Financial Markets and Instruments
Financial Markets and Instruments tests the difference between primary and secondary markets, money and capital market instruments, and the role of SEBI and exchanges.
Core rules and concepts
- The primary market raises new capital through IPOs, rights issues and private placements. The secondary market trades existing securities on exchanges such as NSE and BSE.
- Money market instruments mature within one year: Treasury bills, commercial paper, certificates of deposit and call money. Capital market instruments have longer maturities: equity shares, debentures and bonds.
- T-bills are zero-coupon instruments issued at a discount and redeemed at face value. Bond prices and yields move inversely.
- SEBI regulates the securities market under the SEBI Act, 1992. Demat accounts hold securities electronically; a trading account executes trades.
Worked example
An investor buys 100 shares at Rs 250 and sells at Rs 310. Brokerage is 0.5% on each side. Buy cost = 25,000 + 125 = Rs 25,125. Sale proceeds = 31,000 - 155 = Rs 30,845. Profit = 30,845 - 25,125 = Rs 5,720. Reasoning: brokerage is charged on both purchase and sale, so it reduces the net gain; the profit is not simply Rs 6,000.
Traps that cost marks
Do not call a 3-year bond a money market instrument. Do not say SEBI regulates banks or insurance. Do not confuse a demat account with a trading account. Do not say T-bills pay periodic interest. Do not ignore transaction costs in return calculations.