Test: Financial Market & Money Market - 2 - Banking Exams MCQ

Bonds are financial instruments in which an investor lends money to a corporation or government for a specific length of time in exchange for regular interest payments.

• IPO stands for Initial Public Offering.
• The Initial Public Offering IPO Process is where a previously unlisted company sells new or existing securities and offers them to the public for the first time.
• Initial public offering is the process by which a private company can go public by sale of its stocks to the general public.
• It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.
• Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital.
• A company offering its shares to the public is not obliged to repay the capital to public investors.
• The company which offers its shares, known as an 'issuer', does so with the help of investment banks.
• After IPO, the company's shares are traded in an open market.
• Those shares can be further sold by investors through secondary market trading.

Purpose of Money Market:

1. Maintains high Liquidity in Market
2. Provides Funds for short term
3. No fixed geographical Location
4. Utilisation of Surplus Funds
5. Helps in Monetary Policy

T-bills, or Treasury notes, have a maximum maturity of 364 days. As a result, they're classified as money market instruments (money market deals with funds with a maturity of less than one year). Treasury bills are currently available in three maturities: 91 days, 182 days, and 364 days.

• The term capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested. 
• The capital market consists of development banks, commercial banks, and stock exchanges.
• The Capital Market can be divided into two parts:
  • Primary Market
  • Secondary Market
• Comparison of Primary Market & Secondary Market:
  

When the money is borrowed or lent for exceeding 14 days to 365 days, then it is called Term Money.

• Money market is a market for short-term funds.
• It deals in securities like treasury bills, commercial paper, bills of exchange, certificate of deposits etc.
• The maturity of the money market instruments is one day to one year. 
• Regulatory body of money market is RBI.
• Major market segments under the regulatory ambit of the Reserve Bank are interest rate markets, including Government Securities market and money markets; foreign exchange markets; derivatives on interest rates/prices, repo, foreign exchange rates as well as credit derivatives.
• Mostly Money market instruments are regulated by RBI except mutual funds which is
• regulated by the Securities and Exchange Board of India (SEBI)

Certificate of Deposits will only be issued in dematerialized form and will be maintained at a depository that is registered with the Securities and Exchange Board of India. CDs will be released in denominations of 5 lakh minimum and 5 lakh multiples thereafter.

• The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of short-term securities.
• There is no physical "money market." Instead, it is an informal network of banks and traders linked by telephones, fax machines, and computers.
• Money markets exist both in the United States and abroad.
• The short-term debts and securities sold on the money markets—which are known as money market instruments—have maturities ranging from one day to one year and are extremely liquid.
• Treasury bills, federal agency notes, certificates of deposit (CDs), eurodollar deposits, commercial paper, bankers' acceptances, and repurchase agreements are examples of instruments.
• The suppliers of funds for money market instruments are institutions and individuals with a preference for the highest liquidity and the lowest risk.