Financial Markets

Question 1

Financial Market is?

Answer 1

Money Market + Capital Market

Question 2

Money Market is?

Answer 2

Money Market [ ≤ 1year ] - Short Term Investments

Question 3

Capital Market is?

Answer 3

Capital Market [ > 1 year] - Long Term Investments

Exception: Even a person buys and sells stock in a day, Stock Market is considered as a capital market

Question 4

Money Market Instruments

Answer 4

1. Call Money [T = 1 day] -
2. Notice Money [T = 2 - 14 days]
3. Term Money [T = 15 - 365 days]
4. Treasury Bill [T = 91, 182, 364 days]
5. Cash Management Bill [T≤90 days]
6. Ways and Means Advances
7. Certificate of Deposit (CD) [T = 7 - 365 days]
8. Commercial paper (CP)
9. Commercial Bill (CB)
10. Money Market Mutual Funds (MMMF) - Invests in debt securities

Question 5

Call Money, Notice Money, and Term Money

Answer 5

1. Call Money [T = 1 day] -
   Inter Bank Market
2. Notice Money [T = 2 - 14 days]
3. Term Money [T = 15 - 365 days]

Question 6

Treasury Bill (T-Bill) and Cash Management Bill (CMB)

Answer 6

Treasury Bill [T = 91, 182, 364 days]
- RBI can only sell
- Buyers: RBI, Commercial Banks, NBFCs, LIC, UTI, and GIC
- Issued at discount

Cash Management Bill [T≤90 days]
- Same as T - Bill

Question 7

Ways and Means Advances

Answer 7

Ways and Means Advances -
RBI lend to Centre and State

Question 8

Certificate of Deposit (CD)

Answer 8

Certificate of Deposit (CD) -
- Issued by SCBs and Select Financial Institutions
- T = 7 days - 365 days
- Banks cannot provide loan against CD

Question 9

Commercial Paper (CP)

Answer 9

Commercial paper (CP) -
- Issued as an unsecured promissory note
- Companies, Primary Dealers, FIs can issue
- T - 7 days - 365 days

Question 10

Commercial Bill (CB) and Money Market Mutual Funds (MMMF)

Answer 10

Commercial Bill (CB)
- Negotiable Bills → Accepted by Banks → Trade Bills (or CB)
- T ≤ 90 days
Money Market Mutual Funds (MMMF)
- Invests in Debt securities

Question 11

Capital Market Instruments

Answer 11

1. Shares
2. Debentures
3. Bonds
4. Mutual Funds
5. Derivatives

Question 12

Shares

Answer 12

Priority for dividend:
Common Share Holder < Non - cumulative Preference Shares < Cumulative Preference Shares

Question 13

Debentures Types are?

Answer 13

1. Convertible
2. Non - Convertible
3. Redeemable
4. Irredeemable

Question 14

Bonds Types are?

Answer 14

1. Zero Coupon Bond (No Interest)
2. Tax - Free Bond
3. Inflation Indexed Bond
4. Capital Gain Bond
   (U/Section 54EC - Upto 50L Tax break)
5. Municipal Bond (Same as Debenture)
   (Money → Municipality)
6. Masala Bond (INR Denomination)
7. Sovereign Gold Bond Scheme
8. Sovereign Green Bond
9. Sovereign Blue Bond

Question 15

Mutual Funds types are?

Answer 15

1. Equity Funds
2. Debt/Fixed Income Funds
3. Hybrid/Balance Funds
4. Money Market Funds
5. International Funds
6. Equity Linked Saving Scheme

Question 16

Derivatives types are?

Answer 16

1. Forwards (Unregulated OTC)
2. Futures (Regulated Forwards)
   3, Options
3. Swaps

Question 17

SEBI is a ____ Body

Answer 17

Statutory
Under the SEBI Act (1992)

Question 18

SEBI consists of?

Answer 18

Chairperson + 8 Members [ 2 Ministry of Finance + 1 RBI + 5 others with 3 FT employees]

Question 19

EBIT (Earnings Before Interest and Taxes)

Answer 19

EBIT = Net Income + Interest + Tax

Question 20

EBITDA (Earnings Before Interest Tax Depreciation and Amortization)

Answer 20

EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization