205 FIN: FINANCIAL MARKETS & BANKING OPERATIONS (2021

Pattern) (Semester - II
 205 FIN: FINANCIAL MARKETS & BANKING OPERATIONS

(2021 Pattern) (Semester-II

Q1) Solve any five:

a) Define financial system.
The financial system refers to the network of institutions, markets,
intermediaries, and regulations that facilitate the flow of funds between savers
and borrowers within an economy. It encompasses a wide range of entities and
mechanisms that enable the allocation, transfer, and management of financial
resources, as well as the pricing and trading of financial assets.

Key components of the financial system include:

1. Financial Institutions: Banks, credit unions, insurance companies,

pension funds, mutual funds, and other entities that mobilize savings,
provide credit, manage risk, and offer various financial services to
individuals, businesses, and governments.
2. Financial Markets: Exchanges, platforms, and systems where financial
assets such as stocks, bonds, currencies, commodities, and derivatives are
bought, sold, and traded. Financial markets provide liquidity, price
discovery, and investment opportunities for market participants.
3. Financial Instruments: Securities, contracts, and instruments that
represent ownership, debt, or derivative interests in financial assets.
Examples include stocks, bonds, options, futures, swaps, and mortgages.
4. Financial Intermediaries: Entities that facilitate the flow of funds
between savers and borrowers by pooling resources, managing risks, and
providing financial intermediation services. Examples include banks,
investment banks, brokerage firms, and insurance companies.
5. Regulatory Framework: Laws, regulations, and supervisory
mechanisms established by government authorities and regulatory
agencies to ensure the stability, integrity, and efficiency of the financial
system. Regulatory frameworks encompass prudential standards,
consumer protection measures, market conduct rules, and systemic risk
oversight.
6. Payment and Settlement Systems: Infrastructure, networks, and
mechanisms that enable the transfer, clearing, and settlement of financial
transactions between parties. Payment systems facilitate the exchange of
funds, while settlement systems ensure the finality and irrevocability of
transactions.
7. Central Banks: Monetary authorities responsible for formulating and
implementing monetary policy, regulating the banking system, and
maintaining financial stability. Central banks oversee the operation of
 payment systems, conduct open market operations, and serve as lenders
of last resort to financial institutions.

b) State the difference between Money Market and Capital Market.

The money market and capital market are two components of the financial
system that serve distinct purposes and cater to different types of financial
instruments and participants. Here are the key differences between the money
market and capital market:

1. Nature of Instruments:
• Money Market: The money market deals with short-term debt
instruments with maturities typically ranging from overnight to one
year. Examples of money market instruments include Treasury
bills, certificates of deposit (CDs), commercial paper, repurchase
agreements (repos), and short-term government securities. Money
market instruments are highly liquid and low-risk, making them
suitable for investors seeking safety and liquidity.
• Capital Market: The capital market deals with long-term financial
instruments such as stocks, bonds, debentures, and equity shares.
Capital market instruments represent ownership or long-term debt
in companies or government entities. Unlike money market
instruments, capital market securities have longer maturities and
may involve higher risks and potential returns.
2. Participants:
• Money Market: Participants in the money market include
commercial banks, central banks, corporations, government
entities, money market mutual funds, and institutional investors.
These entities engage in short-term borrowing and lending
activities to manage liquidity, meet short-term funding needs, and
invest excess cash reserves.
• Capital Market: Participants in the capital market include
investors, companies, governments, financial institutions,
investment banks, mutual funds, and brokerage firms. Investors
buy and sell capital market securities to invest in companies, raise
capital for business expansion, or finance government projects.
3. Purpose:
• Money Market: The primary purpose of the money market is to
facilitate short-term borrowing and lending, manage liquidity, and
provide a mechanism for short-term funding needs. Money market
instruments are used by borrowers to meet working capital
 requirements, finance inventory, bridge temporary cash flow gaps,
and park excess funds.
• Capital Market: The capital market serves the long-term
financing needs of businesses, governments, and other entities. It
provides a platform for raising equity and debt capital to fund
investment projects, infrastructure development, research and
development, and business expansion. Capital market investments
offer the potential for capital appreciation, dividend income, and
long-term wealth accumulation.
4. Risk and Return Profile:
• Money Market: Money market instruments are generally
considered low-risk investments with lower returns compared to
capital market securities. They offer safety of principal and high
liquidity but provide relatively modest yields.
• Capital Market: Capital market securities carry varying degrees
of risk depending on factors such as the issuer's creditworthiness,
market conditions, and economic outlook. Equity investments in
the capital market offer higher potential returns but also entail
higher volatility and market risk compared to debt securities.
Aspect Money Market Capital Market
Nature of Deals with short-term debt Deals with long-term financial
Instruments instruments with maturities instruments such as stocks, bonds,
typically ranging from overnight to debentures, and equity shares.
one year. Examples include Instruments have longer maturities and
Treasury bills, CDs, commercial represent ownership or long-term debt
paper, repos, and short-term in companies or government entities.
government securities.
Participants Commercial banks, central banks, Investors, companies, governments,
corporations, government entities, financial institutions, investment banks,
money market mutual funds, and mutual funds, and brokerage firms.
institutional investors. Engage in Engage in buying and selling securities
short-term borrowing and lending for long-term investment, capital
activities to manage liquidity and raising, or financing purposes.
meet short-term funding needs.
Purpose Facilitates short-term borrowing Serves long-term financing needs of
and lending, manages liquidity, and businesses, governments, and entities.
provides short-term funding needs. Provides platform for raising equity and
Instruments used for working debt capital for investment projects,
capital, inventory financing, and business expansion, and infrastructure
temporary cash flow management. development.
Risk and Return Generally low-risk investments with Carry varying degrees of risk depending
lower returns compared to capital on issuer's creditworthiness, market
market securities. Offer safety of conditions, and economic outlook.
principal and high liquidity but Offer higher potential returns but entail
provide modest yields. higher volatility and market risk
compared to money market securities.

c) Define the term OMR.

OMR stands for Optical Mark Recognition. It refers to a technology used to

detect and interpret marks made by a pen or pencil on specially designed forms
or documents. These marks are typically in the form of filled-in bubbles,
checkboxes, or other predefined patterns. OMR technology utilizes optical
scanners or readers to capture images of the marked areas on the forms and then
analyzes them electronically to determine the presence or absence of marks.
OMR is commonly employed in applications such as standardized tests,
surveys, evaluations, and data collection forms where automated processing of
marked responses is required for efficiency and accuracy.

d) List the advantages of Commodity Future Market.

