1️⃣ Introduction to Financial Markets
Financial Markets = places where buyers & sellers trade financial instruments like shares, bonds, and commodities.
| Market Type | Time Horizon | Instruments | Key Purpose |
|---|---|---|---|
| Money Market | Short term (≤ 1 year) | T-Bills, CP, CD | Short-term funds & liquidity |
| Capital Market | Long term (> 1 year) | Shares, Debentures, Bonds | Long-term funding & investment |
| Commodity Market | Physical goods | Gold, Oil, Wheat, Metals | Hedging & price discovery |
2️⃣ Money Market
Definition
The Money Market deals in short-term funds (up to 1 year) to maintain liquidity in the economy.
Key Features
- Highly liquid instruments ✔
- Low risk ✔
- Short maturity ✔
- Used by banks, corporates, & government ✔
Major Money Market Instruments
| Instrument | Full Form / Meaning | Maturity | Issued By | Key Point |
|---|---|---|---|---|
| T-Bills (Treasury Bills) | Short-term govt securities | 91/182/364 days | RBI on behalf of Govt | Zero-coupon |
| CD (Certificate of Deposit) | Time deposit | 7 days – 1 year | Banks | Negotiable |
| CP (Commercial Paper) | Unsecured promissory note | 7 days – 1 year | Corporates | Higher return |
| Call Money / Notice Money | Overnight borrowing | 1–14 days | Banks | Interest = CALL RATE |
| Repo / Reverse Repo | Borrowing using securities | 1–90 days | RBI & Banks | RBI tool for liquidity control |
Example
➡ Banks borrow via Call Money Market to maintain CRR requirement at RBI.
3️⃣ Capital Market
Definition
The Capital Market deals in long-term securities (>1 year) for capital formation.
Types
| Segment | Instruments | Example |
|---|---|---|
| Primary Market | IPO, FPO, Rights Issue | LIC IPO |
| Secondary Market | Shares traded between investors | NSE, BSE trading |
Major Institutions
- SEBI – regulator of securities market
- NSE, BSE – stock exchanges
- NSDL & CDSL – depositories holding shares in Demat form
- Clearing Corporation – ensures trade settlement
Capital Market Instruments
- Equity Shares
- Preference Shares
- Debentures
- Corporate Bonds
- Government Securities (G-Secs)
4️⃣ Capital Raising Avenues
| Method | Meaning | Example | Advantage |
|---|---|---|---|
| IPO (Initial Public Offer) | First time share issue | Zomato IPO | Raises public equity |
| FPO (Follow-on Public Offer) | Additional issue after IPO | SBI FPO | Expansion |
| Rights Issue | Discounted shares for existing shareholders | Reliance Rights 2020 | Retain ownership |
| Private Placement | Sale to select investors | Qualified Institutional Placement (QIP) | Faster funding |
| Debentures / Bonds | Long-term borrowing | SBI Bonds | Fixed interest |
| External Commercial Borrowing (ECB) | Foreign borrowing | Infra projects | Large amount, cheaper |
| Venture Capital / Angel Funding | Fund start-ups | OYO, Paytm | Innovation support |
5️⃣ Commodity Markets
Definition
Markets where raw materials / primary products are traded.
Types
| Commodity Type | Examples |
|---|---|
| Agricultural | Wheat, Cotton, Sugar |
| Metal | Gold, Silver, Copper |
| Energy | Crude Oil, Natural Gas |
Popular Commodity Exchanges in India
| Exchange | Focus |
|---|---|
| MCX (Multi Commodity Exchange) | Gold, Crude Oil, Metals |
| NCDEX (National Commodity & Derivatives Exchange) | Agricultural commodities |
Why Commodity Markets are important?
