KEY

WORDS/IMPORTANT
POINTS/HIDDEN GEMS

FINANCIAL
MARKETS
• Functions of Financial Market – MFPR (My Fan
Painted Red)
 Mobilisation of Savings and Channeling them into the
most Productive uses.
 Facilitating Price Discovery
 Providing Liquidity to Financial Assets
 Reducing the Cost of Transactions

• The process by which allocation of funds is done is

called_________________.

• DFHI has been established for the specific objective

of providing a ready market for money market
instruments.
• Functions of stock exchange – PSSPCP

P – Providing scope for speculation

S – Spreading equity cult
S – Safety of transactions (KEY LINE)
P – Providing liquidity and marketability to existing
securities (KEY LINE)
C – Contributes to economic growth (KEY LINE)
P – Pricing of securities (KEY LINE)

• Bullish Phase – period of optimism

• Bearish Phase – period of pessimism
• Two depositories in India:

NSDL - Promoted by NSE

CDSL - Promoted by BSE

• When allocative function is performed well, two

consequences follow:
-The rate of return offered to households would be
higher.
-Scarce resources are allocated to those firms which
have the highest productivity for the economy.

• Mandatory detail that an investor has to provide to

the broker at the time of opening a Demat A/C -
• OBJECTIVES OF SEBI – PRPR
-Protect the rights of investors
-Regulate stock exchange
-Prevent trading malpractices
-Regulate and develop a code of conduct

• FUNCTIONS OF SEBI

Regulatory Functions –

Development Functions – (TUC)

Protective Functions – (PUCP)

• Distinction between capital market and money
market – DILSE IP

D – Duration S – Safety
I – Investment outlay E – Expected return
L – Liquidity I – Instruments
P – Participants

• Method of floatation – POORE

P – Private placement
O – Offer through prospectus
O – Offer for sale
R – Rights issue
E – e-IPOs
STEPS IN THE TRADING AND SETTLEMENT PROCEDURE

1. Investor approached a registered broker or sub-broker

2. Investor has to open a Demat A/C with a DP
3. Investor then places an order to buy or sell shares with the broker (Order Confirmation Slip)
4. Broker then will go on-line, connect to the stock Exchange and match the share and best price
available
5. Electronic Order Execution – Broker will issue a Trade Confirmation Slip
6. After the trade has been executed, within 24 hours, the broker issues a CONTRACT NOTE.
7. Investor shall deliver the shares or pay cash for the shares bought. This should be done
immediately after receiving the contract note or before the PAY-IN-DAY.
8. The deal has to be settled and finalised on the T+2 Day.
9. On the T+2 Day, the exchange will make payment to the other broker.
This is called the pay-out day.
10. FINAL DELIVERY – The broker can make delivery of shares in demat form directly to the
investor’s demat Account.
• This is the process where securities held by the investor
in the physical form are cancelled and the investor is
given an electronic entry or number so that they can
hold it as an electronic balance in an account. This
process of holding securities in an electronic form is
called ____________

• SENSEX – BSE – Average of 30 Companies

• NIFTY – NSE – Average of 50 Companies

• SEBI was established by the Government of India on 12th

April, 1988 but it was given statutory status on 30th
January, 1992.
• _____________ AND __________________ are competing
intermediaries in the Financial System, and give households
a choice of where they want to place their savings.
• Benefits of private placement
- Raise capital quickly
- Companies who can not afford public issue
• The money market is generally much safer with a
minimum risk of default because of two reasons:

• Securities are not used directly to public but are offered

for sale through intermediaries like issuing houses or
brokers –
OFFER FOR SALE.
• Total number of Stock Exchanges in India – 23
FULL FORMS –
• NSE
• BSE
• SENSEX
• NIFTY
• NYSE
• NASDAQ
• Definition 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
C
A
R
The business of buying and selling or dealing in securities.

• Difference between Primary and Secondary Market

• (6 POINTS)
• ________________ is a number assigned to each transaction by
the stock exchange and is printed on the contract note. a. Client
code number b. Unique order code c. Permanent account number
d. Depository participant number
1. Zero coupon bonds issued by RBI on behalf of the Central Government = TREASURY BILL

2. MONEY MARKET INSTRUMENTS

CCCCT
C – Commercial paper
C – Call money
C – Certificate of deposit
C – Commercial bill
T – Treasury bill
Alternate to bank borrowing used by large companies
- Commercial paper

5. Issued by large and credit worthy companies to raise short term funds at lower rates of
interest than market rates______

6. Call money method by which banks borrow from each other to be able to maintain the Cash
Reserve Ratio.

7. Certificate of deposit is issued during period of tight liquidity when deposit growth of banks is
slow but the demand for credit is high.
. BRIDGE FINANCING – Commercial paper

10. Benefits of private placement

- Raise capital quickly
- Cos who can not afford public issue
8
16.
17.
18. Primary market – New issue market
Secondary market – Stock exchange
19. Sensex is made up of 30 of the most activity traded
stocks in the market.

20. SEBI was established on 12th April 1988 but was

given a statutory status on 30th January 1992.

21. Mandatory detail that an investor has to provide to

the broker at the time of opening a demat account is___

22. Legally enforceable document which is issued by

stock broker within 24 hours of the execution of a trade
order.

23. ____ is a market for the creation and exchange of

financial assets.
24. SEBI was entrusted with the twin task of both _____
and _____ of the securities market.

25. Privilege given to existing shareholders to subscribe to

a new issue of shares – Right issue

26. Most popular method of raising funds by public

companies in the primary market – Offer through
prospectus.

27. Money market is generally much safer:

- Due to shorter duration of investing
- Due to financial soundness of the issuers (Government,
banks and highly rated companies)
28. Securities are not issued directly to the public but
are offered for sale through intermediaries like issuing
houses or stock brokers.

29. Total number of stock exchanges in India is_____.

30. Functions of financial market.

31. Minimum amount of Treasury bill

32. __________ acts like a bank and keeps securities

in electronic form on behalf of the investor.
33. Maturity period:

-Commercial paper - 15 days to 1 year

-Call money - 1 day to 15 days