The commodity futures market offers several advantages to various participants,
including producers, consumers, traders, and investors. Here are some of the
key advantages of commodity futures trading:

1. Price Discovery: Futures markets provide a transparent platform for

price discovery, where buyers and sellers can interact to determine the
future prices of commodities based on supply and demand dynamics,
market fundamentals, and economic indicators. This price discovery
mechanism helps in establishing fair and efficient prices for commodities,
benefiting both producers and consumers.
2. Hedging: One of the primary advantages of commodity futures trading is
risk management through hedging. Producers and consumers can use
futures contracts to hedge against adverse price movements in the
underlying commodities. For example, farmers can hedge against falling
crop prices by selling futures contracts, while manufacturers can hedge
against rising raw material costs by buying futures contracts. This helps
in stabilizing income and reducing price volatility-related risks.
3. Price Risk Mitigation: Commodity futures markets allow market
participants to mitigate price risk associated with fluctuations in
commodity prices. By entering into futures contracts, producers and
consumers can lock in prices for future delivery, thereby reducing
 uncertainty and protecting themselves from adverse price movements.
This price risk mitigation facilitates better planning, budgeting, and
decision-making for businesses.
4. Liquidity and Efficiency: Commodity futures markets are highly liquid,
with a large number of buyers and sellers actively trading contracts on a
daily basis. This liquidity ensures efficient price discovery, narrow bid-
ask spreads, and minimal transaction costs for market participants.
Traders can easily enter and exit positions in the market without
significant price impact, enhancing market efficiency.
5. Speculation and Investment Opportunities: Futures markets provide
opportunities for speculators and investors to profit from price
movements in commodities without owning the physical assets.
Speculators can take directional bets on commodity prices based on their
market outlook, trading strategies, and risk tolerance. Additionally,
commodity futures contracts serve as investment vehicles for portfolio
diversification and inflation hedging purposes, allowing investors to gain
exposure to commodity markets and potentially earn returns.
6. Arbitrage Opportunities: Commodity futures markets facilitate
arbitrage opportunities by allowing market participants to exploit price
differentials between futures and spot markets or between different
futures contracts. Arbitrageurs buy low and sell high to profit from
temporary price discrepancies, thereby promoting market efficiency and
ensuring price convergence between related markets.
7. Global Market Access: Commodity futures markets provide global
market access, allowing participants from around the world to trade a
wide range of commodities across different geographies and time zones.
This global reach enhances market liquidity, price transparency, and
market efficiency, while also enabling international trade and investment
in commodities.

e) Define GDR
GDR stands for Global Depositary Receipt. It is a financial instrument issued by
a foreign company to raise capital from international investors. A GDR
represents ownership in a specific number of shares of the issuing company and
is typically denominated in a currency other than the company's domestic
currency, such as the US dollar or the euro.

The issuance of GDRs allows foreign companies to access global capital

markets and diversify their investor base beyond their domestic market. GDRs
are issued by depositary banks, which hold the underlying shares of the issuing
company and issue the GDRs to investors.
GDRs are traded on international stock exchanges, such as the London Stock
Exchange, Luxembourg Stock Exchange, or the New York Stock Exchange,
providing investors with an opportunity to invest in foreign companies without
the need to directly trade on the company's domestic exchange or navigate
foreign regulatory requirements.

GDRs are subject to regulatory oversight and compliance requirements in the

jurisdictions where they are listed and traded. They provide investors with
exposure to the performance of the issuing company's shares, dividends, and
corporate actions, while also offering liquidity and tradability in the
international markets.

f) Define Central Bank

A Central Bank is the primary monetary authority of a country or a group of
countries responsible for formulating and implementing monetary policy,
regulating and supervising the banking system, and overseeing the stability and
efficiency of the financial system. Central banks play a crucial role in managing
a nation's currency, money supply, and interest rates to achieve macroeconomic
objectives such as price stability, full employment, and sustainable economic
growth.

Key functions and responsibilities of a central bank typically include:

1. Monetary Policy: Central banks formulate and implement monetary

policy to achieve macroeconomic objectives such as price stability, low
inflation, and sustainable economic growth. They use tools such as open
market operations, discount rates, reserve requirements, and forward
guidance to influence the money supply, interest rates, and overall
economic activity.
2. Currency Issuance: Central banks have the authority to issue currency
and regulate the supply of money in the economy. They design and
distribute banknotes and coins, manage currency reserves, and ensure the
integrity and security of the national currency.
3. Banking Regulation and Supervision: Central banks regulate and
supervise banks and financial institutions to maintain the stability and
soundness of the banking system. They establish prudential regulations,
conduct bank examinations, oversee compliance with banking laws, and
intervene when necessary to prevent systemic risks and bank failures.
4. Financial Stability: Central banks monitor and assess risks to financial
stability, including systemic risks, market disruptions, and contagion
effects. They implement measures to safeguard the stability and resilience
 of the financial system, such as liquidity support, lender-of-last-resort
facilities, and macroprudential regulations.
5. Payment Systems Oversight: Central banks oversee and regulate
payment and settlement systems to ensure the efficient and secure transfer
of funds between banks and financial institutions. They establish rules
and standards for payment systems, promote innovation, and mitigate
risks associated with payment activities.
6. Foreign Exchange Management: Central banks manage foreign
exchange reserves and intervene in foreign exchange markets to stabilize
the domestic currency's exchange rate, maintain external balance, and
safeguard against currency crises. They may engage in currency
interventions, foreign exchange swaps, and reserve accumulation or
depletion to influence exchange rate movements.
7. Government Banking Services: Central banks often provide banking
services to governments, such as managing government accounts,
executing monetary transactions, issuing government debt securities, and
acting as fiscal agents for treasury operations.

g) List out diffrent types of banking

There are various types of banking institutions and services that cater to
different needs and requirements of individuals, businesses, and organizations.
Here's a list of different types of banking:

1. Retail Banks: Retail banks, also known as consumer banks or personal

banks, provide a wide range of financial services to individuals and small
businesses. These services typically include savings and checking
accounts, personal loans, mortgages, credit cards, and basic investment
products.
2. Commercial Banks: Commercial banks primarily serve businesses,
corporations, and large institutions by offering a comprehensive suite of
banking services such as business loans, commercial mortgages, trade
finance, cash management, and treasury services. They also provide
deposit and cash management services to individuals.
3. Investment Banks: Investment banks specialize in providing financial
advisory, underwriting, and capital-raising services to corporations,
governments, and institutional clients. They assist in mergers and
acquisitions, initial public offerings (IPOs), debt and equity issuance,
restructuring, and other investment banking activities.
4. Private Banks: Private banks cater to high-net-worth individuals
(HNWIs) and ultra-high-net-worth individuals (UHNWIs) by offering
 personalized wealth management services, investment advisory, estate
planning, and other tailored financial solutions. Private banks provide
exclusive services and products to affluent clients.
5. Community Banks: Community banks are locally owned and operated
financial institutions that focus on serving the banking needs of
communities, neighborhoods, and small businesses. They provide
personalized service, community involvement, and relationship-based
banking to their customers.
6. Credit Unions: Credit unions are member-owned, not-for-profit financial
cooperatives that offer banking services to their members. They typically
serve specific communities, employee groups, or associations and provide
savings accounts, loans, credit cards, and other financial services to their
members.
7. Online Banks: Online banks, also known as internet banks or virtual
banks, operate primarily through digital channels such as websites and
mobile apps. They offer a range of banking services including savings
accounts, checking accounts, loans, and investment products, often with
lower fees and higher interest rates compared to traditional banks.
8. Savings and Loan Associations (S&Ls): Savings and loan associations,
also known as thrifts, specialize in providing mortgage loans, home
equity loans, and other real estate financing services. They traditionally
focused on accepting deposits and providing mortgage lending services to
support homeownership.
9. Islamic Banks: Islamic banks operate in accordance with Islamic
principles and Sharia law, which prohibit interest (riba) and promote
profit-sharing and risk-sharing arrangements. They offer Islamic financial
products and services such as Sharia-compliant savings accounts,
investment accounts, and financing facilities.
10. Development Banks: Development banks focus on providing long-term
financing and investment support for development projects, infrastructure
initiatives, and economic development programs. They often target
underserved sectors or regions and work towards promoting sustainable
development and poverty reduction

