70153studentjournal May2022b

VOL 25 NO.
12 PAGES 36 MAY 2022 50
Finan
ncia
al Services
and Cappital Markets
Econom
mics for Finance
Busin
ness and
Commercial Knowled
dge
CONTENTS
Board of Studies
(Academic) (2022-23)
INSIDE
03 President’s Communication
Chairman
CA. Dayaniwas Sharma
Vice-Chairman 04 Vice-President’s Communication
CA. Vishal Doshi
Members 05 Chairman’s Communication
CA. Dayaniwas Sharma, Chairman
CA. Vishal Doshi, Vice-Chairman
" #Q #DA@RGHR,HSQ@ /QDRHCDMS$W NEjBHN
06 Chairman SSEB (Board of Studies-Operations) Communication
" MHJDS2TMHK3@K@SH 5HBD /QDRHCDMS$W NEjBHN
CA. (Dr.) Rajkumar Satyanarayan Adukia 07 CA Final: Financial Services and Capital Markets
CA. Chandrashekhar Vasant Chitale
CA. Durgesh Kumar Kabra
CA. Mangesh Pandurang Kinare 17 CA Intermediate: Economics for Finance
CA. Umesh Sharma
CA. Sridhar Muppala 26 CA Foundation: Business and Commercial Knowledge
CA. Prasanna Kumar D
CA. Cotha S Srinivas
CA. Sripriya Kumar 28 Knowledge Update
CA. Ranjeet Kumar Agarwal
CA. Sushil Kumar Goyal 29 News Updates
CA. Rohit Ruwatia
CA. Abhay Chhajed
CA. Anuj Goyal 30 Announcements
CA. Gyan Chandra Misra
CA. Prakash Sharma 36 Crossword
CA. Kemisha Soni
CA. Pramod Jain
CA. (Dr.) Sanjeev Kumar Singhal
President and Editor-in-Chief Chairman
CA. Charanjot Singh Nanda
CA. (Dr.) Debashis Mitra CA. Dayaniwas Sharma
Dr. P. C. Jain
Advocate Vijay Kumar Jhalani Vice President Vice-Chairman
Co-opted Members CA. Aniket Sunil Talati CA. Vishal Doshi
CA. Aditya Kumar Maheshwari
CA. Atul Kumar Gupta
CA. (Dr.) Gurmeet Singh Grewal Director- Board of Studies Editorial Support
CA. Jay Chhaira CA. Vandana D Nagpal Dr. Ruchi Agarwal, Deputy Secretary
CA Madhava Murthy K S
CA. Madhukar Narayan Hiregange .EkBD
CA. (Dr.) M. S. Jadhav Board of Studies, The Institute of Chartered, Accountants of India, ICAI Bhawan,
CA. Pramod Kumar Boob A-29, Sector-62, Noida-201 309. Phone : 0120-3045907
Special Invitees 'D@C.EkBD
CA. Ravi Sonkhiya The Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha Marg,
CA. Pratish Goel New Delhi-110 104.
Total Circulation: 2,80,097 EDITOR: CA. DAYANIWAS SHARMA

Check your Address: All students should Printed and published by CA. Vandana D Nagpal, on behalf of The Institute of
check their mailing address printed on back Chartered Accountants of India, New Delhi.
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articles and transparencies are sent at the owner’s risk and the publisher accepts no
Correspondence with regard to advertising and liability for loss or damage. Material in this publication may not be reproduced, whether in
writing articles part or in whole, without the consent of ICAI.
Email: writesj@icai.in
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Non-receipt of Students’ Journal the advertisement published in the Journal.
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Cover Image Courtesy: www.shutterstock.com
Inside image: www.shutterstock.com SWACHH BHARAT - A STEP TOWARDS CLEANLINESS
02 May 2022 The Chartered Accountant Student

PRESIDENT’S COMMUNICATION
selections at 9 major centres got over in the month of March
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Accountants. In the interviews being conducted at 12 smaller
centres in the month of April, so far more than 700 job offers
have been made by the companies.
With more and more companies participating in the ICAI
Campus placement programmes, our esteemed Institute is
becoming a popular destination amongst reputed organisations
XIP BSF MPPLJOH GPS DPOmEFOU BOE DPNQFUFOU FOUSZMFWFM
professionals at the national as well as global level.
Mentorship Programme to join Civil Services
To motivate our members and students to be an agent of change
Dear Students, and more actively contribute in the growth of society by joining
different Civil services, I am happy to inform that the Committee
W
ith the May, 2022 Examinations just around the corner, for Members in Entrepreneurship and Public Service of the
many of you will be preparing for them by the time this ICAI has launched a weekend online programme namely ‘Civil
journal reaches. I would like to convey my best wishes Services Orientation & Mentorship Programme’ for Chartered
to all the Examinees. I sincerely hope that each one of you will Accountant and CA Students aspiring to join Civil Services. The
perform remarkably well and bring laurels to your parents, family Orientation Programme was inaugurated by CA. Suresh Prabhu,
as well as to the Institute. You will meet with success and make Hon’ble Member of Parliament who appreciated the initiative
it to the league of Chartered Accountants, equipped to take up of the ICAI. The objective is to provide an overview of the
challenging assignments in today’s dynamic world with an efficient topics covered in the civil services examination and to provide
strategy, dexterous execution, utmost devotion, ‘never say die’ spirit basic information on the course content. I sincerely believe that
and unwavering commitment towards your goal. Chartered Accountants and CA Students with their education
“Take up one idea, make that one idea your life. Think of it, and training, wherein they are trained to look for minute detail,
dream of it, live on that idea, let the brain, muscles, nerves, are very well equipped to serve the society through these services
every part of your body be full of that idea, and just leave as a partner in nation building.
every other idea alone. This is the way to success.”
– Swami Vivekanand Progressing towards revised new curriculum
I am sure that you must have utilised the extensive learning I am delighted to apprise you that the revised scheme of education
resources provided by the Board of Studies (Academics) of ICAI for and training developed in conformity with the best practices
your preparation and must have attempted the Mock Test Papers adopted by international accountancy bodies, implementation
with utmost sincerity which would have allowed you to assess your of National Education Policy 2020 and revolution in information
level of preparation under exam like conditions and help you to technology, has been approved by the Council of the ICAI and
understand your weak areas. The counselling sessions for Mock has been submitted to Ministry of Corporate affairs for their
Test Papers organised by the ICAI would further reinforce and in-principle approval. On receipt of the approval from the
streamline your preparation. Ministry, the new scheme will be available for comments of all
stakeholders.
Update on New Scheme for Education and
Training Chartered Accountancy Course– A Perfect
The ICAI is the second largest accounting body in the world, having
Blend of Theory and Practice
a student strength of about 7,50,000. We have been the trusted You are the future torch bearers of the Chartered Accountancy
partner in Nation Building. In continuation to our proactive and profession, which is both admired and coveted. The popularity
futuristic thought process, last year we launched the ‘International of the Chartered Accountancy profession is growing manifold
Curriculum’ to be implemented through the proposed Scheme of along with the paradigm shift in the economy, owing to the
Education and Training. The said global curriculum envisages to: perfect blending of the theoretical education and practical
t 1PTJUJPO$"RVBMJmDBUJPOBTBHMPCBMRVBMJmDBUJPO training under this course. The theoretical education under CA
t "DDPNQMJTIUIF(PWFSONFOUTPCKFDUJWFPGJOUFSOBUJPOBMJTBUJPO course is suitably complemented by rigorous practical training.
of higher education as enshrined in the National Education Practical Training is the foundation on which ICAI’s
Policy 2020 reputation as an esteemed professional institution has been
t (BJO B TUSPOH IPME JO UIF JOUFSOBUJPOBM QSPGFTTJPOBM strongly built. Practical training helps the aspiring CAs to apply
accountancy education arena the concepts learnt in theoretical education in practical scenarios
As informed previously, the New Scheme for Education and real time. Thus, honing their analytical and application skills as
Training was submitted for in-principle approval of the Ministry well as their oral and written communication skills.
of Corporate Affairs, and recently on 8th April, 2022 detailed #FOKBNJO 'SBOLMJO IBT BMTP FNQIBTJTFE UIF TJHOJmDBODF PG
deliberations on the same were held with the Ministry. The ICAI ‘learning by doing’ approach. “Tell me and I forget. Teach me
has emerged as a pioneer in imparting education through distance and I remember. Involve me and I learn.”
learning mode. In line with the vision of Digital India, we are I advise the students to sincerely undertake their mandatory
spearheading several digital initiatives in academic education practical training. The course sharpens your acumen and
including provision of E-books, Live Coaching Classes, BoS mobile develops world class competencies in divergent arenas, making
app, etc. you an absolute business solution provider and offering you job
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Campus Placements Wishing you all the best for your future endeavours!
In the last issue of the Student’s Journal, I apprised you about
the Campus placement of ICAI. I take pride in informing you
that Campus Placement programme is making newer records
BT PSHBOJTBUJPOT BSF SFDSVJUJOH OFXMZ RVBMJmFE $IBSUFSFE CA. (Dr.) DEBASHIS MITRA
Accountants in large numbers. The process of recruitment and PRESIDENT, ICAI
The Chartered Accountant Student May 2022 03

