1.Explain financial system and economic development?

What is a Financial System?

A financial system is like the "nervous system" of the economy. It helps in the smooth flow
of money between people, businesses, and the government.C

It includes:

 Financial Institutions (like banks, insurance companies, RBI, etc.)

 Financial Markets (like stock market, bond market)
 Financial Instruments (like shares, debentures, loans)
 Financial Services (like lending, investment advisory)
🌟 Features of a Financial System (What it does well)

1. Connects savers and borrowers

➤ People who have extra money (savers) can lend or invest it, and those who need
money (borrowers) can get it.
2. Mobilizes savings
➤ It encourages people to save and makes those savings available for investments.
3. Helps in investment
➤ It provides tools and platforms (like banks, stock markets) to invest money wisely.
4. Facilitates payments
➤ With systems like UPI, online banking, debit/credit cards, it makes payments quick
and easy.
5. Supports economic growth
➤ By funding businesses and industries, it boosts jobs, income, and development.
6. Provides risk management
➤ Tools like insurance and derivatives help protect people and companies from
losses.
7. Regulated and organized
➤ There are rules and watchdogs (like RBI, SEBI) to make sure the system works
smoothly and fairly.

⚠️ Limitations of a Financial System (Its drawbacks)

1. Access issues
➤ Not everyone, especially in rural or poor areas, can access banking or financial
services.
2. Complex processes
➤ Financial products can be hard to understand for common people.
3. Fraud and scams
➤ If not careful, people can be cheated due to weak security or lack of awareness.
4. Economic instability
➤ If not managed properly, financial systems can crash (like during a recession or
banking crisis).
5. Over-regulation or under-regulation
➤ Too many rules can slow down the system, and too few can lead to misuse.
6. Inequality
➤ Sometimes, big businesses benefit more than small ones or common people.
 What is Economic Development?

Economic development means growth and improvement in a country’s economy and living
standards—like better jobs, infrastructure, education, and healthcare.

How are Financial Systems and Economic Development Connected?

A strong financial system helps in economic development by:

1. ✅ Mobilizing Savings
o Collects money from people (like in savings accounts)
o Uses it for investments (like loans to businesses)
2. ✅ Providing Credit
o Banks and NBFCs give loans to businesses for growth
o Helps entrepreneurs start new businesses
3. ✅ Creating Investment Opportunities
o Stock markets and mutual funds help people invest and grow wealth
4. ✅ Promoting Trade & Industry
o Finance helps companies buy machines, raw materials, and pay workers
5. ✅ Stabilizing the Economy
o RBI controls inflation, interest rates, and keeps the economy balanced

Role of Financial Institutions in Economic Development:

Financial Institution Role in Economic Development
RBI Controls money supply and interest rates
Commercial Banks Give loans to businesses and individuals
Development Banks Fund large infrastructure and industrial projects
Insurance Companies Protect against risks and invest in long-term projects
Stock Exchange Helps companies raise capital and investors earn returns

Summary:

 A financial system is important for the flow of money.

 Financial institutions play a key role in economic development.
 Without finance, businesses can’t grow, and the economy can’t progress.

2.Components of Indian financial system

🌟 What is the Indian Financial System?

The Indian Financial System is like a network that helps money move between people who
have extra money (savers) and people who need money (borrowers).
This system helps the economy grow by supporting business, trade, and personal finance.
✅ The Indian Financial System has 4 Main Components:

1. Financial Institutions
2. Financial Markets
3. Financial Instruments
4. Financial Services

Let’s understand each one in detail with simple examples:

1. Financial Institutions – “Money Managers”

These are organizations that help in the flow of money in the economy. They act like a
bridge between savers and borrowers.

There are two types:

a. Banking Institutions

These accept deposits and give loans.

 Examples:
o RBI (Reserve Bank of India) – Controls money supply, inflation, etc.
o SBI, HDFC, ICICI – Give loans, accept deposits
o Co-operative Banks – Small local banks for rural areas

b. Non-Banking Financial Companies (NBFCs)

They do financial activities but do not hold banking licenses.