b) Define option.
An option is a financial derivative contract that gives the buyer the right, but not
the obligation, to buy or sell an underlying asset at a predetermined price
(known as the strike price) within a specified period of time (known as the
expiration date). Options are commonly used for hedging, speculation, and risk
management purposes in financial markets.
There are two main types of options:

1. Call Option: A call option gives the buyer the right to buy the
underlying asset at the strike price on or before the expiration date. If the
price of the underlying asset rises above the strike price before expiration,
the call option holder can exercise the option and buy the asset at the
lower strike price, potentially profiting from the price difference.
2. Put Option: A put option gives the buyer the right to sell the underlying
asset at the strike price on or before the expiration date. If the price of the
underlying asset falls below the strike price before expiration, the put
option holder can exercise the option and sell the asset at the higher strike
price, potentially profiting from the price difference.

Options are traded on organized exchanges (such as the Chicago Board Options
Exchange) or over-the-counter (OTC) markets. The price of an option, known
as the premium, is determined by factors such as the price of the underlying
asset, the volatility of the asset's price, the time remaining until expiration, and
the strike price.

Option contracts typically have standardized terms, including the underlying

asset, expiration date, strike price, and contract size. Options can be used by
investors and traders to hedge against price fluctuations, speculate on future
price movements, generate income through option selling strategies, and
manage portfolio risk. However, trading options involves risks, including the
potential loss of the premium paid and the risk of unlimited losses for certain
option strategies.

Q2) Solve any two:

a) Explain in detail on Bond Markets.
The bond market, also known as the debt market or fixed-income market, is a
financial market where participants buy and sell debt securities, known as bonds,
issued by governments, municipalities, corporations, and other entities. Bonds are
debt instruments that represent a loan from an investor to the issuer, who promises
to repay the principal amount (face value) of the bond at maturity, along with
periodic interest payments (coupon payments) over the life of the bond.

Here's an in-depth explanation of the bond market:

1. Participants: The bond market comprises a diverse set of participants,

including institutional investors such as pension funds, insurance companies,
 mutual funds, hedge funds, central banks, commercial banks, and individual
investors. Issuers of bonds include national governments, local municipalities,
corporations, government-sponsored enterprises (GSEs), and supranational
organizations.
2. Types of Bonds:
• Government Bonds: Issued by national governments to finance
government spending and manage fiscal policy. Examples include
Treasury bonds (issued by the U.S. Treasury), government bonds
(issued by sovereign nations), and agency bonds (issued by
government-sponsored entities).
• Municipal Bonds: Issued by state and local governments to finance
infrastructure projects, public services, and municipal initiatives.
Municipal bonds offer tax-exempt income to investors in certain
jurisdictions.
• Corporate Bonds: Issued by corporations to raise capital for business
operations, expansion, acquisitions, or debt refinancing. Corporate
bonds may be investment-grade (high credit quality) or high-yield
(speculative grade) based on the issuer's credit rating.
• Asset-backed Securities (ABS): Backed by a pool of underlying assets
such as mortgages, auto loans, credit card receivables, or student loans.
ABS securities are structured and securitized into bonds, offering
investors exposure to diversified pools of underlying assets.
• Convertible Bonds: Bonds that can be converted into a predetermined
number of shares of the issuer's common stock at the option of the
bondholder. Convertible bonds offer potential upside through equity
participation while providing downside protection through the fixed-
income component.
3. Market Dynamics:
• Yield Curve: The yield curve represents the relationship between bond
yields (interest rates) and bond maturities. It typically slopes upward,
with longer-term bonds offering higher yields than shorter-term bonds
to compensate investors for the additional risk and uncertainty
associated with longer maturities.
• Interest Rates: Bond prices and yields move inversely to each other.
When interest rates rise, bond prices fall, and vice versa. Changes in
interest rates, inflation expectations, economic outlook, and monetary
policy influence bond market dynamics and bond prices.
• Credit Risk: Bond prices also reflect the credit quality of the issuer and
the perceived risk of default. Bonds issued by financially stable
governments or highly rated corporations typically have lower yields
(higher prices) compared to bonds issued by less creditworthy entities,
which offer higher yields (lower prices) to compensate for higher
default risk.
 4. Trading and Market Structure:
• Primary Market: The primary bond market involves the initial issuance
and sale of new bonds by issuers to investors. Primary market
transactions occur through underwriting syndicates, where investment
banks purchase bonds from issuers and resell them to investors.
• Secondary Market: The secondary bond market involves the trading
of existing bonds among investors after the initial issuance. Secondary
market transactions occur on organized exchanges (such as the New
York Stock Exchange or NASDAQ) or over-the-counter (OTC) platforms,
where buyers and sellers interact to buy and sell bonds at prevailing
market prices.
5. Role and Importance:
• Financing: The bond market provides a crucial source of financing for
governments, municipalities, and corporations to fund capital projects,
infrastructure development, business operations, and investment
initiatives.
• Investment: Bonds serve as investment vehicles for investors seeking
income, capital preservation, portfolio diversification, and risk
management. Bonds offer fixed-income streams, predictable cash
flows, and diversification benefits relative to other asset classes such as
stocks and real estate.
• Economic Indicators: Bond market trends, yield movements, and
credit spreads serve as important economic indicators and signals for
investors, policymakers, and analysts. Bond market conditions reflect
investor sentiment, economic expectations, inflation outlook, and
monetary policy stance, influencing financial markets and economic
outcomes.

b) Distinguish between Commercial Bank and Co-operative Bank.