- Price discovery ✔
- Hedging against price risk ✔
- Investment diversification ✔
6️⃣ Derivatives Market
| Type | Meaning | Example |
|---|---|---|
| Futures | Contract to buy later at fixed price | Gold Futures |
| Options | Right to buy/sell | Nifty Options |
| Forwards | Customized future contract | Farmers locking crop prices |
7️⃣ Institutions & Regulators
| Regulator | Area | Key Role |
|---|---|---|
| RBI | Money Market | Monetary control |
| SEBI | Capital & Commodity market | Investor protection |
| FMC (merged with SEBI 2015) | Commodity | Regulates commodity market |
🔥 Most Important
- RBI regulates Money Market, SEBI regulates Capital & Commodity Market
- T-Bills issued by RBI on behalf of Government
- IPOs are issued in Primary Market, traded in Secondary Market
- Depositories: NSDL & CDSL
- MCX = biggest commodity exchange in India
- Call money = overnight borrowing
- Repo ↓ → Liquidity increases, Reverse Repo ↑ → Liquidity decreases
📌 Mnemonic:
T-Bills CD CP = Treasury, Deposit, Paper → Short-term instruments
8️⃣ Latest Updates
- RBI launched Digital Rupee (CBDC) — Wholesale (e₹-W) & Retail (e₹-R)
- Used in government bond settlement, interbank transactions
- NPCI using blockchain for cross-border UPI
- SEBI proposed instant market settlement (T+1, moving to T+0)
📌 Visual Summary
| Money Market | Capital Market | Commodity Market |
|---|---|---|
| ≤ 1 year | > 1 year | Real goods |
| T-Bills, CP, CD | Shares, Bonds | Gold, Oil, Wheat |
| Regulated by RBI | Regulated by SEBI | Regulated by SEBI |
| Low return, safe | Higher return | Risk: price volatility |
| Banks & corporates | Public investors | Traders & hedgers |
📍 Chapter-wise Full Summary
| Chapter | Key Points |
|---|---|
| Money Market | Short-term finance, RBI regulation, T-Bills, CP, CD, Repo |
| Capital Market | Long-term funding, SEBI, IPO/FPO, Stock exchanges |
| Capital Raising | IPO, FPO, Rights, Bonds, QIP, ECB, VC funding |
| Commodity Market | Raw product trading, MCX/NCDEX, Futures & Options |
| Regulators & Latest | RBI, SEBI, CBDC, T+1 settlement |
⏳ Quick Revision Sheet
✔ Money Market = Short-term funds ≤1 year
✔ Capital Market = Long-term funds >1 year
✔ Primary Market = IPO issue
✔ Secondary Market = Trading after listing
✔ T-Bills issued by RBI, zero-coupon
✔ Repo = Borrowing using securities
✔ SEBI = Capital + Commodity regulator
✔ MCX = Largest commodity exchange
✔ NSDL & CDSL = Depositories
Formula Trick:
MONEY <1 YR | CAPITAL >1 YR | COMMODITY = GOODS
MCQ – Capital Markets | Money Markets | Capital Raising Avenues | Commodity Markets
🔹 CHAPTER 1: MONEY MARKET – 12 MCQs
Q1. The Money Market deals with financial instruments having maturity of:
a) More than 3 years
b) 1–3 years
c) Up to 1 year
d) More than 5 years
Answer: c) Up to 1 year
Explanation: Money market is for short-term funds up to 1 year. 👉 (HIGHLY IMPORTANT)
Q2. Treasury Bills are issued by:
a) SEBI
b) RBI on behalf of Government of India
c) Commercial Banks
d) State Government
Answer: b) RBI on behalf of Government of India
Explanation: T-bills are short-term government securities issued via RBI. 👉 (HIGHLY IMPORTANT)
Q3. Which of the following is a money market instrument?
a) Equity Shares
b) Preference Shares
c) Commercial Paper
d) Debentures
Answer: c) Commercial Paper
Explanation: CP is unsecured short-term debt issued by corporates.
Q4. Certificate of Deposit (CD) is issued by:
a) RBI only
b) Insurance Companies
c) Commercial Banks
d) Private Equity Funds
Answer: c) Commercial Banks
Explanation: CDs are time deposits issued by banks.
Q5. Call Money Market refers to funds borrowed for:
a) 15–30 days
b) 1 day (overnight)
c) More than 90 days
d) 1 year
Answer: b) 1 day (overnight)
Explanation: Immediate overnight borrowing among banks.
Q6. Instruments of Money Market exclude:
a) Treasury Bills
b) Call/Notice Money
c) Corporate Bonds
d) Commercial Paper
Answer: c) Corporate Bonds
Explanation: Corporate bonds come under capital market.
