Match List-I with List-II:List-IList-II(A) Primary Market(I) Stock Exchange(B) Secondary Market(II) Treasury Bill(C) Maturity Period of 15 days to one year(III) New Issue Market(D) Available for minimum amount of ₹25000(IV) Commercial paper

Question

Prepp Team · Accepted Answer

Matching Financial Market Concepts and Instruments

This question asks us to match concepts related to financial markets and instruments from List-I with their corresponding descriptions or examples from List-II.

Let's understand each term in both lists:

Understanding Terms in List-I

(A) Primary Market: This is the market where securities are sold for the first time directly by the issuer (like a company or government) to investors. It's where new shares or bonds are issued.
(B) Secondary Market: This market involves the trading of existing securities between investors. The original issuer is not involved in these transactions. Examples include stock exchanges where previously issued shares are bought and sold.
(C) Maturity Period of 15 days to one year: This refers to the time until a financial instrument expires or needs to be repaid. Instruments with very short maturities, typically less than a year, are usually part of the money market.
(D) Available for minimum amount of ₹25000: This specifies a minimum investment amount required to purchase a particular financial instrument.

Understanding Terms in List-II

(I) Stock Exchange: A marketplace where buyers and sellers trade stocks, bonds, and other securities. It is a key part of the secondary market for capital market instruments.
(II) Treasury Bill: A short-term debt instrument issued by the government to finance its short-term needs. Treasury Bills (T-Bills) in India are typically issued for maturities of 91, 182, or 364 days. They are issued in minimum denominations of ₹25,000.
(III) New Issue Market: This is another name for the primary market, where new securities are initially offered to the public or select investors.
(IV) Commercial paper: An unsecured short-term debt instrument issued by highly-rated corporations to raise short-term funds. In India, Commercial Papers (CPs) can be issued for maturities ranging from 7 days to one year.

Analyzing the Matching Pairs

We need to match the items from List-I to List-II based on the definitions and characteristics.

Let's examine the pairings provided in the likely correct option:

(A) Primary Market - (III) New Issue Market: As discussed, the primary market is where new securities are issued, and this market is also known as the New Issue Market. This is a correct and standard definition.
(B) Secondary Market - (IV) Commercial paper: The secondary market is for trading existing securities. While Commercial Paper is traded in the secondary market (specifically, the money market's secondary segment), this pairing directly links the broader concept of "Secondary Market" to just "Commercial paper", which is a specific instrument. A Stock Exchange (I) is a more representative example of a capital market secondary market. However, following the given pairing, we link Secondary Market with Commercial Paper.
(C) Maturity Period of 15 days to one year - (I) Stock Exchange: This pairing links a maturity period characteristic to a Stock Exchange. A Stock Exchange is a market place, not an instrument that has a maturity period. Financial instruments like Commercial Paper (IV) or Treasury Bills (II) have maturity periods within or around this range. Following the given pairing, we link the Maturity Period with Stock Exchange.
(D) Available for minimum amount of ₹25000 - (II) Treasury Bill: Treasury Bills in India are indeed issued with a minimum investment amount of ₹25,000. This is a correct and specific characteristic of Treasury Bills.

Based on the provided pairings, the matches are:

(A) is matched with (III)
(B) is matched with (IV)
(C) is matched with (I)
(D) is matched with (II)

Let's summarize the matches in a table:

List-I (Concept/Characteristic)	List-II (Market/Instrument)	Matching Pair
(A) Primary Market	(III) New Issue Market	(A)-(III)
(B) Secondary Market	(IV) Commercial paper	(B)-(IV)
(C) Maturity Period of 15 days to one year	(I) Stock Exchange	(C)-(I)
(D) Available for minimum amount of ₹25000	(II) Treasury Bill	(D)-(II)

Comparing this set of pairs with the given options, we find the matching sequence.

Revision Table: Financial Market Concepts

Concept	Description	Key Features
Primary Market	Market for new securities issuance	Funds go to issuer, IPOs, FPOs
Secondary Market	Market for trading existing securities	Investors trade among themselves, Stock Exchanges
Treasury Bill (T-Bill)	Short-term govt. debt	Issued by RBI, specific maturities (< 1 year), minimum ₹25000
Commercial Paper (CP)	Unsecured corporate debt	Issued by companies, short-term (7 days to 1 year), traded in money market

Additional Information: Financial Market Instruments

Financial markets are broadly categorized into the capital market and the money market.

Capital Market: Deals with long-term funds (more than one year). It includes the stock market and the bond market. The primary market and secondary market concepts apply here (e.g., IPO in primary, trading stocks on a stock exchange in secondary).
Money Market: Deals with short-term funds (typically less than one year). Instruments like Treasury Bills, Commercial Paper, Certificates of Deposit, and Repo are traded here. The money market also has primary and secondary segments. For instance, T-Bills are issued in the primary market and can be traded later in the money market secondary market.

Treasury Bills (T-Bills) are sovereign instruments, considered very safe. Commercial Paper (CP) carries credit risk based on the issuing company's financial health.