Financial Markets Overview
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Questions and Answers

What characterizes the money market?

  • It is primarily for long-term investments.
  • It enables the raising of short-term funds. (correct)
  • It only involves equity instruments.
  • It is dominated by retail investors.

    • Which of the following entities is NOT a major participant in the financial market?

  • Reserve Bank of India
  • Large Corporate Houses
  • Private Equity Firms (correct)
  • Mutual Funds

    • What is an ideal characteristic of a capital market?

  • Finance available at reasonable cost (correct)
  • Limited access to investors
  • Lack of regulatory oversight
  • High transaction costs

    • How are financial markets primarily classified?

    <p>By the maturity of financial instruments</p> Signup and view all the answers

    The primary market is crucial for which purpose?

    <p>Raising new capital through the sale of securities</p> Signup and view all the answers

    Which of the following best describes the function of the capital market?

    <p>Directs community savings into productive uses for growth</p> Signup and view all the answers

    What types of instruments are involved in the capital market?

    <p>Both debt and equity instruments</p> Signup and view all the answers

    Which group is involved in the capital market structure?

    <p>Development banks</p> Signup and view all the answers

    What must an investor open to facilitate cash transactions in the securities market?

    <p>A bank account</p> Signup and view all the answers

    Which of the following regulates Demat Participants (DPs) in the securities market?

    <p>Securities and Exchange Board of India (SEBI)</p> Signup and view all the answers

    What is the primary function of a Demat Participant (DP)?

    <p>To hold and transfer securities in demat form</p> Signup and view all the answers

    What does an investor need to do before making a purchase or sale in the securities market?

    <p>Place an order with the broker</p> Signup and view all the answers

    Which two entities are mentioned as providing facilities for holding and transferring securities?

    <p>NDSL and CDSL</p> Signup and view all the answers

    What is the purpose of having a Trading Terminal?

    <p>To transact, track, and mark market moves</p> Signup and view all the answers

    What type of account must an investor have to access securities in demat form?

    <p>Demat account</p> Signup and view all the answers

    Who does an investor typically place their orders with to buy or sell shares?

    <p>A broker</p> Signup and view all the answers

    What is the primary function of a stock exchange?

    <p>To provide a platform for buying and selling existing securities</p> Signup and view all the answers

    How do stock exchanges enhance the credit worthiness of companies?

    <p>By providing a platform for liquidity and marketability</p> Signup and view all the answers

    Which of the following is NOT a benefit of an active and healthy secondary market?

    <p>Promotion of regulatory non-compliance</p> Signup and view all the answers

    What role does information technology play in stock exchanges?

    <p>It simplifies the process of trading through stock exchanges</p> Signup and view all the answers

    What primarily determines the share prices on a stock exchange?

    <p>Forces of demand and supply</p> Signup and view all the answers

    According to the Securities Contracts (Regulation) Act 1956, what does a stock exchange provide?

    <p>A venue for trading existing securities</p> Signup and view all the answers

    What does liquidity in a stock exchange refer to?

    <p>The ease with which existing securities can be bought or sold</p> Signup and view all the answers

    Which statement best describes the role of a stock exchange in providing information?

    <p>It provides instant information to both buyers and sellers.</p> Signup and view all the answers

    What ensures that the investing public gets a safe transaction in the stock market?

    <p>Strong regulation of the exchange's membership</p> Signup and view all the answers

    What impact does the primary market's growth have on the secondary market?

    <p>It fosters a more active secondary market</p> Signup and view all the answers

    What does the term 'disinvestment' mean in the context of stock exchanges?

    <p>The selling off of existing securities</p> Signup and view all the answers

    How does a stock exchange contribute to economic growth?

    <p>By facilitating the resale and trading of existing securities</p> Signup and view all the answers

    What has replaced the open outcry system in most stock exchanges?

    <p>Automated trading systems</p> Signup and view all the answers

    Which of the following is NOT a function of a stock exchange?

    <p>Facilitating long-term investments exclusively</p> Signup and view all the answers

    What makes the membership of a stock exchange essential?