 Examples:
o LIC (Life Insurance Corporation)
o HDFC Ltd (for housing finance)
o Bajaj Finance (personal loans)

2. Financial Markets – “Buying and Selling Places”

These are platforms where money-related products are bought and sold, like shares, bonds,
etc.

Types of Financial Markets:

a. Money Market – Short-term funds (less than 1 year)

 Examples: Treasury Bills, Call Money

 Used by: Banks, government

b. Capital Market – Long-term funds (more than 1 year)

 Divided into:
o Primary Market – New shares are issued (IPO)
o Secondary Market – Already-issued shares are traded (Stock market like
NSE, BSE)
c. Forex Market – Trading of foreign currencies

 Example: USD to INR

d. Derivatives Market – Trading of contracts based on underlying assets

 Example: Futures, Options

3. Financial Instruments – “Money Products”

These are legal contracts or documents that represent a financial value. You can buy, sell, or
trade them.

Examples:
Instrument What it Means Who Uses It
Shares Ownership in a company Investors
Debentures Loan given to company Lenders
Bonds Govt./company borrow money Govt, Companies
Fixed Deposits (FDs) Bank deposit with interest Public
Mutual Funds Pool of money invested by fund managers Investors

4. Financial Services – “Helpful Financial Activities”

These are services offered to help people and businesses manage money better.

Common Financial Services:

Service Example Purpose
Loan Services Personal loan, Home loan Helps in purchasing needs
Investment Services Mutual funds, Demat account Helps grow wealth
Insurance Services LIC, health insurance Protection against risk
Financial Advisory Investment planning Expert advice
Payment Services UPI, credit cards Easy transactions

📌 Summary Chart
Component Meaning Example
Financial Institutions Organizations managing money RBI, SBI, LIC
Financial Markets Place for money trading NSE, BSE, Forex
Financial Instruments Products with monetary value Shares, Bonds, FDs
Financial Services Money-related support services Loans, Insurance

🎯 Final Summary (One Line):

The Indian financial system is made of institutions, markets, instruments, and services that
help manage, transfer, and grow money in the economy.
3. Explain money market instruments,define,role?

📘 A. Definition of Money Market Instruments

Money Market Instruments are short-term financial tools that are used to borrow and lend
money for a period of less than one year.

They are:

 Safe (low risk)

 Liquid (easy to convert into cash)
 Give fixed and small returns

These instruments are mostly used by:

 Banks
 Companies
 Financial Institutions
 Government

🎯 B. Role/Functions of Money Market Instruments

The money market plays a very important role in the smooth working of the economy. Let’s
understand the key roles:

1. 🏦 Helps in Short-Term Financing

 Provides short-term funds for working capital, paying salaries, or urgent needs.
 Companies and banks don’t need to take long-term loans for short needs.

2. 💰 Maintains Liquidity in the Economy

 Banks can manage their daily cash requirements.

 If one bank has extra cash, it can lend to another bank for 1–2 days.

3. 🔒 Safe Investment Option

 Low risk, especially when investing in Government instruments like Treasury Bills.
 Suitable for banks, financial institutions, and conservative investors.

4. 📉 Helps in Monetary Policy Implementation

 RBI uses instruments like Repo to control inflation and money supply.
 Helps RBI manage interest rates in the country.

5. ⚙️ Efficient Use of Idle Funds

 Instead of keeping money idle, businesses invest in money market instruments to earn
returns.
 Ensures better use of surplus money.
6. 🏛️ Supports Government Financing

 The government uses Treasury Bills to borrow short-term funds to manage budget
needs.

📂 C. Types of Money Market Instruments (Explained in Detail)

1. Treasury Bills (T-Bills)

 Issued by: Government of India

 Tenure: 91 days, 182 days, or 364 days
 Purpose: Government borrows money for short-term needs
 Safe? ✔️ Yes (because government-backed)
 Returns: Issued at discount and paid at face value

Example: You buy a T-Bill for ₹96. The government gives you ₹100 after 91 days. Your
profit is ₹4.