“Tell me and I forget, teach me and I may remember, involve me and I learn.” – Benjamin Franklin
VICE PRESIDENT’S COMMUNICATION
Dear Students,
“K
nowledge is the one that liberates”. We believe in the New Education Policy 2020 and to gain a stronghold in
that education is a quintessential tool for self- the international professional accountancy education arena. It
empowerment. It gives us the wings to fly and conquer would also promote export of accounting and education services
the world and opens the door for a bright future. However, the road FOWJTBHFEJOUIF(PWFSONFOUTA"DUJPO1MBOGPS$IBNQJPO4FDUPST
to success essentially requires ample perseverance, dedication, JO 4FSWJDFT ͳF BCPWF FOEFBWPVST IBWF CFOFmUUFE UIF TUVEFOUT
and consistent efforts to achieve the goal. Always believe that hard irrespective of the location that they reside and prepare for their
work and persistence always earns us the much-coveted success. examinations without any difficulty, and it is worth sharing that as
.BIBUNB (BOEIJ IBE PODF TBJE UIBU “Strength does not come of now, more than 2 Lac students have registered on the web and
from winning; your struggles develop your strengths. When NPCJMFBQQGPSBWBJMJOHUIFCFOFmUT
you go through hardships and decide not to surrender, that is Practical Training: Providing a competitive edge
strength.” to students
Friends, we need to assimilate the fact that challenges are Chartered Accountancy course curriculum with a blend of
an integral part of our life. We need not only to overcome the theoretical education and practical training offers umpteen
challenges in present but also to improvise to sail through them opportunities to learn and develop. Practical training is the
successfully in the future. backbone of the CA Course. Students may derive maximum
I can very well appreciate the anxiety and stress that you may be CFOFmUPVUPGUIJTUISFFZFBSQFSJPEUIBUDBOUSBOTGPSNUIFNBT
going through as the May/June 2022 examinations are just round an all-round professional with diverse exposure.
the corner and wish that those appearing would steer through Practical Training Assessment: Opportunity to
successfully. The best strategy would be to remain calm, prepare exhibit and document the skills gained
schematically and devise a study plan that carries room for both An MCQ-based assessment is being conducted after each year of
preparation and subsequent revisions. After having a carefully practical training to assess the knowledge gained during the year.
devised study plan at disposal, it would need a considerably higher This practical training assessment imparts you an assessment
degree of determination to follow and execute the same with grade which may be improved in subsequent attempts since three
VUNPTUEFEJDBUJPOͳFTBNFTIBMMMFOEZPVBEFRVBUFDPOmEFODF chances are being given for each of the two levels for improving
to face the examination with ease. the score. The average grade of both the levels is being mentioned
The Institute has always been proactive in its approach and has POBWJSUVBMDFSUJmDBUFBXBSEFEBUUIFUJNFPGDPNQMFUJPOPG$"
always instituted initiatives directed towards the overall growth Course which can be showcased to your future employer to show
of our students. I advise the students to optimally utilise the your practical knowledge and skills.
opportunities and facilities being provided and keep growing. In Towards the end, I would like to mention that there is no dearth of
addition to all the endeavours that we undertake, I would like to PQQPSUVOJUJFTGPSUIF$IBSUFSFE"DDPVOUBOUTJOEJWFSTJmFEmFMET
take you through some more facets of the course worth utilising They are considered as the most sought-after professionals in the
GPSZPVSCFOFmU mFMEPGBDDPVOUBODZBOEmOBODF8FKVTUOFFEUPLFFQPVSTFMWFT
ICAI’s Curriculum: Meeting the requirements of motivated and keep on developing our skills. Your talent and
the present and the demands of the future competence would surely take you places.
Profound changes in the business ecosystem across the world Please remember that the Institute is committed to develop its
SFRVJSFT UIF BDDPVOUBODZ QSPGFTTJPOBMT UP SFEFmOF UIF SPMFT GPS students as competent business leaders who are highly value
their contribution towards profession and the society. They need based and principled professionals.
to arm up themselves with the requisite skills in accordance with Yours sincerely
the needs of the times to come. Therefore, in the proposed scheme
of education and training, ICAI is introducing its international
curriculum which would be globally relevant. The international
curriculum would be instrumental towards achieving the
CA. ANIKET SUNIL TALATI
objective of internationalisation of higher education as enshrined VICE PRESIDENT, ICAI
“The great aim of education is not knowledge but action.” — Herbert Spencer
CHAIRMAN’S COMMUNICATION
based on Paper 6B: Financial Services and Capital Market for

CA Final, Paper 8B: Economic for Finance for CA Intermediate
and Paper 4 Part 2: Business and Commercial Knowledge for
CA Foundation.
I urge you to go through this crispy coverage of the contents in
the capsule and keep it handy for last minute revision before
exams. Besides these capsules, earlier capsules are compiled
subject wise for each group at all the levels of CA curriculum
in “Referencer for Quick Revision” which is readily available
at ICAI BoS(A) Mobile app and on the Institute’s website. You
My Dear Students, are advised to refer to these capsules’ compilation of different
8BSN(SFFUJOHT subjects before the examination.
A
t the outset, I along with my Vice-Chairman, CA Vishal BoS(A) Achievements
Doshi, would like to wish you all the very best for your t 'FFECBDL B .FDIBOJTN GPS 1FSGFDUJPO i4VSWFZ UISPVHI
examination in May 2022. I sincerely trust that your the Google Form on BoS(A) Mobile App”
self-belief and hard work will earn you success in your BoS(A) has been taking various initiatives with the sole
examination. objective to provide the best education to its students. I must
Let me mention one of my favorite quote, which means everything: congratulate my Vice-Chairman, CA Vishal Doshi for his
“Grind while they rest, study when they party, you’ll live like persistent efforts through which we could successfully collate
they dream” – Grant Cardone the feedback of students on BoS(A) continuous activities. We
At BoS, we are always striving to give you different experience embarked a “Survey through the Google Form on BoS(A)
every time, motivating you is motivating us at various activity Mobile App” to capture the valuable feedback of our students
levels including the important activity CRET. to gauge how far BoS(A) initiatives are producing the desired
t Progress under CRET for Revised scheme of Education results and what advancements can further be made to make
and Training them more advantageous. We are thankful to our students
who participated in this survey and presented us numerous
We have progressed to formulate the new scheme for
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education and training wherein thrust is on augmenting
higher order of application, assessment, and interpretation t *OUFSBDUJWF4FTTJPOGPS4UVEFOUT
skill set amongst our CA aspirants. The draft amendments The interactive session was held in the last week of April 2022
in the Chartered Accountants Regulations, 1988 on account for students appearing in May 2022 examination. This was
of proposed scheme of education and training has been held to guide you and provide tips to strategise your study plan
submitted to the Ministry of Corporate Affairs (MCA) for to avoid recurrent mistakes and improving presentation in
their in-principal approval. After receiving approval from the examination to bring your performance to the next level.
the MCA, the proposed scheme shall also be web-hosted in Since the response during the session was overwhelming, we
the public domain for seeking suggestions of the stakeholders propose it to be a regular feature and subsequent interactive
including you as well. Meanwhile, BoS(A) is strategising to sessions would be arranged after the May 2022 results are
conduct outreach meetings seeking pertinent inputs from the declared.
stakeholders on the proposed scheme. In addition to this, I wish to invite students to communicate
Continuity and Consistence makes to every time thrive for XJUINFUIFJSUIPVHIUTBOEJEFBTGPSUIFMBSHFCFOFmUPGPVS
perfection: profession. Before I conclude, I would urge you to stay focused
t .PDL5FTU1BQFST .51T XJUITUSPOHNJOEBOEmSNHPBMTTPUIBUZPVHJWFZPVSCFTUJO
your examination. It is the time for you to demonstrate best of
Face the Mirror, you will always, like yourself before you
your skills in terms of dedication, meticulous preparation, and
face the world. Mock test is that Mirror.
self-discipline.
In order to self-opine your level of preparation for the
“If four things are followed – having a great aim, acquiring
forthcoming May 2022 examination, second series of MTPs
knowledge, hard-work and perseverance - then anything can
were conducted from 18th April, 2022 for Intermediate and
be achieved.” – Dr. A.P.J. Abdul Kalam
Final levels followed by Live Counselling Sessions conducted
by BoS(A) faculty members. I am hopeful that you would have All the best for your forthcoming examination and future
attempted the second series of MTP with better preparedness endeavors!!
BT DPNQBSFE UP mSTU .51 BOE HPU ZPVS EPVCUT BOE RVFSJFT
resolved in the Live Counselling sessions for each paper of
Intermediate and Final - CA curriculum.
As regards Foundation level students are concerned, the 2nd
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June 2022.
t $BQTVMF*OTJHIUT CA. DAYANIWAS SHARMA
The highlight of this edition are comprehensive Capsules CHAIRMAN, BOARD OF STUDIES (ACADEMIC)

