Financial Markets
What the domain tests
Financial markets mobilise savings and allocate funds. RBSE tests money market vs capital market, primary vs secondary market, instruments, stock exchange functions, and SEBI’s regulatory role.
Core rules
- Money market deals in short-term funds (up to one year): Treasury bills, commercial paper, call money, certificates of deposit. It is for liquidity.
- Capital market deals in long-term funds: equity shares, preference shares, debentures, bonds. It is for investment.
- Primary market issues new securities; secondary market trades existing securities. Stock exchanges provide liquidity and price discovery.
- SEBI is the regulator; it protects investors, regulates intermediaries, and promotes orderly development. It is not a stock exchange.
- Stock exchange functions: providing liquidity and marketability, pricing, safety of transactions, spreading equity cult, and providing information.
Worked example
A company issues new equity shares to the public and raises ₹20 crore. This is a primary-market transaction in the capital market. An investor later buys those shares on NSE from another investor; no new capital reaches the company, so it is a secondary-market transaction. A bank parking surplus for 15 days in a Treasury bill is using the money market. Classify by maturity first, then by new versus existing securities.
Traps
Do not call the secondary market a source of fresh capital for the company. Do not place debentures in the money market merely because they pay interest; maturity and purpose matter. SEBI does not buy or sell securities for investors. Commercial paper is unsecured short-term corporate debt; do not confuse it with a share.