Chapter 09 · Economics

Money and Capital Markets

Money Market Instruments · Capital Market · Stock Exchanges · SEBI · Insurance — BPSC / BSSC

Financial Market — Overview
  • Buyers and sellers purchase and sell securities, debentures, and bonds
  • Two components: Money Market and Capital Market
Money Market

Deals in short-term financial instruments (maturity up to 1 year).

Call Money Market

TypeMaturity
Call Money1 day
Notice Money2 to 14 days
Term Money15 to 365 days
⚠ EXAM TRAP
Call Money (1 day) vs Notice Money (2–14 days) vs Term Money (15–365 days) — a classic ascending-maturity sequence tested in order-matching questions.
Tools of the Money Market
InstrumentKey Facts
Commercial BillInitiated 1990; Maturity: 30, 60, 90 days; Used by All India Financial Institutions, Scheduled Commercial Banks, NBFCs
Commercial PaperIssued as a promissory note; Initiated 1990; Minimum ₹5 lakh (multiples of ₹5 lakh); Maturity: 15 days to 1 year; Issued by companies listed in capital market (min. paid-up capital ₹4 crore)
Certificate of Deposit (CD)First in New York (1960s); Initiated by RBI in 1989; Issued in multiples of ₹1 lakh (since 2021); Maturity: 7 days to 1 year; Issued by Commercial Banks, RRBs, Small Finance Banks
Treasury Bill (TB)Promissory note issued by RBI; highly liquid; issued below face value; Minimum Investment: ₹25,000 (multiples of ₹25,000); Types: 91-day, 182-day, 364-day; 14 & 28-day TBs issued in 1997–98
⚡ QUICK RECALL
Treasury Bills are the safest money market instrument since they're issued by RBI itself, sold at a discount below face value.
Capital Market — Overview
  • Deals in long-term instruments (maturity greater than 1 year)
  • Long-term transactions via shares, securities, bonds, debentures, and mutual funds
  • Two sub-markets: Primary Market and Secondary Market
Primary Market
  • Involves the first-time sale of new securities
  • Market related to new issuances
  • Raises both domestic and foreign funds
Domestic InstrumentsEquity shares by companies; debt instruments by govt./financial intermediaries
Foreign InstrumentsGDR, ADR, Foreign Commercial Borrowing
IPOInitial Public Offer — shares issued for the first time by newly listed companies
FPOFollow-on Public Offer — additional shares issued by already-listed companies to raise extra capital
⚠ EXAM TRAP
IPO = first-time share issue by a company going public; FPO = additional share issue by an ALREADY listed company — commonly confused.
Secondary Market
  • Trading of existing/previously issued securities
  • Registered stock exchange operating under law
  • No creation of capital formation (only ownership transfer)
  • Includes: Mutual Funds, Financial Institutions, Share Brokers, etc.
Gilt-edged Market & Stock Market
Gilt-edged MarketRBI buys/sells government & semi-government securities; a risk-free market
Stock MarketTerm used for the secondary market; trading of shares, debt instruments, bonds, govt. securities
Bombay Stock Exchange (BSE)
Established1875, by Premchand Roychand
LocationDalal Street, Mumbai
DistinctionAsia's oldest and South Asia's largest
Corporate Entity Status19th August, 2005
Sensex Formed1986 (BSE Benchmark)

Sensex is the most prominent index to express trends and direction of the market.

National Stock Exchange (NSE)
Established1992
Recommended ByPherwani Committee (1991)
HeadquartersBandra Kurla Complex, Mumbai
Key PromoterIndustrial Development Bank of India (IDBI)

India's largest and most technologically advanced stock exchange; also the first fully computerised stock exchange.

MIBOR and MIBID

  • Reference rates of NSE for interbank call money market loans
  • MIBOR: Mumbai Inter Bank Offer Rate
  • MIBID: Mumbai Inter Bank Bid Rate
  • LIBOR (London Inter Bank Offered Rate): global benchmark used until 2023

Nifty 50: Major NSE index, based on top 50 companies listed on NSE.

OTCEI & GREENEX
OTCEIEstablished Mumbai, 1992 — exchange for small/medium industrial units
GREENEXLaunched Feb 2012 by BSE — India's first carbon-efficient index, developed with IIM Ahmedabad
World's Earliest Stock Exchanges
World's First Stock ExchangeAntwerp, Belgium (1631)
First Modern-Era ExchangePhiladelphia, USA (1790)
India's First International Stock Exchange
LaunchedJanuary 2017
LocationIFSC, GIFT City, Gandhinagar, Gujarat
  • Operates 22 hours a day
  • World's fastest exchange — turnaround time of 4 microseconds
  • Trading in equities, commodities, currencies, and debt securities
⚡ QUICK RECALL
UTI (1964) is India's first mutual fund based on America's US 64 Scheme; SBI Mutual Fund is India's largest today. Infosys was the first Indian company listed on NASDAQ.
Forward Trading & Commodity Exchanges

Forward Trading: Trading in commodities/currencies, securities, or other assets at a specified price on a specified future date.