“Education without application is just entertainment.” — Tim Sanders
CHAIRMAN SSEB (BOARD OF STUDIES-OPERATIONS) COMMUNICATION
My Dear Students,
I
would like to convey my heartiest best wishes to all of you Final Examination are invited to join the course. The teaching
BQQFBSJOHJOUIF.BZ FYBNJOBUJPOT*BNRVJUFDPOmEFOU methodology uses multiple modern education techniques to make
that each of you will perform exceedingly well and achieve learning wholesome and interesting. Besides the above, the top
your goals. 10 rank holders of the IPCC/Intermediate exams are exempted
I further acknowledge your patience and commitment towards from payment of fees. This course also provides exemption from
profession in last few months which you all have shown during undergoing the Management and Communication Skills (MCS)
3rd wave of COVID-19. Now it is the time to recap and have faith course of AICITSS.
in yourself to crack forthcoming May, 2022 examination. New Scheme proposed for IT and Soft Skill
As you must appreciate that with the rapid change in technology, course under the CRET
industries, societal pattern, processes on account of the I am happy to inform you that under new scheme of education &
interconnectivity and smart automation in the fourth Industrial training (CRET), multi-pronged approach will be adopted to meet
Revolution 4IR, the skill sets of the students decides their out the expectation gap between Industry and present education
preparedness to take future roles. The SSEB conducts various system. A more practical oriented approach will be followed while
activities and training programmes to inculcate right skills sets designing the course keeping the global scenario in mind.
amongst the students.
I congratulate and wish success in your forthcoming May, 2022
I would like to appeal all the students to actively participate examination. Being a part of this esteemed profession, you are
JO UIFTF BDUJWJUJFT BOE HFU CFOFmUUFE JO UIF GPSN PG BMM SPVOE the partners in nation building. In order to keep abreast with the
personality development. MBUFTUUFDIOJRVFTJOUIFmFMEPGBVEJUJOHBOEBDDPVOUJOH ZPVOFFE
National Talent Hunt –Elocution Contest to constantly upgrade your knowledge beyond the curriculum.
To commemorate Azadi ka Amrit Mahotsav (AKAM), I am Further, it has been observed that few students are not paying heed
happy to inform that ICAI is celebrating ICONIC DAY on 8th UPUIFFMJHJCJMJUZSFRVJSFNFOUUPBQQFBSJOUIFmOBMFYBNJOBUJPO*
June 2022. On this historic day, SSEB will be conducting National would like to reiterate that before appearing in Final examination,
Talent Search – Elocution Contest 2022 at New Delhi where in students have to under go AICITSS (IT) & (MCS) – both along
the winners of all the regions will participate for National Level. with the AICITSS (IT) examination conducted by examination
The National Talent Search – Elocution Contest would help in department.
unveiling the hidden talent of the CA Students and honing their This journey of yours is a continuous one, with students joining
orator-ship qualities. This contest will be organised in three stages the 'caravan', travelling along and then parting when their goals
i.e., at Branch, Regional and National Level. The Branch level are accomplished. You will always be proud of being a CA and
contests will be conducted between 15th to 27th April, 2022. You will surely go on to make your mark and carve a niche in your
are requested to contact your branches for further details. career and life. You must spare a thought for the idea as rightly
Four Weeks Residential Program on Soft Skills said by Benjamin Franklin that “An investment in knowledge pays
the best interest."
Development at Centre of Excellence
I visualise you to be the beacon of light and hope for India.
I am pleased to inform you that SSEB (Board of Studies-
Operations) will be commencing the Four Weeks Residential I wish you all a very bright career and a great future as Chartered
Programme on Soft Skills Development for the CA students from Accountants! Wishing you all the best……
9th May, 2022. It is being conducted at the state of art residential
campus at Centres of Excellence - Hyderabad and Jaipur.
This Programme provides a conducive environment to help
the Chartered Accountancy students in imbibing the soft skills
required for effective functioning in business organisations
and succeed in their profession. All CA Students who have CA SUSHIL KUMAR GOYAL
completed one year of articleship but before appearing for the CHAIRMAN, STUDENTS SKILLS ENRICHMENT BOARD
(BOARD OF STUDIES-OPERATIONS)
“A man who carries a cat by the tail learns something he can learn in no other way.” — Mark Twain
FINANCIAL SERVICES AND CAPITAL MARKETS
CA FINAL - PAPER 6B - FINANCIAL SERVICES AND CAPITAL MARKETS
The objective of the Elective Paper 6B – Financial Services and Capital Markets in the CA Final course is to enable the
students to gain knowledge of financial services rendered by intermediaries and banks and their role and activities in the
financial market in general and the capital market in particular. The purpose is also to help the students in acquiring such
knowledge to address issues in practical scenarios.
In this respect, an attempt has been made to acquaint the students about Global Financial Markets, Capital Market –
both Primary and Secondary, and Money Market in a pictorial form to help them to have a quick revision of the chapters.
Furthermore, students may please note that this capsule should not be considered a substitute for the study material.
Therefore, students are advised to refer to the November 2020 edition of the study material for Part A and July 2021
edition for Part B for May 2022 examination.
CHAPTER 1 – GLOBAL FINANCIAL MARKET

CHAPTER OVERVIEW STAKEHOLDERS IN FINANCIAL MARKET
*OUSPEVDUJPOUP(MPCBM
Role of Financial Market in 3ULPDU\VWDNHKROGHUVLQÀQDQFLDOPDUNHW
Economic Development of
Financial Market
a country
Mutual fund
Organisations/
Indian Financial Shareholders Lenders Companies
Stakeholders in holders/fund
Financial Market Market Scenario managers
Service providers in Financial Market

considering international scenario
MAJOR TYPES OF FINANCIAL MARKETS
Merchant Banker
The functions of merchant banker include – submitting offer
Stock Bond Commodities Derivative documents to SEBI, due diligence i.e. certifying that all the
Market Market Market Market disclosures made in the draft prospectus or letter of offer are
true and fair and will enable the investors to make an informed
decision, etc.
In international scenario, especially in USA, top Merchant Bankers
IMPORTANCE OF FINANCIAL MARKETS BSF .FSSJMM MZODI $JUJHSPVQ (PMENBO 4BDIT +1 .PSHBO BOE
ͳFSF BSF NBOZ TPDJBM CFOFmUT UIBU mOBODJBM NBSLFUT GBDJMJUBUF Morgan Stanley. They provide services to top companies in the
including: world.
They provide individuals, companies, governments and quasi- Brokers

government organisations with access to capital;
Stock Brokers are individuals who participate in the stock market
on behalf of clients. They buy and sell shares on behalf of the
clients on their instructions. In order to actively participate in the
People with surplus funds for investment get channels for investment capital market, they should be SEBI registered.
and are assured of fair treatment as there is a regulator. (MPCBMMZ NBSHJOmOBODJOHJTQPQVMBS JOXIJDI NBOZMBSHFCSPLJOH
IPVTFTQSPWJEFmOBODJOHGBDJMJUJFTUPDMJFOUTXIPCPSSPXNPOFZUP
invest in stocks. Therefore, Stock exchanges monitor the extent to
which brokers are lending in line with their net worth.
Financial markets create jobs as there are many people
involved in direct and indirect activities.
Underwriters
ROLE OF FINANCIAL MARKET IN ECONOMIC Underwriters are those persons who assume the risk of others.
In capital market, in case of new issues, they assume risk by
DEVELOPMENT OF A COUNTRY guaranteeing that in case the shares are not subscribed fully by
the public, the unsubscribed portion will be subscribed by the
Puts savings into more productive use underwriter itself.
Depositories
Determines the price of securities Depository is an institution which maintains investors account in
electronic form. One of the main functions of the Depository is
to transfer the ownership of shares from one investor to another
whenever the trading of shares takes place.
.BLFTmOBODJBMBTTFUTMJRVJE There are two types of depositories in India which are known
as NSDL (National Securities Depository Limited) and CSDL
(Central Depository Services (India) Limited). Globally,
depositories provide the same set of services as has been rendered
Lowers the cost of transactions by CDSL and NSDL.

Custodians Pension Fund Regulatory and
Custodians provide custodial services for safe keeping of securities. Development Authority (PFRDA)
After liberalisation in 1991, Foreign Institutional Investors (FIIs) To be a model Regulator for promotion and development of an
were allowed to invest in the Indian Capital Market. Most of the organised pension system to serve the old age income needs of
FII business in India is routed through foreign custodians. people on a sustainable basis.
The main law which governs the establishment, maintenance, and
termination of pension plans in the United States is the Employee
5HJXODWRUVLQÀQDQFLDOPDUNHW Retirement Income Security Act (ERISA).
Securities and Exchange Board of India (SEBI)

Administrative authorities to facilitate the
SEBI was born in 1992. The basic objective was to protect the ÀQDQFLDOPDUNHW
interest of investors in securities and promote the development of
securities market.
Securities Exchange Commission (SEC) in USA performs more or "TTPDJBUJPOPG.VUVBMGVOETPG*OEJB ".'* The Association
less the same functions as given to SEBI. But the stark difference of Mutual Funds in India (AMFI) is dedicated to developing the
is the amount of penalty. SEC can impose an unlimited amount of Indian Mutual Fund Industry on professional, healthy and ethical
mOFXIJDI4&#*DBOOPU lines and to enhance and maintain standards in all areas with a
view to protecting and promoting the interests of mutual funds
and their unit holders.
Reserve Bank of India
The preamble of the Reserve Bank of India describes its main
functions as to regulate the issue of Bank Notes and keeping of 'PSFJHO &YDIBOHF %FBMFST "TTPDJBUJPO PG *OEJB '&%"* It’s
reserves with a view to securing monetary stability in India and major activities include framing of rules, governing the conduct of
generally to operate the currency and credit system of the country inter-bank foreign exchange business among banks vis-à-vis public
to its advantage. and liaison with RBI for reforms and development of forex market.
Federal Reserve (Fed) in the USA’s policies is primarily driven by
HSPXUIBOEFNQMPZNFOUmHVSFT BUUIFFYQFOTFPGJOnBUJPO0OUIF
other hand, we have the RBI, whose policies are primarily driven Fixed Income Money Market and Derivative Association of
by inflation, at the expense of growth. *OEJB '*..%" FIMMDA is a voluntary market body for the
bond, money and derivatives markets.
Insurance Regulatory and
Development Authority of India (IRDAI) "TTPDJBUJPO PG *OWFTUNFOU #BOLFST PG *OEJB "*#* AIBI was
The main aim of the Insurance Regulatory and Development promoted to exercise overall supervision over its members in
Authority of India is to protect the interest of holders of Insurance the matters of compliance with statutory rules and regulations
policies to regulate, promote and ensure orderly growth of pertaining to merchant banking and other activities.
Insurance industry and for matters connected therewith or Internationally, International Association of Investment
incidental thereto. Bankers (IAIB) since its inception in 1994 has leveraged its
In USA, insurance is almost regulated by the individual state collective expertise, best practice knowledge, industry insights,
governments. In Canada, Office of the Superintendent of and global reach to assist clients in executing mergers, acquisitions,
Financial Institutions Canada (OSFI) sets the minimum regulatory divestitures, and strategic partnerships.
requirements and expectations to support policy holder and
creditor protection, giving due regard to the need to allow
institutions to compete effectively.
CHAPTER 3 – CAPITAL MARKET - PRIMARY

CHAPTER OVERVIEW Functions of Capital Market
$BQJUBM.BSLFUJTCBTJDBMMZBQBSUPGmOBODJBMNBSLFUXIFSFCVZJOH
Functions of Major constituents Segments of and selling of long term debt or equity takes place. The main role
Capital Market of Capital Market Capital Market of capital market is providing a platform where long term funds are
raised. The major functions are:
To mobilise resources for investments.

Capital Market Aspects Of
Instruments Primary Market
To facilitate buying and selling of securities.
To facilitate the process of efficient price discovery.

“Our greatest fear should not be of failure, but of
succeeding at things in life that don’t really matter.” To facilitate settlement of transactions in accordance with the
predetermined time schedules.
– Francis Chan

Segments of Capital Markets Aspects of Primary Market
Primary market is a market where buying and selling Different types of securities issued
PG OFX TFDVSJUJFT UBLF QMBDF GPS UIF mSTU UJNF *O PUIFS in the primary market
XPSET UIF NBSLFU XIFSF UIF mSTU QVCMJD PĉFSJOH PG
equity shares or convertible securities by a company
take place which is followed by the listing of a company’s
shares on a stock exchange is called a primary market.
It is also known as ‘initial public offering’ (IPO). Issue of Public Right Bonus Private
further capital by companies whose shares are already Issue Issue Issue Placement
listed on the stock exchange also comes within the ambit
of Primary market.
Initial Further Preferential 2VBMJmFE
Public Public Issue Institutional
Secondary market is a market in which purchase and Offer Offer Placement
sale of securities which are already issued to the public for
UIFmSTUUJNFBOEMJTUFEPOUIFTUPDLFYDIBOHFUBLFTQMBDF
Therefore, secondary markets are called stock exchanges
and over-the-counter market. When the securities are (1) Types of Offer Document
USBOTGFSSFEGSPNUIFmSTUIPMEFSUPBOPUIFS UIFTFDVSJUJFT
are said to be traded in secondary markets.
Draft offer document JT BO PĉFS EPDVNFOU mMFE XJUI 4&#* GPS
TQFDJGZJOHDIBOHFT JGBOZ JOJU CFGPSFJUJTmMFEXJUIUIF3FHJTUSBS
of Companies (ROCs).
Capital Market Instruments
4IBSFT Share is a type of security, Red herring prospectus is an offer document used in case of a
XIJDIϰTJHOJmFTPXOFSTIJQJOBDPSQPSBUJPOϰBOE book built public issue. It contains all the relevant details except
represents a claim on the part of the UIBUPGQSJDFPSOVNCFSPGTIBSFTCFJOHPĉFSFE*UJTmMFEXJUI30$
corporation’s assets and earnings. As one before the issue opens.
acquires more shares, his or her ownership
stake in the company becomes greater.
Prospectus is an offer document in case of a public issue, which
1SFGFSFODF 4IBSFT These shares form part of has all relevant details including price and number of shares or
the share capital of the company which carry a convertible securities being offered.
preferential right to be paid in case a company
goes bankrupt or is liquidated. Preference
shareholders have got very negligible voting Letter of offer is an offer document in case of a Rights issue of
rights. But they do have a higher claim on the TIBSFTPSDPOWFSUJCMFTFDVSJUJFTBOEJTmMFEXJUI4UPDLFYDIBOHFT
assets and earnings of the company. before the issue opens.
%FCFOUVSFT#POET One of the most popular

long term debt securities among corporates Abridged prospectus is an abridged version of offer document
is bond. In case of a bond issue, the buyer of in public issue and is issued along with the application form of a
bonds lends the required amount to the issuer public issue. It contains all the salient features of prospectus.
of bonds.
"NFSJDBO %FQPTJUPSZ 3FDFJQU "%3T An Abridged letter of offer is an abridged version of the letter of offer.
American Depository Receipt (ADR) is a It is sent to all the shareholders along with the application form.
negotiable receipt which represents one or more
depository shares held by a US custodian bank,
which in turn represent underlying shares of Shelf prospectus is a prospectus which enables an issuer to make
non-US issuer held by a custodian in the home BTFSJFTPGJTTVFTXJUIJOBQFSJPEPGZFBSXJUIPVUUIFOFFEPGmMJOH
country. a fresh prospectus every time. This facility is available to public
(MPCBM %FQPTJUPSZ 3FDFJQUT (%3T (MPCBM sector banks, scheduled banks and Public Financial Institutions.
%FQPTJUPSZ 3FDFJQUT BSF OFHPUJBCMF DFSUJmDBUFT
issued by a depository based outside India to
non-resident investors with publicly traded
Placement document is an offer document for the purpose of
equity shares or foreign currency convertible
2VBMJmFE*OTUJUVUJPOBM1MBDFNFOUBOEDPOUBJOTBMMUIFSFMFWBOUBOE
bonds of the issuer in India as underlying
material disclosures.
security.
%FSJWBUJWFT " EFSJWBUJWF JT B mOBODJBM

instrument which derives its value from some
PUIFS mOBODJBM QSJDF ͳJT APUIFS mOBODJBM QSJDF
“Even the greatest were beginners. Don’t be afraid
is called the underlying. The most important to take that first step.”
derivatives are futures and options.
– Muhammad Ali

(2) Capital Market Intermediaries (5) Anchor Investors
"ODIPS JOWFTUPST BSF 2VBMJmFE *OTUJUVUJPOBM #VZFST 2*# XIP
Investment purchases shares one day before the IPO opens. They help in
Banks BSSJWJOH BU B GBJS QSJDF BOE JOTUJM DPOmEFODF JO UIF NJOET PG UIF
investors. As the name suggests, they are supposed to ‘anchor’ the
JTTVFCZBHSFFJOHUPTVCTDSJCFUPTIBSFTBUBmYFEQSJDFTPUIBUPUIFS
Debenture Portfolio investors may know that there is demand for the shares offered.
Trustees Managers
(6) Private Placement of Shares
Private placement is the process of raising capital directly from
Depository Investment institutional investors. A company that does not have access
Participants Advisors to or does not wish to make use of public capital markets can
JTTVF TUPDLT CPOET PS PUIFS mOBODJBM JOTUSVNFOUT EJSFDUMZ UP
institutional investors. Institutional investors include mutual
funds, pension funds, insurance companies, and large banks.
Investment
Custodians Funds (7) Disinvestment
It means sale of equity shares of PSU’s which leads to dilution of
govt.’s shares in such PSU’s. The disinvestment programme was
Brokerage JOJUJBUFECZUIF(PWUPG*OEJBJO
Firms
ͳF QVSQPTF PG UIF EJTJOWFTUNFOU QSPHSBNNF PG UIF (PWU PG
India was to garner funds which can be utilised for development
purpose. Another purpose was to make the loss making PSUs
(3) Applications Supported by Blocked Amount (ASBA) come out of the doldrums and contribute to the Indian economy.
ASBA is basically an application by investors for subscribing to an
issue containing an authorisation to block the application money (8) Right Issue
in a bank account. Therefore, one’s money stays in one’s bank
account until allotment of the issue takes place. There is no hassle The rights issue involves selling of securities to the existing
of refunds - in case of less or no allotment of shares. The advantage shareholders in addition to their current holding at a discount.
is that one gets to earn interest even on the blocked amount until
it is debited for allotment. (9) Exit Offers
With reference to capital market, the term ‘exit offers’ refers to
(4) Green Shoe Option delisting. Delisting is actually the reverse of listing. So, what is the
meaning of the term listing? Listing is basically a platform provided
*UJTBOPWFSBMMPUNFOUNFDIBOJTN(SFFO4IPF0QUJPOJTBOPQUJPO to the newly issued securities of the company in which sale and
to allocate shares in excess of the shares which have already been purchase of the securities of a company takes place. On the other
issued to the public. It is a price stability mechanism to provide hand, delisting means to permanently remove the securities of a
post listing price stability to an initial public offering. listed company from a stock exchange.
CHAPTER 4 – CAPITAL MARKET - SECONDARY

CHAPTER OVERVIEW Transaction in securities is safe in the secondary market –
Transactions executed in the secondary market are safe because all
the trading takes place in an electronic system which is highly secure.
Functions of Stock Market
Secondary Market Organisation in India
Contributes to economic growth – It contributes to economic
Demutualisation of Share Trading in growth through allocation of funds to the most efficient sector
Stock Exchanges Secondary Market through the process of disinvestment to reinvestment.
Functions of Secondary Market Motivating people to invest in equity shares – Efficient secondary
market motivates people to invest in the securities market.
Secondary market is a market where shares initially issued are traded.
Trading of securities takes place when securities are purchased or
sold. This market is also known as stock market. In India, secondary
market consists of recognised stock exchanges operating under rules, It ensures safety and measure of fair dealing to protect investors’
regulations and guidelines approved by the government. Various interest.
functions are as follows:
Economic Indicator – Every major change in the economy either It induces companies to improve their performance since market
due to government policy or any major international event has a price of shares showing at the stock exchanges is the indicator
bearing on the secondary/stock market. that reflects a company’s performance and is easily available to the
investors.
Valuation of Securities – Secondary market helps in the valuation
of securities through its demand and supply.

STOCK MARKET ORGANISATION IN INDIA
Stock Market Organisation in India
Custodial Depository
Stock Broking
Services Services
Depository
Broking Sub-Broking Trading and Foreign Trading and
Clearing Brokers Clearing
Members Members
of Currency
Derivative CDSL NSDL
Segment
Depository
Participant
Banks and
Financial
Institutions
The stock market organisation in India as shown in the above diagram

is discussed as below: Demutualisation of Stock Exchanges
A demutualised stock exchange is basically a company form of
Stock Broking – Brokers are members of stock exchange. organisation in which the company goes public and owners will be
They enter into share trading transactions either on their given equity shares. Advantages of Demutualisation are as follows:
own account or on behalf of their clients. They have to get
registration from SEBI before starting their operations
and have to comply with the prescribed code of conduct. Enable stock exchanges to have more access to
funds for investment in technology.
Custodians – The related services provided by them are Facilitate merger and acquisition of other exchanges
as follows: and alliances with other stock exchanges.
Maintaining accounts of the securities of a client.
$PMMFDUJOH UIF CFOFmUTSJHIUT BDDSVJOH UP UIF DMJFOU JO
#FOFmUUPNFNCFSTPGUIFTUPDLFYDIBOHFBTUIFJS
respect of securities.
asset becomes liquid and members get share of the
Keeping the client informed of the actions taken by issuer QSPmUTNBEFCZFYDIBOHFTUISPVHIEJWJEFOET
of securities.
Maintaining and reconciling records of the services as
referred above. Makes operations of the stock exchanges transparent.
Transparency brings better governance.

Depository System – A major reform of the Indian stock
markets has been the introduction of the depository
system and scripless trading mechanism. The Depository
"DU XBT QBTTFE JO UP QSPWJEF GVSUIFS mMMJQ UP UIF Share Trading in Secondary Market
process.
The issuers should enter into an agreement with the 0QFOB#BOL"DDPVOUͳFmSTUTUFQUPXBSETJOWFTUJOHJO*OEJBO
depository to enable the investors to dematerialise the stock market is to open a bank account. A bank account is required
securities. to hold the funds which would be investing in secondary market.
0QFO B %FNBU "DDPVOU Just as a bank account is required to

hold the funds, a Demat Account is required to hold and trade the
securities i.e. shares, debentures and mutual funds electronically.
Nine-tenths of education is encouragement.

– Anatole France

0QFO B USBEJOH BDDPVOU After opening a Demat account, a Circuit Breaker
trading account is required to trade in securities market. A trading/ Trigger limit Trigger Time Market halt duration
brokerage account allows you to purchase stocks, bonds, mutual
Before 1 p.m. 45 minutes
funds, and other units by paying the broker to do the trading on
your behalf. At or after 1 p.m. upto 15 minutes
10%
2.30 p.m.
At or after 2.30 p.m. No halt
5SBEJOH .FDIBOJTN With the advent of technology, trading at Before 1 p.m. 1 hour 45 minutes
stock exchanges are now taking place through an open electronic
limit order book, in which order matching is done by the trading At or after 1 p.m. upto 45 minutes
15%
computer. The buy or sell orders placed by the investors are 2 p.m.
matched automatically with the order which is best for them. On or after 2 p.m. Remainder of the day
20% Any time during market Remainder of the day
hours
1BZNFOU UP #SPLFS GPS QVSDIBTF PG TIBSFTTFDVSJUJFT The
payment for the shares purchased is required to be done prior to III. Trading and Settlement
the pay-in date for the relevant settlement or as otherwise provided
in the Rules and Regulations of the Exchange. Rolling settlement is basically settlement of transaction in stock
market in a certain number of days after the trade is agreed.
%FMJWFSZPGTIBSFTUPUIFCSPLFSGPSTBMF The delivery of shares Rolling Settlement

has to be done prior to the pay-in date for the relevant settlement or Activity Description of Activities Day Timings
as otherwise provided in the Rules and Regulations of the Exchange
and agreed with the broker/sub-broker in writing. Trading by investors T day
(i.e.
Trading
Trading
day)
Shelf prospectus is a prospectus which enables an issuer to make
BTFSJFTPGJTTVFTXJUIJOBQFSJPEPGZFBSXJUIPVUUIFOFFEPGmMJOH National Securities Clearing T+1 By 1.30
a fresh prospectus every time. This facility is available to public Corporation Ltd. (NSCCL) p.m.
sector banks, scheduled banks and Public Financial Institutions. DPOmSNT UIF USBEF GSPN
Clearing stock exchange. Then,
NSCCL processes and
Receipt of money for a sale transaction and receipt of shares for EPXOMPBET PCMJHBUJPO mMFT
BCVZUSBOTBDUJPO Brokers were required to make payment or give to brokers.
delivery within two working days of the pay-out day. However, as Pay-in of securities and T+2 By 10.30
settlement cycle has been reduced from T+3 rolling settlement to funds to NSCCL. a.m.
Settlement
T+2, the pay out of funds and securities to the clients by the broker NSCCL gives pay out of By 1.30
will be within 24 hours of the pay-out. Recently, stock market has securities and funds. p.m.
shifted to a shorter settlement cycle of T+1.
As the stock market is shifted to T + 1 recently, it would mean that
trades will be settled the day after the transaction. So, a buyer would
get the shares in the demat account and the seller would get the sale
Buy Back of Shares proceeds the next day.
The buyback is a process in which a company uses its surplus cash to