Q7. Reverse Repo Rate means:
a) Rate at which banks borrow from customers
b) Rate at which RBI borrows from IMF
c) Rate at which RBI borrows from banks
d) Rate at which customers borrow from banks
Answer: c) Rate at which RBI borrows from banks
Explanation: Tool for liquidity absorption.
Q8. Which of the following is NOT an objective of the Money Market?
a) Trade in short-term funds
b) Liquidity management
c) Minimize risk
d) Long-term capital formation
Answer: d) Long-term capital formation
Explanation: That belongs to capital market.
Q9. Maximum maturity period of Commercial Paper is:
a) 30 days
b) 90 days
c) 180 days
d) 1 year (364 days)
Answer: d) 1 year
Explanation: CP maturity is 7 days to 1 year.
Q10. Government Securities in Money Market are also called:
a) Blue-chip stocks
b) Derivatives
c) G-Secs
d) Commodity Futures
Answer: c) G-Secs
Explanation: Govt debt securities are called G-Secs.
Q11. The interest rate in Call Money Market is known as:
a) Bank Rate
b) Call Rate
c) MCLR
d) Repo Rate
Answer: b) Call Rate
Q12. Commercial Paper is usually issued by:
a) NBFCs only
b) Financially sound corporates
c) Government of India
d) Mutual Funds
Answer: b) Financially sound corporates
🔹 CHAPTER 2: CAPITAL MARKET – 18 MCQs
Q13. Capital Market deals in:
a) Long-term funds (>1 year)
b) Short-term funds
c) Commodity trading
d) Retail payments
Answer: a) Long-term funds (>1 year)
👉 (HIGHLY IMPORTANT)
Q14. Primary market is also called:
a) Secondary Market
b) Over-the-counter market
c) New Issue Market
d) Repo Market
Answer: c) New Issue Market
Q15. Which institution regulates Capital Market in India?
a) RBI
b) Ministry of Finance
c) SEBI
d) NABARD
Answer: c) SEBI
👉 (HIGHLY IMPORTANT)
Q16. Stock exchanges belong to which market?
a) Primary Market
b) Secondary Market
c) Mixed Market
d) Commodity Market
Answer: b) Secondary Market
Q17. Depositories in India are:
a) RBI & SEBI
b) MCX & NCDEX
c) NSE & BSE
d) NSDL & CDSL
Answer: d) NSDL & CDSL
👉 (HIGHLY IMPORTANT)
Q18. A company issues shares to the public for the first time through:
a) Rights Issue
b) Private Placement
c) IPO
d) Bonus Issue
Answer: c) IPO
Q19. Equity shares provide:
a) Fixed interest
b) Ownership + voting rights
c) Guaranteed returns
d) None
Answer: b) Ownership + voting rights
Q20. Corporate bonds represent:
a) Ownership capital
b) Borrowed capital
c) Fixed assets
d) Forex assets
Answer: b) Borrowed capital
Q21. Full form of FPO:
a) Financial Public Offer
b) Follow-on Public Offer
c) Final Public Offer
d) Fund Placement Offer
Answer: b) Follow-on Public Offer
Q22. SEBI was established in:
a) 1980
b) 1985
c) 1988 (statutory in 1992)
d) 1994
Answer: c) 1988
Q23. Which is India’s oldest stock exchange?
a) NSE
b) NCDEX
c) BSE (1875)
d) MCX
Answer: c) BSE
Q24. Clearing and settlement of trades are done by:
a) RBI
b) SEBI
c) Clearing Corporation
d) FCI
Answer: c) Clearing Corporation
Q25. T+1 settlement cycle means:
a) Settlement same day
b) Settlement next day after trade
c) Settlement after 1 month
d) No settlement
Answer: b) Next day 👉 (HIGHLY IMPORTANT)
Q26. Bonus shares are issued from:
a) IPO proceeds
b) Free reserves or accumulated profits
c) Government subsidy
d) Venture fund
Answer: b) Free reserves
Q27. Rights issue shares are offered to:
a) Public investors
b) Employees
c) Existing shareholders
d) Banks
Answer: c) Existing shareholders
Q28. Which investment carries the highest risk?
a) Treasury Bills
b) Government Bonds
c) Bank FD
d) Equity Shares
Answer: d) Equity Shares
Q29. Which is NOT part of capital market?
a) Debentures
b) Equity shares
c) Bonds
d) Call Money
Answer: d) Call Money
Q30. The regulator for credit rating agencies is:
a) IRDAI
b) RBI
c) SEBI
d) SIDBI
Answer: c) SEBI
🔹 CHAPTER 3: CAPITAL RAISING AVENUES – 10 MCQs
Q31. Private placement means:
a) Shares issued to the public
b) Issue of shares to select investors
c) Shares issued only in secondary market
d) IPO
Answer: b) Issue of shares to select investors
Q32. Venture capital is useful for:
a) Government companies
b) Startups
c) PSU Banks
d) RBI
Answer: b) Startups
Q33. QIP stands for:
a) Qualified Internal Placement
b) Qualified Institutional Placement
c) Quality Investment Partnership
d) Quick Issuance Platform
Answer: b) Qualified Institutional Placement
Q34. ECB stands for:
a) Emergency Commercial Bond
b) External Commercial Borrowing
c) External Cash Balance
d) Enterprise Capital Bonds
Answer: b) External Commercial Borrowing
Q35. A security that pays fixed interest is:
a) Equity share
b) Debenture/Bond
c) Preference share
d) Warrants
Answer: b) Debenture/Bond
Q36. Angel investors invest mainly in:
a) Large corporates
b) Cooperative banks
c) Government loans
d) Innovative startups
Answer: d) Innovative startups
Q37. Which market is used for raising fresh capital?
a) Primary market
b) Secondary market
c) Exports market
d) Money market
Answer: a) Primary market
Q38. IPO pricing process is called:
a) Hedging
b) Discounting
c) Book Building
d) Benchmarking
Answer: c) Book building
Q39. The largest IPO in India till 2024:
a) Paytm
b) Coal India
c) LIC
d) SBI
Answer: c) LIC
Q40. Convertible debenture means:
a) Cannot be converted
b) Shares converted into debt
c) Debt converted into equity
d) Govt security
Answer: c) Debt converted into equity
🔹 CHAPTER 4: COMMODITY MARKET & RECENT UPDATES – 10 MCQs
Q41. Commodity Market deals in:
a) Banking services
b) Insurance services
c) Raw materials & primary goods
d) Real estate
Answer: c) Raw materials & primary goods
Q42. MCX stands for:
a) Market Commodity Exchange
b) Multi Commodity Exchange
c) Merchant Commodity Exchange
d) Monetary Commodity Exchange
Answer: b) Multi Commodity Exchange
Q43. Largest Commodity Exchange in India is:
a) NCDEX
b) NSE
c) BSE
d) MCX
Answer: d) MCX
Q44. Commodity derivatives mainly include:
a) Bank FDs
b) Loans
c) Futures & Options
d) Mutual fund SIP
Answer: c) Futures & Options
Q45. Which regulates Commodity Market in India now?
a) FMC
b) RBI
c) SEBI
d) Ministry of Agriculture
Answer: c) SEBI
Explanation: FMC merged with SEBI in 2015. 👉 (HIGHLY IMPORTANT)
Q46. NCDEX deals mainly in:
a) Gold & Silver
b) Agricultural commodities
c) Crude oil
d) Currency futures
Answer: b) Agricultural commodities
Q47. A contract to buy or sell an asset at a future date at a fixed price is:
a) Spot deal
b) Futures Contract
c) Repo Contract
d) Discount Deal
Answer: b) Futures Contract
Q48. CBDC launched by RBI is called:
a) Digital Coin
b) Crypto Rupee
c) Digital Rupee (e₹)
d) Bharat Token
Answer: c) Digital Rupee (e₹)
Q49. Digital Rupee Retail Pilot started in:
a) 2019
b) 2022
c) 2024
d) 2020
Answer: b) 2022
Q50. T+0 settlement means:
a) Settlement after 1 day
b) After 1 week
c) After 2 days
d) Same-day settlement
Answer: d) Same-day settlement
👉 (HIGHLY IMPORTANT)