Financial Sector 2: Important Institutions Video Lecture | General Knowledge (GK) for LIC AAO Exam (English) - Banking Exams

hello everyone I'm on course already
from pit bulls I'd calm and in this
video lecture I'll be continuing with
the lecture series on financial systems
so first of all it is try and understand
what exactly is a mutual fund so mutual
fund is nothing more than a collection
of stocks and bonds so individual
entities or people or companies or even
the government they would pull in their
money with a particular company a mutual
fund company and that company would
invest this money in in the stock market
or in the bond market now as far as the
income is concerned income is earned
from dividends on stocks and interests
on bonds if the fund sells securities
that have increased in price then the
fund also gives the benefit of capital
gains so there are three sources of
income as far as mutual funds are
concerned stocks interest on bonds and
capital gains as well right so mutual
fund what was initially introduced in
the money market but also now they have
the freedom to operate in capital
markets as well mutual funds are
regulated by both our bi as well as semi
next we talk about the various types of
mutual funds so first there are
open-ended mutual funds but these are
the types of mutual funds in which the
mutual fund is free to set any number of
securities
next are the closed-ended mutual funds
over here there is a limitation on the
number of securities or stocks and bonds
etc that this particular mutual fund can
sell however this mutual fund after it
is bought by individuals or investors it
can be traded in the secondary market
next huh exchange-traded funds so these
are type of funds in which the value is
attached to different stock indices like
Sensex NSE etc let us talk about the
advantages of mutual funds first it
allows for a diversification of
portfolio so the mutual funds give
investors and of
of investing in either stocks or bonds
next is it offers professional
Investment Management so highly
qualified investment managers are
responsible for investing the funds or
the investments of mutual funds which
the knowledge or expertise may be
lacking in case of individual investors
like us next it offers liquidity as well
so once you invest in a mutual fund you
can trade it in the secondary market as
well if you need in the money so your
money is not logged in a mutual fund for
example like FDR a fixed deposit next it
is a considerably safe option as far as
investment is concerned as there are
considerable rules and regulations on
mutual funds furthermore due to the high
volume of funds that are being handled
by different mutual fund companies the
transaction costs involved are
relatively lower next we talk about a
very important organization in the
Indian financial system that is discount
and financing house of India it was set
up in 1988 by the Reserve Bank of India
its major functions are it maintains
liquidity in the Indian banking system
and also it imparts liquidity to money
market instruments as far as Indian
financial market is concerned right so
in the year 2004 RBI transferred its
holdings of dfhi to the State Bank of
India who is now the majority stake
holder of DF HF furthermore dfhi also
functions as the largest primary dealer
in the economy so it is the largest
purchaser of various money market
instruments as far as India is concerned
so that brings us to the end of money
markets in India now let us talk about
capital markets so it is a market for
long term debt and equity shares as far
as known long term is censored any
financial instrument which has a
maturity or relevance for more than one
year that is a long term instrument
primary market deals with trade of new
issues of stocks and other securities so
with in capital market there are two
types of markets so first one we talked
about this the primary market and next
we have the secondary market which deals
with exchange of existing or previously
issued securities so within primary
market if any company wants to raise new
equity or set its shares it will going
for a IPO or initial public offering so
after these shares have been bought by
individual investors these investors can
trade these shares in the secondary
market so suarez capital market is
concerned there is another important
division that is on the basis of the
nature of security instrument that is
being treated right so stock stock
market deals mainly with trading in
shares and in the bond market individual
investors can create in government
related bonds so now that we broadly
understand what exactly is a capital
market let us take one by one a few very
important capital market instruments
first one is stocks or simply shares so
corporations governments and companies
etc issues securities on the stock
market to collect funds so these
companies might set a share of their
ownership in order to raise more money
from the equity market they act as a
platform for companies to raise money
for the businesses and investors to
invest in securities so it is performing
two functions that is giving a low-cost
funds to companies and also it is
providing a media for investors to
invest their money stock markets again
can exist in both real and virtual
arenas so with the advent of d-mat or d
may be materialized accounts mostly
stock trading is done in the virtual
arena next instrument that is bonds so
it acts as a platform for buying and
selling of debt securities so buying
stocks were first
the bonds are for debt related
securities so the major bond market
participants are governments
institutional investors traders as well
as individual investors bonds are
specific to individual issues with lack
of liquidity bonds are not liquid
because there is a fixed maturity
periods associated with them various
types of bonds are government bonds
municipal bonds corporate bonds etc so
these bodies issue various bonds in
order to raise money from the public
institution and other government bodies
as well next is a long-term debt
instrument that is issued by large
corporations to raise funds from the
market that is the de Pensions so they
are nothing but long-term debt
instruments which are not backed by
collateral so these are issued by large
and financially strong companies with
excellent bond ratings these ratings are
of course given by the credit rating
agencies like Christian so there is
regarded as unsecured investment because
there are no pledges that is guarantees
or liens available on particular assets
however the ventures I have some
similarities with bonds
however the terms and conditions of
securitization are different as compared
to a bond so the major difference
between a bond and a debenture is
firstly the debentures are issued by
private organizations and secondly they
are not backed by any collaterals
guarantees Lian's
etcetera and that is how he terms and
conditions of bonds and debentures
differ from each other next we talk
about another important instrument used
by foreigners
to invest in Indian stock market that is
the participatory nodes so these are
offshore derivative instruments with
Indian shares as underlying asset so we
will later understand what exactly are
derivatives they are not used within the
country but rather used outside India
for making investment in shares listed
in the Indian stock market there
assured by brokers and fi ice which are
registered by semi or Securities and
Exchange Board of India investing
through P notes is very simple and hence
very popular amongst F Islands it is
very simple for foreigners to invest in
P notes because they do not require any
force or sort of registration with semi
hence they are very popular but a major
disadvantages there is no way for us to
know who owns the underlying securities
or who is investing in Indian stock
markets so it might be terrorists drug
mafias etc who invest in Indian stock
market and make money out of it so this
is a major security concern as far as P
nodes are concerned next we talk about
American - book depository receipts so
idea is nothing but a stock that trades
in the United States of America but
represent the specified number of shares
in a foreign corporations so if there is
a company like Infosys in India it
shares can be traded in USA using ideas
it was introduced as a result of the
difficulties associated with trading at
different prices and currency values it
is bought and sold on American markets
just like a regular stocks that the
stocks that exist in USA and are issued
or sponsored in the USA by a bank or a
brokerage so a us-based bank or a
brokerage firm with purchase these
shares and these shares are then sold in
the US market and they are traded like
shares of us-based companies next is a
very important concept within financial
systems that is derivatives so
derivatives is nothing but a security
derived from a debt instrument share
loan whether secured or unsecured risk
instrument or contract for differences
or any other form of security so the
value of the derivative is entirely
derived from the value of the underlying
asset so this is the most important
aspect so derivative as such is an
instrument which derives its value from
any other asset which might be a share
a debt instrument like a bond a
commodity like gold copper or further
new agricultural commodities as well
like cotton wheat rice etc so there are
different types of derivatives which
we'll talk about in subsequent slides so
the first type of derivative is the
futures contract so it is a legally
binding agreement to buy or sell the
underlying asset on a set future date so
as far as any asset is concerned the
price the quantity the quality etc these
are standardized in a futures contract
and these this contract is sold or
purchased within the market much like
any share so on expiry of the date the
futures contract can be settled by
either delivery of the underlying asset
or cash next is a forward contract it is
very similar to futures contract but
with a major difference so forward
contract is a contractual agreement
between two parties to buy or sell an
asset at a future date for a
predetermined mutually agreed price so
as far as this definition is concerned
it is very similar to what a futures
contract is however there is a distinct
difference between futures and forward
contract in case of futures the contract
is standardized so if say I purchase the
contract I can sell the contract to
somebody else
however when you talk about forward
contract it is an agreement between two
parties in which they set the standards
according to their own conditions hence
the conditions are not standardized for
example the price quality the date etc
right so as far as few forward contract
is concerned the contract price is not
transparent as it is not publicly
disclosed because it is a contract
between two parties themselves another
difference is that forward contract
cannot be traded in the secondary market
soon lost derivative that we talked
about is the options contract so the
options contract gives the buyer or the
holder of the contract the right to
purchase
or to sell the underlying asset at a
predetermined price within or at the end
of a specified period so at the time of
formation of the options contract the
price of the underlying asset is
determined furthermore the maturity
period or the end period of the contract
is also specified so within this the
transaction has to take place and the
option remains with the purchaser or the
seller the options contract can also be
settled by delivery of the underlying
asset or cash so both the parties of the
contract have the option of either
delivering the underlying asset or
settling the transaction through cash so
that brings me to the end of this
particular video lecture and this we
started off with completing a little
portion of money market and later on we
understood what are the various
components of capital market as well as
we understood the different major types
of capital market instruments in the
country thank you