Financial Market
UNIT:-3
Financial Market
Q 1:-
What is financial market?
Ans:- Financial market refer to the
institutional arrangements for dealing in financial assets and credit
instruments of different types such as currency cheques, bank deposit, bills,
bonds etc. Thus, the financial market is a market for creation and exchange of
financial assets. It is an open market.
Q 2:-
What are the main functions of financial Market?
Ans:-
The
main functions of the financial market are:-
- I. Mobilisation of saving and channelising them into most productive way.
- II. To facilitate creation and allocation of credit and liquidity.
- III. To provide financial convenience to lenders and borrowers.
- IV. Provide better portfolio management.
- V. Reduce the cost of transaction.
Q 3:-
What are the two types or forms of financial market?
Ans:- The financial markets are broadly divided into two categories:-
I.
Money Market.
II.
Capital Market.
Q 4:-
What is money market?
Ans:-
Money
market deals in short term funds. It is the centre where short term money
assets are purchased and sold. It may be defined as the centre for dealing in
monetary assets.
The term
money market does not refer to a particular place or a bazaar. The transaction
of money market may also be carried out by telephone mail, letter etc.
Q 5:-
State the main Drawbacks of the Indian money market?
Ans:-
Following
are the drawbacks of Indian money market:-
I.
Lack
of co-ordination :- The Indian money market may be characterized
as loose and unbalanced because there existence, no co-ordination between the
organized and unorganized sectors.
II.
No
banker’s acceptance:- There is no
development of banker’s acceptance or acceptance of credit by the banks in
India.
III.
Inadequate
control by the RBI:- The RBI has
inadequate control over the functioning of the unorganized sector of the Indian
money market.
IV.
Insufficient
funds or resources:- The Indian economy
with its seasonal structure, face frequent shortage of financial resource.
Lower income, lower saving and lack of banking habits among people.
Q 6:-
what are the features of Indian money market?
Ans:- The following
are the features of Indian money market :
I.
Dichotomy:- Indian money
market is divided into two sector, organized and unorganized sectors. There are very little
co-operation between them.
II.
Seasonal
variations:- In Indian money market, there are two seasons on the basis
of demand of fund i.e. the busy
season and slack season.
III.
Inter-call
money market:- Another important features of Indian money market is the inter call money market. It is the most
sensitive sector and core of the Indian money market.
IV.
Variety
of financial institution:- Indian money market is its presence in a large number of financial
institution such as non- banking financial intermediaries, cooperative banks,
export-import banks and saving banks etc.
V.
Isolation
from foreign money market:- The Indian money market is isolated from foreign
markets.
Q 7:-
Explain the differences between money market and capital market?
Ans:- The differences between money market and capital
market are as follows:
|
Basis Of
Difference
|
MONEY MARKET
|
MONEY
MARKET
|
|
I.
Period
|
Money
market is short term duration. It is 1 day to 365 days.
|
Capital
market is long term duration. It is more than one year.
|
|
II.
Instruments
|
Trade
bills, treasury bills, commercial papers are the instruments of money market.
|
The
instruments of capital market are shares, bonds, debentures etc.
|
|
III.
Transaction time
|
It
needs very little period to complete a transaction.
|
It
needs a long period to complete a transaction.
|
|
IV.
Degree of risk
|
The
degree of risk involved very low.
|
The
degree of risk involved is very high.
|
|
V.
Constituents
|
Call
money market, bill market and discounting market are the constituents of
money market.
|
New
issue market, stock market, stock brokers are the constituents of capital
market.
|
Q 8:- What is capital market?
Ans:- Capital market is the centre for dealing in
long term fund. In capital market, borrowed and lent for a long period i.e.
more than one year.
Q 9:- Discuss the feature of
capital market?
Ans:- The main feature
of capital market are:
I.
Dealing
in securities:- Capital market deals in long term marketable securities
and non-marketable securities. Marketable securities include share, bonds,
debentures issue by company etc. and non-marketable securities includes term
deposits with bank and companies, loan and advances of bank and financial
institution to industrial organization etc.
II.
Investors:- Capital market
includes both individual investors and institutional investors.
III.
Segments:- The capital market
includes both primary and secondary market. Primary market is meant for issue
of fresh capita and secondary market facilitates buying and selling of second
hand securities.
IV.
Intermediaries:- Capital market
function through intermediaries, such as underwriters, bankers, stock brokers
etc.
V.
Flow
of capital:- capital market facilitates flow of capital from those who supply capital
to those who demand capita.
Q10:- What is primary capital market?
Ans:- Primary market is
also known as new issue market . Primary market is the market where new
securities shares, bonds, debentures are sold or purchased for the first time.
Q11:- What is foreign exchange
market?
Ans:- The market in which different currencies are
bought and sold for one another is called foreign exchange market. In other
words foreign exchange market is a market in which foreign exchange transaction
take place. This market is a vehicle that makes possible the exchange different national currencies. The basic
purpose of foreign exchange market is to facilitate international trade and
investment.
Q12:- What are the two types
of foreign exchange market?
Ans:- The two types foreign exchange market are:-
I.
Retail Market:- In this foreign
exchange market the individuals and firms who require foreign currency can buy
it and those who have acquired foreign currency can sell it.
II.
Inter Bank Market:- This market serves
to smoothen the excessive purchase on sales made by individual banks. At times
the quality of foreign exchange supplied exceeds the quantity demanded or vice
versa.
Q13:- What is a stock exchange? Write the features of
stock exchange?