2. Commercial Paper (CP)

 Issued by: Large and creditworthy companies

 Tenure: 7 days to 1 year
 Purpose: Companies raise short-term money without going to banks
 Safe? ✔️ Reasonably safe (only strong companies can issue)
 Returns: Fixed interest

Example: Infosys wants to pay salaries but needs ₹5 crores. It issues a CP to raise this
amount for 3 months.

3. Certificate of Deposit (CD)

 Issued by: Commercial Banks and Financial Institutions

 Tenure: 7 days to 1 year
 Purpose: Banks collect short-term funds from the public
 Safe? ✔️ Yes
 Returns: Fixed interest rate

Example: You deposit ₹1 lakh in a bank's CD for 6 months and get interest after maturity.

4. Call Money/Notice Money

 Issued by: Banks (to each other)

 Tenure:
o Call money: 1 day
o Notice money: 2 to 14 days
 Purpose: To meet sudden cash needs
 Safe? ✔️ Yes
 Returns: Based on call money interest rate
 Example: HDFC Bank needs cash for one day. It borrows ₹10 crores from SBI at 6%
interest.

5. Repurchase Agreements (Repo)

 Involves: Banks and RBI

 Tenure: 1 to 90 days
 Purpose: Borrowing by selling securities and agreeing to buy them back
 Safe? ✔️ Yes
 Returns: Based on the repo rate set by RBI

Example: A bank sells government bonds to RBI with a promise to buy them back in 3 days.

6. Banker’s Acceptance (BA)

 Issued by: Companies through their banks

 Tenure: 30 to 180 days
 Purpose: To finance trade (especially imports and exports)
 Safe? ✔️ Yes (because backed by bank)

Example: A company buys goods from abroad, and their bank issues a Banker’s Acceptance
to the seller, promising payment after 90 days.

📊 Comparison Table
Instrument Issued By Tenure Risk Purpose
Treasury Bills Government 91-364 days Very low Govt. borrowing
Commercial Paper Companies 7 days – 1 year Low Company financing
Certificate of Deposit Banks 7 days – 1 year Low Bank deposit
Call Money Banks 1 day Very low Inter-bank lending
Repo Banks & RBI 1-90 days Very low Short-term loans
Banker’s Acceptance Companies via Banks 30–180 days Low Trade financing

📝 Conclusion:

 Money Market Instruments are short-term, low-risk financial tools.

 They help in short-term financing, cash management, and safe investment.
 They play a very important role in maintaining the stability and liquidity of the
economy.

4.RBI and its role and its structure.

📘 1. What is RBI?

The Reserve Bank of India (RBI) is the central bank of India. It manages the entire
banking system and controls the supply of money in the economy.
🗓️ Established on: April 1, 1935
🏛️ Headquarters: Mumbai
📜 Owned by: Government of India

RBI is like the “brain of the Indian financial system”. It manages money, controls banks,
and keeps the economy stable.

🎯 2. Functions / Role of RBI

RBI plays many important roles. Let's understand each one in very simple words:

🔹 A. Monetary Authority

 RBI controls money supply in the country.

 It uses monetary policy tools like:
o Repo rate (rate at which RBI lends to banks)
o Reverse repo rate
o CRR (Cash Reserve Ratio)
o SLR (Statutory Liquidity Ratio)

️ Why? To control inflation, economic growth, and liquidity.

🔹 B. Issuer of Currency

 RBI prints and issues all currency notes (except ₹1 – that’s issued by the
government).
 Ensures proper design, quantity, and security of notes.

🔹 C. Custodian of Foreign Exchange (Forex Manager)

 RBI manages India’s foreign currency reserves.

 It also controls exchange rates through FEMA (Foreign Exchange Management
Act).
 Maintains stability of the Indian Rupee.

🔹 D. Banker to the Government

 RBI works as a bank for the central and state governments.

 It handles:
o Government accounts
o Borrowings
o Issue of government bonds

🔹 E. Banker’s Bank

 All commercial banks are regulated by the RBI.

  RBI gives loans to banks in need.
 It controls how much banks can lend or keep in reserve.

🔹 F. Regulator of the Financial System

 RBI makes rules for all banks and NBFCs.

