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Questions and Answers
What does SENSEX stand for?
What does SENSEX stand for?
Bombay Stock Exchange Sensitive Index
What is the primary purpose of an index like the SENSEX?
What is the primary purpose of an index like the SENSEX?
To capture the price movement of shares in the stock market.
How many stocks make up the SENSEX?
How many stocks make up the SENSEX?
30
What does a rising SENSEX indicate?
What does a rising SENSEX indicate?
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What role does SEBI play in the financial markets?
What role does SEBI play in the financial markets?
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The SENSEX was launched in _____
The SENSEX was launched in _____
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What are the two main sectors of the financial market?
What are the two main sectors of the financial market?
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Study Notes
Financial Markets
- Financial markets facilitate the transfer of funds between savers and investors.
- They perform an allocative function, directing funds to their most productive uses.
- Higher returns for savers result from efficient allocation.
- Two mechanisms for allocating funds: banks and financial markets.
Money Market
- Short-term funds are traded in the money market.
- Maturity periods are typically one year or less.
- Short-term debt instruments (e.g., treasury bills, commercial paper) are common.
- High liquidity is a key feature.
Capital Market
- Long-term funds are traded in the capital market.
- Maturity periods exceed one year.
- Equity and debt instruments (e.g., stocks, bonds) are common.
- Plays a crucial role in economic development by channeling funds into productive investments.
- Consists of primary and secondary markets.
Primary Market
- New security issues are sold in the primary market.
- Companies raise capital directly from investors.
- IPOs are a part of the process.
- Various methods of raising capital: IPOs, private placements, etc.
Secondary Market
- Existing securities are traded in the secondary market.
- Investors buy/sell existing shares and other securities.
- Stock exchanges provide the platform for secondary market transactions.
- Liquidity and marketability is enhanced.
- Stock prices are determined by supply and demand.
Stock Exchanges
- Platform for buying and selling securities (shares).
- Facilitate transactions, provide liquidity to existing securities.
- Help companies raise capital and investors invest efficiently.
- Function as a primary mechanism for price discovery.
- Ensure safety of transactions through a well defined legal framework.
Dematerialization
- Securities are converted into electronic form.
- Eliminates physical certificates, reducing theft, forgery, and delays.
- Ensures faster, efficient, and secure transactions.
- Demat accounts are used to hold electronic securities.
SEBI (Securities and Exchange Board of India)
- Regulates the securities market.
- Protects investors.
- Promotes fair, efficient, transparent market practices and operations.
- Oversees regulatory functions and promotes orderly and healthy functioning of the market.
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