Capital Market, Money Market and SEBI Notes for SSC Exams

The capital market, the money market and SEBI are regular topics of the Indian economy in SSC exams. The questions are on the year and the headquarters of the stock exchanges, the number of the stocks in the Sensex and the Nifty, the powers of the SEBI and the meaning of the IPO. These capital market, money market and SEBI notes for SSC explain it all in simple tables with 20 practice questions. Read them with the RBI and Monetary Policy Notes, Fiscal Policy, Budget and Deficits Notes and International Economic Organisations Notes notes.

The Indian Financial System: The Big Picture

• The Financial Stability and Development Council (FSDC) (2010) coordinates all the financial regulators; the Finance Minister is its chairperson.
• The pension fund regulator is PFRDA (2003); the insurance regulator is IRDAI (1999); the securities regulator is SEBI.

Money Market (Short-term Funds, up to One Year)

The money market is regulated by the RBI. The Mumbai Interbank Offer Rate (MIBOR) is the rate of the call market. The money market has the low risk and high liquidity.

Capital Market (Long-term Funds, More Than One Year)

• IPO: the first time a company sells its shares to the public; the book building method decides the price in a band.
• Instruments: equity shares, preference shares, debentures, bonds, derivatives (futures and options) and the mutual fund units.
• A demat account holds the securities in an electronic form; the depositories are NSDL (1996, the first) and CDSL (1999). A trading account is used to buy and sell.
• T+1 settlement: India moved to the T+1 settlement (the next working day) for all the equity trades in January 2023, the first major market to do so.
• Mutual funds collect the money from many investors and invest in the shares and the bonds; they are regulated by SEBI, and AMFI is their association. SIP (Systematic Investment Plan) means investing a fixed amount every month.

Stock Exchanges and Indices

• The BSE is the first stock exchange of India in the sense of the oldest one; the NSE is the largest by the volume of the trading.
• GIFT City (Gujarat International Finance Tec-City, Gandhinagar) is the first International Financial Services Centre (IFSC) of India.
• NASDAQ (New York) is the first electronic stock market of the world; NYSE (Wall Street) is the largest by the market capitalisation; FTSE is of London; Nikkei is of Tokyo; Hang Seng is of Hong Kong; Dow Jones is of the USA.
• Bull market means the rising prices and the optimism; bear market means the falling prices and the pessimism. A circuit breaker stops the trading for some time if the market falls or rises too much in a day.

SEBI: Securities and Exchange Board of India

• SEBI controls the insider trading (using the secret company information for trading) and the unfair practices.
• The SEBI Investor Protection and Education Fund helps the awareness of the investors.
• The Sebi (Prohibition of Insider Trading) Regulations and the Takeover Code are the main rules.

FDI, FPI and Related Terms

Other Financial Institutions and Regulators (Quick Table)

Important Questions Explained

Question 1: What is an IPO?
Answer: An Initial Public Offer is the first time when a company sells its shares to the public to raise the money.

Question 2: How many stocks are there in the Sensex and the Nifty?
Answer: 30 stocks in the Sensex and 50 stocks in the Nifty 50.

Question 3: Which is the oldest stock exchange in Asia?
Answer: The Bombay Stock Exchange (BSE), established in 1875.

Question 4: Who regulates the securities market in India?
Answer: SEBI.

Question 5: What is the money market?
Answer: The market for the short-term funds of up to one year, such as the treasury bills and commercial paper.

Question 6: What is the difference between FDI and FPI?
Answer: FDI is the long-term investment with the control of a company, while FPI is the investment in the shares and bonds without control and can be withdrawn quickly.

Question 7: Which depository was set up first in India?
Answer: NSDL (1996).

Quick Tips to Remember

• Remember the numbers: Sensex 30, Nifty 50, BSE 1875, NSE 1992, SEBI 1988 (statutory 1992).
• Remember that the money market is for up to one year and the capital market is for more than one year.
• Remember that the money market is regulated by the RBI and the capital market by the SEBI.
• Remember that FDI is stable and FPI is "hot money".
• Learn the regulators: RBI, SEBI, IRDAI and PFRDA.
• Learn the world stock indices and the countries.

Common Mistakes to Avoid

• Writing the SEBI as the regulator of the banks.
• Confusing the primary market (new shares) with the secondary market (trading).
• Writing 50 stocks for the Sensex and 30 for the Nifty.
• Writing the base year of the Sensex as 1990.
• Confusing the FDI and the FPI.

