Financial Market Flashcards
Functions of financial market
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Types of financial market?
Money market and capital market
Instruments of money market?
1- call money
2- certificate of depost
3- commercial paper
4- commercial bill
5- treasury bill
Features of the capital market?
Some people of government form intermediaries and deal with each other for link secretly 🖇️
Types of capital market?
Primary market and secondary market
Methods of floatation in primary market?
1- prospectus
2- offer for sale
3- private placement
4- right issue
5- e-ipos
Functions of stock market?
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Depository participants and depository banks and endices and benefits?
Participants
1- Indian banks
2- stock broker
3- foreign banks
Depository bank
1- NSDL
2- CDSL
Endices
1- sensex Bombay stock exchange 30
2- nifty 50
Benefits
1- dematerialisation
2- demutualisation
When was SEBI established and its functions?
12 April 1988
1- regulates the stock market
2- regulates and develops a code of conduct
3- protect investor’s right
4- prevent fraudulent activities
Protective functions of SEBI?
1- prohibition of fraudulent activities
2- controlling insider training
3- undertaking steps to protect investors
4- promotion of fare practices
Regulative functions of SEBI?
1- registration of brokers
2- registration of schemes and mutual funds
3- regulating stock brokers, portfolio exchanges, underwriters, merchant bankers
4- regulating takeover bids
5- inspection, inquiry, audits
6- performing and exercising SCA 1956
7- levying fees and other charges for carrying out the purposes of the act
Developmental functions of SEBI?
1- provides training to intermediaries
2- developing capital market by adapting a flexible approach
3- provides information
Why does business need finance in the first place?
1- working capital requirements
2- fixed capital expenditure
Two main sectors in the economic system of business?
Households and firms (savers and investors respectively)
What is an allocative function and what are its consequences?
A financial market helps to link the savers and the investors by mobilising funds between them. In doing so it performs what is known as an allocative function.
It allocates or directs funds available for investment into their most productive investment opportunity.
When the allocative function is performed well, two consequences follow:
1- the rate of return offered to households would be higher
2- scarce resources are allocated to those firms which have the highest productivity for the economy
Which are the two major alternative mechanisms through which allocation of funds can be done? What is financial intermediation? What is a financial market?
1- banks and financial markets
2- the process by which allocation of funds is done is called financial intermediation. Banks and financial markets are competing intermediaries in the financial system, and give households a choice of where they want to place their savings.
A financial market is the market for the creation and exchange of financial assets.
Why do businesses use the money market?
1- for meeting the temporary shortages of cash and obligations
2- temporary deployment of excess funds for earning returns
Distinguish between capital market and money market?
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- Champagne 🍾 ki bottle fully liquid
- school walon ki taraf se security
- returns in the form of paisa
1- participants
2- instruments
3- investment outlay
4- duration
5- liquidity - DFHI (Discount finance)
6- safety
7- expected return - capital gains + dividend
Essential function of a primary market? What can the funds be used for?
The essential function of a primary market is to facilitate the transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or to expand existing ones through the issue of securities for the first time.
Funds raised may be for setting up new projects, expansion, diversification, modernisation of existing projects, mergers and takeovers.
Meaning of stock exchange?
According to securities contracts regulation act 1956, stock exchange means any body of individuals, whether incorporated or not, constituted for the purpose of assisting, regulating, controlling the business of buying and selling or dealing in securities.
Describe the development of trading in securities?
1- screen based - computer terminal
2- open outcry auction system
3- main computer system connected with stock exchange, many terminals spread across the country
4- stock market floor ▶️ broker’s office
5- matching order
Advantages of screen based trading?
1- transparency
2- efficiency of information
3- efficiency of operations
4- liquidity
5- same time trading, one platform
Why was the rolling settlement introduced in the year 2000?
Prior to the reforms, securities were settled on a weekly basis.
However, since trades were to be settled on specified dates, this gave rise to speculation and price of shares used to rise and fall suddenly due to trading and default by brokers
Steps in the trading and settlement procedure?
1- broker-client agreement
2- demat account/beneficial owner account
3- order, order confirmation slip
4- match the share and best price
5- executed, trade confirmation slip
6- contract note - this is an important document as it is legally enforceable and helps to settle disputes/claims between the investor and the broker. Unique order code no.
7- pay in day
8- settlement
9- pay out day
10- delivery of shares
