Financial Markets Test - 7

A treasury bill is an instrument of short term debt. Treasury bills are sold with maturities of four, thirteen, twenty-six and fifty-two weeks.

An ideal capital market is defined by a set of five assumptions.
1: capital markets are frictionless
2: All market participants share homogenous expectation, valuerelevant information is costlessly available to all market participants.
3: All market participants are atomistic. No single market participant can affect the market price of a security via trades.
4: The firm’s investment program is fixed and known.
5: The firm’s financing is fixed. Once chosen, the firm’s capital structure is fixed.

A rights issue is a dividend of subscription rights to buy additional securities in a company made to the company's existing security holders. When the rights are for equity securities, such as shares, in a public company, it is a non-dilutive pro rata way to raise capital.

Primary and secondary markets complement each other. Primary market deals with the issue of new securities. On the other hand, secondary market deals in the purchase and sale of the existing securities. That is, once the securities are issued in primary market, they are then traded in the secondary market.

Working capital financing is done by various modes such as trade credit, cash and discount of bills, bank guarantee, letter of credit, factoring, commercial paper, working capital financing extensively used by all small and big businesses.

In India, shares and securities are held electronically in a dematerialized (Demat) account, instead of the investor taking physical possession of certificates. A Demat account is opened by the investor while registering with an investment broker (or sub-broker).

Capital Market is a market dealing in medium and long-term funds. It is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities.

A zero-coupon bond, also known as an "accrual bond," is a debt security that doesn't pay interest (a coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

A Settlement Cycle refers to a calendar according to which all purchase and sale transactions done on T Day are settled on a T+2 basis i.e. on the 2nd working day, At NSE.

TYPES OF MONEY MARKET INSTRUMENTS
    Treasury Bills. Treasury bills (T-bills) are short-term notes issued by the U.S. government.
    Federal Agency Notes.
    Short-Term Tax Exempts.
    Certificates of Deposit.
    Commercial Paper.
    Bankers' Acceptances.
    Repurchase Agreements.

The Securities and Exchange Board of India is the regulator for the securities market in India. It was established in the year 1988 and given statutory powers on 30 January 1992 through the SEBI Act, 1992.

The instruments traded (media of exchange) in the capital market are:
    Debt Instruments.
    Equities (also called Common Stock)
    Preference Shares.
    Derivatives.

The clearing and settlement operations of NSE are carried out by NSCCL. NSCCL (National Securities Clearing Corporation Ltd.) was incorporated in August, 1995 and it commenced its clearing operations for NSE in April, 1996.

One is the National Securities Depository Limited (NSDL) and the other is the Central Depository Service (India) Limited (CDSL). Every Depository Participant (DP) needs to be registered under this Depository before it begins its operation or trade in the market.

Total number of stock exchanges in India: 22. They are in: Ahmedabad, Bangalore, Calcutta, Chennai, Delhi etc. There is also a National Stock Exchange (NSE) which is located in Mumbai. More than 6,000 stocks listed.

As money became a commodity, the money market became a component of the financial markets for assets involved in short-term borrowing, lending, buying and selling with original maturities of one year or less.

The minimum capital requirement for a company to be listed on the OTCEI is Rs 3 crores and the maximum is Rs 50 crores.

SEBI is not a participant in money market. The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India. In April 1988 the SEBI was constituted as the regulator of capital markets in India under a resolution of the Government of India.

The Reserve Bank of India is India's central banking institution, which controls the monetary policy of the Indian rupee. RBI is not a part of capital market.

The money market yield will be lower than the yield on stocks and bonds because of the low risk.

Commercial bills : A bills of exchange issued by a company (a trade bill) or accepted by a bank (a bank bill), as opposed to a Treasury bill, which is issued by the government.

There are various methods of floating new issues in the primary market:
(i) Offer Through Prospectus This involves inviting subscription from the public through issue of prospectus.
(ii) Offer for Sale Under this method securities are not issued directly to the public but offered for sale through intermediaries like issuing houses or stock brokers.
(iii) Private Placement Private placement is the allotment of securities by a company to institutional investors and some selected individuals.
(iv) Rights Issue This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company.
(v) e-IPOs A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange.

The National Stock Exchange of India was promoted by leading Financial institutions at the behest of the Government of India, and was incorporated in November 1992 as a tax-paying company. In April 1993, it was recognized as a stock exchange under the Securities Contracts (Regulation) Act, 1956.

The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year.

OTCEI (Over the Counter Exchange of India) was incorporated in the year 1990 on the lines of NASDAQ which is the OTC in USA. OTCEI is a fully computerized and transparent stock exchange.

A Treasury bill (T-Bill) is a short-term debt obligation backed by the Treasury Dept.

Only institutional investors can participate in money market. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods, typically up to thirteen months.

The National Stock Exchange of India Limited (NSE) commenced trading in derivatives with the launch of index futures on June 12, 2000. The futures contracts are based on the popular benchmark Nifty 50 Index.

Money market instrument enjoy a higher degree of liquidity. A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded.

A private placement is the sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds.