School of Engineering & Technology

Course Name: Engineering Economics

Home Assignment Sheet – 03

Q.1 Explain the credit ratings provided in Indian financial markets

and its criteria.

Ans. Definition: Credit rating is an analysis of the credit risks associated with a
financial instrument or a financial entity. It is a rating given to a particular entity
based on the credentials and the extent to which the financial statements of the
entity are sound, in terms of borrowing and lending that has been done in the past.

Description: Usually, is in the form of a detailed report based on the financial

history of borrowing or lending and credit worthiness of the entity or the person
obtained from the statements of its assets and liabilities with an aim to determine
their ability to meet the debt obligations. It helps in assessment of the solvency of
the particular entity. These ratings based on detailed analysis are published by
various credit rating agencies like Standard & Poor's, Moody's Investors Service,
and ICRA, to name a few.

Q.2 Explain the classification of finance markets.

Ans.
Types of Financial Markets
There are so many financial markets, and every country is home to at least one,
although they vary in size. Some are small while some others are internationally
known, such as the New York Stock Exchange (NYSE) that trades trillions of
dollars on a daily basis. Here are some types of financial markets.

1. Stock market
The stock market trades shares of ownership of public companies. Each share
comes with a price, and investors make money with the stocks when they perform
well in the market. It is easy to buy stocks. The real challenge is in choosing the
right stocks that will earn money for the investor.
There are various indices that investors can use to monitor how the stock market
is doing, such as the Dow Jones Industrial Average (DJIA) and the S&P 500.
When stocks are bought at a cheaper price and are sold at a higher price, the
investor earns from the sale.

2. Bond market
The bond market offers opportunities for companies and the government to secure
money to finance a project or investment. In a bond market, investors buy bonds
from a company, and the company returns the amount of the bonds within an
agreed period, plus interest.

3. Commodities market
The commodities market is where traders and investors buy and sell natural
resources or commodities such as corn, oil, meat, and gold. A specific market is
created for such resources because their price is unpredictable. There is
a commodities futures market wherein the price of items that are to be delivered
at a given future time is already identified and sealed today.

4. Derivatives market
Such a market involves derivatives or contracts whose value is based on the
market value of the asset being traded. The futures mentioned above in the
commodities market is an example of a derivative.

Q.3 What are the roles of RBI & SEBI for investors.
Ans.
In every country there is one organization which works as the central bank. The
function of thecentral bank of a country is to control and monitor the
banking and financial system of thecountry. In India, the Reserve Bank of India
(RBI) is the Central Bank

Role and Function of the Reserve Bank of India (RBI)

In every country there is one organization which works as the central bank. The
function of thecentral bank of a country is to control and monitor the banking and
financial system of thecountry. In India, the Reserve Bank of India (RBI) is the
Central Bank.The RBI was established in 1935. It was nationalised in 1949. The
RBI plays role of regulator ofthe banking system in India. The Banking
Regulation Act 1949 and the RBI Act 1953 has giventhe RBI the power to
regulate the banking system.The RBI has different functions in different roles.
Below, we share and discuss some of thefunctions of the RBI.

RBI is the Regulator of Financial System

The RBI regulates the Indian banking and financial system by issuing
broad guidelines andinstructions. The objectives of these regulations include:

Controlling money supply in the system,

Monitoring different key indicators like GDP and inflation,

Maintaining people’s confidence in the banking and financial sy

stem, and
Providing different tools for customers’ help, such as acting as the
“BankingOmbudsman.”

RBI is the Issuer of Monetary Policy

The RBI formulates monetary policy twice a year. It reviews the policy every
quarter as well.The main objectives of monitoring monetary policy are:
Inflation control
Control on bank credit
Interest rate contro
Purpose and Role of SEBI:
SEBI was set up with the main purpose of keeping a check on malpractices and
protect theinterest of investors. It was set up to meet the needs of three groups.

1. Issuers:
For issuers it provides a market place in which they can raise finance fairly
and easily.

2. Investors:
For investors it provides protection and supply of accurate and correct
information.

3. Intermediaries:
For intermediaries it provides a competitive professional market.

Objectives of SEBI:
The overall objectives of SEBI are to protect the interest of investors and to
promote thedevelopment of stock exchange and to regulate the activities of stock
market. The objectives ofSEBI are:1. To regulate the activities of stock
exchange.2. To protect the rights of investors and ensuring safety to their
investment.3. To prevent fraudulent and malpractices by having balance between
self regulation of businessand its statutory regulations.