Financial markets: Introduction

Financial system structure and functions

The financial system plays the key role in the economy by stimulating economic growth,
influencing economic performance of the actors, affecting economic welfare. This is
achieved by financial infrastructure, in which entities with funds allocate those funds to
those who have potentially more productive ways to invest those funds. A financial system
makes it possible a more efficient transfer of funds. As one party of the transaction may
possess superior information than the other party, it can lead to the information asymmetry
problem and inefficient allocation of financial resources. By overcoming the information
asymmetry problem the financial system facilitates balance between those with funds to
invest and those needing funds.

According to the structural approach, the financial system of an economy consists of

three main components:
1) financial markets;
2) financial intermediaries (institutions);
3) financial regulators.

Each of the components plays a specific role in the economy.

According to the functional approach, financial markets facilitate the flow of funds in
order to finance investments by corporations, governments and individuals. Financial
institutions are the key players in the financial markets as they perform the function of
intermediation and thus determine the flow of funds. The financial regulators perform the
role of monitoring and regulating the participants in the financial system.

Financial markets studies, based on capital market theory, focus on the financial system,
the structure of interest rates, and the pricing of financial assets.
An asset is any resource that is expected to provide future benefits, and thus possesses
economic value. Assets are divided into two categories: tangible assets with physical
properties and intangible assets. An intangible asset represents a legal claim to some future
economic benefits. The value of an intangible asset bears no relation to the form, physical
or otherwise, in which the claims are recorded.

Financial assets, often called financial instruments, are intangible assets, which are
expected to provide future benefits in the form of a claim to future cash. Some financial
instruments are called securities and generally include stocks and bonds.
Any transaction related to financial instrument includes at least two parties:
1) the party that has agreed to make future cash payments and is called the issuer;
2) the party that owns the financial instrument, and therefore the right to receive the
payments made by the issuer, is called the investor.

Financial assets provide the following key economic functions.

 they allow the transfer of funds from those entities, who have surplus funds
to invest to those who need funds to invest in tangible assets;
 they redistribute the unavoidable risk related to cash generation among
deficit and surplus economic units.

The claims held by the final wealth holders generally differ from the liabilities issued by
those entities who demand those funds. They role is performed by the specific entities
operating in financial systems, called financial intermediaries. The latter ones transform
the final liabilities into different financial assets preferred by the public.

A financial market consists of two major segments: (a) Money Market; and (b) Capital
Market. While the money market deals in short-term credit, the capital market handles
the medium term and long-term credit.

MONEY MARKET
The money market is a market for short-term funds, which deals in financial assets whose period
of maturity is upto one year. It should be noted that the money market does not deal in cash or
money as such but simply provides a market for credit instruments such as bills of exchange,
promissory notes, commercial paper, treasury bills, etc. These financial instruments are a close
substitute of money. These instruments help the business units, other organisations and the
Government to borrow the funds to meet their short-term requirement.

Money market does not imply any specific market place. Rather it refers to the whole network of
financial institutions dealing in short-term funds, which provides an outlet to lenders and a source
of supply for such funds to borrowers. Most of the money market transactions take place on
telephone, fax or Internet. The Indian money market consists of Reserve Bank of India,
Commercial banks, Co-operative banks, and other specialized financial institutions. The Reserve
Bank of India is the leader of the money market in India.

Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC,
GIC, UTI, etc. also operate in the Indian money market.

MONEY MARKET INSTRUMENTS

Following are some of the important money market instruments or securities.

(a) Call Money: Call money is mainly used by the banks to meet their temporary requirement of
cash. They borrow and lend money from each other normally on a
daily basis. It is repayable on demand and its maturity period varies in between one
day to a fortnight. The rate of interest paid on call money loan is known as call rate.

(b) Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the
short-term requirement of funds. Treasury bills are highly liquid instruments, that means,
At any time the holder of treasury bills can transfer or get it discounted from RBI.
These bills are normally issued at a price less than their face value; and redeemed at
face value. So the difference between the issue price and the face value of the treasury
bill represents the interest on the investment. These bills are secured instruments and
are issued for a period of not exceeding 364 days. Banks, Financial institutions and
corporations normally play a major role in the Treasury bill market.