IV. National Securities Clearing Corporation Limited
buy shares from the public. It is almost the opposite of initial public
(NSCCL)
PĉFS JO XIJDI TIBSFT BSF JTTVFE UP UIF QVCMJD GPS UIF mSTU UJNF *O
buyback, shares which have already been issued are bought back The NSCCL undertakes the counter party risk of each member
from the public. And, once the shares are bought back, they get and guarantees settlement. Settlement guarantee is a guarantee
absorbed and cease to exist. provided by the clearing corporation for the settlement of all
trading of products in the stock exchange.
The organisations linked with Clearing Corporation in the clearing
Risk Management in Secondary Market and settlement process are discussed as below:
I. Trading Rules and Regulations Custodians/ Clearing banks Depositories

Clearing Members
Strict rules and regulations have been framed to prevent unfair
trading practices and insider trading. Stock exchanges impose N S C C L They act as a link They hold
different types of margins on brokers for individual stocks, takes trading between clearing securities in
depending upon the exposures taken by these brokers in these information from corporation dematerialised
stocks, both on ownership basis and on behalf of clients. the exchange and clearing form for the
and pass the member. Every investors in
trade details clearing member UIFJS CFOFmDJBSZ
II. Circuit Breakers to Curb Excess Volatility to custodians/ is required account. Every
clearing members. to maintain a clearing member
Circuit Breaker is a temporary halt or suspension of trading in any Custodians clearing account is required
particular stock or index for certain period of time. The move is DPOmSN UIF with one of the to maintain a
basically resorted to curb excess volatility in the stock market. obligations of the clearing banks. clearing pool
parties by netting. account with the
depositories.

V. Market Making System %HQHÀWVRIDQHIÀFLHQW'HEW0DUNHWWRWKH
The job of the market maker is to provide liquidity to the stock ÀQDQFLDOV\VWHPDQGWKHHFRQRP\
market by providing a two way quote i.e. a buy and a sell quote.
So, without the presence of market makers, very few trades could ͳFEFCUNBSLFUBMMPXTHPWFSONFOUUPSBJTFNPOFZUPmOBODFUIF
happen. Consequently, companies would have more limited access development activities of the government.
to capital.
VI. Securities Lending and Borrowing It plays an important role in efficient mobilisation and allocation of
resources in the economy.
Securities lending means lending of stocks, derivatives and other
TFDVSJUJFT UP JOWFTUPS PS mSN 4FDVSJUJFT MFOEJOH SFRVJSFT UIF
borrower to pledge, whether cash, security or a letter of credit to
the lender. When a security is lent, the title and the ownership are ͳF(PWFSONFOUTFDVSJUJFTBSFJTTVFEUPNFFUUIFTIPSUUFSNBOE
also transferred to the borrower. MPOHUFSN mOBODJBM OFFET PG UIF HPWFSONFOU UIFZ BSF OPU POMZ
used as instruments for raising debt, but have emerged as key
VII. Straight Through Processing (STP) instruments for internal debt management, monetary management
and short-term liquidity management.
The concept of Straight Through Processing is designed to
complete the transaction without human intervention. Straight
UISPVHIQSPDFTTJOH 451 JTBOJOJUJBUJWFUIBUmOBODJBMDPNQBOJFT
use to optimise the speed at which they process transactions. This The debt market also provides greater funding avenues to public
is performed by allowing information that has been electronically sector and private sector projects and reduces the pressure on
entered to be transferred from one party to another in the JOTUJUVUJPOBMmOBODJOH
settlement process without manually re-entering the same pieces
of information repeatedly over the entire sequence of events.
It also enhances mobilisation of resources by unlocking illiquid
retail investments like gold.
VIII. Margin Trading
Margin Trading is a facility given to the investors in which they can
JOWFTUJOTIBSFTCZQBSUmOBODJOHGSPNUIFCBOL*OPUIFSXPSET 3FEVDUJPO JO UIF CPSSPXJOH DPTU PG UIF (PWFSONFOU BOE FOBCMF
investors can provide some amount of money from their pocket to mobilisation of resources at a reasonable cost.
JOWFTUJOTIBSFT BOESFTUPGUIFBNPVOUJTmOBODFECZUIFCBOLT
IX. Short Selling Different types of risks with regard to debt

Short Selling means selling shares without owning it. In other securities
words, the task of short sellers is to borrow the shares (generally
through the clearing corporation of an exchange) and sell them. %FGBVMU 3JTL In default *OUFSFTU 3BUF 3JTL It
The borrowed shares which have been sold are bought back when risk, an issuer of a bond may DBO CF EFmOFE BT UIF
prices are lower. The shares are then returned back to the lender be unable to make timely risk emerging from an
BOEUIFFYDFTTQSPmUJTQPDLFUFECZUIFTIPSUTFMMFS payment of interest or adverse change in the
principal on a debt security interest rate prevalent in
or to otherwise comply with the market so as to affect
Indian Debt Market the provisions of a bond the yield on the existing
#BTJDBMMZ EFCUNBSLFUJTBmOBODJBMNBSLFUXIFSFCVZJOHBOETFMMJOH indenture and is also referred instruments.
of debt securities takes place. to as credit risk.
&ODVVLÀFDWLRQRI,QGLDQ'HEW0DUNHW Reinvestment Counter Party 1SJDF 3JTL It

3BUF 3JTL It can 3JTL It is the refers to the
CF EFmOFE BT UIF normal risk possibility of
Government Securities Market (G-Sec Market) associated with any
probability of a not being able
fall in the interest transaction and to receive the
t *U DPOTJTUT PG DFOUSBM BOE TUBUF HPWFSONFOU TFDVSJUJFT *U
rate resulting in refers to the failure expected price
means that, loans are being taken by the central and state or inability of the
a lack of options on any order due
government. It is also the most dominant category in the to invest the opposite party to to an adverse
Indian debt market. interest received the contract to movement in the
at regular intervals deliver either the prices.
Bond Market at higher rates at promised security
comparable rates or the sale-value
t *UDPOTJTUTPG'JOBODJBM*OTUJUVUJPOCPOET DPSQPSBUFCPOET in the market. at the time of
and debentures and Public Sector Unit bonds. These settlement.
CPOETBSFJTTVFEUPNFFUmOBODJBMSFRVJSFNFOUTBUBmYFE
DPTUBOEIFODFSFNPWFVODFSUBJOUZJOmOBODJBMDPTUT
“The learning process continues until the day you die.”

– Kirk Douglas

CHAPTER 5 – MONEY MARKET
CHAPTER OVERVIEW Supply based-sources influence uses
Banks are generally the main sources of funds in the money
market. Commercial Banks are the main supplier of funds in
Basics of Money Market Money Market Money Market Instruments especially RBI which issues Treasury
Money Market Participants Instruments #JMMTPOCFIBMGPGUIF(PWFSONFOUPG*OEJB
Not many instruments

