Introduction to Financial Markets

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Questions and Answers

What mnemonic is used to remember SEBI's core functions?

XYZ Development
DR Protective (correct)
ABC Regulatory
QRS Protective

SEBI was granted legal status in 1988, coinciding with its initial establishment.

False (B)

Name one of the key objectives of SEBI in regulating the stock exchange.

To protect the rights and interests of investors

Under its regulatory functions, SEBI ensures the registration of mutual funds and ________ investment schemes.

collective Signup and view all the answers

Which of the following is NOT a protective function carried out by SEBI?

Regulating the takeover of companies (A) Signup and view all the answers

Which of the following best describes the primary role of financial markets in an economy?

To facilitate the allocation of funds between surplus and deficit units. (D) Signup and view all the answers

Banks and financial markets serve the same purpose of allocating funds, but financial markets allow for direct investment, bypassing the bank.

True (A) Signup and view all the answers

What is the function of a financial market that allows assets to be easily converted into cash?

Liquidity Signup and view all the answers

The interaction of demand and supply in financial markets determines the price of financial ________, such as shares and debentures.

securities Signup and view all the answers

Match the following money market instruments with their descriptions:

Treasury Bills = Short-term debt obligations issued by the government. Commercial Paper = Unsecured, short-term debt instrument issued by corporations. Certificates of Deposit = A savings certificate entitling the bearer to receive interest. Call Money = Short term funds repayable on demand, lent and borrowed among banks. Signup and view all the answers

Which of the following is NOT a PRIMARY characteristic that distinguishes the money market from the capital market?

The types of investors who participate in the market. (B) Signup and view all the answers

An investor seeks to diversify their portfolio with highly liquid, short-term instruments and is considering investing in either Commercial Paper (CP) or Certificates of Deposit (CDs). Considering typical market dynamics and instrument characteristics, which of the following scenarios would MOST LIKELY make CP the preferred choice over CDs?

The credit spread between high-rated corporate debt and government bonds is unusually narrow. (D) Signup and view all the answers

Which of the following is a key difference between the money market and the capital market?

The money market is for durations of up to one year, while the capital market is for more than one year. (D) Signup and view all the answers

In the primary market, transactions occur between investors without the company's involvement.

False (B) Signup and view all the answers

What is the term for converting physical share certificates into electronic form?

Dematerialization Signup and view all the answers

The final settlement of a trade in the stock market typically occurs within T+ ______ days.

2 Signup and view all the answers

Match the following market participants with their roles:

Depository = Holds securities in electronic form. Depository Participant (Broker) = Interacts with investors on behalf of the depository. Investor = Buys and sells securities through a broker. Stock Exchange = Provides a platform for buying and selling securities. Signup and view all the answers

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

Providing liquidity to securities. (B) Signup and view all the answers

A contract note, issued after a trade, includes details like the shares bought, the amount spent, and the broker's commission.

True (A) Signup and view all the answers

What is the primary role of Depository Participants (DPs) in the stock market?

To interact with investors on behalf of the depository Signup and view all the answers

Which of the following sequences accurately reflects the typical progression of online trading?

Select broker → Open Demat account → Place order → Trade confirmation (A) Signup and view all the answers

In the context of stock market transactions, when you are buying securities, money goes ______, and securities come in.

out Signup and view all the answers

Flashcards

Allocation of Funds

Transferring money from those who have extra to those who need it.

Surplus Units

Entities with extra money, such as households with savings.