 Ensures that banks do not cheat customers.
 Keeps the banking system safe and strong.

🔹 G. Developmental Role

 Promotes banking in rural and underdeveloped areas.

 Encourages financial inclusion (like Jan Dhan Yojana).
 Supports small businesses, agriculture, and priority sectors.

🔹 H. Consumer Protection

 RBI protects the rights of bank customers.

 Handles complaints through the Banking Ombudsman.

🏛️ 3. Structure of RBI

RBI is a big organization. It works through a central office and regional branches.

Let’s break down the structure:

🔸 1. Central Board of Directors

This is the top decision-making body of RBI.

 Appointed by: Government of India

 Includes:
o Governor (Like the CEO of RBI)
o 4 Deputy Governors
o 14 Directors (representing various fields like finance, economics, industry)
o 1 Government official (from Finance Ministry)

️ They make policies, review performance, and guide the overall direction.

🔸 2. Governor and Deputy Governors

Position Role
Governor Head of the RBI. Appointed for 3–5 years. Makes final decisions.
Deputy Assist the Governor. Handle areas like monetary policy, banking
Governors (4) regulation, currency management, etc.
 🔸 3. Departments in RBI

Each department focuses on a different area. Some important ones:

Department Function
Monetary Policy Dept. Controls interest rates, inflation
Banking Regulation Dept. Makes rules for banks
Currency Management Dept. Prints and distributes currency
Financial Markets Dept. Manages money market and exchange rate
Foreign Exchange Dept. Looks after forex and FEMA rules

🔸 4. Regional Offices

 RBI has regional offices in major cities like Delhi, Kolkata, Chennai, Hyderabad, etc.
 These help in implementing RBI policies at the local level.

📋 Quick Summary Table

Feature Details
Full Form Reserve Bank of India
Founded April 1, 1935
HQ Mumbai
Owner Government of India
Governor (as of 2024) Shaktikanta Das
Main Role Control money supply, regulate banks, issue currency, manage forex

📌 Final One-Line Summary:

RBI is the central bank of India that controls the banking system, manages money in the
economy, and ensures financial stability.
5. Short note on monetary policy committee

✅ What is the Monetary Policy Committee (MPC)?

The Monetary Policy Committee (MPC) is a group formed by the Reserve Bank of India
(RBI) to decide the policy interest rates in India — mainly the Repo Rate.

It was created under the RBI Act, 1934 and officially came into existence in 2016.

🎯 Main Purpose of MPC

 To keep inflation under control

 To ensure price stability
 To support economic growth

The MPC decides how much money should be available in the economy by setting the
repo rate, which affects loans, EMIs, and overall economic activity.
 🏛️ Structure of MPC

The MPC has 6 members:

Member Type Who Appoints Them Number
RBI Officials Governor (Chairperson) + 1 RBI official 2
External Experts Appointed by Government of India 3
Govt. Representative Nominated by Government 1

👉 Total Members = 6

⚖️ How Decisions Are Made?

 Each member has 1 vote

 Majority wins (at least 4 out of 6)
 In case of a tie, the RBI Governor has the casting vote

🗓️ Meetings

 MPC meets every 2 months (6 times a year)

 The decisions and reasoning are published publicly for transparency

📌 Why MPC is Important?

 Helps control inflation (price rise)

 Makes loan interest rates fair and stable
 Supports economic stability and growth

🔚 In Short:

The Monetary Policy Committee (MPC) is a 6-member team that decides India's interest
rates to control inflation and maintain economic growth.
6.Short note on financial intermediaries

Financial intermediaries are middlemen between people who have money to invest
(savers) and those who need money (borrowers).

They help in transferring funds from surplus units (like households) to deficit units (like
businesses or government).

💼 Examples of Financial Intermediaries:

 Commercial Banks (e.g., SBI, HDFC Bank)

 Insurance Companies (e.g., LIC)
 Mutual Funds (e.g., SBI Mutual Fund)
  Non-Banking Financial Companies (NBFCs)
 Pension Funds
 Cooperative Banks

🎯 Functions / Role of Financial Intermediaries:

1. Mobilize Savings: Collect money from people and make it available for investment
2. Provide Loans: Give loans to individuals and businesses
3. Reduce Risk: Spread risk through diversification (e.g., mutual funds)
4. Payment System: Enable easy transactions (e.g., cheques, UPI)
5. Help Economic Growth: By supporting industries and infrastructure

🔚 In Short:

Financial intermediaries are institutions that connect savers and borrowers, helping in the
smooth flow of money and growth of the economy.
7.Financial sector reforms in India

Financial sector reforms are improvements or changes made by the government and RBI to
make the banking, insurance, and financial markets more efficient, transparent, and
strong.

These reforms make the Indian financial system more modern, stable, and connected to the
global economy.

📅 When Did Financial Sector Reforms Start in India?

 Started after 1991, during economic liberalization

 Based on the Narasimham Committee Report
 Aimed to solve problems like:
o Weak banks
o High NPAs (bad loans)
o Low profitability
o Lack of competition

🎯 Objectives of Financial Sector Reforms

1. Make banks and financial institutions strong and competitive

2. Increase transparency and accountability
3. Improve the flow of credit (loans)
4. Ensure financial stability
5. Encourage foreign investment

🏦 Main Areas of Financial Sector Reforms

🔹 1. Banking Sector Reforms

  CRR and SLR reduced so that banks can give more loans
 Interest rates deregulated (freedom to decide rates)
 Private banks allowed (like HDFC, ICICI)
 NPAs monitored through laws like SARFAESI Act
 Creation of Banking Ombudsman to solve customer complaints

🔹 2. Capital Market Reforms

 Establishment of SEBI (Securities and Exchange Board of India) to regulate the stock
market
 Introduction of electronic trading (online share buying/selling)
 Improved transparency and reduced scams
 Allowed Foreign Institutional Investors (FIIs) to invest in Indian stock market

🔹 3. Insurance Sector Reforms

 Ended the monopoly of LIC and GIC

 Allowed private companies in insurance
 Created IRDAI (Insurance Regulatory and Development Authority of India) to
regulate the insurance sector
 Increased customer choice and competition

🔹 4. Foreign Exchange Reforms

 Earlier, the government controlled the exchange rate (fixed rate)

 Now, India has a market-based exchange rate system
 Replaced FERA with FEMA in 1999 (Foreign Exchange Management Act)
 Encouraged foreign investment and global trade

🔹 5. Technology and Digital Reforms

 Introduction of Core Banking System (CBS)

 Growth of ATM, UPI, net banking, mobile banking
 Promotion of Digital India and Fintech platforms

📌 Impact of Financial Sector Reforms

Positive Impact Explanation
✔️ Stronger Banks More profitable and competitive
✔️ Better Services Faster, digital, customer-friendly
✔️ Foreign Investment Increased FDI and FII in India
✔️ Transparency Reduced corruption and scams
✔️ Financial Inclusion Banking for rural and poor people

🔚 In Short:
 Financial sector reforms made India’s banking and financial system modern, efficient, and
globally competitive, especially after 1991. These reforms helped in improving services,
increasing foreign investment, and supporting economic growth.
8.Tools of monetary policy and its impact on inflation and liquidity

What is Monetary Policy?

Monetary policy is the policy made by the Reserve Bank of India (RBI) to control the
money supply, interest rates, inflation, and liquidity in the economy.

It is mainly used to:

 Control inflation (price rise)

 Ensure enough liquidity (money in the market)
 Maintain economic growth

️ Tools of Monetary Policy (Also called Instruments)

RBI uses two types of tools:

🔷 A. Quantitative Tools

(These tools affect the overall money supply in the economy)

1. Repo Rate

 The rate at which RBI lends money to commercial banks.

 🔼 If Repo Rate increases → loans become costly → less borrowing → less money in
the market → inflation decreases
 🔽 If Repo Rate decreases → loans become cheaper → more borrowing → more
money in market → liquidity increases

2. Reverse Repo Rate

 The rate at which RBI borrows money from banks.

