Financial Markets Test - 28

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.

Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. The interest rate paid on call money loans is known as the call rate. There is an inverse relationship between call rates and other short-term money market instruments.

Money market is a market for short term funds which deals in monetary assets having maturity period upto one year. They are close substitutes for money. It is a market of low risk, unsecured and short term debt instruments which are highly liquid.

Types of money market instruments:

• 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
• Call money

Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and credit worthy companies to raise short term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year.

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

Fiduciary money is money that is accepted as a medium of exchange due to the trust that exists between the payer and the payee. Cheques are fiduciary money as these are accepted as a means of payment on the basis of trust but not on the basis of any order of the government. Fiduciary money, or currency, refers to banknotes and coins in circulation in the economy. This is the liquidity available to economic sectors to carry out transactions.

Treasury bills are issued in the form of a promissory note. They are highly liquid and have assured yield and negligible risk of default. They are issued at a price that is lower than their face value and repaid at par. Treasury bills are available for a minimum amount of '25,000 and in multiples thereof.