Commercial banks and cooperative banks are both financial institutions that offer
banking services, but they differ in their ownership structure, governance, customer
base, and objectives. Here's a distinction between commercial banks and cooperative
banks:

1. Ownership and Governance:

• Commercial Banks: Commercial banks are typically privately owned
corporations or publicly traded companies. They are operated for profit
and are owned by shareholders who invest in the bank's stock.
Commercial banks have a hierarchical management structure and are
governed by a board of directors elected by shareholders.
 • Cooperative Banks: Cooperative banks are owned and operated by
their members, who are also their customers. They operate on a
cooperative basis, with customers having voting rights and
participating in the bank's decision-making processes. Cooperative
banks are democratically managed, with members electing a board of
directors from among themselves.
2. Customer Base:
• Commercial Banks: Commercial banks serve a wide range of
customers, including individuals, businesses, corporations, government
entities, and other institutions. They offer a comprehensive suite of
banking services such as savings accounts, checking accounts, loans,
mortgages, credit cards, and investment products.
• Cooperative Banks: Cooperative banks primarily serve their members
who are also their customers. Members typically belong to a specific
community, profession, industry, or geographic area. Cooperative
banks focus on meeting the banking needs of their members, including
savings, credit, and other financial services tailored to their specific
requirements.
3. Objectives and Mission:
• Commercial Banks: Commercial banks operate with the primary
objective of maximizing shareholder value and profitability. They seek
to generate profits by attracting deposits, lending funds, and providing
fee-based services to customers. Profit-making is the main driver of
commercial banks' activities, and they compete in the market to
increase market share and achieve financial performance targets.
• Cooperative Banks: Cooperative banks operate based on the
principles of cooperation, mutual assistance, and community
development. Their mission is to serve the financial needs of their
members and promote economic and social welfare within their
communities. Cooperative banks prioritize member satisfaction,
financial inclusion, and community development over profit
maximization.
4. Regulation and Supervision:
• Commercial Banks: Commercial banks are regulated and supervised
by banking regulators such as central banks, banking authorities, and
financial regulatory agencies. They must comply with banking laws,
regulations, and prudential standards governing capital adequacy, risk
management, liquidity, and consumer protection.
• Cooperative Banks: Cooperative banks are also subject to regulation
and supervision by banking authorities and financial regulators. They
must adhere to banking regulations applicable to their jurisdiction,
including prudential requirements, governance standards, and
compliance obligations.
 5. Risk Management and Capitalization:
• Commercial Banks: Commercial banks manage risks such as credit
risk, market risk, liquidity risk, and operational risk through risk
management practices, internal controls, and capital allocation
strategies. They maintain capital reserves to absorb losses and meet
regulatory capital requirements.
• Cooperative Banks: Cooperative banks employ risk management
practices to mitigate risks associated with lending, investment, and
operations. They may have different capitalization structures compared
to commercial banks, with capital contributed by members serving as a
primary source of funds to support lending and business activities.

Commercial
Aspect Banks Cooperative Banks
Privately owned
Ownership corporations or Owned and operated by members/customers
publicly traded

companies
Board of
directors
Governance Board of directors elected by members
elected by
shareholders
Serve a wide
Customer range of
Primarily serve members who are also customers
Base customers
including
individuals,
businesses,
corporations,
and
government
entities
Maximize
shareholder
Objectives Serve members' financial needs and promote
value and
profitability
 economic and social welfare in communities

Regulated and
Regulatory supervised by
Regulated and supervised by banking authorities
Oversight banking
regulators

and financial
and financial regulators
regulators
Manage risks
Risk such as credit,
Employ risk management practices to mitigate
Management market,
liquidity,

and operational
risks associated with lending, investment, and
risks

operations
Maintain capital
reserves to
Capitalization Capital contributed by members supports lending
absorb losses
and
meet regulatory
and business activities
requirements
Profits
Profit distributed
Surplus funds may be reinvested or distributed
Sharing among
shareholders
among members

May have
Geographic national or
Primarily operate within specific communities
Scope international
presence
 Offer a
Products and comprehensive
Offer tailored financial services to meet the
Services suite of banking
services
including
savings,
needs of members
checking, loans,
mortgages,
credit cards,
and investment
products

c) Describe the concept of Electronic Clearing Service.

The Electronic Clearing Service (ECS) is a digital payment mechanism introduced by
central banks and financial institutions to facilitate electronic fund transfers and
automate recurring payments between bank accounts. ECS enables seamless and
efficient processing of transactions such as salary payments, dividend payments, loan
repayments, utility bill payments, insurance premiums, and other regular payments.

Here's how the Electronic Clearing Service works:

1. Authorization: A payer (such as an employer, corporation, or individual)

initiates an ECS transaction to transfer funds from their bank account to the
bank accounts of one or more payees (such as employees, suppliers, or service
providers). The payer provides authorization to their bank to debit their
account and transfer funds to the designated payees on a specified date.
2. Registration: Both the payer and the payees must register for ECS with their
respective banks to participate in the electronic fund transfer system. The
payer provides details of the payees, including their bank account numbers,
branch names, and other necessary information, to set up ECS mandates for
regular payments.
3. Processing: On the scheduled payment date, the payer's bank electronically
debits the payer's account and sends payment instructions to the clearing
house or the National Automated Clearing House (NACH) operated by the
central bank or a designated authority. The clearing house processes the ECS
transactions in batches and forwards the payment instructions to the
respective payees' banks.
4. Settlement: The payees' banks receive the payment instructions, credit the
funds to the payees' accounts, and update their account balances accordingly.
 The settlement of funds between the payer's bank and the payees' banks
occurs through the electronic clearing and settlement systems operated by
the central bank or a clearing house.
5. Confirmation: Once the funds are successfully credited to the payees'
accounts, the payer and the payees receive electronic notifications or advice
from their respective banks confirming the completion of the ECS
transactions. The payer can also access transaction details and payment
history through their bank's online banking portal or mobile app.

Benefits of Electronic Clearing Service (ECS):

1. Efficiency: ECS streamlines payment processing and reduces manual

intervention, paperwork, and processing time associated with traditional
paper-based transactions such as checks or demand drafts.
2. Cost-Effectiveness: ECS eliminates the costs associated with printing,
handling, and mailing paper checks, resulting in cost savings for both payers
and payees.
3. Convenience: ECS provides convenience to both payers and payees by
automating recurring payments, reducing administrative burden, and ensuring
timely and hassle-free fund transfers.
4. Security: ECS transactions are processed electronically through secure
banking channels, reducing the risk of fraud, theft, or loss associated with
physical payment instruments.
5. Accuracy: ECS minimizes errors and discrepancies in payment processing by
leveraging automated systems and electronic data interchange (EDI) standards
for transmitting payment instructions and account information.

