Terms related to Capital Market

Calculated as ( Number of shares multiplier by their prices). India's Market Cap-to-GDP ratio has
Market
reached 116% and is highest since 2007.
Capitalization
Top 5 Countries in terms of Market Capitalization (March 2022): US, China, Japan, Hong Kong, and India

Carry Trade

• In 2003, Settlement cycle reduced from T+3 to T+2.

T + 1 Settlement • Voluntary adoption of T+ 1 Settlement by the stock exchanges
• Second country after China to follow T+1 Settlement
Market Include Stock Exchanges, Depositories and Clearing Corporations.
Infrastructure Depositories: National Securities Depository Limited (NSDL) and Central Securities Depository Limited
Institutions: (CSDL)
Clearing Corporations: India Clearing Corporation Ltd (BSE), NSE Clearing Ltd (NSE)
• Someone who buys and sells equity shares, commodity contracts, mutual funds, or exchange traded
Retail Investor funds (ETFs) through traditional or online brokerage firms.
• Value not more than Rs 2 lakhs.
Bullish and Bearish Bullish: Healthy Performance of stocks
Market Bearish: Poor Performance of Stocks
Blue Chip Companies whose shares are in high demand
Companies
 Terms related to Capital Market
• Shares given by company to its employees or directors.
• Given for providing IPRs, know-how or value-addition.
Sweat/Sweet Equity
• Governed under Section 79A of companies Act.
• Not more than 15% of the shares can be in form of Sweat/Sweet Equity
• Option to the employees or directors to purchase shares at pre-determined date at future price
Employee Stock • Given to retain highly talented employees as part of their compensation package.
Option Plan (ESOP) • Governed under Section 2 of companies Act.
• No Limit on issuance of ESOP
Private Equity • Private investment in unlisted firms
Venture Capital • Form of Private Equity in which investment is made in start-up companies
Golden Share • Type of share that gives the shareholder (mostly government) the veto power in decision making.
Shareholders that get preference in terms of dividend payment. In case of liquidation, preferential
Preferential Share
shareholders are entitled to be paid before common shareholders.
Share warrants Right to buy shares at a future date at a fixed price.
Demutualization Segregation of members' right into distinct segments, viz. ownership rights and trading rights.
Measure to stem the steep fall or a sharp rise in the price of a security / stock or the index as a whole.
Circuit Breaker For instance, if the Index (SENSEX or NIFTY) increases or decreases by 10% in a single day, the trading is
halted for 45 minutes.
VIX Index Degree of volatility in the Nifty. Higher VIX Index→ Higher Volatility→ Fall in NIFTY.
 Terms related to Capital Market
• ESG (Environmental, Social and Governance) strategy revolves around investing in companies
ESG Investment that score high on three non-financial parameters i.e. environment friendliness, social
responsibility, and governance.
• Listed shell companies created with the sole purpose to acquire unlisted private companies.
Special Purpose They are also called as “Blank cheques” as the investors would have no idea as to where their
Acquisition Companies money will be invested.
(SPACs): • SEBI has set up an expert committee to explore the viability of formulating rules and
regulations for SPACs.
Who are they?: High Net worth Individuals, Companies, Partnership firms who have necessary
financial expertise and can deal in relatively riskier investments.
Accredited Investors
Benefits: Regulatory relaxation; Enable Financial institutions to design products exclusively for
accredited investors.
• India’s first index of Cryptocurrencies. Launched by CryptoWire. Tracks performance of 15 most
IC15
widely traded cryptocurrencies.
• Debt Raised by company: Subordinated and Non-Subordinated Debt.
Mezzanine • Subordinated Debt: Mix of Equity and Debt. Lenders provide loans to companies and get
Financing/Subordinated equity ownership in return.
Debt • In case of liquidation and sale of assets, priority would be given in order: Banks, Non-
Subordinated Debt, Subordinated debt, Common Shareholders.
Profit Booking • Sale of shares by the Investors when their prices increase. Usually done to realize the profits
 Present Status of Special Purpose Acquisition Companies
Global: SPACs are currently regulated and recognised across multiple jurisdictions such as the UK, USA, Canada, Singapore and Malaysia. The
SPACs have raised more than 50% of the capital in the stock market in USA in 2020.
India:
International Financial Services Centre (IFSC): The GIFT city located in Gujarat enables raising of Capital through SPACs. The International
Financial Services Centre Authority (IFSCA) has already provided regulatory clarity on listing SPACs in International Financial Services Centre.
Domestic Market: The Capital market regulator i.e. SEBI has so far not enabled raising of capital through SPACs. Hence, the current regulatory
framework of India is not supportive of the SPAC structure.
Rajesh Verma committee has recommended the Government to amend the companies act to facilitate the entry of Special Purpose
Acquisition Companies (SPACs).
 CAPITAL MARKET
Practice MCQ Practice MCQ
With reference to State Development Loans (SDLs), What does an increase in the India Volatility Index (VIX)
consider the following statements: in the capital market denote in the long run?
1. The SDLs are financial instruments issued by the 1. Higher Degree of Volatility in NIFTY Index
State Governments to raise short-term and long- 2. Increase in the NIFTY Index
term loans.
2. The SDLs are eligible to be used as collateral for the Select the correct answer using the code given below:
Liquidity Adjustment Facility (LAF). (a) 1 only
(b) 2 only
Which of the statements given above is/are correct? (c) Both 1 and 2
(a) 1 only (d) Neither 1 nor 2
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
 CAPITAL MARKET
Practice MCQ Practice MCQ
With reference to Circuit breaker, consider the In the context of Capital market, Consider the following
following statements: statements related to "Profit Booking":
1. It is a mechanism to stop steep increase or decrease 1. It refers to the sale of the shares in order to realise
in the stock market Indices. the increase in their prices.
2. The triggering of this mechanism leads to trading 2. It may lead to more volatility in the stock market
halt in the stock exchanges. and decrease in the share prices.