(c) Commercial Paper: Commercial paper (CP) is a popular instrument for financing
working capital requirements of companies. The CP is an unsecured instrument issued
in the form of a promissory note. This instrument was introduced in 1990 to enable the
corporate borrowers to raise short-term funds. It can be issued for period ranging
from 15 days to one year. Commercial papers are transferable by endorsement and
delivery. The highly reputed companies (Blue Chip companies) are the major player
of the commercial paper market.

(d) Certificate of Deposit: Certificate of Deposit (CDs) are short-term instruments

issued by Commercial Banks and Special Financial Institutions (SFIs), which are
freely transferable from one party to another. The maturity period of CDs ranges
from 91 days to one year. These can be issued to individuals, co-operatives and
companies.

(e) Trade Bill: Normally the traders buy goods from the wholesalers or manufacturers on
credit. The sellers get payment after the end of the credit period. But if any seller
does not want to wait or in immediate need of money he/she can draw a bill of
exchange in favour of the buyer. When buyer accepts the bill it becomes a negotiable
instrument and is termed as bill of exchange or trade bill. This trade bill can now be
discounted with a bank before its maturity. On maturity the bank gets the payment
from the drawee i.e., the buyer of goods. When trade bills are accepted by Commercial
Banks are known as Commercial Bills. So trade bill is an instrument, which enables
the drawer of the bill to get funds for a short period to meet the working capital needs.

CAPITAL MARKET
Capital Market may be defined as 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. So it constitutes all long-term borrowings from
banks and financial institutions, borrowings from foreign markets and raising of capital by
issuing various securities such as shares, debentures, bonds, etc. In the present chapter let us
discuss the market for trading of securities.
The market where securities are traded known as Securities market. It consists of two different
segments namely primary and secondary market. The primary market deals with new or fresh
issue of securities and is, therefore, also known as a new issue market; whereas the secondary
market provides a place for purchase and sale of existing securities and is often termed as stock
market or stock exchange.
Capital market is defined as a financial market that works as a channel for demand and supply of
debt and equity capital. It channels the money provided by savers and depository institutions
(banks, credit unions, insurance companies, etc.) to borrowers and investors through a variety of
financial instruments (bonds, notes, shares) called securities. A capital market is not a compact
unit, but a highly decentralized system made up of three major parts that include stock market,
bond market, and money market. It also works as an exchange for trading existing claims on
capital in the form of shares. The Capital Market deals in the long-term capital Securities such as
Equity or Debt offered by the private business companies and also governmental undertakings of
India.

Structure of capital market of India

In the agenda of financial sector reforms, Improvement of the capital market is important area
and action has been taken parallel with reforms in banking. India has experienced functioning in
capital markets the Bombay Stock Exchange (BSE) for over a hundred years but until the 1980s,
the volume of activity in the capital market was relatively limited. Capital market activity
extended rapidly in the 1980s and the market capitalization of companies registered in the BSE
rose from 5 per cent of GDP in 1980 to 13 per cent in 1990. It is observed that the Indian capital
market has perceived major reforms in the decade of 1990s and thereafter. It is on the edge of the
growth. Thus, the Government of India and SEBI took numerous measures in order to improve
the working of the Indian stock exchanges and to make it more progressive and energetic. The
Securities and Exchange Board of India (SEBI) was well-known in 1988. It got a legal status in
1992. SEBI was principally set up to control the activities of the commercial banks, to control
the operations of mutual funds, to work as a promoter of the stock exchange activities and to act
as a regulatory authority of new issue activities of companies. The SEBI was established with the
vital objective, "to protect the interest of investors in securities market and for matters connected
therewith or incidental thereto." The main functions of SEBI are as follows:
● To control the business of the stock market and other securities market.
● To promote and regulate the self-regulatory organizations.

● To forbid fraudulent and unfair trade practices in securities market.

● To promote awareness among investors and training of intermediaries about safety of
market.
● To prohibit insider trading in securities market.
● To regulate huge acquisition of shares and takeover of companies.
However the stock market remained primeval and poorly controlled. Companies who want to
access the capital market needed prior permission of the government which also had to approve
the price at which new equity could be raised. While new issues were strictly controlled, there
was insufficient regulation of stock market activity and also of various market participants
including stock exchanges, brokers, mutual funds, etc. The domestic-capital market was also
closed to portfolio investment from abroad except through a few closed ended mutual funds
floated abroad by the Unit Trust of India (UTI) which were committed to Indian investment.