Q3) Solve any one:

a) Illustrate the structure of Money Market in India.
The structure of the money market in India comprises various components and
participants that facilitate short-term borrowing, lending, and liquidity management
for financial institutions, corporations, government entities, and other market
participants. Here's an illustration of the structure of the money market in India:

1. Reserve Bank of India (RBI):

• The Reserve Bank of India is the central bank and monetary authority
responsible for formulating and implementing monetary policy in India.
• The RBI regulates and supervises the money market, manages liquidity,
and acts as a lender of last resort to banks and financial institutions.
 • It conducts monetary operations such as open market operations
(OMOs), repo operations, and reverse repo operations to manage
liquidity in the banking system and influence short-term interest rates.
2. Money Market Instruments:
• Money market instruments are short-term debt securities issued by
governments, financial institutions, corporations, and other entities to
raise funds for short-term financing needs.
• Key money market instruments in India include Treasury Bills (T-Bills),
Commercial Papers (CPs), Certificates of Deposit (CDs), Repurchase
Agreements (repos), Call Money Market, and Treasury Discount Bills
(TDBs).
3. Participants:
• Banks: Commercial banks, cooperative banks, and regional rural banks
are major participants in the money market. They borrow and lend
funds in the interbank market, issue money market instruments, and
invest in money market securities.
• Non-Banking Financial Companies (NBFCs): NBFCs also participate in
the money market by borrowing funds through CPs, CDs, and repos to
meet their short-term funding requirements.
• Corporates: Corporates issue CPs to raise short-term funds for working
capital needs, capital expenditures, or other corporate purposes.
• Primary Dealers (PDs): PDs are authorized financial institutions
appointed by the RBI to participate in the government securities market
and conduct market-making activities in T-Bills and government bonds.
• Mutual Funds: Money market mutual funds invest in short-term money
market instruments such as T-Bills, CPs, and CDs on behalf of retail and
institutional investors.
4. Interbank Market:
• The interbank market is where banks borrow and lend funds to each
other for short-term liquidity management and to meet reserve
requirements.
• Banks participate in the interbank market through call money market
transactions, where they lend or borrow funds overnight or for a short-
term duration.
5. Clearing and Settlement Systems:
• Clearing Corporation of India Limited (CCIL) operates the Clearing
Corporation of India (CCIL) Money Market segment, which provides
clearing and settlement services for money market transactions,
including T-Bills, CPs, CDs, and repos.
• National Securities Clearing Corporation Limited (NSCCL) provides
clearing and settlement services for repo transactions in government
securities.
6. Regulatory Framework:
 • The Reserve Bank of India (RBI) regulates and supervises the money
market through various regulations, guidelines, and directives aimed at
ensuring market integrity, transparency, and financial stability.
• Securities and Exchange Board of India (SEBI) regulates the issuance
and trading of money market instruments such as CPs and CDs by
corporates and NBFCs.

OR
b) Interpret role of SEBI as a capital market regulator in detail.
The Securities and Exchange Board of India (SEBI) plays a critical role as the primary
regulator of the capital markets in India. Established in 1988, SEBI regulates the
securities market, protects investors' interests, promotes fair and transparent market
practices, and ensures orderly development of the capital market. Here's a detailed
interpretation of SEBI's role as a capital market regulator:

1. Regulatory Oversight:
• SEBI regulates various segments of the capital market, including equity
markets, debt markets, derivatives markets, and commodity derivatives
markets.
• It formulates rules, regulations, and guidelines governing the issuance,
listing, trading, and delisting of securities such as stocks, bonds,
debentures, mutual fund units, and derivatives contracts.
• SEBI oversees stock exchanges, clearing corporations, depositories,
brokers, merchant bankers, rating agencies, mutual funds, portfolio
managers, and other market intermediaries to ensure compliance with
regulatory requirements and ethical standards.
2. Investor Protection:
• SEBI prioritizes investor protection and safeguards investors' interests
by promoting transparency, disclosure, and fair treatment in the
securities markets.
• It mandates disclosure norms for listed companies, requiring them to
provide accurate, timely, and comprehensive information to investors
about their financial performance, operations, risks, and corporate
governance practices.
• SEBI monitors and regulates insider trading, fraudulent activities,
market manipulation, and other unethical practices to maintain market
integrity and investor confidence.
3. Market Development and Innovation:
• SEBI fosters the development of the capital markets by introducing
reforms, initiatives, and policies aimed at enhancing market efficiency,
liquidity, and depth.
 • It promotes innovation and product diversification in the securities
markets by introducing new financial instruments, trading platforms,
and investment vehicles such as exchange-traded funds (ETFs), Real
Estate Investment Trusts (REITs), Infrastructure Investment Trusts
(InvITs), and alternative investment funds (AIFs).
• SEBI encourages market infrastructure development, technological
advancements, and best practices adoption to modernize the capital
market infrastructure and improve market accessibility, efficiency, and
resilience.
4. Market Surveillance and Enforcement:
• SEBI conducts surveillance and monitoring of the capital markets to
detect and deter market abuse, fraud, and misconduct.
• It investigates suspicious activities, market irregularities, and violations
of securities laws and regulations, imposing penalties, sanctions, and
disciplinary actions against offenders to maintain market integrity and
discipline.
• SEBI collaborates with other regulatory authorities, law enforcement
agencies, and international organizations to combat financial crime,
cross-border fraud, and regulatory arbitrage in the capital markets.
5. Investor Education and Awareness:
• SEBI promotes investor education, awareness, and literacy initiatives to
empower investors with knowledge, skills, and information to make
informed investment decisions.
• It conducts investor awareness programs, seminars, workshops, and
campaigns to disseminate information about investment risks, rights,
responsibilities, and regulatory safeguards.
• SEBI facilitates investor grievance redressal mechanisms, investor
helplines, and online platforms to address investor complaints, queries,
and grievances promptly and effectively.

Q2) Solve any two: (out of three)

a) Outline the concept of crypto currency market.
The cryptocurrency market refers to a decentralized digital marketplace where
participants buy, sell, and trade cryptocurrencies, which are digital or virtual
currencies that utilize cryptography for security and operate on distributed ledger
technology, typically blockchain. Here's an outline of the concept of the
cryptocurrency market:

1. Decentralization:
 • Unlike traditional financial markets, such as stock exchanges or forex
markets, the cryptocurrency market is decentralized, meaning it
operates without a central authority or governing body.
• Transactions in the cryptocurrency market are peer-to-peer, facilitated
by a network of computers (nodes) that validate and record
transactions on a distributed ledger called a blockchain.
2. Cryptocurrencies:
• Cryptocurrencies are digital or virtual currencies that use cryptographic
techniques to secure transactions, control the creation of new units,
and verify the transfer of assets.
• Bitcoin (BTC) was the first cryptocurrency, introduced in 2009 by an
anonymous person or group of people using the pseudonym Satoshi
Nakamoto. Since then, thousands of cryptocurrencies, also known as
altcoins, have been created, each with its own unique features, use
cases, and underlying technology.
• Examples of popular cryptocurrencies include Ethereum (ETH), Ripple
(XRP), Litecoin (LTC), Bitcoin Cash (BCH), and Cardano (ADA), among
others.
3. Blockchain Technology:
• Blockchain is the underlying technology that powers most
cryptocurrencies. It is a decentralized and distributed ledger that
records all transactions across a network of computers in a secure,
transparent, and immutable manner.
• Each block in the blockchain contains a cryptographic hash of the
previous block, creating a chronological chain of blocks that cannot be
altered without consensus from the network participants.
• Blockchain technology enables transparency, security, and
decentralization, eliminating the need for intermediaries such as banks
or clearinghouses in financial transactions.
4. Market Dynamics:
• The cryptocurrency market operates 24/7, allowing participants to trade
cryptocurrencies at any time from anywhere in the world.
• Cryptocurrency prices are determined by supply and demand dynamics,
market sentiment, investor speculation, regulatory developments,
technological advancements, and macroeconomic factors.
• Cryptocurrency exchanges serve as trading platforms where buyers and
sellers can exchange cryptocurrencies for fiat currencies (e.g., USD, EUR)
or other cryptocurrencies. Examples of cryptocurrency exchanges
include Coinbase, Binance, Kraken, and Bitfinex.
5. Volatility and Risk:
• The cryptocurrency market is highly volatile, characterized by price
fluctuations and rapid price movements over short periods.
 • Cryptocurrency investments carry inherent risks, including market
volatility, regulatory uncertainty, cybersecurity risks, technological
vulnerabilities, and liquidity risk.
• Investors in the cryptocurrency market should conduct thorough
research, exercise caution, and consider their risk tolerance before
investing in cryptocurrencies.
6. Regulatory Landscape:
• The regulatory environment surrounding cryptocurrencies varies by
country and jurisdiction. Some countries have embraced
cryptocurrencies and adopted regulatory frameworks to govern their
use, while others have imposed restrictions or outright bans on
cryptocurrency activities.
• Regulatory developments, government policies, and legal
considerations can impact the cryptocurrency market, influencing
investor sentiment and market dynamics.

