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Financial Market - Economics, UPSC, IAS. Notes | Study Indian Economy (Prelims) by Shahid Ali - UPSC

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Financial Market

Financial Market

A market where funds are transacted

Basis: interest or dividend

It has two parts:

  1. Money Market
  2. Capital Market

Money Market

It is a short term financial market where the duration of transaction is 1- 364 days. It can be sub-divided into:

  • Organized
  • Unorganized

Organized Money Market

It is in existence since independence but its real development took place after 1986.

Following are the instruments used in it:

  • Treasury Bills
  • Call Money Market
  • Certificate of Deposit
  • Commercial Bills
  • Commercial Papers
  • Cash Management Bill
  • Mutual Funds
  • Repo & Reverse Repo Market

Treasury Bills

Organized in 1986

Used by central government for short term liquidity requirement

They are of 5 types:

  1. 14 days (intermediate)
  2. 14 days (auctionable)
  3. 91 days
  4. 182 days
  5. 364 days

Call Monet Market

It is an inter-bank money market where funds are borrowed and lent for one day.

No collateral required

Funds are raised upto 3 days

Interest rate depends on demand and supply on a particular day.

Certificate of Deposits

Organized in 1989

Used by the Banks and issued to the depositors for a specified period (less than one year)

Commercial Papers

Organized in 1990

Used by corporate houses of India

Issuing company need to obtain a specified credit rating (from CRISIL etc.)

Commercial Bills

Organized in 1990

Issued by All India Financial institutions, Non-Banking financial companies, scheduled commercial banks& Mutual funds etc

Cash Management Bill

Started in August 2009 to meet the temporary cash flow mismatch of the government

Unoragnised Money Market

It is comparatively older market than that of Money Market.

Its components are:

Hundis

Marwari

Indigenous Bankers

Moneylenders / small and big businessmen

* Money Market is regulated by the RBI except the Mutual Funds which have dual regulators RBI & SEBI.

Capital Market

It facilitates long term requirement of funds in economy.

Structure & components:

  1. Financial institutions
  2. Banking industry
  3. Security Market

Financial regulators:

I. RBI

II. SEBI

III. NABARD

IV. IRDA

V. SIDBI

The document Financial Market - Economics, UPSC, IAS. Notes | Study Indian Economy (Prelims) by Shahid Ali - UPSC is a part of the UPSC Course Indian Economy (Prelims) by Shahid Ali.
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