(PWFSONFOU Unlike European Market, only few money market instruments are
CRR and Determination of
Securities available in India i.e. Treasury bill, commercial papers, commercial
SLR Interest Rates
Market CJMM DFSUJmDBUFPGEFQPTJUBOEDBMMOPUJDFNPOFZJO*OEJB
Reserve requirements
Recent
Repo and
Development in ͳFSFBSFmYFESFTFSWFSFRVJSFNFOUTJODBTFPG$BTI3FTFSWF3BUJP
Reverse Repo
Money Market (CRR) and Statutory Liquidity Ratio (SLR) which banks have to
maintain at all times. CRR is the reserve which banks have to
keep with RBI. Whereas, SLR is the reserve which banks have to
keep with themselves, thus, restricting the flow of money market
instruments.
Concept of Money Market
ͳF NPOFZ NBSLFU NBZ CF EFmOFE BT B DFOUSF JO XIJDI mOBODJBM
Lack of transparency
institutions congregate for the purpose of dealing impersonally in
NPOFUBSZBTTFUT*OBXJEFSTQFDUSVN BNPOFZNBSLFUDBOCFEFmOFE There is lack of transparency in money market because the
BTBNBSLFUGPSTIPSUUFSNNPOFZBOEmOBODJBMBTTFUTUIBUBSFOFBS secondary market is not very well developed. Since, the
substitutes for money. The term short-term means generally a period transactions are done Over the Counter (OTC), there is lack of
upto one year and near substitutes to money is used to denote any transparency and public information.
mOBODJBM BTTFU XIJDI DBO CF RVJDLMZ DPOWFSUFE JOUP NPOFZ XJUI
minimum transaction cost.
Commercial transactions are mainly in cash
Since most of the transactions are done through cash, the
3UH&RQGLWLRQVIRUDQ(IÀFLHQW0RQH\0DUNHW circulation of funds in money market instrument is restricted.
A well-developed money market has following characteristics–
Heavy Stamp duty limiting use of exchange bills
6TFTBCSPBESBOHFPGmOBODJBMJOTUSVNFOUT USFBTVSZCJMMT CJMMTPG
exchange, etc). In case of issuance of commercial bills, stamp duty is paid in case
of bill of exchange, thus, limiting their use. Further, in case of
Commercial Paper (CP), the stamp duty rates applicable to non-
Channelises savings into productive investments (like working CBOLFOUJUJFTBSFmWFUJNFTIJHIFSUIBOUIPTFBQQMJDBCMFUPCBOLT
capital).
Money Market Participants or Intermediaries

1SPNPUF mOBODJBM NPCJMJUZ JO UIF GPSN PG JOUFS TFDUPSBM nPXT PG
funds. Reserve Bank of India (RBI)
RBI is the most important participant of money market which
Facilitate the implementation of monetary policy by way of open takes requisite measures to implement monetary policy of the
market operations. country. As the Central bank, RBI regulates the money market
in India and injects liquidity in the banking system, when it is
EFmDJFOUPSDPOUSBDUTUIFTBNFJOPQQPTJUFTJUVBUJPO
Rigidities in the Indian Money Market Scheduled Commercial Banks (SCBs)
SCBs form the nucleus of money market. They are the most
Markets are not integrated
important borrower/supplier of short-term funds. They mobilise
Money market in India is not well integrated. There is a well- the savings of the people through acceptance of deposits and
developed secondary capital market in India, which does not exist lend it to business houses for their short-term working capital
in money market. requirements.
Players restricted Co-operative Banks
0OMZ (PWFSONFOU CBOLT '** BOE CJH DPNQBOJFT BSF JOWPMWFE Functions similarly as the commercial banks.
in the money market. Retail investors are rarely interested in
the money market, making it restricted to only corporates, the Financial and Investment Institutions
(PWFSONFOU BOE'PSFJHO*OTUJUVUJPOBM*OWFTUPST 'MMT
ͳFTF JOTUJUVUJPOT FH -*$ 65* (*$ %FWFMPQNFOU #BOLT FUD
have been allowed to participate in the call money market as
lenders only.

Corporates
t 5#T DBO CF QVSDIBTFE CZ BOZ QFSTPO mSN
Companies create demand for funds from the banking system. Eligibility
company, body corporate and institutions.
They raise short-term funds directly from the money market by
issuing commercial paper. Moreover, they accept public deposits
and also indulge in inter-corporate deposits and investments.
t ͳFUSFBTVSZCJMMTBSFSFQBJEBUQBSPOUIFFYQJSZ
Mutual Funds Repayment of their tenor at the office of the Reserve Bank
of India, Mumbai.
Mutual funds also invest their surplus funds in various money
market instruments for short periods. They are also permitted
to participate in the Call Money Market. Money Market Mutual
'VOETIBWFCFFOTFUVQTQFDJmDBMMZGPSUIFQVSQPTFPGNPCJMJTBUJPO t "MM UIF USFBTVSZ CJMMT BSF IJHIMZ MJRVJE
of short-term funds for investment in money market instruments. Availability instruments available both in the primary and
secondary market.
Discount and Finance House of India
The Discount and Finance House of India Limited (DFHI) has
been set up by the Reserve Bank of India jointly with public sector
CBOLT BOE BMMo*OEJB mOBODJBM JOTUJUVUJPOT UP EFBM JO TIPSUUFSN t 'PSUSFBTVSZCJMMTUIFEBZDPVOUJTUBLFOBT
Day Count
money market instruments. days for a year.
Money Market Instruments

Minimum
Amount of t 5#TBSFJTTVFEJOMPUTPGR25,000.
Call/Notice Money Bids
Call money market, or inter-bank call money market, is a segment
of the money market where scheduled commercial banks lend or
borrow on call (i.e., overnight) or at short notice (i.e., for period upto
EBZT UP NBOBHF UIF EBZUPEBZ TVSQMVTFT BOE EFmDJUT JO UIFJS Commercial Bills
cash-flows.
A commercial bill is one which arises out of a genuine trade
Location: The core of the Indian money market structure transaction, i.e. credit transaction. When the goods are sold, the
is the inter-bank call money market which is centralised seller draws a bill of exchange (BOE) on the buyer to pay a certain
primarily in Mumbai, with sub-markets in Delhi, Kolkata, amount on a particular date. The buyer then accepts the BOE, signs it
Chennai and Ahmedabad. and sends it to the seller. The seller on the maturity date presents the
BOE to the buyer and collects its payment. It is basically a negotiable
instrument and issued for a short period generally ranging from 3 to
Duration: ͳF BDUJWJUJFT JO UIF DBMM NPOFZ BSF DPOmOFE 6 months.
generally to inter-bank business, predominantly on an
overnight basis, although a small amount of business,
known as notice money was also transacted side by side &HUWLÀFDWHRI'HSRVLWV
with call money with a maximum period of 14 days.
t "MM TDIFEVMFE CBOLT FYDFQU 33#T BOE -PDBM

Area Banks) are eligible to issue CDs. It can
Participants:
Eligibility be also be issued by select all India Financial
a. Those who can both borrow as well as lend in the
Institutions.
market are RBI, Commercial Banks, Co-operative
banks and Primary Dealers.
b. Non-bank institutions (other than PDs) are not
permitted in the call/notice money market.
t ͳF$%TDBOCFJTTVFECZTDIFEVMFEDPNNFSDJBM
banks (excluding RRBs) at a discount to face
Term value for a period from 7 days to one year.
Treasury Bills
Treasury Bills (TBs) are one of the most popular money market
instruments issued by the Reserve Bank of India on behalf of the t ͳF$%TDBOCFJTTVFEGPSNJOJNVNBNPVOUPG
(PWFSONFOUPG*OEJB5#JMMTBSFHFOFSBMMZJTTVFEUPXBSEPĉTIPSU R1 lakhs to a single investor and multiples of R1
Denomi- lakh thereafter. There is, however, no limit on the
term mismatches in receipts and expenditure. Therefore, the purpose nation
of issuing treasury bills is to tackle short term liquidity problems. total quantum of funds raised through CDs.
Treasury bills are generally issued at discount and redeemed at par.
t $%T JTTVFE JO QIZTJDBM GPSN BSF GSFFMZ

t ͳF USFBTVSZ CJMMT BSF JTTVFE JO UIF GPSN PG transferable by endorsement and delivery.
promissory note in physical form or by credit Transfera- Procedure of transfer of dematted CDs is similar
Form to any other demat securities. There is no lock in
UP4VCTJEJBSZ(FOFSBM-FEHFS 4(- BDDPVOU bility
PS(JMUBDDPVOUJOEFNBUFSJBMJTFEGPSN period for the CDs.

t $%TNBZCFJTTVFEBUBEJTDPVOUPOGBDFWBMVF Cash Reserve Ratio and Statutory Liquidity
Banks / FIs are also allowed to issue CDs on
floating rate basis, provided the methodology Ratio
Discount of compiling the floating rate is objective,
transparent and market-based. Cash Reserve Ratio
CRR is the amount of reserve which banks have to keep with
Reserve Bank of India (RBI). The current CRR rate is 4%. However,
t #BOLT IBWF UP NBJOUBJO BQQSPQSJBUF SFTFSWF this rate may change from time to time as per the discretion of the
requirements, i.e., Cash Reserve Ratio (CRR) RBI. So, CRR is basically a fraction of the total amount of deposits
Reserve and Statutory Liquidity Ratio (SLR), on the issue collected from the customers and kept as reserve either in cash or
Requirements price of the CDs. as deposits with the central bank. CRR is prescribed according to
the guidelines of the central bank of a country.
Statutory Liquidity Ratio (SLR)