b) Explain the concept of ATM. State its different types.

An Automated Teller Machine (ATM) is an electronic banking device that allows
customers to perform various banking transactions without the need for a bank teller
or visiting a physical bank branch. ATMs are widely used worldwide and provide
convenient access to banking services 24/7. Here's an explanation of the concept of
ATM and its different types:

1. Concept of ATM:
• An ATM is a self-service terminal that enables customers to conduct a
range of financial transactions, including:
• Cash withdrawals: Customers can withdraw cash from their bank
accounts using their ATM/debit cards.
• Cash deposits: Some ATMs allow customers to deposit cash
directly into their bank accounts.
• Balance inquiries: Customers can check their account balances
and view recent transactions.
• Fund transfers: Many ATMs offer the option to transfer funds
between linked accounts or to third-party accounts within the
same bank or other banks.
• Bill payments: Some ATMs allow customers to pay bills, such as
utility bills or credit card bills, using their bank accounts.
• Account management: Customers can update their personal
information, change their PIN (Personal Identification Number),
or request mini-statements at ATMs.
2. Different Types of ATMs:
 • Basic ATMs: Basic ATMs offer essential functionalities such as cash
withdrawals, balance inquiries, and PIN changes. They are typically
found at bank branches, retail locations, or standalone kiosks.
• Cash Dispenser ATMs: Cash dispenser ATMs only allow customers to
withdraw cash from their bank accounts. They do not support other
transactions such as deposits or fund transfers.
• Deposit ATMs: Deposit ATMs allow customers to deposit cash or
checks directly into their bank accounts. These ATMs may have deposit
slots or imaging capabilities to accept cash or check deposits.
• Through-the-Wall ATMs: Through-the-wall ATMs are installed in
external walls of bank branches or standalone kiosks, allowing
customers to access banking services from outside the branch
premises.
• Drive-Up ATMs: Drive-up ATMs are designed for customers to access
banking services from their vehicles. They are typically located in bank
branches or standalone drive-up kiosks and feature a drive-through
lane with an ATM machine.
• Onsite ATMs: Onsite ATMs are installed within bank branches, retail
stores, office buildings, or other locations for the convenience of
customers and visitors.
• Offsite ATMs: Offsite ATMs are located at non-bank locations such as
shopping malls, airports, train stations, convenience stores, or public
areas to provide banking services to a broader audience.

c) Make a comparison between money market and capital market.

Q3) Solve any one:

a) Identify the role of SEBI as a capital market regulator.
OR
b) Illustrate the concept of NBFC. How is it different from a bank.
Q4) Solve any one:
a) Explain in detail the process of IPO?
OR
b) Explain the term electronic banking. How has technology benefitted the
banking industry?
Q5) Solve any one:
a) RBI is the regulator of all Indian banks evaluate the statement in detail.
OR
b) Summarize the various reforms in Indian Money Market.

205 FIN: FINANCIAL MARKETS & BANKING OPERATIONS

(2021 Pattern) (Semester-II
Q1) Solve any five: (out of eight)
a) Define financial system.
ANSWRER : The financial system refers to the network of institutions,
markets, and intermediaries that facilitate the flow of funds between savers and
borrowers. It includes banks, stock exchanges, financial regulators, insurance
companies, pension funds, and other entities that enable the allocation and
transfer of capital within an economy.
b) What do you mean by the term "MUDRA"?
ANSWER: "MUDRA" stands for Micro Units Development and Refinance
Agency. It is a financial institution in India that was established by the
Government of India to provide funding to micro-enterprises in the country,
particularly those engaged in non-corporate, non-farm activities. MUDRA
provides various financial products and services to these micro-businesses,
including loans, refinance, and other support services, to help them grow and
contribute to economic development.
c) Sensex are selected & reviewed from time to time by an
i) Index committee
ii) SEBI
iii) RBI
iv) Sensex committee

d) PRAN stands for

i) Permanent required account number.
ii) Permanent retirement account number.
iii) Permanent requisition account number.
iv) Permanent reservation account number.

e) Which of the following is not a feature of RTGS?

i) Real time
ii) Gross Basis
iii) Netting
iv) Order by order settlement

I) What do you mean by the term "OMR".

"OMR" stands for Optical Mark Recognition. It is a technology used to detect
marks made by a pen or pencil on specially printed paper forms. OMR
technology is commonly used for tasks such as collecting data on multiple-
choice exams, surveys, assessments, and other forms where respondents mark
their choices by filling in bubbles or checkboxes. OMR scanners or readers are
used to detect and interpret the marked areas on the forms, converting them into
digital data for processing and analysis.
g) Define spot Market?

The spot market refers to the financial market where financial instruments, such
as commodities, currencies, securities, and other assets, are bought and sold for
immediate delivery or settlement. In the spot market, transactions are executed
"on the spot," meaning that the exchange of the asset and payment typically
occurs within a short period, often within two business days, known as T+2
settlement.

Key characteristics of the spot market include:

1. Immediate Delivery: Assets are traded for immediate delivery, meaning

that the buyer receives the asset and the seller receives payment without
any significant delay.
2. Cash Basis: Transactions in the spot market are settled in cash, where the
buyer pays the agreed-upon price to the seller in exchange for the asset.
3. Transparency: Prices in the spot market are determined by supply and
demand dynamics and are readily available to market participants,
fostering transparency and efficiency in pricing.
4. Physical or Virtual Marketplaces: Spot markets can operate through
physical exchanges, such as commodity exchanges or stock exchanges, or
 through electronic trading platforms where buyers and sellers interact
electronically.
5. Price Discovery: Spot markets play a crucial role in price discovery, as
the prices established in spot transactions often serve as benchmarks for
pricing in other financial markets, such as futures or forward markets.

h) List out the types of bonds.