Ans:- Stock Exchange are
organized and regulated market for various securities issued by corporate sector
and other institution .The stock exchange is a market which deals shares, bonds
and debentures. As per this definition stock exchange are organized place where
securities are purchased and sold. The following are the features / nature /
character of stock exchange:-
I.
It is a place where securities are purchased and sold.
II.
Stock exchange is run by an association of person,
organization or body of individual.
III.
Securities and Exchange Board of India (SEBI), regulates
the operation of stock exchange.
IV.
The trading in a stock exchange is strictly regulated by
rules and regulations prescribed for various transactions.
V.
The purpose of stock exchange is to assist and regulate
the buying and selling of securities.
Q14:- Describe the functions of stock exchange?
Ans:- The stock exchange play an important role in the
economic development of a country. The important functions of stock exchange
are discussed as follows:
I.
Ensure
liquidity of capital:- Stock Exchange provides a nearly market where investors
can convert their money into securities and securities into money easily and
quickly.
II.
Continuous
market for securities:- The stock exchange provides a ready market for
securities. The securities once listed continue to be traded at the exchanges
irrespective of the fact that owners go on changing.
III.
Safety
in dealing:- The dealing in stock exchange are governed by well- defined rules and regulations
of securities contract (regulation) act, 1956. There is no scope for
manipulating transaction.
IV.
Listing
of securities:- only listed securities can be purchased at stock
exchange. Every company desirous of listing its securities will apply to the
exchange authorities. The listing is allowed only after a critical examination
of capital structure, management and prospects of the company.
V.
Clearing
house of business information:- The companies listing securities with exchanges have
to provide financial statement, annual reports and other reports to ensure
maximum publicity of corporation operation and working.
Q 15:- What do you mean by
Non- Bank Financial Institution (NBFI)?
Ans:- A Non- bank
financial institution is a financial institution that does not have a full
banking license or is not supervised by a national or international banking
regulatory agency.
Q 16:- Discuss the main
feature of NBFI?
Ans:- The main features
of NBFI are:
I.
NBFI accept deposits, repayable on the expiry of specified
time and certain NBFI receive funds from governments.
II.
The method of mobilizing saving of NBFI and banks are
different.
III.
NBFI deals with medium and long-term funds in the capital
market.
IV.
People invest their
surplus fund with NBFI for earning income rather than safety and liquidity.
V.
NBFI supply term
finance for acquiring fixed assets.
VI.
NBFI are regulated by their special statutes.
VII.
The NBFI promised higher return to their investors to
attract more funds and hence their cost of raising funds in high.
Q 17:- Distinguish between
commercial bank and non-banking financial institution ?
Ans:- The followings are
the difference between commercial bank and non-banking financial institution:-
|
Basis of difference
|
Commercial bank
|
Non-banking financial
institution
|
|
|
Deposits
|
The deposits accepted by the
banks are mostly repay-able on demand.
|
NBFI accepts deposits
repay-able on the expiry of fixed period of time
|
|
|
Sources
|
The main sources of bank’s
funds are deposits through different deposits accounts.
|
NBFI generally raise funds
by selling securities and they do not provide deposit accounts facilities.
|
|
|
facilities
|
There is cheque system, ATM
facilities in case of banks.
|
There is neither cheque
system nor ATM facilities in case of NBFI for withdrew of deposits.
|
|
|
power
|
Banks have the power to
create money in the process of lending.
|
NBFI cannot create money.
|
|
|
Operate
|
Bank operate in the money
market and are concerned mainly with short term borrowing and lending of
funds
|
NBFI operate mainly is
capital market and deals with medium and long term fund.
|
|
Q 18:- What is new issue market or primary market?
Ans:- Primary capital market also known as new issue
market, is the market in which new securities are sold for the first time.
Q 19:- What is secondary market?
Ans:- Secondary capital market deals in second hand
securities or existing securities. It deals in existing securities like shares,
bonds, debentures etc.
Q 20:- Mention any two Non-Banking Institution
operating in India? (HS 2006, 2010, 2017)
Ans:-
I.
Development Finance Institution and
II.
Investment Institution.
Q 21:- Mention the two instrument of money market?
Ans:-
I.
Trade bill
II.
Treasury bill and
III.
Commercial paper.
Q 22:- Mention the two instrument of capital market?
Ans:-
I.
Shares
II.
Bonds and
III.
Debentures.
Q 23:- Mention the two composition or constituents of
money market and capital market?
Ans:- Composition of money market:
I.
Call money market and
II.
Loan market.
Composition of
capital market:
I.
New issue market and
II.
Stock market.
Q 24:- Mention the name of any stock exchange in
India?
Ans:-
I.
Delhi stock exchange and
I.
Guwahati stock exchange.
Q 25:- State any two institution of Indian money
market?
Ans:-
I.
RBI and II. Commercial bank.
Q 26:- What are the two sectors of Indian money
markets? (2006)
Ans:-
I.
Organized sectors and
II.
Unorganised sectors.
Q 27:- What are the main submarkets of financial
market?
Ans:-
I.
Money market and
II.
Capital market
Q 28:- Money market is the market for short term
funds (true or false)?
Ans:- True.
Q 29:- Capital market is the market for long-term
funds (true or false)?
Ans:- True.
Q 30:- Full form of NBFI and OTCEI?
Ans:-
I.
NBFI: Non Banking Financial Institution and
II.
OTCEI: Over The Counter Exchange of India.
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