Four Commodity Exchanges of India

ExchangeLocation
Multi Commodity Exchange (MCX)Mumbai
Indian Commodity Exchange (ICEX)Navi Mumbai
National Multi Commodity Exchange (NMCE)Ahmedabad
National Commodity and Derivatives Exchange (NCDEX)Mumbai
Major Share Price Indices of the World
Share Price IndexStock Exchange / Country
NASDAQAmerica
Frankfurt, Mid DaxGermany
BovespaBrazil
MibtelItaly
Shanghai CompositeChina
SETThailand
NikkeiTokyo (Japan)
NYSE CompositeNew York
KOSPIKorea
SensexMumbai (India)
Hang SengHong Kong
TAIEXTaiwan
⚠ EXAM TRAP
Nikkei (Tokyo/Japan) and Hang Seng (Hong Kong) are both East Asian indices but belong to different exchanges — frequently swapped in matching questions.
Securities and Exchange Board of India (SEBI)
Statutory BasisSEBI Act, 1992
Established12 April, 1988
Statutory Status Granted30 January, 1992 (recommended by Narasimhan Committee)
HeadquartersMumbai
Regional OfficesChennai, Delhi, Kolkata, Ahmedabad
  • Controls and regulates transactions in the stock market
  • Grants recognition to stock exchanges
  • From August 2008: first approval granted by NSE for foreign currency forwards trading
  • Merger of Forward Markets Commission (FMC) with SEBI, September 2015
⚠ EXAM TRAP
SEBI was established in 1988 but got statutory power only in 1992 — a 4-year gap that's a common date-based trap.

Insider Trading: Buying/selling in the stock market using internal confidential information by an employee of a company.

Insurance Sector — Overview
FDI in Insurance Sector100%
India's First General Insurance CompanyTriton Insurance Company Ltd. (1850)
Life Insurance Corporation of India (LIC)
Established1st September, 1956
HeadquartersMumbai
General Insurance Corporation of India (GIC)
Established22nd November, 1972

Four Subsidiary Companies

  • National Insurance Company Limited
  • Oriental Insurance Company Limited
  • New India Assurance Company Limited
  • United India Insurance Company Limited
Social Security & Regulatory Bodies
Social Security FundEstablished 1988–89
Janshree Bima Yojana10th August, 2000
Health Insurance PortabilityOctober, 2011
Privatisation of Insurance SectorRecommended by Malhotra Committee (1993)

IRDAI

  • IRDA Act, 1999, came into force 19th April, 2000
  • Renamed IRDAI in 2014
  • Headquarters: Hyderabad
  • Protects the interests of policyholders
  • Organises and regulates the insurance industry
⚡ QUICK RECALL
IRDA (1999/2000) → renamed IRDAI in 2014 — both names refer to the same regulator, just before/after the renaming.
Quick Summary / Reference Table
TopicKey Fact
Money MarketShort-term instruments (maturity up to 1 year)
Call MoneyMaturity: 1 day
Notice MoneyMaturity: 2 to 14 days
Term MoneyMaturity: 15 to 365 days
Commercial BillInitiated 1990; Maturity: 30, 60, 90 days
Commercial PaperMin Amount ₹5 lakhs; Maturity: 15 days to 1 year
Certificate of Deposit (CD)Initiated by RBI 1989; Maturity: 7 days to 1 year; multiples of ₹1 lakh (since 2021)
Treasury Bill (TB)Issued by RBI; Minimum Investment ₹25,000; Types: 91, 182, 364-day
Capital MarketLong-term instruments (>1 year maturity)
IPOShares issued for first time by new companies
FPOAdditional shares issued by listed companies for extra capital
GDR / ADRForeign capital raising instruments
Gilt-edged MarketRisk-free; RBI buys/sells govt & semi-govt securities
BSEEstablished 1875 by Premchand Roychand; Dalal Street, Mumbai
BSE DistinctionAsia's oldest and South Asia's largest
SensexFormed 1986; BSE Benchmark
NSEEstablished 1992; recommended by Pherwani Committee (1991)
NSE HQBandra Kurla Complex, Mumbai; Key Promoter: IDBI
Nifty 50Top 50 companies listed on NSE
MIBORMumbai Inter Bank Offer Rate
MIBIDMumbai Inter Bank Bid Rate
LIBORLondon Inter Bank Offered Rate; global benchmark till 2023
OTCEIEstablished Mumbai 1992; exchange for small/medium industrial units
First Computerised Stock ExchangeNSE
GREENEXLaunched Feb 2012 by BSE; India's first carbon efficient index; with IIM Ahmedabad
UTI (Mutual Funds)1964; India's largest MF: SBI Mutual Fund
SEBIEstablished 12 April 1988; Statutory status: 30 January 1992
SEBI HQMumbai; Regional: Chennai, Delhi, Kolkata, Ahmedabad
FMC MergerWith SEBI, September 2015
World's First Stock ExchangeAntwerp, Belgium (1631)
First Modern-Era Stock ExchangePhiladelphia, USA (1790)
India's First International ExchangeGIFT City, Gandhinagar, Gujarat (Jan 2017)
LICEstablished 1 September 1956; HQ: Mumbai
GICEstablished 22 November 1972; 4 subsidiaries
India's First General Insurance Co.Triton Insurance Company Ltd. (1850)
IRDAIIRDA Act 1999; force 19 April 2000; renamed IRDAI in 2014; HQ: Hyderabad
Privatisation of InsuranceRecommended by Malhotra Committee (1993)
Insurance Sector FDI100%
Infosys (NASDAQ)First Indian company listed on American Stock Exchange
Insider TradingUsing internal confidential info to trade stocks
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