IMPORTANCE OF CAPITAL MARKET

Absence of capital market acts as a deterrent factor to capital formation and economic growth.
Resources would remain idle if finances are not funneled through the capital market. The
importance of capital market can be briefly summarised as follows:
(i) The capital market serves as an important source for the productive use of the economy’s
savings. It mobilises the savings of the people for further investment and thus, avoids their
wastage in unproductive uses.
(ii) It provides incentives to saving and facilitates capital formation by offering suitable rates of
interest as the price of capital.
(iii) It provides an avenue for investors, particularly the household sector to invest in financial
assets which are more productive than physical assets.
(iv) It facilitates increase in production and productivity in the economy and thus, enhances the
economic welfare of the society. Thus, it facilitates ‘the movement of stream of command over
capital to the point of highest yield’ towards those who can apply them productively and
profitably to enhance the national income in the aggregate.
(v) The operations of different institutions in the capital market induce economic growth. They
give quantitative and qualitative directions to the flow of funds and bring about rational
allocation of scarce resources.

PRIMARY MARKET
The Primary Market consists of arrangements, which facilitate the procurement of long term
funds by companies by making fresh issues of shares and debentures. You know that companies
make fresh issues of shares and/or debentures at their formation stage and, if necessary,
subsequently for the expansion of business. It is usually done through private placement to
friends, relatives and financial institutions or by making public issues. In any case, the
companies have to follow a well-established legal procedure and involve a number of
intermediaries such as underwriters, brokers, etc. who form an integral part of the primary
market.

SECONDARY MARKET
The secondary market known as stock market or stock exchange plays an equally important role
in mobilising long-term funds by providing the necessary liquidity to holdings in shares and
debentures. It provides a place where these securities can be encashed without any difficulty and
delay. It is an organised market where shares, and debentures are traded regularly with a high
degree of transparency and security. In fact, an active secondary market facilitates the growth of
the primary market as the investors in the primary market are assured of a continuous market for
liquidity of their holdings. The major players in the primary market are merchant bankers,
mutual funds, financial institutions, and the individual investors; and in the secondary market you
have all these and the stockbrokers who are members of the stock exchange who facilitate the
trading.
After having a brief idea about the primary market and secondary market let see the
difference between them.

DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKET

The main points of distinction between the primary market and secondary market are as
follows:
1. Function : While the main function of primary market is to raise long-term funds
through fresh issue of securities, the main function of secondary market is to provide
continuous and ready market for the existing long-term securities.
2. Participants: While the major players in the primary market are financial institutions,
mutual funds, underwriters and individual investors, the major players in secondary
market are all of these and the stockbrokers who are members of the stock exchange.
3. Listing Requirement: While only those securities can be dealt within the secondary
market, which have been approved for the purpose (listed), there is no such requirement
in case of the primary market.
4. Determination of prices: In case of primary market, the prices are determined by
the management with due compliance with SEBI requirement for new issue of securities.

But in case of secondary market, the price of the securities is determined by forces of
demand and supply of the market and keeps on fluctuating.

DISTINCTION BETWEEN CAPITAL MARKET AND MONEY MARKET

Capital Market differs from money market in many ways. Firstly, while money market is
related to short-term funds, the capital market related to long term funds. Secondly, while money
market deals in securities like treasury bills, commercial paper, trade bills, deposit certificates,
etc., the capital market deals in shares, debentures, bonds and government securities. Thirdly,
while the participants in money market are Reserve Bank of India, commercial banks,
non-banking financial companies, etc., the participants in capital market are stockbrokers,
underwriters, mutual funds, financial institutions, and individual investors. Fourthly, while the
money market is regulated by Reserve Bank of India, the capital market is regulated by Securities
Exchange Board of India (SEBI).

Debt market instrument characteristics

Debt markets are used by both firms and governments to raise funds for long-term purposes,
though most investment by firms is financed by retained profits. Bonds are long term
borrowing instruments for the issuer.
Major issuers of bonds are governments (Treasury bonds in US, gilts in the UK, Bunds in
Germany) and firms, which issue corporate bonds Corporate as well as government bonds vary
very considerably in terms of their risk. Some corporate bonds are secured against assets of the
company that issued them, whereas other bonds are unsecured. Bonds secured on the assets of
the issuing company are known as debentures. Bonds that are not secured are referred to as loan
stock. Banks are major issuers of loan stock. The fact that unsecured bonds do not provide their
holders with a claim on the assets of the issuing firm in the event of default is normally
compensated for by means of a higher rate of coupon payment.

