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7.Employment growth
Financial system plays a key role in employment growth in an economy.
Businesses and industries are financed by the financial systems which lead to
growth in employment and in turn increases economic activity and domestic
trade.
8.Venture capital
Increase in venture capital or investment in ventures will boost growth in
economy. Currently, the extent of venture capital in India is less. It is difficult
for individual companies to invest in ventures directly due to the risk involved.
9.Balances economic growth
The growth of different sectors of an economy is balanced through the financial
system. There are primary, secondary and tertiary sector industries and all need
sufficient funds for growth.
Ans 2. Short Capital market and Money Market:
Capital Market:
Capital markets are venues where savings and investments are channelled
between the suppliers who have capital and those who are in need of capital.
The entities who have capital include retail and institutional investors while
those who seek capital are businesses, governments, and people.
Capital markets are composed of primary and secondary markets. The most
common capital markets are the stock market and the bond market.
KEY TAKEAWAYS
Capital markets refer to the places where savings and investments are
moved between suppliers of capital and those who are in need of capital.
Capital markets consist of the primary market, where new securities are
issued and sold, and the secondary market, where already-issued
securities are traded between investors.
The most common capital markets are the stock market and the bond
market.
Money Market:
The money market is the trade in short-term debt investments. At the wholesale
level, it involves large-volume trades between institutions and traders. At the
retail level, it includes money market mutual funds bought by individual
investors and money market accounts opened by bank customers.
In any case, the money market is characterized by a high degree of safety and a
relatively low return in interest.
An individual may invest in the money market by buying money market funds,
short-term certificates of deposit (CDs), municipal notes or U.S. Treasury bills,
among other examples.
Traders and institutions are more commonly the buyers for other money market
products such as euro-dollar deposits, banker's acceptances, commercial paper,
federal funds, and repurchase agreements.
KEY TAKEAWAYS
The wholesale money market involves the purchase and sale in large
volumes of short-term debt products.
An individual may invest in the money market by purchasing a money
market mutual fund, buying a Treasury bill, or opening a money market
account at a bank.
Money market investments are characterized by safety and liquidity.
SEBI:
The Securities and Exchange Board of India was officially appointed as the
authority for regulating the financial markets in India on 12th April 1988. It was
initially established as a non-statutory body, i.e. it had no control over anything
but later in 1992, it was declared an autonomous body with statutory powers.
SEBI Plays important role in regulating the securities market of India. Thereby
it is important to know the purpose and objective of SEBI.
Objectives of SEBI
The primary objective of SEBI is to protect the interest of people in the stock
market and provide a healthy environment for them.
2. Prevention of malpractices
This was the reason why SEBI was formed. Among the main objectives,
preventing malpractices is one of them.
3. Fair and proper functioning
SEBI is responsible for the orderly functioning of the capital markets and keeps
a close check over the activities of the financial intermediaries such as brokers,
sub-brokers, etc.
Functions of SEBI
1. Protective Function
2. Regulatory Function
3. Development Function
Protective Functions
As the name suggests, these functions are performed by SEBI to protect the
interest of investors and other financial participants.
It includes-
Regulatory Functions
These functions are basically performed to keep a check on the functioning of the
business in the financial markets.
Development Functions
SEBI performs certain development functions also that include but they are not
limited to-
Powers of SEBI
1. For the discharge of its functions efficiently, SEBI has been vested with the
following powers:
2. To approve by−laws of stock exchanges.
3. To require the stock exchange to amend their by−laws.
4. To inspect the books of accounts and call for periodical returns from
recognized stock exchanges.
5. To inspect the books of accounts of financial intermediaries.
6. To compel certain companies to list their shares in one or more stock
exchanges.
7. Registration of brokers.
Ans 4.
Merchant Banking:
Preparation of a budget
Venture Capital:
It is a private or institutional investment made into early-stage / start-up
companies (new ventures). As defined, ventures involve risk (having uncertain
outcome) in the expectation of a sizeable gain. Venture Capital is money
invested in businesses that are small; or exist only as an initiative, but have huge
potential to grow. The people who invest this money are called venture
capitalists (VCs). The venture capital investment is made when a venture
capitalist buys shares of such a company and becomes a financial partner in the
business.
Venture Capital investment is also referred to risk capital or patient risk capital,
as it includes the risk of losing the money if the venture doesn’t succeed and
takes medium to long term period for the investments to fructify.
Venture Capital typically comes from institutional investors and high net worth
individuals and is pooled together by dedicated investment firms.
It is the money provided by an outside investor to finance a new, growing, or
troubled business. The venture capitalist provides the funding knowing that
there’s a significant risk associated with the company’s future profits and cash
flow. Capital is invested in exchange for an equity stake in the business rather
than given as a loan.
Factoring:
2.Recognition of risk:
Credit rating provides investors with rating symbols which carry information in
easily recognisable manner for the benefit of investors to perceive risk involved
in investment.
3.Credibility of issuer:
Rating gives a clue to the credibility of the issuer company. The rating agency is
quite independent of the issuer company and has no “Business connections or
otherwise any relationship with it or its Board of Directors, etc.
4.Saving of resources:
Investors rely upon credit rating. This relieves investors from the botheration of
knowing about the fundamentals of a company, its actual strength, financial
standing, management details, etc.
5.Choice of investments:
Several alternative credit rating instruments are available at a particular point of
time for making investment in the capital market and the investors can make
choice depending upon their own risk profile and diversification plan.
2.Static study:
Rating is done on the present and the past historic data of the company and this
is only a static study. Prediction of the company’s health through rating is
momentary and anything can happen after assignment of rating symbols to the
company.
5. Human bias:
Finding off the investigation team, at times, may suffer with human bias for
unavoidable personal weakness of the staff and might affect the rating.