 🔼 High reverse repo rate → banks keep money with RBI → less money in market →
reduces liquidity
 🔽 Low reverse repo rate → banks give more loans → increases liquidity

3. CRR (Cash Reserve Ratio)

 Banks must keep a certain percentage of their money with RBI in cash.
 🔼 Higher CRR → less money to lend → less liquidity
 🔽 Lower CRR → more money to lend → more liquidity

4. SLR (Statutory Liquidity Ratio)

  Banks must keep a percentage of their money in gold or government securities.
 🔼 Higher SLR → less money to lend → controls inflation
 🔽 Lower SLR → more money to lend → boosts liquidity

🔷 B. Qualitative Tools

(These tools guide the use of credit rather than its volume)

1. Margin Requirements

 RBI can change the margin amount banks ask for loans.
 Higher margin = smaller loan = reduces credit

2. Moral Suasion

 RBI requests or advises banks to follow certain lending rules.

3. Credit Rationing

 RBI may limit the amount of credit banks can give to certain sectors.

📊 Impact on Inflation and Liquidity

Tool Effect on Inflation Effect on Liquidity
🔼 Repo Rate Decreases inflation Reduces liquidity
🔽 Repo Rate Increases inflation Increases liquidity
🔼 CRR/SLR Controls inflation Reduces liquidity
🔽 CRR/SLR Can raise inflation Increases liquidity
🔼 Reverse Repo Rate Decreases inflation Reduces liquidity

📌 Summary:

 RBI increases rates → money becomes expensive → inflation falls, liquidity

reduces
 RBI decreases rates → money becomes cheaper → inflation may rise, liquidity
increases

️ Easy Example:

If inflation is very high (prices are rising too fast), RBI may:

 Increase repo rate and CRR

 This will reduce borrowing and slow down spending
 So, inflation comes under control

If the economy is slow (less money in market), RBI may:

  Decrease repo rate
 This encourages loans and spending
 So, liquidity increases, and economy grows

9.Difference between money market and capital market

Basis Money Market Capital Market

1. Meaning Market for short-term funds Market for long-term funds
2. Duration Less than 1 year More than 1 year
3. Treasury bills, call money, Shares, debentures, bonds, mutual
Instruments commercial papers, etc. funds, etc.
4. Purpose To meet short-term liquidity needs To raise long-term capital
5. Risk Level Very low risk Higher risk (depends on market)
6. Return Low returns, but safe Higher returns, but risky
RBI, commercial banks, financial SEBI, stock exchanges, investment
7. Institutions
institutions banks
8. Regulation Regulated by RBI Regulated by SEBI
9. Market Mostly unorganized and over-the- Organized and well-structured
Type counter (OTC) (stock exchanges)
Banks, governments, financial General public, companies, foreign
10. Investors
institutions investors

📌 In Short:

The money market deals with short-term borrowing and lending (less than 1 year), while
the capital market deals with long-term investments like shares and bonds.

️ Example:

Money Market: A company needs money for 3 months to pay salaries → it uses
Commercial Paper
 Capital Market: A company wants money to build a new factory → it sells shares
or bonds
10. RBI QUANTITATIVE AND QUALITATIVE TOOLS TO CONTROL THE MONEY
SUPPLY IN THE MARKET/ECONOMY

️ 1. Quantitative Tools (General Control of Credit)

These tools help control the total amount of money available in the economy.

✅ a) Repo Rate

 It is the interest rate at which RBI lends money to commercial banks.

 🔺 If RBI increases repo rate → borrowing becomes expensive → money supply goes
down.
 🔻 If RBI decreases repo rate → borrowing becomes cheaper → money supply goes
up.
✅ b) Reverse Repo Rate

 It is the rate at which RBI borrows money from banks.

 🔺 Higher reverse repo rate → banks keep more money with RBI → money supply
reduces.

✅ c) Cash Reserve Ratio (CRR)

 It is the percentage of a bank’s total deposits that must be kept in cash with RBI.
 🔺 High CRR = less money with banks to lend = lower money supply.
 🔻 Low CRR = more money with banks to lend = higher money supply.

