Financial System Coordination
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Financial System Coordination

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Questions and Answers

What is one way to counter endowment risks in financial markets?

  • Investing in stocks
  • Saving in banks
  • Insurance markets (correct)
  • Real estate investments

    • Rate-of-return risk cannot be reduced through portfolio diversification.

    False

    What effect does a fall in the saving rate have on growth rate in an endogenous growth model?

    It lowers the growth rate.

    What year was the Securities and Exchange Board of India (SEBI) established?

    <p>1988</p> Signup and view all the answers

    The contribution of financial markets is essential for maintaining the __________ of an economy.

    <p>competitiveness</p> Signup and view all the answers

    SEBI is solely responsible for regulating stock exchanges in India.

    <p>False</p> Signup and view all the answers

    Match the following terms related to financial markets with their descriptions:

    <p>Consumer Credit = Funds for households that do not save Liquidity Constraints = Limitations on consumption based on current resources Stock Markets = Ideal for financing for industry growth Financial Integration = Development of market and institutions globally</p> Signup and view all the answers

    What are the three groups that constitute the securities market according to SEBI?

    <p>issuers of securities, investors, market intermediaries</p> Signup and view all the answers

    SEBI was given statutory powers through the SEBI Act in the year _____ .

    <p>1992</p> Signup and view all the answers

    Which factor is responsible for the integration of Indian financial markets with global markets?

    <p>Increased international competition</p> Signup and view all the answers

    Match the following roles of SEBI with their descriptions:

    <p>Regulatory = To protect investor interests Developmental = To promote financial awareness and education Fraud Prevention = To forbid fraudulent practices in the market Industry Training = To train securities market intermediaries</p> Signup and view all the answers

    Deregulation has no impact on the rise of national stock markets.

    <p>False</p> Signup and view all the answers

    What is one of SEBI's regulatory functions?

    <p>Regulating and registering stock brokers</p> Signup and view all the answers

    What is a common reason companies are shifting from debt to equity finance?

    <p>Preference for better returns.</p> Signup and view all the answers

    One of SEBI’s roles is to promote insider trading to ensure market efficiency.

    <p>False</p> Signup and view all the answers

    What is the primary effect of well-developed financial markets on an economy?

    <p>Contribute to economic health and efficiency</p> Signup and view all the answers

    List one way SEBI promotes developmental activities in the securities market.

    <p>Conducting and publishing research information</p> Signup and view all the answers

    A well-developed financial market encourages savings to flow into physical assets rather than financial assets.

    <p>False</p> Signup and view all the answers

    Which stock exchange is recognized as the largest in the world based on the number of companies listed?

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

    Name one way financial development can affect the saving rates.

    <p>By providing better insurance against shocks.</p> Signup and view all the answers

    The Japanese market has a strong influence on the Indian market.

    <p>False</p> Signup and view all the answers

    The financial market provides the base for the continuous reorganization of the economy which is needed to support _____ .

    <p>growth</p> Signup and view all the answers

    Match the following financial effects with their descriptions:

    <p>Funnelling savings to firm = Allocating funds to productive investments Improving the allocation of capital = Ensuring efficient investment Affection the saving rate = Shifting household savings behavior Interest rate effects = Narrowing the gap between rates paid by firms and households</p> Signup and view all the answers

    What percentage of total portfolio capital inflows to emerging market economies does India represent?

    <p>about a fourth</p> Signup and view all the answers

    Foreign capital flows have made a crucial contribution to the growth of India’s _____ market.

    <p>stock</p> Signup and view all the answers

    In which type of sectors is investment more likely to be allocated in countries with developed financial markets?

    <p>Fast-growing sectors</p> Signup and view all the answers

    Financial development can lead to an increase in saving rates in households.

    <p>True</p> Signup and view all the answers

    Match the following parties actively engaged in financial markets:

    <p>Individuals = Parties that directly invest in the market Firms = Organizations that conduct business and trade Banks = Financial institutions that accept deposits and provide loans Regulators = Entities that oversee and regulate financial markets</p> Signup and view all the answers

    What is one consequence of a flow of liquidity into physical assets like gold and real estate?

    <p>It can nourish inflation.</p> Signup and view all the answers

    Which of the following countries do Indian companies primarily list on apart from India?

    <p>United States and United Kingdom</p> Signup and view all the answers

    The integration of Indian financial markets with global markets began in the early 1980s.

    <p>False</p> Signup and view all the answers

    Name one major regional market in Asia that influences India’s market.

