Financial Markets
Domain 10 - Financial Markets - tests money market instruments, primary and secondary markets, stock exchange functions, SEBI and depository services.
Money market vs capital market
Money market deals in short-term funds up to one year. Instruments: call money (1–15 days, interbank), treasury bills (issued by RBI for the government, 14–364 days, zero-coupon), commercial paper (unsecured promissory note by large firms), certificate of deposit (banks and FIs), commercial bill (trade bill of exchange).
Capital market deals in long-term funds. Primary market issues new securities - offer through prospectus, offer for sale, private placement, rights issue, e-IPO. Secondary market (stock exchange) trades existing securities.
Stock exchange
Functions: liquidity and marketability, price discovery, safety of transactions, spreading the equity cult, scope for speculation. BSE (1875, SENSEX) and NSE (1992, NIFTY).
SEBI
Set up in 1988, statutory status in 1992. Functions: protective (checking price rigging and insider trading), regulatory (rules for intermediaries), developmental (training, fair practices).
Demat
A depository holds securities electronically; NSDL and CDSL are depositories and Depository Participants are the interface. Dematerialisation removes the risk of lost certificates.
Worked example
A company needs ₹50 crore quickly and places shares with 30 institutional investors through private placement, with no public offer or prospectus. Reasoning: private placement is a permitted primary-market method for a select group; it saves time and issue cost, but narrows the shareholder base and may price shares below market - speed is weighed against disclosure.
Traps
Treasury bills are money-market instruments, not capital-market. The primary market has no fixed location. SEBI is a regulator, not a stock exchange.