Bond prices fluctuate inversely with market interest rates.

Debt market instrument characteristics

Debt markets are used by both firms and governments to raise funds for long-term purposes,
though most investment by firms is financed by retained profits. Bonds are long-term
borrowing instruments for the issuer.

Major issuers of bonds are governments (Treasury bonds in US, gilts in the UK, Bunds in
Germany) and firms, which issue corporate bonds. Corporate as well as government bonds vary
very considerably in terms of their risk. Some corporate bonds are secured against assets of the
company that issued them, whereas other bonds are unsecured. Bonds secured on the assets of
the issuing company are known as debentures. Bonds that are not secured are referred to as loan
stock. Banks are major issuers of loan stock. The fact that unsecured bonds do not provide their
holders with a claim on the assets of the issuing firm in the event of default is normally
compensated for by means of a higher rate of coupon payment.

Important characteristics of bonds involve:

The conventional or straight bond has the following characteristics:

Residual maturity (or redemption date). As time passes, the residual maturity of any bond
shortens. Bonds are classified into ‘short-term’ (with lives up to five years); ‘medium-term’(from
five to fifteen years) ; ‘long-term’(over fifteen years).

Bonds pay a fixed rate of interest, called coupon. It is normally made in two installments, at
six-monthly intervals, each equal to half the rate specified in the bond’s coupon.

The coupon divided by the par value of the bond (100 Euro) gives the coupon rate on the bond.
The par or redemption value of bonds is commonly 100 Euro (or other currency).

This is also the price at which bonds are first issued.

Bond prices fluctuate inversely with market interest rates.

Bond Market

The bond market is where investors go to trade (buy and sell) debt securities, prominently bonds,
which may be issued by corporations or governments. It is also known as the debt or the credit
market. Securities sold on the bond market are all various forms of debt. By buying a bond,
credit, or debt security, you are lending money for a set period and charging interest—the same
way a bank does to its debtors.

The bond market provides investors with a steady, albeit nominal, source of regular income. In
some cases, such as Treasury bonds issued by the federal government, investors receive
bi-annual interest payments. Many investors choose to hold bonds in their portfolios as a way to
save for retirement, for their children's education, or other long-term needs. Investors have a
wide range of research and analysis tools to get more information on bonds. Investopedia is one
source, breaking down the basics of the market and the different types of securities available.

Where Bonds are Traded

The bond market does not have a centralized location to trade, meaning bonds mainly sell over
the counter (OTC). As such, individual investors do not typically participate in the bond market.
Those who do, include large institutional investors like pension funds foundations, and
endowments, as well as investment banks, hedge funds, and asset management firms. Individual
investors who wish to invest in bonds do so through a bond fund managed by an asset manager.
New securities are put up for sale on the primary market, and any subsequent trading takes place
on the secondary market, where investors buy and sell securities they already own. These
fixed-income securities range from bonds to bills to notes. By providing these securities on the
bond market, issuers can get the funding they need for projects or other expenses needed.
Who Takes Part in the Bond Market?
The three main groups involved in the bond market include:

● Issuers: These are the entities that develop, register, and sell instruments on the bond market,
whether they're corporations or different levels of government. For example, the U.S. Treasury
issues Treasury bonds, which are long-term securities that provide bi-annual interest payments
for investors and mature after 10 years.
● Underwriters: Underwriters usually evaluate risks in the financial world. In the bond market, an
underwriter buys securities from the issuers and resells them for a profit.
● Participants: These entities buy and sell bonds and other related securities. By buying bonds, the
participant issues a loan for the length of the security and receives interest in return. Once it
matures, the face value of the bond is paid back to the participant.

Bond Ratings
Bonds are normally given an investment grade by a bond rating agency like Standard & Poor's
and Moody's. This rating—expressed through a letter grade—tells investors how much risk a
bond has of defaulting. A bond with a "AAA" or "A" rating is high-quality, while an "A"- or
"BBB"-rated bond is medium risk. Bonds with a BB rating or lower are considered to be
high-risk.