    <p>Singapore or Hong Kong</p> Signup and view all the answers

    What is one of the key functions of the Reserve Bank of India (RBI) related to currency?

    <p>Both B and C</p> Signup and view all the answers

    The Securities and Exchange Board of India (SEBI) was established as a statutory body in 1988.

    <p>False</p> Signup and view all the answers

    What is the primary role of RBI as a credit controller?

    <p>To control the supply of credit in accordance with economic priorities.</p> Signup and view all the answers

    The Reserve Bank of India acts as the sole currency authority for the issue of bank notes under section ______ of the RBI act.

    <p>22</p> Signup and view all the answers

    Match the following functions with their descriptions:

    <p>Manager of exchange control = Regulates the foreign exchange market Banker to the government = Handles public debt and cash balances Issuer of currency = Sole authority for issuing bank notes Credit controller = Controls supply of money in the economy</p> Signup and view all the answers

    Which sector is NOT mentioned as a target for directing bank credit?

    <p>Real Estate</p> Signup and view all the answers

    The government of India deposits all its cash balances with RBI free of interest.

    <p>True</p> Signup and view all the answers

    When was SEBI first established?

    <p>April 1988</p> Signup and view all the answers

    Study Notes

    Financial Markets and the Economy

    • A well-developed financial market contributes to a healthy and efficient economy.
    • Financial markets are crucial for efficiently funneling savings to firms, improving capital allocation, and affecting saving rates.
    • A thriving financial market encourages savings to be invested in financial assets, aiding economic growth and reducing inflation.
    • Financial institutions facilitate the continuous reorganization of the economy to support growth.
    • Financial markets enable risk sharing for households, including endowment risks (like health hazards) and rate-of-return risks (like stock market volatility).
    • Financial markets provide a mechanism for households to save and for those who need it to borrow through consumer credit and mortgage loans.
    • Market-based financing is beneficial for industries experiencing technological advancements and rapid change, supporting competitiveness in a globalized economy.

    Integration of Indian Financial Markets

    • Globalisation, deregulation, and technological advancements have led to increased integration of national stock markets.
    • Cross-border mobility of private capital inflows is a key driver of financial integration, fueled by investors seeking portfolio diversification and better returns.
    • Financial integration brings benefits, such as market and institutional development leading to efficient price discovery, higher savings, increased investment, and economic progress.
    • Risks associated with financial integration include contagion effects, potentially disrupting economic activities.
    • The Bombay Stock Exchange (BSE) has emerged as the largest stock exchange globally in terms of listed companies.
    • Many Indian companies have expanded their listing to global markets, notably in the United States and United Kingdom, attracting foreign capital.
    • Foreign institutional investors play a significant role in India's stock market, with a growing presence in the equity market compared to the debt market.
    • The Singapore and Hong Kong markets have a considerable influence on the Indian market within Asia, while the Japanese market's impact is relatively weak.
    • Co-integrated stock markets contribute to financial stability by preventing significant deviations from the long-run equilibrium path.

    Key Players in Financial Markets

    • Individuals: Participate as investors, borrowers, and savers.
    • Firms: Raise capital through the issuance of equity and debt, borrow for investments, and manage their financial resources.
    • Corporates: Seek financing for expansion and growth, invest, and manage their financial operations.
    • Banks: Facilitate borrowing and lending, manage deposits, and offer financial products.
    • Regulators: Ensure fair and transparent market practices and protect investor interests.
    • Government: Plays a role in shaping economic policies, managing public debt, and regulating financial institutions.

    Functions of the Reserve Bank of India (RBI)

    • Credit Controller: Controls the supply of credit in line with the government's economic priorities.
    • Manager of Exchange Control: Develops and regulates the foreign exchange market, promoting orderly growth and integration with global markets.
    • Issuer of Currency: Sole authority for issuing banknotes, managing the supply of currency, and ensuring its security.
    • Banker to the Government: Manages public debt, handles government accounts, and represents India in international financial institutions.

    Role of the Securities and Exchange Board of India (SEBI)

    • Regulatory: Regulates stock exchanges, brokers, intermediaries, and collective investment schemes. Prohibits fraudulent and unfair practices, insider trading, and significant share acquisitions.
    • Developmental: Promotes investor education, financial awareness, self-regulatory organizations, training for market intermediaries, fair practices, and research to support market participants.

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    Related Documents

    Financial Markets in India II 2003 PDF

    Description

    This quiz focuses on the critical role of the financial system in coordinating savings and investments. You will be asked to comment on how these components interact and influence each other. Prepare for a brief answer that encapsulates these relationships effectively.

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