📘 Image 1: 5 Marks Questions
✦ 2 Marks Questions
1) What is Repo Rate?
Repo Rate is the rate at which the Reserve Bank of India (RBI) lends short-term funds to
commercial banks against government securities under a repurchase agreement.
2) Distinguish between SEBI and RBI.
• RBI: Regulates banking sector, money supply, credit, and monetary policy.
• SEBI: Regulates securities market, protects investors, and ensures transparency in
stock exchanges.
3) Difference between Primary Market and Secondary Market.
• Primary Market: New securities are issued for the first time (IPO).
• Secondary Market: Already issued securities are traded among investors (Stock
Exchange).
4) What is ESOP?
Employee Stock Ownership Plan (ESOP) is a benefit scheme that allows employees to
acquire shares of their company, giving them ownership interest.
5) Difference between Money Market and Capital Market.
• Money Market: Deals in short-term funds (less than 1 year). Example: T-Bills, Call
Money.
• Capital Market: Deals in long-term funds (more than 1 year). Example: Shares,
Debentures.
6) Write different types of Treasury Bill.
• 14-day T-Bill
• 91-day T-Bill
• 182-day T-Bill
• 364-day T-Bill
7) What is Call Rate?
Call Rate is the interest rate charged on overnight loans between banks in the call money
market.
8) What is Money Market Mutual Fund (MMMF)?
MMMF is a type of mutual fund that invests in short-term money market instruments like T-
bills, CDs, CPs, providing safety and liquidity to investors.
9) Name two Credit Rating Agencies in India.
• CRISIL
• ICRA
10) What is Nifty?
Nifty is the benchmark index of the National Stock Exchange (NSE), representing the
performance of top 50 listed companies across sectors.
✦ 5 Marks Questions
1) Write a short note on Call Money Market.
• Introduction: The Call Money Market is an important segment of the money market
where banks lend and borrow funds for very short periods (1–14 days).
• Definition: It is also called the overnight market.
• Features:
o Highly liquid, unsecured loans.
o Rate of interest is called Call Rate.
o Mainly used by banks to maintain CRR & SLR requirements.
• Importance: Helps in maintaining liquidity and stability in the banking system.
• Conclusion: Thus, the call money market is vital for short-term fund management
and credit control.
2) “Stock Index is a Barometer of an Economy.” Discuss.
• Introduction: A stock index measures the performance of a group of shares
representing a market or sector.
• Explanation:
o Reflects investor confidence and market trends.
o Rising index → indicates economic growth, higher investment.
o Falling index → signals slowdown or recession.
o Examples: Sensex (BSE), Nifty (NSE).
• Conclusion: Hence, stock indices act as economic indicators and barometers of a
nation’s financial health.
3) Discuss the functions of RBI.
• Introduction: The Reserve Bank of India (RBI), established in 1935, is India’s central
bank.
• Functions:
o Issuing Currency: Sole authority to issue currency notes.
o Monetary Policy: Controls inflation & ensures price stability.
o Regulation of Banks: Supervises and regulates commercial banks & NBFCs.
o Foreign Exchange Management: Maintains forex reserves, manages
exchange rate.
o Credit Control: Uses repo, reverse repo, CRR, SLR.
o Developmental Role: Promotes financial inclusion and rural banking.
• Conclusion: Thus, RBI ensures financial stability, monetary control, and smooth
functioning of the economy.
Q4) Discuss the Functions of Commercial Banks.
• Introduction: Commercial banks are financial institutions that accept deposits and
provide loans to the public, operating with the motive of profit.
• Functions:
o Accepting Deposits: Savings, Current, Fixed deposits.
o Granting Loans & Advances: Cash credit, overdraft, term loans.
o Credit Creation: By lending, banks increase money supply in the economy.
o Agency Functions: Collecting cheques, paying bills, transferring funds.
o General Utility Services: Locker facility, issuing drafts, foreign exchange.
• Conclusion: Commercial banks are the backbone of the financial system,
mobilizing savings and promoting investment.
Q5) Factors Affecting Financial Markets.
• Introduction: Financial markets are influenced by various internal and external
factors.
• Main Factors:
o Economic Conditions: Inflation, GDP growth, interest rates.
o Political Stability: Government policies, elections, stability.
o Global Factors: Foreign investment, exchange rates, global recession.
o Demand & Supply of Securities: Higher demand increases prices and vice
versa.
o Investor Sentiment: Confidence, speculation, market psychology.
• Conclusion: A mix of domestic and global factors determines the efficiency and
growth of financial markets.
Q6) Linkages between Economy and Financial Market.
• Introduction: Financial markets act as a bridge between savings and investments,
thereby linking with the economy.
• Linkages:
o Mobilization of Savings: Transfers idle savings into productive use.
o Capital Formation: Encourages investment in industries and infrastructure.
o Monetary Policy Transmission: RBI’s changes in repo/reverse repo affect
interest rates in markets.
o Economic Indicators: Stock indices and bond yields reflect economic
performance.
o Foreign Capital Flow: FDI & FII investments strengthen the economy.
• Conclusion: A sound financial market ensures a strong economy, and a growing
economy further develops financial markets.
Q7) Role & Importance of Financial Market.
• Introduction: Financial market is a platform where funds are transferred from
surplus to deficit units.
• Role & Importance:
o Mobilization of Funds: Channels savings into investments.
o Liquidity: Provides facility of buying and selling financial instruments.
o Price Discovery: Demand and supply determine fair value of securities.
o Economic Growth: Supports industrialization, business expansion, and
employment.
o Investor Protection & Confidence: Through SEBI regulations.
• Conclusion: Financial markets are crucial for economic development, financial
stability, and global integration.
