FINANCIAL INSTITUTION &

MARKETS
Q) DIFFERENTIATE B/W PHYSICAL ASSETS & FINANCIAL ASSETS WITH EXAMPLE?

ANS:- Physical assets are more stable in nature like plant, machinery, tools, land, building
e.t.c
where as financial assets are paper or electronic claims include shares, bonds, marketable
securities some issuers are govt or corporate body. financial assets are used to purchase
Physical asset.
and financial assets get more returns when compared with physical assets
financial assets liquid in nature.

Q) WHAT IS FINANCIAL INISTRUMENTS ? WHAT DO U UNDERSTAND BY MULTIPLICITY OF

FINANCIAL INISTRUMENTS?

ANS:- A real or virtual document representing a legal agreement involving some sort of
monetary value. In today's financial marketplace, financial instruments can be classified
generally as equity based, representing ownership of the asset, or debt based, representing a
loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a
third, unique type of instrument. Different subcategories of each instrument type exist, such
as preferred share equity and common share equity, for example.

Q) DISCUSS THE NATURE OF TRADING IN COMMODITY EXCHANGES ?

ANS:- A commodities exchange is an exchange where various commodities and derivatives

products are traded. Most commodity markets across the world trade in agricultural products
and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee, milk
products, pork bellies, oil, metals, etc.) and contracts based on them. These contracts can
include spot prices, forwards, futures and options on futures. Other sophisticated products
may include interest rates, environmental instruments, swaps, or ocean freight contracts

Q) EXPLAIN THE ORIGEN AND MEANING OF MUTAL FUNDS ?

ANS:- The origin of mutual funds can be traced back to 1774 when a Dutch
merchant in Holland invited subscriptions from investors to form a trust. The founding
of the trust followed the financial crisis of 1772-1773 as a means to help investors
diversify their financial holdings. Mutual funds really captured the public's attention in
the 1980s and '90s when mutual fund investment hit record highs and investors saw
incredible returns. However, the idea of pooling assets for investment purposes has
been around for a long time. Here we look at the evolution of this investment vehicle,
from its beginnings in the Netherlands in the 18th century to its present status as a
growing, international industry with fund holdings accounting for trillions of dollars in
the United States alone.

Q) STATE THE QUALITIES REQUIRED FOR A MERCHANT BANKER ?.

MERCHANT BANKING is defined as“an institution which covers a widerange of
activities such asmanagement of customer services,portfolio mgmt, credit
syndication,acceptance credit, counselling,insurance etc.

Qualities Required of Merchant Bankers

o Ability to analyse
o Abundant knowledge
o Ability to built up relationship
o Innovative approach
o Integrity
Q) EXPLAIN GREEN S HOE OPTION ?

ANS:- A provision contained in an underwriting agreement that gives the underwriter the right to
sell investors more shares than originally planned by the issuer. This would normally be done if the
demand for a security issue proves higher than expected. Legally referred to as an over-allotment
option.

A greenshoe option can provide additional price stability to a security issue because the
underwriter has the ability to increase supply and smooth out price fluctuations if demand surges

Greenshoe options typically allow underwriters to sell up to 15% more shares than the
original number set by the issuer, if demand conditions warrant such action. However, some
issuers prefer not to include greenshoe options in their underwriting agreements under certain
circumstances, such as if the issuer wants to fund a specific project with a fixed amount of cost and
does not want more capital than it originally sought.

The term is derived from the fact that the Green Shoe Company was the first to issue this type of
option.

Q) COMPARE AND CONTRAST MONEY MARKET AND CAPITAL MARKET ?

Ans:- Money markets are markets that are close substitutes for money. It is a market for
overnight to short term funds and instruments having a maturity of one year or less than one
year. It is not a physical location but an activity that is conducted over the phone. Such
markets are characterised by a collection of markets for several instruments. Often the credit
worthiness of the participant is relevant. It is a highly liquid market wherein securities are
bought and sold in large denominations to reduce the transcation costs. example Treasury
bills, call money market, CD's etc.

Capital markets on the other hand is a market for long term securities whethre equity or debt,
which aims to mobilise long term savings to finance long term investsments, provide risk
capital in the form of equity. encourages broader ownership of productive assets. It is wider
than money market and constitutes all form of lending and borrowing. It improves the
efficiency of capital allocation through competitive pricing mechanism

The key distinguishing feature between the money and capital markets is the maturity period
of the securities traded in them. The money market refers to all institutions and procedures
that provide for transactions in short-term debt instruments generally issued by borrowers
with very high credit ratings. By financial rule, short-term means maturity periods of one year
or less. While the capital market refers to all institutions and procedures that provide for
transactions in long-term financial instruments. Long-term here means having maturity
periods of more than one year .

Q) DISCUSS THE CHARECTERSTICS FEATUTES OF MOTGAGE MARKET

FINANCIAL MARKET AND TREASURY MARKET ?

ANS: The secondary mortgage market is the market for the sale of securities or bonds
collateralized by the value of mortgage loans. The mortgage lender, commercial banks, or
specialized firm will group together many loans and sell grouped loans as securities called
collateralized mortgage obligations (CMOs). The risk of the individual loans is reduced by
that aggregation process.[citation needed] These securities are collateralized debt obligations
(CDOs), also known as mortgage-backed securities (MBS). The CMOs are sometimes further
grouped in other CDOs. Mortgage delinquencies, defaults, and decreased real estate values
can make these CDOs difficult to evaluate