    <p>It ensures regulated and legal dealings.</p> Signup and view all the answers

    What is a key characteristic of electronic stock exchanges compared to traditional exchanges?

    <p>They offer more transparency in price setting.</p> Signup and view all the answers

    What is the primary benefit of book entry mode for investors?

    <p>It increases transaction speed and efficiency.</p> Signup and view all the answers

    Which of the following is the first depository operational in India?

    <p>National Securities Depositories Limited (NSDL)</p> Signup and view all the answers

    Who promoted the Central Depository Services Limited (CDSL)?

    <p>Bombay Stock Exchange and the Bank of India</p> Signup and view all the answers

    What role do depository participants (DPs) serve in the depository system?

    <p>They act as intermediaries between investors and the depositories.</p> Signup and view all the answers

    What contributed to the establishment of SEBI?

    <p>The growth of the capital market and increasing investment malpractices.</p> Signup and view all the answers

    During which decade did the capital market experience significant growth leading to the need for SEBI?

    <p>1980s</p> Signup and view all the answers

    Which group was NOT mentioned as a contributor to market malpractices in the content provided?

    <p>Insurance companies</p> Signup and view all the answers

    What primary function do the intermediaries serve in the depository framework?

    <p>To serve as communication links between investors and depositories.</p> Signup and view all the answers

    What is a primary market primarily used for?

    <p>Issuing new securities</p> Signup and view all the answers

    Which regulatory body oversees security market operations in India?

    <p>Securities and Exchange Board of India</p> Signup and view all the answers

    Which of the following is a function of the stock exchange?

    <p>Platform for buying and selling securities</p> Signup and view all the answers

    What is often called a Treasury Bill?

    <p>Short-term government security</p> Signup and view all the answers

    What document is crucial for resolving disputes between investors and brokers?

    <p>Contractual Agreement</p> Signup and view all the answers

    Which of the following defines the capital market?

    <p>A market for long-term financial securities</p> Signup and view all the answers

    What is the common name for a Beneficiary Owner Account?

    <p>Demat Account</p> Signup and view all the answers

    Which method of floatation does an initial public offering (IPO) typically involve?

    <p>Public offer</p> Signup and view all the answers

    Study Notes

    Financial Markets

    • Financial markets are the mechanisms for channeling funds from savers to investors.
    • This allocative function helps ensure resources are directed to their most productive use, resulting in higher returns for savers and economic growth.

    SENSEX

    • SENSEX is the benchmark index of the Bombay Stock Exchange (BSE).
    • It's a crucial indicator of the Indian stock market's health.
    • The index tracks the prices of 30 actively traded stocks representing 13 economic sectors.
    • A rising SENSEX suggests investors anticipate increased company earnings and a healthy Indian economy.

    Types of Financial Markets

    • Money Market: Short-term debt instruments (maturity less than a year) are traded. These include treasury bills, commercial papers, call money, and certificates of deposit.
    • Capital Market: Long-term debt and equity instruments (maturity longer than a year) are traded. This includes stocks and bonds, used by businesses to raise capital for long-term projects. Further divided into primary and secondary markets.
    • Primary Market: Where companies issue new securities (like stocks or bonds) for the first time. Investors purchase these initial offerings. Raises capital for firms.
    • Secondary Market: Existing securities are traded between investors. Provides liquidity and marketability for the instruments.

    Stock Exchanges

    • Facilitate buying and selling of securities.
    • Provide a central platform for the exchange of securities between investors.
    • Vital for efficient allocation of capital and contribute to the overall economy.
    • The functioning of stock exchanges is regulated to maintain standards and protect investors.

    SEBI

    • SEBI (Securities and Exchange Board of India) is the regulatory body in India for the securities market.
    • It aims to protect investor interests, and ensure fair, transparent, and orderly market functioning.
    • SEBI performs tasks including registration of market participants, developing fair practices, and prohibiting fraudulent activities.

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    Description

    This quiz covers the fundamental concepts of financial markets, including the mechanisms that channel funds from savers to investors. It also provides an insight into the SENSEX as a crucial indicator of the Indian stock market, and distinguishes between money and capital markets with their respective features.

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