Bonds are debt securities issued by governments, municipalities,
corporations, or other entities to raise capital. There are several types
of bonds, each with its own characteristics and features. Here are
some common types of bonds:

1. Government Bonds: a. Treasury Bonds: Issued by the

government and backed by its full faith and credit. In the United
States, these are issued by the U.S. Treasury. b. Treasury Notes:
Similar to treasury bonds but with shorter maturities, typically
ranging from 2 to 10 years. c. Treasury Bills (T-Bills): Short-
term debt securities with maturities of one year or less.
2. Municipal Bonds: a. General Obligation Bonds (GO Bonds):
Backed by the issuer's taxing power and general funds. b.
Revenue Bonds: Secured by the revenue generated by a specific
project or source, such as tolls, utilities, or lease payments.
3. Corporate Bonds: a. Investment-Grade Bonds: Issued by
financially stable corporations with high credit ratings. b. High-
Yield Bonds (Junk Bonds): Issued by corporations with lower
credit ratings, offering higher yields to compensate for increased
risk. c. Convertible Bonds: Bonds that can be converted into a
specified number of common stock shares of the issuing
company.
4. Asset-Backed Securities (ABS): Bonds backed by pools of
assets such as mortgages, auto loans, or credit card receivables.
Examples include mortgage-backed securities (MBS) and
collateralized debt obligations (CDOs).
5. Foreign Bonds: Bonds issued by foreign governments or
corporations in currencies other than the investor's home
currency.
 6. Zero-Coupon Bonds: Bonds that do not pay periodic interest
but are sold at a discount to their face value and redeemed at
face value at maturity.
7. Inflation-Indexed Bonds: Bonds whose principal value is
adjusted periodically to account for inflation, providing
protection against purchasing power erosion.
8. Callable Bonds: Bonds that allow the issuer to redeem them
before maturity at a specified call price, typically to refinance
debt at a lower interest rate.

(Q4) Solve any one:

a) Explain in detail functions of Specialized Banks in India.
Specialized banks in India play a crucial role in catering to specific sectors or
segments of the economy by providing targeted financial services. These banks
are established with a specific focus on serving the needs of particular
industries, communities, or developmental objectives. Here's a detailed
explanation of the functions of specialized banks in India:

1. Development Finance Institutions (DFIs): DFIs are specialized banks

that primarily focus on providing long-term finance for infrastructure
projects, industrial development, and other priority sectors. They play a
critical role in promoting economic growth and development by funds
into sectors that require significant capital investment. DFIs typically
offer term loans, project financing, and advisory services to support large-
scale projects.
2. Small Industries Development Bank of India (SIDBI): SIDBI is a
specialized bank dedicated to the promotion and financing of small and
medium channeling -sized enterprises (SMEs) in India. Its functions
include providing term loans, working capital assistance, and financial
advisory services to SMEs across various sectors. SIDBI also operates
various credit guarantee schemes and refinancing programs to facilitate
easier access to credit for SMEs.
3. National Bank for Agriculture and Rural Development (NABARD):
NABARD is focused on promoting rural development and agriculture in
India. Its functions include providing credit facilities, refinancing
agricultural loans, and supporting rural infrastructure projects. NABARD
also plays a key role in implementing government-sponsored rural
development programs and initiatives aimed at improving agricultural
productivity and rural livelihoods.
 4. Export-Import Bank of India (EXIM Bank): EXIM Bank facilitates
India's international trade by providing financial assistance, export credit,
and advisory services to exporters and importers. Its functions include
financing export-oriented projects, offering export credit guarantees, and
promoting cross-border trade and investments. EXIM Bank also supports
export promotion activities and facilitates trade finance through various
instruments such as letters of credit and export bill discounting.
5. National Housing Bank (NHB): NHB is responsible for regulating and
promoting the housing finance sector in India. Its functions include
refinancing housing loans extended by banks and housing finance
companies, providing liquidity support to the housing finance sector, and
implementing government initiatives aimed at affordable housing and
urban development. NHB also conducts research and policy advocacy to
support the housing finance sector's growth and stability.
6. Industrial Finance Corporation of India (IFCI): IFCI is a
development finance institution focused on providing long-term finance
to industrial projects in India. Its functions include project financing, term
lending, and advisory services to support industrial growth and
infrastructure development. IFCI also participates in equity financing,
debt restructuring, and rehabilitation of sick industrial units to promote
industrial revival and modernization.
7. Regional Rural Banks (RRBs): RRBs are specialized banks established
to serve the banking needs of rural and semi-urban areas. Their functions
include providing credit facilities, deposit services, and other banking
services to rural households, small farmers, and rural artisans. RRBs play
a crucial role in extending financial inclusion and promoting rural
economic development by mobilizing savings and channeling credit to
underserved rural communities.

OR
b) Explain in detail the process of IPO.

An Initial Public Offering (IPO) is the process through which a private company
offers its shares to the public for the first time, thereby transitioning from being
privately held to becoming a publicly traded company. The IPO process
involves several key steps, which are outlined below:

1. Preparation Stage:
• Selection of Underwriters: The company selects one or more
investment banks to act as underwriters for the IPO. These
 underwriters help the company determine the offering price,
structure the offering, and manage the regulatory requirements.
• Due Diligence: The company conducts thorough due diligence,
including financial audits and legal reviews, to ensure compliance
with regulatory requirements and to provide accurate information
to potential investors.
• Registration Statement: The company files a registration
statement with the Securities and Exchange Commission (SEC)
containing detailed information about its business, financials,
management team, and the proposed terms of the offering. This
document is known as the prospectus.
2. SEC Review:
• The SEC reviews the registration statement to ensure that it
complies with securities laws and provides adequate disclosure to
investors. This process may involve several rounds of comments
and revisions before the registration statement is declared effective.
3. Roadshow:
• Once the registration statement is filed with the SEC, the company
and its underwriters conduct a roadshow to market the IPO to
potential investors. During the roadshow, company executives and
underwriters meet with institutional investors, analysts, and other
interested parties to present the investment opportunity and answer
questions.
4. Price Setting:
• Based on investor feedback and market conditions, the
underwriters and the company determine the final offering price
and the number of shares to be sold in the IPO. This price is
typically set shortly before the IPO date and is based on factors
such as the company's financial performance, industry
comparables, and investor demand.
5. Allocation of Shares:
• The underwriters allocate shares to institutional investors, such as
mutual funds, pension funds, and hedge funds, as well as to retail
investors who have placed orders through their brokerage firms.
The allocation process takes into account factors such as investor
demand, size of orders, and relationship with the underwriters.
6. Trading Debut:
• On the day of the IPO, the company's shares begin trading on a
public stock exchange, such as the New York Stock Exchange
(NYSE) or the NASDAQ. The opening price of the stock is
typically higher or lower than the offering price, depending on
investor demand and market conditions.
 7. Post-IPO Compliance:
• After the IPO, the company becomes subject to ongoing reporting
and disclosure requirements, including filing periodic financial
reports with the SEC and providing updates to shareholders. The
company's management team must also comply with regulations
regarding corporate governance, investor relations, and insider
trading.