Stock Market
A stock market is a place where investors go to trade equity securities such as common stocks
and derivatives including options and futures. Stocks are traded on stock exchanges. Buying
equity securities, or stocks, means you are buying a very small ownership stake in a company.
While bondholders lend money with interest, equity holders purchase small stakes in companies
on the belief that the company performs well and the value of the shares purchased will increase.
The primary function of the stock market is to bring buyers and sellers together into a fair,
regulated, and controlled environment where they can execute their trades. This gives those
involved the confidence that trading is done with transparency, and that pricing is fair and
honest. This regulation not only helps investors, but also the corporations whose securities are
being traded. The economy thrives when the stock market maintains its robustness and overall
health.
Just like the bond market, there are two components to the stock market. The primary market is
reserved for first-run equities so initial public offerings (IPOs) will be issued on this market. This
market is facilitated by underwriters, who set the initial price for securities. Equities are then
opened up on the secondary market, which is where the most trading activity takes place.

Key Differences
One major difference between the bond and stock markets is that the stock market has central
places or exchanges where stocks are bought and sold.
The other key difference between the stock and bond market is the risk involved in investing in
each. When it comes to stocks, investors may be exposed to risks such as country or geopolitical
risk (based on where a company does business or is based), currency risk, liquidity risk, or even
interest rate risks, which can affect a company's debt, the cash it has on hand, and its bottom line.
Bonds, on the other hand, are more susceptible to risks such as inflation and interest rates. When
interest rates rise, bond prices tend to fall. If interest rates are high and you need to sell your
bond before it matures, you may end up getting less than the purchase price. If you buy a bond
from a company that isn't financially sound, you're opening yourself up to credit risk. In a case
like this, the bond issuer isn't able to make the interest payments, leaving itself open to default.
Investing in certain sectors of the bond market, such as U.S. Treasury securities, is said to be less
risky than investing in stock markets, which are prone to greater volatility.

FINANCIAL SYSTEM AND ECONOMIC DEVELOPMENT

The financial system plays a significant role in the process of economic development of a
country. The financial system comprises a network of commercial banks. Non-banking
companies, development banks and other financial and investment institutions offer a variety of
financial products and services to suit the varied requirements of different categories of people.
Since they function in a fairly developed capital and money markets, they play a crucial role in
spurring economic growth in the following ways:

(i) Mobilising savings: The financial system mobilises the savings of the people by offering
appropriate incentives and by deepening and widening the financial structure. In other words, the
financial system creates varieties of forms of savings so that savings can take place according to
the varying asset preferences of different classes of savers. In the absence of the financial system,
all savings would remain idle in the hands of the savers and they would not have flown into
productive ventures.

(ii) Promoting investments: For the economic growth of any nation, investment is absolutely
essential. This investment has to flow from the financial system. In fact, the level of investment
determines the increase in 26 Financial Markets and Services output of goods and services and
incomes in the country. The financial system collects the savings and channels them into
investment which contributes positively towards economic development.

(iii) Encouraging investment in financial assets: The dynamic role of the financial system in the
economic development is that it encourages savings to flow into financial assets (money and
monetary assets) as against physical assets (land, gold and other goods and services). The
investments in physical assets are speculative and would breed inflation. On the other hand,
investment in financial assets are non-inflationary in nature and would aid growth in the
economy. The larger the proportion of the financial assets, the greater is the scope for economic
growth in the long run.

(iv) Allocating savings on the basis of national priorities: Above all, the financial system
allocates the savings in a more efficient manner so that the scarce capital may be more efficiently
utilised among the various alternative investments. In other words, it gives preference to certain
sectors, from the social and economic point of view, on the basis of national priorities.

(v) Creating credit: Large financial resources are needed for the economic development of a
nation. These resources are supplied by the financial system not only in the form of liquid cash
but also in the form of ‘created money’ or ‘deposit money’ by creating credit and thereby making
available large resources to finance trade, production, distribution, etc. Thus, it accelerates
economic growth by facilitating the transactions of trade, production and distribution on a
large-scale.

(vi) Providing a spectrum of financial assets: The financial system provides a spectrum of
financial assets so as to meet the varied requirements and preferences of households. Thus, it
enables them to choose their asset portfolios in such a way as to achieve a preferred mix of
return, liquidity and risk. Thus, it contributes to the economic development of a country.

(vii) Financing trade, industry and agriculture: All the financial institutions operating in a
financial system take all efforts to ensure that no worthwhile project – be it in trade or agriculture
or industry – suffers due to lack of funds. Thus, they promote industrial and agricultural
development which have a greater say on the economic development of a country.

