Financial Markets and Institutions
Financial Markets and Institutions tests how savings move from surplus units to deficit units, and how regulators and intermediaries make that flow safe and liquid.
Market segments
The money market deals in short-term funds of up to one year: call money, treasury bills, commercial paper and certificates of deposit. The capital market deals in long-term funds through equity shares, preference shares, debentures and bonds. The primary market handles new issues, where the company receives proceeds. The secondary market trades existing securities on stock exchanges such as NSE and BSE, providing liquidity and price discovery. A depository such as NSDL or CDSL holds securities in dematerialised form.
Institutions and regulation
The Reserve Bank of India conducts monetary policy and regulates the banking and money market. SEBI regulates the securities market and protects investors. Commercial banks, cooperative banks, NBFCs and development financial institutions channel credit. Stock exchanges do not set prices by decree; prices emerge from trading.
Worked example
A company makes its first public issue of shares and receives Rs 20 crore. This is a primary-market transaction. An investor later buys those shares from another investor on NSE; the company receives nothing, and the trade is a secondary-market transaction. Both events fall under SEBI's regulatory perimeter, but only the first supplies fresh capital to the firm.
Traps
Do not call the secondary market a source of new capital. Treasury bills are money-market instruments, not long-term capital. SEBI is not the central bank. A stock exchange is a marketplace, not a guarantor of returns.