Quick Revision Points

• Money market: up to 1 year (T-bills, CP, CD, call money); RBI.
• Capital market: more than 1 year; primary (IPO) and secondary (BSE and NSE); SEBI.
• Sensex: 30 stocks, BSE, 1875, base 1978-79; Nifty: 50 stocks, NSE, 1992, base 1995.
• SEBI: 1988, statutory in 1992, Mumbai.
• FDI is stable; FPI is hot money.
• Regulators: RBI, SEBI, IRDAI, PFRDA.

Practice Questions With Answers

1. Which market deals with the short-term funds?
   Answer: Money market (Up to one year).
2. Which market deals with the long-term funds?
   Answer: Capital market (More than one year).
3. Which regulator controls the money market?
   Answer: RBI (Central bank).
4. Which regulator controls the capital market?
   Answer: SEBI (Securities regulator).
5. In which year was SEBI established?
   Answer: 1988 (Statutory in 1992).
6. Where is the headquarters of SEBI?
   Answer: Mumbai (Bandra-Kurla Complex).
7. Which is the oldest stock exchange in Asia?
   Answer: Bombay Stock Exchange (BSE) (1875).
8. In which year was the NSE established?
   Answer: 1992 (Started trading in 1994).
9. How many stocks are there in the Sensex?
   Answer: 30 (BSE).
10. How many stocks are there in the Nifty?
    Answer: 50 (NSE).
11. What is the first sale of shares to the public called?
    Answer: IPO (Initial Public Offer).
12. Which are the three T-bills maturities?
    Answer: 91, 182 and 364 days (Money market).
13. What is the account that holds the securities electronically?
    Answer: Demat account (NSDL and CDSL).
14. Which was the first depository of India?
    Answer: NSDL (1996).
15. What is the market where the new securities are issued?
    Answer: Primary market (IPO).
16. What is the market where the old securities are traded?
    Answer: Secondary market (Stock exchange).
17. Which investment is called hot money?
    Answer: FPI (Portfolio investment).
18. What does SIP stand for?
    Answer: Systematic Investment Plan (Mutual funds).
19. Which is the first IFSC of India?
    Answer: GIFT City (Gandhinagar).
20. What is a start-up with a value above 1 billion dollars called?
    Answer: Unicorn (Start-up).

How to Practise This Topic

1. Make a table of the money market and the capital market with the instruments.
2. Learn the facts of the BSE, NSE and SEBI in one table.
3. Revise the regulators and the terms the next day.
4. Attempt the practice questions without looking at the answers.
5. Solve the SSC practice papers and the previous year papers for the economy pattern.

Related Notes and Practice

• RBI and Monetary Policy Notes
• Fiscal Policy, Budget and Deficits Notes
• Taxation in India and GST Notes
• International Economic Organisations Notes
• Indian Economy Notes
• SSC practice papers

Frequently Asked Questions

What is the money market?

The money market is the market for short-term funds of up to one year. Its instruments are the treasury bills, commercial paper, certificates of deposit and call money.

What is the capital market?

The capital market is the market for long-term funds of more than one year. It has the primary market (new issues) and the secondary market (stock exchanges).

What is the difference between the primary market and the secondary market?

In the primary market, the companies sell the new securities for the first time (IPO), while in the secondary market the investors trade the existing securities on the stock exchanges.

What is SEBI?

SEBI (Securities and Exchange Board of India) is the regulator of the securities market, set up in 1988 and given the statutory power in 1992. Its headquarters is in Mumbai.

What are the Sensex and the Nifty?

The Sensex is the index of 30 leading stocks of the BSE, and the Nifty 50 is the index of 50 leading stocks of the NSE.

Which is the oldest stock exchange in Asia?

The Bombay Stock Exchange (BSE), established in 1875, is the oldest stock exchange in Asia.

What is an IPO?

An IPO (Initial Public Offer) is the first sale of the shares of a company to the public.

What is the difference between FDI and FPI?

FDI is a long-term investment with the control of the company, while FPI is an investment in the shares and the bonds without control that can be withdrawn quickly.

What are treasury bills?

Treasury bills are short-term government securities of 91, 182 and 364 days issued by the RBI on behalf of the Government.

What is a demat account?

A demat account holds the shares and the other securities in an electronic form, with NSDL or CDSL as the depository.

How many questions come from the capital market in SSC exams?

Usually 1 or 2 questions come from the stock market, SEBI and the financial institutions in each SSC exam.

How can I prepare this topic for SSC?

Learn the table of the markets, the numbers of the BSE, NSE, Sensex and Nifty, the facts of the SEBI and the regulators, and solve the MCQs.