1. Which Of The Following Statements About Money Market Mutual Funds Is True?
Financial Market place refers to the organisation consisting of fiscal institutions, financial instruments, regulatory bodies, and organisations. It facilitates the flow of debt and disinterestedness majuscule. Banks, Evolution Financial Institutions (NABARD, SIDBI, IDBI, etc.), and Non- Cyberbanking Financial Institutions form Financial Institutions.
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Financial Instruments are shares, bonds, debentures, etc.
Primary functions of the fiscal market
The primary functions of the financial market.
(a) Information technology provides facilities for interaction betwixt the investors and the borrowers.
(b) It provides pricing information resulting from the interaction between buyers and sellers in the market place when they trade the financial assets.
(c) It provides security to dealings in financial avails.
(d) It ensures liquidity past providing a mechanism for an investor to sell the fiscal avails.
(e) It ensures a low cost of transactions and information.
Financial markets consist of two major segments:
- Money Market: The market for short term funds
- Capital Market place: The marketplace for long and medium-term funds.
There are two types of Majuscule Flow –
- Lending
- Borrowing
This is an of import topic for UPSC 2022 exam.
Financial Market (UPSC Notes):- Download PDF Hither
Money Marketplace
According to the RBI, "The money market is the centre for dealing mainly of brusk character, in budgetary assets; it meets the curt term requirements of borrowers and provides liquidity or cash to the lenders.
Information technology is a place where short term surplus investible funds at the disposal of financial and other institutions and individuals are bid past borrowers, again comprising institutions and individuals and also by the government."
Functions of Coin Market
- To maintain the balance betwixt the need and supply for money when information technology comes to short-term money-related transactions(monetary equilibrium)
- To promote economic growth. The money market place tin practise this by making funds bachelor to diverse units in the economy such as agriculture, small scale industries, etc.
- To provide help to Merchandise and Industry. The money market provides acceptable finance to trade and industry. Similarly, information technology also provides the facility of discounting bills of substitution for trade and industry.
- To help in implementing Budgetary Policy. Information technology provides a mechanism for the effective implementation of the monetary policy.
- To help in Upper-case letter Formation. The money market makes available investment avenues for the short term menses. It helps in generating savings and investments in the economic system.
Features of Money Marketplace
The money market provides non-inflationary sources of finance to the government. It is possible past issuing treasury bills to raise short loans. Withal, this does non atomic number 82 to increases in prices.
Money Market consists of all the organizations and institutions which deal or facilitate dealings in short term debt instruments. These institutions include RBI, commercial banks, cooperative banks, non-cyberbanking financial companies like LIC, GIG, UTI, and special institutions like Discount and Finance House of India (DFHI). The important coin market instruments or securities (fiscal avails) are as follows.
Capital Marketplace
The capital market is the market for medium and long term funds. It consists of all the fiscal institutions, organizations, and instruments which deal with lending and borrowing transactions of over one-year maturity.
Types of Capital letter Market
| Primary Market | Secondary Market |
| It issues security for the get-go fourth dimension. Example- Initial public offering and follow on public offer. | Existing securities are bought and sold. |
| Firms issue shares to the public. | One investor sells information technology to another investor. |
| Price is fixed past the firms. | Cost is fixed based on demand and supply. |
| Firms heighten money for long-term investments. | Companies benefit from the secondary markets. |
| In that location is no specific geographical location. | There is no specific geographical location. |
| Security & Exchange Board of India (SEBI) is the regulator for this market. | SEBI is the regulator of this market also. |
Difference between Money Market & Capital Market
| Money Market | Capital Market |
| Deals with brusque-term financial transactions. (upwards to 1 year) Internet lenders are people. Firms borrow to invest money to buy raw materials. This is a short-term transaction. This is chosen working uppercase finance. | Deals with medium and long-term fiscal transactions. Medium 1-5 yrs. Long Term Over 5 years |
| Working capital letter finance. | Promotes upper-case letter formation. |
| Works but with bonds. Example: Commercial papers, commercial bills, treasury bills, etc. | Deals with both bonds and disinterestedness. Case: Debentures, shares, etc. |
| Deals with high volume transactions. | Deals with all value transactions. |
| Simply banks are in that location. | All Financial Institutions are there. |
| The general public does not participate much in the Money market. | The general public also participates significantly |
| The Prime regulator is RBI. | The Prime number regulator is SEBI, IRDA, PFRDA (Pension Fund Regulatory Authority) |
Major Terminologies – Financial Market
Treasury Bills: They are promissory notes issued by the RBI on behalf of the government as a short term liability and sold to banks and the public. The maturity catamenia ranges from fourteen to 364 days. They are the negotiable instruments, i.e. they are freely transferable. No involvement is paid on such bills but they are issued at a discount on their face value. You can read in detail about Treasury Bill – Definition, Types & Its Utilise on the folio link provided here.
Commercial Bills: They are as well chosen Merchandise Bills or Bills of Substitution. Commercial bills are drawn by one concern house to another in lieu of credit transactions. It is a written acknowledgment of the debt by the maker directing to pay a specified sum of money to a particular person. They are short-term instruments generally issued for 90 days. These are freely marketable. Banks provide working capital finance to firms past purchasing the commercial bills at a discount; this is chosen 'discounting of bills'.
Commercial Paper (CP): The CP was introduced in 1990 on the recommendation of the Vaghul Committee. A commercial paper is an unsecured promissory annotation issued past a corporate with a internet worth of at to the lowest degree Rs five crore to the banks for brusk term loans. These are issued at discount on face value for a period of xiv days to 12 months. These are issued in multiples of Rs 1 lakh subject to a minimum of Rs 25 lakh. Further information on Commercial Paper (CP) tin be checked on the linked page.
Certificate of Deposit (CD): The CD was introduced in 1989 on the recommendation of the Vaghul Committee. These are issued by banks against deposits kept by individuals and institutions for a period of 15 days to three years. These are similar to Fixed Deposits but are negotiable and tradable. These are issued in multiples of Rs. 1 lakh subject to a minimum of Rs 25 lakh.
Disbelieve and Finance House of India Ltd.: DFHI was set upwardly as a subsidiary of RBI in 1988 on the recommendation of the Vaghul Committee. Its objective is to stimulate activity in the money market place by providing liquidity to the coin market place instrument. It buys bills and short term securities from banks and financial institutions thereby developing a secondary market place in them. DFHI was set up every bit a subsidiary of RBI in 1988 on the recommendation of the Vaghul Committee. It buys bills and short term securities from banks and financial institutions thereby developing a secondary market place in them.
Read most theDeparture between Primary market and Secondary Market on the linked page.
Gilt-Edged Market
The Gilt-edged market place refers to the market for government and semi-government securities, backed by the RBI. The term gilt-edged ways 'of the best quality'. It is known so considering the government securities do not suffer from the risk of default and are highly liquid. The RBI is the sole supplier of such securities. These are demanded past commercial banks, insurance companies, provident funds, and mutual funds.
The gilt-edged market place may be divided into two parts- the Treasury nib market and the government bond marketplace. Treasury bills are issued to come across brusque-term needs for funds of the government, while government bonds are issued to finance long-term developmental expenditure.
UPSC aspirants should know the types of markets while preparing for GS-3 of the UPSC Exam.
Financial Market (UPSC Notes):- Download PDF Here
Multiple Choice Question
Consider the post-obit Statements
- The majuscule Market is the market for short term funds.
- One of the functions of the Coin market place is to maintain the balance between the demand and supply for money when it comes to short-term money-related transactions (monetary equilibrium).
- The Money market is the market place for medium and long term funds.
- The Prime regulators of the Coin marketplace are the Securities Exchange Board of Republic of india (SEBI), Insurance Regulatory Development Authorisation (IRDA), Pension Fund Regulatory Development Authority (PFRDA)
Which of the following options is correct?
A) All the above-given statements are true.
B) Only Statements one,two and iii are true.
C) Just Statements 1,2 and 4 are true.
D) None of the above-given statements are truthful.
Answer: D
Relevant Links
Candidates can find the general pattern of the UPSC Civil Service Exam by visiting the IAS Syllabus folio.
Related Links
Source: https://byjus.com/free-ias-prep/financial-market/
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