Which of the statements given above is/are correct? Which of the statements given above is/are correct?
(a) 1 only (a) 1 only
(b) 2 only (b) 2 only
(c) Both 1 and 2 (c) Both 1 and 2
(d) Neither 1 nor 2 (d) Neither 1 nor 2
 CAPITAL MARKET

Practice MCQ Practice MCQ

With reference to T+1 Settlement cycle, consider the Which among the following statements is incorrect
following statements: about the Special Purpose Acquisition Companies
1. Under T+1 Settlement cycle, all the transactions on (SPACs)?
the stock exchanges would have to be settled (a) These Companies raise capital through the IPOs
within an hour. without having any revenue or operations.
2. Presently, SEBI has made the adoption of T+1 (b) These Companies are also referred as to as “Blank
Settlement cycle voluntary. Cheque” Companies.
3. India is the first country to have adopted T+1 (c) These companies usually acquire a profit-making
settlement cycle. unlisted company
(d) The current regulatory framework supports
Which among the statements given above is/are creation of SPACs in the Indian domestic Market.
correct?
(a) 1 only
(b) 2 and 3 only
(c) 2 only
(d) 3 only
 CAPITAL MARKET
Practice MCQ Practice MCQ
With reference to Price-to-Earnings (P/E) ratio, consider With reference to Accredited Investors framework
the following statements: unveiled by SEBI, consider the following statements:
1. The P/E ratio tells the investors as to whether a 1. The Accredited Investors may include both
existing share is over-valued or under-valued. Individuals and Companies.
2. A high P/E ratio may be associated with asset 2. These categories of investors would be subjected to
bubble in the stock market. higher regulatory compliance in order to reduce the
risk to financial system.
Which among the statements given above is/are
correct? Which among the statements given above is/are
(a) 1 only correct?
(b) 2 only (a) 1 only
(c) Both 1 and 2 (b) 2 only
(d) Neither 1 nor 2 (c) Both 1 and 2
(d) Neither 1 nor 2
 CAPITAL MARKET
Prelims 2016 Prelims 2019
With reference to ‘IFC Masala Bonds’, sometimes seen Which one of the following is not the most likely
in news, which of the statements given below is/are measure the Government/RBI takes to stop the slide of
correct? Indian rupee?
1. The International Finance Corporation, which
offers these bonds, is an arm of the World Bank (a) Curbing imports of non-essential goods-and
Group. promoting exports
2. They are the rupee-denominated bonds and are a (b) Encouraging Indian borrowers to issue rupee-
source of debt financing for the public and private denominated Masala Bonds
sector. (c) Easing conditions relating to external commercial
borrowing
Select the correct answer using the code given below. (d) Following an expansionary monetary policy
(a) 1 only
(b) 2 Only
(c) Both 1 and 2
(d) Neither 1 nor 2
 CAPITAL MARKET
Normal Overseas Bonds Masala Bonds
Denomination Foreign Currency Rupees
Who faces the risk due Bond Issuer (Indian Company) Foreign Investor
to exchange rate
volatility?
Example: Issue of Bond (2010) Issue of Masala Bond (2010)
• Face Value: $1 (Rs 30) • Face Value: Rs 30 ( $1)
Exchange Rate • Maturity Period: 5 years • Maturity Period: 5 years
Fluctuation: • Rate of Interest: 10% • Rate of Interest: 10%
2010: $1 = Rs 30
2015: $1 = Rs 60 Redemption of Bond (2015) Redemption of Masala Bond (2015)
Principal Amount: $1 ( Rs 60) Principal Amount: Rs 30 ( $ 0.5)
Example Issue of Bond (2010) Issue of Masala Bond (2010)
• Face Value: $1 (Rs 30) • Face Value: Rs 30 ( $1)
Exchange Rate • Maturity Period: 5 years • Maturity Period: 5 years
Fluctuation • Rate of Interest: 10% • Rate of Interest: 10%
2010: $ 1 = Rs 30
2015: $ 1= Rs 15 Redemption of Bond (2015) Redemption of Masala Bond (2015)
Principal Amount : $ 1 (Rs 15) Principal Amount: Rs 30 ( $ 2)
 RBI’s Guidelines on Masala Bonds- External Commercial Borrowings (ECBs)
Eligible borrowers Banks, Corporates, REITs, InVITs
Recognized Investors Resident of a country which is
(a) Member of Financial Action Task Force
(b) whose securities market regulator is a signatory to the International Organization of
Securities Commission's (IOSCO’s) Multilateral Memorandum of Understanding
Minimum Maturity Period 3 years
End Use Restrictions Cannot be used for following purposes
• Real estate activities other than development of integrated township / affordable
housing projects;
• Investing in capital market and using the proceeds for equity investment domestically;
• Activities prohibited as per the foreign direct investment guidelines;
• On-lending to other entities for any of the above purposes; and
• Purchase of Land
 CAPITAL MARKET
Currency of Bond Issued in which country Who issues?
Masala Bonds Rupee Denominated Overseas Indian Companies and
IFC
Maharaja Rupee Denominated India IFC
Bonds
Uridashi Masala Rupee Denominated Japan Indian Companies
Bonds
Panda Bonds Yuan Denominated Mainland China Foreign Investors

