Podcast
Questions and Answers
Which of the following statements correctly distinguishes the capital market from the money market?
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?
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?
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?
Which of the following accurately represents the types of participants typically found in the capital market?
What fundamental function does the primary market serve?
What fundamental function does the primary market serve?
What types of funds are primarily raised and invested in the capital market?
What types of funds are primarily raised and invested in the capital market?
Which of the following instruments is NOT traded in the capital market?
Which of the following instruments is NOT traded in the capital market?
Who primarily participates in the money market?
Who primarily participates in the money market?
What is a significant characteristic of an ideal capital market?
What is a significant characteristic of an ideal capital market?
Which of the following accurately differentiates the investment focus between capital and money markets?
Which of the following accurately differentiates the investment focus between capital and money markets?
Flashcards
Capital Market
Capital Market
A market where financial institutions offer/trade securities (like stocks and bonds) for long-term investment.
Money Market
Money Market
A market for short-term financial instruments with high liquidity and large transaction amounts.
Primary Market
Primary Market
The market where new financial securities (stocks, bonds) are first issued to investors.
Secondary Market
Secondary Market
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Liquidity (Capital Market)
Liquidity (Capital Market)
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What is the capital market's role?
What is the capital market's role?
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What makes a capital market ideal?
What makes a capital market ideal?
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How does the capital market contribute to economic growth?
How does the capital market contribute to economic growth?
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What types of instruments are traded in the capital market?
What types of instruments are traded in the capital market?
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How does the capital market differ from the money market?
How does the capital market differ from the money market?
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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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