✅ d) Statutory Liquidity Ratio (SLR)

 It is the percentage of a bank’s net demand and time liabilities (NDTL) to be

maintained in the form of gold, cash, or approved securities.
 🔺 High SLR = less money for lending = tight money supply.
 🔻 Low SLR = more money available = easy money supply.

✅ e) Open Market Operations (OMO)

 RBI buys or sells government securities in the open market.

 🛒 If RBI buys securities → it injects money → money supply increases.
 🏷️ If RBI sells securities → it pulls out money → money supply decreases.

🎯 2. Qualitative Tools (Selective Credit Control)

These tools help control how and where money is used.

✅ a) Margin Requirements

 RBI fixes the margin for loans against securities (e.g., shares, gold).
 🔺 Higher margin = lower loan amount = less money in circulation.
 🔻 Lower margin = higher loan amount = more money in circulation.

✅ b) Moral Suasion

 RBI uses persuasion and advice to guide banks to follow good lending practices.
 Example: RBI may request banks not to lend too much to speculative sectors.

✅ c) Credit Rationing

 RBI puts a limit on the amount of loans banks can give to certain sectors.
 This avoids too much money going to risky or unproductive areas.

✅ d) Direct Action

 RBI can take strict action against banks that do not follow its rules (like penalties,
restrictions, etc.).
11.Explain the role of SEBI in regulating the stock market
What is SEBI?

SEBI is the watchdog of the Indian stock market.

It was set up in 1992 to protect investors and make sure the stock market works fairly.

You can think of SEBI like a referee in a sports match – it makes sure everyone plays by the
rules!

🎯 Main Objectives of SEBI

1. Protect investors
– SEBI makes sure investors (people who buy shares) are not cheated.
2. Fair and transparent market
– Everyone gets the same information and chance to invest.
3. Regulate companies and stock exchanges
– SEBI keeps a check on how companies and stockbrokers behave.

⚙️ How SEBI Regulates the Stock Market (Its Role)

Let’s break it down into simple parts:

1. 📢 Regulates the Stock Exchanges

 SEBI keeps a close eye on stock exchanges like NSE and BSE.
 Makes sure buying and selling of shares happens smoothly, quickly, and fairly.
 Stops unfair trading practices, like insider trading or price manipulation.

2. ️ Monitors Listed Companies

 A company must follow rules when it wants to list its shares on the stock market.
 SEBI checks if the company gives honest and full information in its reports.
 Companies must inform the public about important events (like profits, losses,
mergers, etc.).

3. 👥 Protects Investors

 SEBI makes sure small investors are not fooled by fake promises or scams.
 SEBI creates awareness programs to educate people about smart investing.
 It allows investors to file complaints against brokers, companies, or advisors.

4. ️⚖️ Keeps a Check on Brokers and Mutual Funds

 Brokers must register with SEBI and follow its rules.

 SEBI watches how mutual funds invest people’s money.
 If any broker or fund cheats, SEBI can suspend or cancel their license.
 5. 📄 Controls IPO Process

 When a company issues shares for the first time (called an IPO), SEBI checks:
o Are all details given in the prospectus true?
o Is the pricing fair?
 This avoids cheating of new investors.

6. ⚖️ Takes Legal Action Against Wrongdoers

 SEBI has the power to:

o Impose fines
o Ban people or companies from trading
o Order refunds to investors
o Take the issue to court if needed

🔐 Real-Life Example

👉 Suppose a big company hides bad news and sells its shares secretly to avoid losses – that’s
insider trading.
👉 If SEBI catches this, it can:

 Ban those people from the stock market

 Fine the company
 Make it return money to affected investors

📝 Summary Table
SEBI's Role Explanation
Regulates stock exchanges Ensures fair and fast trading
Monitors companies Checks if they give true and complete info
Protects investors Prevents cheating and promotes awareness
Controls brokers and funds Makes sure they act honestly and follow rules
Manages IPOs Ensures companies don't mislead new investors
Punishes wrongdoers Has legal power to act against frauds and scams
12. What are the 2 depositories operating in India.Distinguish between them

📦 What is a Depository?

