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The financial system comprises a mixture of intermediaries, markets and instruments that are related to one another.

It provides a system by which savings are transformed into investments. The RBI (Reserve Bank of India), being the central banking authority, exercise monetary control and supervises the banking institutions. Different institutions such as Commercial Banks, Non Banking Finance Companies, Mutual Funds Insurance Companies, Primary Dealers, brokers, depositories and Insurance Agents, also different markets such as the capital market and the money market are part of the financial system. The three regulatory authorities viz., RBI, SEBI, (Securities and Exchange Board of India, IRDA(Insurance Regulatory Development Authority), are controlling and supervising the banking, capital market and insurance sectors respectively.

Equity and Debt Market: Every Organisation requires funds to run their business beyond the promoters contribution. Hence they may raise the funds through Banks, IPO, Marketability of corporate securities, i.e., bonds, debentures and convertible debentures, enables corporate bodies to raise funds-debt, wherein debenture holders enjoy very high liquidity. All securities quoted on stock exchanges and freely bought and sold on these exchanges can be issued only after obtaining approval of the capital market regulator viz., SEBI.

Stock Exchange: A stock exchange provides a platform for sale and purchase of securities on behalf of the investors. They also provide clearing house facilities for getting of payment and delivery of securities. Clearing houses guarantee all payments and deliveries. Securities include equities, debt and derivatives.

Equity and debt instruments: Companies wishing to raise equity or debt through stock exchange have to approach a capital market regulator with the prescribed applications and a proforma prospectus for permission to raise equity and debt to get them listed on a stock exchange.

Depositories: Depositories There are two CDSL- Central Depository Securities Ltd) and NSDL-National Securities depositories Ltd hold securities in demat form. Demat means conversion of physical securities into electronic form. The depositories transfer securities from sellers account to buyers account in electronic form up to instructions from the Stock Exchange Clearing House, supported by necessary documentation.

Mutual Funds: A mutual fund is a form of collective investment that pools money from the investors and invests in stocks, Debt and other securities. It is a less risky investment option for an individual investor. Mutual funds require the regulators approval to start an Asset Management Company and each scheme has to be approved by the regulator before it is launched.

QUESTION AND ANSWERS 1. Which of the following cannot be included in the definition of a financial intermediary? A. Banks and non-bank finance company B. financial institutions C. mutual fund D. companies engaged in manufacturing of goods

2. Which of the following cannot be included in the money market: a. call or notice money b. corporate securities c. certificate of deposit d. treasury bills

3. Which of the following is a part of the money market? A. Bonds issued by the govt. B. bonds issued by public undertaking C. term money D. Debentures

4. The central bank authority i.e. in India, is performing two distinct roles in the context of money market that includes: A. monetary control and banking supervision B. issue of currency and maintaining of CRR C. handing govt. business and maintaining price stability D. banking supervision and financial stability

5. Money control is exercised by RBI in India through:

A. payment system B. issue of currency C. cash reserves and liquid reserve ratios D. Repo rate and reserve repo rate

6. The base rate for lending of banks are impacted by RBI by changing: A. CRR B. SLR C. Repo rates and bank rate D. guidelines u/s 35A of B R Act

7. Which of the following functions is not coming under functions of central banking authority In India: A. supervision over NBFC B. supervision over the foreign institution invest C. management of financial systems D. regulating the money market

8. Which of the following is not the function of capital market regulatory authority i.e. SEBI, in India: A. regulating of debt market B. control over the equity market C. framing the rules for pension funds D. supervision over listed companies.

9. Supervision over the depositors and stock exchanges is the role of: A. RBI B. IRDA C. SEBI D. PFRDA

10. Which of the following does not match: A. regulator of insurance market----IRDA B. regulator of capital market ---SEBI C. regulator of money market ---RBI

D. regulator of forex market---SEBI

11. Which of the following functions is not carried by IRDA in India ? A. regulator of insurance companies B. regulating the insurance products C. regulation over the funds managing pension D. supervision of the general insurance market

12. The small companies/ organizations that have been created exclusively to deal in govt. securities are called: A. NBFCs B. mutual funds C. primary dealers D. asset management companies

13. Which of the following have been created to provide long term funds for industry or agriculture: A. mutual funds B financial institutions C. asset management companies D. non-banking finance companies.

14. Which of the following functions is not carried out by RBI : A. bankers to govt. B. raising deposits from public C. lender of last resort to banks D. management of govt. debt

15. The clearing house facilities for payment and delivery of securities is provided A.SEBI B. stock exchange C. clearing corporation of India D. all the above

16. The funds based outside India and authorized by SEBI to invest in Indian equity

market through the stock exchange are called: A. foreign institution investors B. overseas corporate bodies C. non-resident funds D. foreigner investment funds

17. The corporate securities are held in electronic from instead of physical A. Registrars B. custodians C. depositors D. mutual funds

18. Which of the following is the role of mutual funds? A. to promote unit based scheme to inculcate saving habit B. pooling of investor money for investment in capital market and other securities C. manage the funds of high net worth individuals d. all the above

19. Which of the following is not a correct statement? A. RBI exercises monetary control through CRR and SLR B. clearing house at various centers are maintained by SBI c. IRDA is the regulator of insurance market D. Rising of money through issue of shares by a company is part of capital market.

20. Urban cooperative banks are controlled by: A. NABARD b. Central govt. and NABARD C. state GOVT. and RBI D. RBI and NABARD 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 D B C A C C B C C DC C B B B A C B B C

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