Financial Markets
Financial markets bring savers and investors together and channel funds into productive use. The exam tests money market versus capital market, primary versus secondary market, stock exchange functions, SEBI and dematerialisation.
Money market
Short-term funds, up to one year: Treasury bills (government), call money (interbank, one day), commercial paper (unsecured promissory note by large firms), certificate of deposit (bank deposits), commercial bill (trade bill).
Capital market
Long-term funds. Primary market issues new securities through IPO, rights issue, private placement. Secondary market trades existing securities on stock exchanges (NSE, BSE).
Stock exchange and regulation
A stock exchange provides liquidity, price discovery, safety and a market for new issues. SEBI regulates the securities market, protects investors and promotes fair practice. Dematerialisation holds shares electronically with a depository (NSDL/CDSL) through a depository participant. Rolling settlement settles trades on a T+1 basis in India. Sensex (BSE) and Nifty (NSE) are indices.
Worked example
A company wants ₹100 crore. It issues an IPO in the primary market with a SEBI-approved prospectus. Investors apply; shares list on NSE. Later, an investor sells those shares on NSE in the secondary market. The company receives no money from that second sale. The price is discovered by supply and demand.
Traps
Do not say the company gets funds from secondary-market trading. Money market is not for long-term capital. SEBI does not guarantee profits. T-bills are issued by the government, commercial paper by firms. Demat is not the same as a depository.