, and the protective measures for investors. Test your understanding of how these markets link savers with investors and facilitate fund allocation.

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