Just like a bank holds your money, a depository holds your shares and securities (in
electronic form).
It helps in buying, selling, and transferring shares safely and quickly.

🇮🇳 The 2 Depositories Operating in India:

No. Depository Name Full Form
1. NSDL National Securities Depository Limited
2. CDSL Central Depository Services (India) Limited
 🔍 Difference Between NSDL and CDSL

Here’s an easy comparison table:

Feature NSDL CDSL
📅 Year Started 1996 1999
National Securities Depository Central Depository Services (India)
️ Full Form
Ltd. Ltd.
NSDL was promoted by NSE CDSL was promoted by BSE
🏦 Promoted By
(National Stock Exchange) (Bombay Stock Exchange)
️ Market Share Slightly lower than CDSL as of
Slightly higher in recent years
(approx.) now
️💼 Number of Fewer than CDSL (as of 2024– More demat accounts (popular with
Demat Accounts 25) small investors)
🔒 Security & Both are safe and offer similar
Both are well-regulated by SEBI
Services services
🔗 Website www.nsdl.co.in www.cdslindia.com

✅ Common Features of Both

 Hold shares and securities in demat form.

 Help with buying/selling shares, pledging, bonus, dividends, etc.
 Connected with DPs (Depository Participants) like banks or brokers.
 Regulated by SEBI to ensure safety and transparency.

📝 Summary in One Line:

🔹 NSDL is linked to NSE, started first.

🔹 CDSL is linked to BSE, more popular recently.

13. write short note on:

a)Why RBI acts as a lender of last resort
b)Indian depository receipts/ADR/GDR
c)IPO

a) Why RBI Acts as a Lender of Last Resort

 RBI gives money to banks when they are in trouble and no one else is ready to help.
 This is called acting as a lender of last resort.
 It saves banks from shutting down.
 It protects people’s money kept in banks.
 It keeps the banking system safe and stable.
 This builds public trust in the financial system.
 Example: In 2008, during the global financial crisis, many banks around the
world faced money shortages.
 In India, RBI helped some banks by giving them emergency funds to maintain
stability.
  If a small bank like Yes Bank faces a crisis (which happened in 2020), RBI can
step in and give funds or support.
 🔑 This avoids bank failure and protects people’s savings.

b) Indian Depository Receipts (IDR) / ADR / GDR

🔹 IDR (Indian Depository Receipt)

 Issued by foreign companies in India.

 Indian investors can buy shares of foreign companies.
 Traded in Indian stock market in rupees.

IDR – Example

 Standard Chartered Bank (UK) issued IDRs in India in 2010.

 Indian investors could buy its IDRs and invest in the foreign company using Indian
Rupees.

🔹 ADR (American Depository Receipt)

 Issued by Indian companies in the USA.

 American investors can invest in Indian companies.
 Traded in US stock market in dollars.

ADR – Example

 Infosys (Indian IT company) issued ADRs on the New York Stock Exchange
(NYSE).
 American investors could invest in Infosys through these ADRs.

🔹 GDR (Global Depository Receipt)

 Issued by Indian companies in foreign countries (except the USA).

 Used to raise money from global investors.
 Traded in international markets, mostly in dollars or euros.

GDR – Example

 Reliance Industries, ICICI Bank, and Tata Motors issued GDRs in Europe and
other global markets.
 These allowed global investors to invest in Indian companies.

c) IPO (Initial Public Offering)

 IPO is when a company sells its shares to the public for the first time.
 The company becomes listed on the stock exchange (like NSE or BSE).
 It helps the company raise money for growth, expansion, or paying debt.
 After IPO, anyone can buy or sell the company’s shares.
  It makes the company public from being private.

📈 IPO – Examples

 LIC (Life Insurance Corporation of India) launched India’s biggest IPO in 2022.
 Zomato went public in 2021 with a popular IPO and got a lot of investor attention.
 Tata Technologies IPO came in 2023 and was also a success.
 Nykaa, Paytm, and Policybazaar also launched IPOs to raise funds from the public.