Dim Sum Bonds Yuan Denominated Hong Kong Foreign Investors

Samurai Bonds Yen Denominated Japan Foreign Investors
Yankee Bonds Dollar Denominated USA Foreign Investors
 CAPITAL MARKET
Practice MCQ Practice MCQ
With respect to Masala Bonds, consider the following Which among the following is/are the likely benefits of
statements: issuing Masala Bonds?
1. The Masala Bonds can be issued only by the 1. Check Rupee Depreciation
Government owned agencies. 2. Help in Internationalisation of Rupee
2. If the Rupee depreciates at the time of maturity of 3. If the Rupee appreciates at the time of maturity, it
Masala Bonds, the investor gets benefitted. benefits the Indian Company more than the
3. The money raised through Masala Bonds is investor.
considered to be part of External Commercial
Borrowings (ECBs) Select the correct answer using the code given below:
(a) 1 only
Which among the statements given above is/are (b) 1 and 2 only
incorrect? (c) 1 and 3 only
(a) 1 only (d) 2 and 3 only
(b) 1 and 2 only
(c) 3 only
(d) 2 and 3 only
 CAPITAL MARKET
Practice MCQ Practice MCQ
With respect to Maharaja Bonds, consider the With reference to Uridashi Masala Bonds, Consider the
following statements: following statements:
1. These Bonds are issued by the Indian companies in 1. These Masala Bonds are issued in ASEAN member
overseas market. countries.
2. These bonds are denominated in Rupees. 2. The Uridashi Masala Bonds were first issued by
International Finance Corporation.
Which among the statements given above is/are
correct? Which of the statements given above is/are correct?
(a) 1 only (a) 1 only
(b) 2 only (b) 2 only
(c) Both 1 and 2 (c) Both 1 and 2
(d) Neither 1 nor 2 (d) Neither 1 nor 2
 CAPITAL MARKET

Practice MCQ
Consider the following pairs of Bonds and the countries in
which they are issued:

Bonds Country
1 Panda Bonds China
2 Yankee Ponds Canada
3 Dim sum Bonds Thailand
4 Samurai Bonds Japan

Which of the pairs given above is/are correctly matched?