(viii) Encouraging entrepreneurial talents: The financial insitutions encourage the managerial
and entrepreneurial talents in the economy by promoting the spirit of enterprise and risk-taking
capacity. They also furnish the necessary technical consultancy services to the entrepreneurs so
that they may succeed in their innovative ventures.
 (ix) Providing financial services: Sophistication and innovations have started appearing in the
arena of financial intermediations as well. The financial instituions play a very dynamic role in
the economic development of a country

WEAKNESSES OF INDIAN FINANCIAL SYSTEM

After the introduction of planning, rapid industrialisation has taken place. It has in turn led to the
growth of the corporate sector and the Government sector. In order to meet the growing
requirements of the Government and the industries, many innovative financial instruments have
been introduced. Besides, there has been a mushroom growth of financial intermediaries to meet
the ever-growing financial requirements of different types of customers. Hence, the Indian
financial system is more developed and integrated today than what it was 50 years ago. Yet, it
suffers from some weaknesses as listed below:

(i) Lack of coordination between different financial institutions: There are a large number of
financial intermediaries. Most of the vital financial institutions are owned by the Government. At
the same time, the Government is also the controlling authority of these institutions. In these
circumstances, the problem of coordination arises. As there is multiplicity of institutions in the
Indian financial system, there is lack of coordination in the working of these institutions.

(ii) Monopolistic market structures: In India, some financial institutions are so large that they
have created monopolistic market structures in the financial system. For instance, a major share
of life insurance business is in the hands of LIC. The UTI has more or less monopolised the
mutual fund industry. The weakness of this large structure is that it could lead to inefficiency in
their working or mismanagement or lack of effort in mobilising savings of the public and so on.
Ultimately, it would retard the development of the financial system of the country itself.

(iii) Dominance of development banks in industrial financing: The development banks constitute
the backbone of the Indian financial system occupying an important place in the capital market.
The industrial financing today in India is largely through the financial institutions created by the
Government both at the national and regional levels. These development banks act as distributive
agencies only, since, they derive most of their funds 28 Financial Markets and Services from
their sponsors. As such, they fail to mobilise the savings of the public. This would be a serious
bottleneck which stands in the way of the growth of an efficient financial system in the country.
For industries abroad, institutional finance has been a result of institutionalisation of personal
savings through media like banks, LIC, pension and provident funds, Unit Trusts and so on. But
they play a less significant role in Indian financial system, as far as industrial financing is
concerned. However, in recent times attempts are being made to raise funds from the public
through the issue of bonds, units, debentures and so on. It will go a long way in forging a link
between the normal channels of savings and the distributing mechanism.

(iv) Inactive and erratic capital market: The important function of any capital market is to
promote economic development through mobilisation of savings and their distribution to
productive ventures. As far as industrial finance in India is concerned, corporate customers are
able to raise their financial resources through development banks. So, they need not go to the
capital market. Moreover, they don’t resort to capital market since it is very erratic and inactive.
Investors too prefer investments in physical assets to investments in financial assets. The
weakness of the capital market is a serious problem in our financial system.

(v) Imprudent financial practice: The dominance of development banks has developed imprudent
financial practice among corporate customers. The development banks provide most of the funds
in the form of term loans. So, there is a preponderance of debt in the financial structure of
corporate enterprises. This predominance of debt capital has made the capital structure of the
borrowing concerns uneven and lopsided. To make matters worse, when corporate enterprises
face any financial crisis, these financial institutions permit a greater use of debt than is
warranted. It is against the traditional concept of a sound capital structure. However, in recent
times, all efforts have been taken to activate the capital market. Integration is also taking place
between different financial institutions. For instance, the Unit Linked Insurance Schemes of the
UTI are being offered to the public in collaboration with the LIC. Similarly, the refinance and
rediscounting facilities provided by the IDBI aim at integration. Thus, the Indian financial
system has become a developed one.

QUESTIONS

I. Objective type questions

1. Fill in the blanks:

1. ___________ assets are mostly useful for consumption.

2. The market for new issues is called ___________ market.

3. Loan against the security of immovable property is called ___________ loan.

4. ___________ guarantee covers the payment of earnest money, retention money and advance
payments.

5. The SHCIL was set-up in the year ___________.

[Key: 1. Physical, 2. Primary, 3. Mortgage, 4. Performance, 5. 1987]