Q5) Solve any one:

a) Evaluate the role of Indian Financial System in the Economic
Development.
The Indian financial system plays a crucial role in the economic development of
the country by facilitating the efficient allocation of capital, promoting savings
and investment, mobilizing funds, and fostering economic growth and stability.
Here's an evaluation of the role of the Indian financial system in economic
development:

1. Capital Formation: The financial system channels savings from

households, businesses, and government entities into productive
investments, thereby promoting capital formation. By providing various
investment avenues such as stocks, bonds, mutual funds, and bank
deposits, the financial system encourages individuals and institutions to
save and invest their surplus funds in productive assets, which contributes
to the overall growth of the economy.
2. Facilitating Investment: The Indian financial system provides access to
capital for businesses and entrepreneurs through various financing
options such as bank loans, venture capital, private equity, and debt
securities. This access to funding enables companies to invest in new
projects, expand their operations, upgrade technology, and innovate,
leading to increased productivity, job creation, and economic growth.
3. Promoting Financial Inclusion: The Indian financial system has made
significant strides in promoting financial inclusion by expanding access
to banking and financial services to previously underserved segments of
the population, including rural areas, low-income households, and small
businesses. Initiatives such as Jan Dhan Yojana, Pradhan Mantri Mudra
Yojana, and digital payment platforms have helped increase financial
access and literacy, reduce poverty, and empower marginalized
communities to participate in the formal economy.
4. Market Development: The development of financial markets, including
equity markets, bond markets, commodity markets, and derivatives
markets, provides efficient platforms for price discovery, risk
 management, and capital raising. These markets enable companies to
raise capital, investors to diversify their portfolios, and hedgers to manage
financial risks, thereby enhancing the efficiency and resilience of the
economy.
5. Resource Allocation: The Indian financial system plays a critical role in
allocating resources to sectors with high growth potential and
developmental priorities, such as infrastructure, agriculture, healthcare,
education, and renewable energy. Through targeted lending programs,
refinancing schemes, and policy support, financial institutions and
regulators facilitate the flow of funds to key sectors that are essential for
sustainable economic development and inclusive growth.
6. Risk Management: The financial system helps manage various types of
risks, including credit risk, market risk, liquidity risk, and operational
risk, thereby enhancing the stability and resilience of the economy.
Financial institutions, such as banks, insurance companies, and mutual
funds, offer a range of risk management products and services to
individuals, businesses, and government entities, helping them mitigate
financial uncertainties and safeguard against adverse events.
OR
b) Summarize the uses of Electronic Payment System and also criticize it
on the basis of risk involved in it.
Electronic Payment Systems (EPS) offer convenient, efficient, and secure ways
to transfer funds electronically. Here's a summary of their uses and a critique of
the risks involved:

Uses of Electronic Payment Systems:

1. Convenience: EPS allows users to make transactions from anywhere

with internet access, eliminating the need for physical presence at banks
or payment outlets. This convenience saves time and effort for both
consumers and businesses.
2. Speed: Electronic payments are processed much faster compared to
traditional paper-based methods like checks or cash. Transactions can be
completed in real-time or within minutes, facilitating quick fund transfers
and settlements.
3. Accessibility: EPS enables financial transactions to be conducted 24/7,
enhancing accessibility for users across different geographic locations
and time zones. This accessibility is particularly beneficial for global
businesses and individuals who need to transfer funds internationally.
4. Cost-Effectiveness: Electronic payments often incur lower transaction
costs compared to traditional payment methods. This cost-effectiveness
 benefits businesses by reducing overhead expenses associated with cash
handling, check processing, and manual reconciliations.
5. Security: Many EPS incorporate advanced security measures such as
encryption, tokenization, biometric authentication, and fraud detection
systems to safeguard users' sensitive financial information and prevent
unauthorized access or fraudulent activities.
6. Integration: Electronic payment systems can be seamlessly integrated
with other financial software, accounting systems, and e-commerce
platforms, enabling automated payment processing, reconciliation, and
reporting for businesses.

Critique of Electronic Payment Systems:

1. Security Risks: Despite the security measures in place, electronic

payment systems are vulnerable to cybersecurity threats such as hacking,
malware attacks, phishing scams, and data breaches. Cybercriminals
exploit weaknesses in software, networks, and user behavior to steal
sensitive information and perpetrate financial fraud.
2. Identity Theft: Electronic payment systems rely on personal and
financial data for account verification and transaction processing, making
users susceptible to identity theft and unauthorized account access. Stolen
credentials or compromised accounts can lead to financial losses and
reputational damage for individuals and businesses.
3. Transaction Errors: Technical glitches, software bugs, and system
failures can result in transaction errors, delays, or disruptions in electronic
payment systems. These errors may cause inconvenience for users and
affect the reliability and trustworthiness of the payment platform.
4. Regulatory Compliance: Electronic payment systems are subject to
various regulatory requirements and compliance standards imposed by
government authorities and industry regulators. Non-compliance with
these regulations can result in legal penalties, fines, and reputational
damage for payment service providers.
5. Fraudulent Activities: Electronic payment systems are susceptible to
various types of fraud, including account takeover, card skimming,
chargebacks, and money laundering. Fraudulent transactions undermine
the integrity of the payment ecosystem and erode consumer confidence in
electronic payment methods.

205 FIN: FINANCIAL MARKETS & BANKING OPERATIONS

 (2021 Pattern) (Semester-II
Q1)Solve any five
a) Define financial system.
b) State the difference between Money Market and Capital Market.
c) Define the term OMR
D) List the advantages of Commodity Future Market
E) Define GDR
F) Define Central Bank
G) List out different types of banking.
H) Define option.

Q2) Solve any two:

a) Explain in detail on Band Markets
b) Distinguish between Commercial Bank and Co-operative Bank
c) Describe the concept of Electronic Clearing Service

Q3) Solve any one

a) Illustrate the structure of Money Market in India
OR
b) Interpret role of SEBI as a capital market regulator in detail.

Q2) Solve any TWO (out of three)

a) Outline the concept of crypto currency market
b) Explain the concept of ATM. State its different types
C)Make a comparison between money market and capital market.

Q3) Solve any one

a) Identify the role of SEBI as a capital market regulator
Or
b) Illustrate the concept of NBFC, How is it different from a bank. [10]
Q4) Solve any ONE
a) Explain in detail the process of IPO?
OR
b) Explain the term electronic banking. How has technology benefitted the
banking industry? [10]

Q5) Solve any one

a) RBI is the regulator of all ALL Indian banks evaluate the statement in
detail. [10]
OR
b) Summarize the various reforms in Indian Money Markat.