(a) 1 and 2 only
(b) 1 and 4 only
(c) 2 and 4 only
(d) 2 and 3 only
 IMPACT BONDS
1
Provides funds to
Implementation Agency in • Expenditure on Social
form of Contractual
2 Sector such as Education,
Agreement
Implementation Health, Sanitation etc.
Private Sector Agency • Required to meet the
Contractual Agreement targets set under
stipulates the targets to be
Contractual Agreement
met such as Increase in
learning outcomes, decrease
in IMR, MMR etc.
3

If Targets are
met
OUTCOME FUNDER
Provides funds to the Private Sector along with additional
returns.
Social Impact Bonds: Government (Outcome Funder)
Development Impact Bonds: Donor NGO or Foundation
 Sovereign Green Bonds

Green Bonds: New Announcements:

Similar to Bonds; but are issued to raise finances in Green • Government to issue Sovereign Green Bonds
Energy Projects • These Bonds to be part of Government’s
Previous Global Issuances: borrowings
• Climate Awareness Bond- First Green Bond issued in
Europe.
• World Bank Green Bonds
• Climate Bonds Initiative: International Organization
which seeks to enable countries to mobilize $ 100 for
financing Climate Change
Developments in India:
• 2016: SEBI Guidelines on issuance of Green Bonds by
Companies.
• IRFC: Green Bonds for Electrification of Railways
• Adani Energy: Issued Green Bonds in 2019.
 Sovereign Green Bonds

Practice MCQ Practice MCQ

With reference to Sovereign Green Bonds, consider the With respect to Climate Bonds Initiative, consider
following statements: the following statements:

1. The Green Bonds are considered to be interest free 1. The Climate Bonds Initiative is an International
bonds which are used for financing green energy organisation which helps countries to mobilise
projects. finances to fight climate change.
2. India has recently become the first country in the 2. It is entirely funded by World Bank.
World to issue Green Bonds.
3. The money raised by the Government through Green Which of the statements given above is/are correct?
Bonds will be part of Fiscal Deficit. (a) 1 only
(b) 2 only
Which of the statements given above is/are correct? (c) Both 1 and 2
(a) 1 and 2 only (d) Neither 1 nor 2
(b) 2 only
(c) 3 only
(d) 1 and 3 only
 ELEPHANT BONDS

• Pay 15% of the undisclosed

1 foreign income as tax to the
People declare Government
undisclosed foreign • Escape prosecution under
income Black Money Act

2 40% OF UNDISCLOSED
INCOME

• Invested in Elephant Bonds 3

Money collected from the
• Maturity Period: 25 years. Elephant Bonds would be
• Rate of Interest: 5% invested in Infrastructure
Projects
 Sovereign Gold Bonds

Practice MCQ Practice MCQ

With respect to Sovereign Gold Bonds (SGBs), consider In which among the following ways does the Sovereign
the following statements: Gold Bond Scheme benefit Indian Economy?
1. The money raised through SGBs shall be considered
as part of Government’s fiscal deficit. 1. Reduce Gold Imports into India.
2. The Investors does not face any risk of investment
in the SGBs. 2. Enable Investors to redeem the Bond in terms of
3. The SGBs can be used as collateral for obtaining Gold upon maturity
loans.
3. Bring vast amount of Idle Gold back into
Which among the statements given above is/are Circulation.
correct?
(a) 1 only Select the correct answer using the code given below:
(b) 1 and 2 only (a) 1 only
(c) 2 and 3 only (b) 1 and 2 only
(d) 1 and 3 only (c) 2 and 3 only
(d) 1, 2 and 3
 UPA Government: Administered Price Mechanism

Subsidies on Petrol and Diesel

OMCs forced to sell Petrol and Diesel below the import prices

Under Recoveries (Losses to OMCs)

Oil Bonds
• Long Term G-Secs with maturity period of 15-20 years.
• Non-SLR Securities
• Rate of Interest higher than normal G-Secs (6.5%-8.3%)
• Not Considered as part of Fiscal Deficit but part of Public Debt

Present Status
2010- Practice of Issuing Oil Bonds ended.
Total Outstanding Oil Bonds: 1.3 Lakh crores; Maturing in next 4-5 years.
 OIL BONDS

Practice MCQ Practice MCQ

With respect to Oil Bonds in India, consider the Which among the following statements is incorrect
following statements: with respect to Oil Bonds?
1. The Oil Bonds issued by the Government are (a) The Oil Bonds are long term G-Secs which are
considered to be part of both Fiscal Deficit as well issued to compensate for the under-recoveries of
as Public Debt. Oil Marketing Companies (OMCs)
2. The Oil Bonds are eligible to be considered as (b) The Oil Bonds are eligible securities for the
Statutory Liquidity ratio (SLR) securities by the Statutory Liquidity Ratio (SLR)
Banks. (c) The Oil Bonds are not part of Fiscal Deficit, but are
part of Public Debt of the Government
Which of the statements given above is/are correct? (d) The Government has put an end to the practice of
(a) 1 only issuing oil Bonds.
(b) 2 only
(c ) Both 1 and 2
(d) Neither 1 nor 2