Q no 1:

(A)

(1)

Money Market vs. Capital Market:

The money market and the capital market are not single institutions but two broad components of
the global financial system.

The money market is the trade in short-term debt. It is a constant flow of cash between
governments, corporations, banks, and financial institutions, borrowing and lending for a term as
short as overnight and no longer than a year.

The capital market encompasses the trade in both stocks and bonds. These are long-term assets
bought by financial institutions, professional brokers, and individual investors.

Together, the money market and the capital market comprise a large portion of what is known as
the financial market.

The Money Market

The money market is a good place for individuals, banks, other companies, and governments to park
cash for a short period of time, usually one year or less. It exists so that businesses and governments
that need cash to operate can get it quickly at a reasonable cost, and so that businesses that have
more cash than they need can put it to use.

KEY TAKEAWAYS

 The money market is a short-term lending system. Borrowers tap it for the cash they need to
operate from day to day. Lenders use it to put spare cash to work.
 The capital market is geared toward long-term investing. Companies issue stocks and bonds
to raise money to grow their businesses. Investors buy them to share in that growth.
 The money market is less risky than the capital market while the capital market is potentially
more rewarding.

The Capital Market

The capital market is where stocks and bonds are traded. Its movements from hour to hour are
constantly monitored and analyzed for clues as to the health of the economy at large, the status
of every industry in it, and the consensus for the short-term future.

The overriding goal of the company’s institutions that enter into the capital markets is to raise
money for their long-term purposes, which usually come down to expanding their businesses
and increasing their revenues. They do this by issuing stock shares and by selling corporate
bonds.

(2)

Primary and Secondary

The capital market is roughly divided into a primary market and a secondary market. A company
that issues a round of stock or a new bond places it in the primary market for sale directly to
investors or institutions. If and when those buyers decide to sell their shares or bonds, they do
so on the secondary market. The original issuer of those stocks or bonds does not immediately
benefit from their resale, although companies certainly have an interest in the price of their
stock shares rising over time.

The capital market is by nature riskier than the money market and has greater potential gains
and losses.

(3)

Difference between Domestic and International Marketing

The significant differences between domestic and international marketing are explained below:

 The activities of production, promotion, advertising, distribution, selling and customer

satisfaction within one’s own country is known as Domestic marketing. International
marketing is when the marketing activities are undertaken at the international level.
 Domestic marketing caters a small area, whereas International marketing covers a large
area.
 In domestic marketing, there is less government influence as compared to the
international marketing because the company has to deal with rules and regulations of
numerous countries.
 In domestic marketing, business operations are done in one country only. On the other
hand, in international marketing, the business operations conducted in multiple
countries.
 In international marketing, there is an advantage that the business organisation can
have access to the latest technology of several countries which is absent in case
domestic countries.
 The risk involved and challenges in case of international marketing are very high due to
some factors like socio-cultural differences, exchange rates, setting an international
price for the product and so on. The risk factor and challenges are comparatively less in
the case of domestic marketing.
 International marketing requires huge capital investment, but domestic marketing
requires less investment for acquiring resources.
  In domestic marketing, the executives face less problem while dealing with the people
because of similar nature. However, in the case of international marketing, it is quite
difficult to deal with customers of different tastes, habits, preferences, segments, etc.
 International marketing seeks deep research on the foreign market due to lack of
familiarity, which is just opposite in the case of domestic marketing, where a small
survey will prove helpful to know the market conditions.

(4)

National Market and Euro Market

 The euro market may refer to the single market and free-trade among European Union
(EU) countries.
 The euro market extends beyond the Eurozone countries that use the euro currency to
all countries signed on to that free trade agreement.
 The euro market may also refer to the Eurocurrencies market, where an institution uses
money from another country, but not in the originating country's home market.

A euro market can be used to describe the financial market for Eurocurrencies. A Eurocurrency is any
currency held or traded outside its country of issue. For example, a Eurodollar is a dollar deposit held
or traded outside the U.S. A key incentive for the development, and continued existence of such a
market is that it is free from the regulatory environment (and sometimes political or other country-
specific risks) of the "home" country.

The "euro-" prefix in the term arose because originally such currencies were held in Europe, but that
is no longer solely the case, and a eurocurrency can now be held anywhere in the world that local
banking regulations permit. The Eurocurrency market is a major source of finance for international
trade because of ease of convertibility and the absence of domestic restrictions on trading.

National Market

The domestic and foreign market in a given country. That is, the national market describes the
supply and demand for all securities that are traded in a country. Each national market is governed
by the regulations of its own country.

The National Market System (NMS) promotes free market transparency by regulating how all major
exchanges disclose and execute trades. To facilitate the fair distribution of information, the NMS
requires that exchanges make bids and offers available and visible to both individual and
institutional investors.

During the nineteenth century, a true national market economy formed in America where crops and
goods could be sold in all parts of the country. Large farms and corporations formed, taking
advantage of new forms of transportation to send goods to different regions. ... America became an
urban country rather than rural.
Q no 4:

(A)

The Office of Insurance Products (OIP) is responsible for the regulation of variable insurance under
the Investment Company Act of 1940. The Office consists of 13 staff and is part of the Division of
Investment Management. The primary objective of the audit was to evaluate the efficiency and
effectiveness of the Office of Insurance Products.

Variable insurance products, which include variable annuities and variable life insurance, differ from
traditional "fixed dollar" insurance contracts in the way in which benefits are funded. Premium
payments are held in a "separate account" that provides the contract owner with a variety of
investment options. The benefits ultimately realized by the contract owner depend on the
investment performance of the separate account. Sales of variable annuities and life insurance have
grown significantly in the past few years.

We found that in general the Office of Insurance Products does a satisfactory job of regulating
variable insurance. However, delays in performing certain tasks suggest that OIP needs to improve
the management of its workload to assure the timely completion of its work.

Our recommendations to improve the effectiveness and efficiency of the Office of Insurance
Products include: preparing a plan to reduce their backlog of filings; detailing staff from other parts
of the Division to reduce and prevent backlogs; considering sampling or excluding certain filings to
better manage workload; encouraging more requests for selective review; developing improved
guidance for reviewers; determining whether NRSI searches should be conducted when reviewing
new registrations; and reviewing its recordkeeping policies.

We are also recommending: replacing its filing log system; reviewing the adequacy of performance
measures used in the budget; ensuring that certain workload data reported in the budget is
accurate; hiring more staff with financial and actuarial skills; reviewing the adequacy of job elements
and performance standards of staff; establishing regular communications with the NASD to
coordinate policies; and sponsoring training about variable life insurance for staff.

OBJECTIVES AND SCOPE

The primary objective of the audit was to evaluate the efficiency and effectiveness of the Office of
Insurance Products which has primary responsibility for the Commission's regulation of variable
insurance products.

During the audit, we conducted interviews with staff from OIP and other offices within the
Commission. We also reviewed files containing comment letters, management reports, and other
relevant documentation. Where appropriate, we attempted to compare the performance of OIP
with other offices within the Commission that are engaged in similar activities. We also interviewed
13 private attorneys, including representatives of the American Council of Life Insurance, the
National Association of Variable Annuities, and several former Commission staff to obtain their
perspective about the performance of the office.

The audit was conducted between February 1996 and July 1996 in accordance with generally
accepted government auditing standards.

(B)