Commercial Paper SLR is the amount of reserve which banks have to keep it with
CPs are unsecured and negotiable promissory notes issued by themselves. Apart from Cash Reserve Ratio (CRR), banks have to
high rated corporate entities to raise short-term funds for meeting maintain a certain portion of their deposits in the form of liquid
working capital requirements directly from the market instead of assets like cash, gold and non-mortgaged securities. The current
borrowing from banks. SLR rate is 18%. However, this rate may change from time to time
as per the discretion of the RBI.
5JNJOHPG$1The timing of the launch of the CP issue Money Market Instruments: G SEC
would be indicated by RBI while giving its permission,
to ensure an orderly approach to the market. (Government Securities)
The Reserve Bank of India issues securities on behalf of the
Denomination and size of CP (PWFSONFOU ͳF UFSN (PWFSONFOU 4FDVSJUJFT JODMVEFT $FOUSBM
Denomination of CP note – R5 lacs or multiples (PWFSONFOU4FDVSJUJFT 4UBUF(PWFSONFOU4FDVSJUJFTBOE5SFBTVSZ
thereof. #JMMTͳFEJĉFSFOUUZQFTPG(PWFSONFOU4FDVSJUJFTBSFo
Maximum size of CP issue – 100% of the issuer's Dated Zero Coupon Floating Rate Capital
working capital (fund based) limits (determined by Securities Bonds or Deep Bonds Indexed
the consortium leader). Discount Bonds
Bonds
Period of CP Issued at par Issued at Issued at face Issued at face
Minimum currency – 7 days from the date of issue. value discount to face value value
Maximum currency – One year from the date of value
issue.
Interest or Do not carry Interest rate is Interest Rate
coupon any mYFE is reckoned
Mode of CP SBUF JT mYFE interest % over a as a
CP has to be issued at a discount to face value. at the predetermined % over
Discount rate has to be freely determined by the time of floating rate Inflation
markets issuances benchmark benchmark
which may be,
/FHPUJBCJMJUZPG$1 CP (being usance promissory may be WPI or CPI
note) would be freely negotiable by endorsement MIBOR or at the
and delivery. I N B M K time of
( I n d i a n issuance.
6OEFSXSJUJOHDPBDDFQUBODF PG $1T The CP Benchmark
issue cannot be underwritten or co-accepted in Swap) curve
any manner. Commercial Banks, however, can The tenor The tenor of the The tenor of The tenor of
provide standby facility for redemption of CPs on of the TFDVSJUZJTmYFE the the
the maturity date.
security is security is security is
mYFE mYFE mYFE
ͳF JTTVFS BOE UIF JTTVF FYQFOTFT The CP issuer
can be a company incorporated under the Companies The security The security is The security is The security is
Act subject to some requirements. The issue of CP is redeemed at redeemed at redeemed at
would be subject to payment of stamp duty. All issue redeemed at face face face
expenses such as dealer's fees, issuing and paying face value on its value on its value on its
agent's fees, rating agency fees, charges levied by banks value on its maturity maturity maturity
for providing redemption standby facilities and any maturity date plus Zero date date
other charges connected with the issue of CPs are to date coupon interest
be borne by the issuer.
on
the security
“If you cannot do great things, do small things in a great way.”

– Napoleon Hill

ECONOMICS FOR FINANCE
CA INTERMEDIATE - PAPER 8B - ECONOMICS FOR FINANCE
At the Intermediate level, students are expected to not only acquire professional knowledge but also the ability to apply such
LOPXMFEHFJOQSPCMFNTPMWJOH*OUIJTDBQTVMFGPSTUVEFOUT BOBUUFNQUIBTCFFONBEFUPDBQUVSFUIFTJHOJmDBODFBOEJNQPSUBODF
of the subject of Economics for Finance with the intention to assist in revision of concepts discussed in the study material.
The concept of Money Demand: Important theories

Money refers to assets which are commonly used and accepted as a means of payment or as a medium of exchange or for transferring
purchasing power.
Functions of Classical Approach

Money (QTM)
Money
Characteristics Neo Classical

of Money Approach Inventory Approach to
Transation Balances (Baumol)
Theories of Demand Keynesian Theory
for Money of Demand Friedman's Restatement of the
Quantity Theory
Post-Keynesian
Development in the Theory The Demand for Money as
of Demand for Money Behaviour towards Risk
t .JMUPO'SJFENBO FYUFOEJOH,FZOFT

speculative money demand within the
A Medium of framework of asset price theory holds that
Exchange demand for money is affected by the same
Friedman's factors as demand for any other asset,
Restatement namely, permanent income and relative
A Standard of the
A Measure of returns on assets
of Postponed Quantity
Value t ͳFOPNJOBMEFNBOEGPSNPOFZJTQPTJUJWFMZ
Payment Theory related to the price level, P; rises if bonds
Functions of and stock returns, rb and re, respectively
Money decline and vice versa; is influenced by
inflation; and is a function of total wealth
A Unit of A Store of t ͳF %FNBOE GPS .POFZ BT #FIBWJPVS

Account Value toward as ‘aversion to risk’ propounded
by Tobin states that money is a safe asset
but an investor will be willing to exercise a
The Basis of USBEFPĉ BOE TBDSJmDF UP TPNF FYUFOU UIF
Credit The Demand
higher return from bonds for a reduction
for Money
in risk
as Behaviour
t "DDPSEJOH UP 5PCJO SBUJPOBM CFIBWJPVS
toward Risk
induces individuals to hold an optimally
structured wealth portfolio which is
t *OWFOUPSZ "QQSPBDI UP 5SBOTBUJPO
comprised of both bonds and money and
Balances (Baumol)
the demand for money as a store of wealth,
t #BVNPM BOE5PCJO EFWFMPQFE
depends negatively on the interest rate.
a deterministic theory of transaction
demand for ‘real cash balance’, known as
Post- Inventory Theoretic Approach, in which
Keynesian money is essentially viewed as an inventory
Development held for transaction purposes. CONCEPT OF MONEY SUPPLY
in the Theory t 1FPQMF IPME BO PQUJNVN DPNCJOBUJPO PG
of Demand bonds and cash balance, i.e., an amount The measures of money supply vary from country to country,
for Money that minimises the opportunity cost. from time to time and from purpose to purpose.
t The optimal average money holding is: a
positive function of income Y, a positive
function of the price level P, a positive
function of transactions costs c, and a negative
function of the nominal interest rate i.

Reserve money, also known as central bank money, base money,
The Concept of or high-powered money, determines the level of liquidity and
Money Supply price level in the economy.
Reserve Money = Currency in circulation + Bankers’ deposits

with the RBI + Other deposits with the RBI
The Sources Measurement Determinants The Concept /FU3#*DSFEJUUPUIF(PWFSONFOU 3#*DSFEJU
of Money of Money of Money of Money to the Commercial sector + RBI’s Claims on
Supply Supply Supply Multiplier CBOLT 3#*TOFUGPSFJHOBTTFUT (PWFSONFOUT
Currency liabilities to the public – RBI’s net
non-monetary Liabilities
NM1 = Currency with the public + Demand deposits with
the banking system + ‘Other’ deposits with the RBI.
Importance of Money
NM2 = NM1 + Short-term time deposits of residents
Supply
(including an upto contractual maturity of one
year).
NM3 = NM2 + Long-term time deposits of residents +
$BMM5FSNGVOEJOHGSPNmOBODJBMJOTUJUVUJPOT
Liquidity aggregates
Monetary Monetary Policy Price Stability & L1 = NM3 + All deposits with the post office savings banks
Development Perspective (%1(SPXUI FYDMVEJOH/BUJPOBM4BWJOHT$FSUJmDBUFT
L2 = L1 + Term deposits with term lending institutions and
SFmOBODJOH JOTUJUVUJPOT '*T 5FSN CPSSPXJOH CZ '*T
$FSUJmDBUFTPGEFQPTJUJTTVFECZ'*T
t ͳF DFOUSBM CBOLT PG BMM DPVOUSJFT BSF - - 1VCMJDEFQPTJUTPGOPOCBOLJOHmOBODJBMDPNQBOJFT
empowered to issue currency and therefore,
the central bank is the primary source of
money supply in all countries. In effect, The concept of money multiplier
Sources high powered money is the source of all ͳFNPOFZTVQQMZJTEFmOFEBT
of Money other forms of money. M= m × MB
Supply t ͳF TVQQMZ SFTQPOTFT PG UIF DPNNFSDJBM Where M is the money supply, m is money multiplier and MB is
banking system of the country to the the monetary base or high-powered money.
changes in policy variables initiated by the (Money Supply)
central bank to influence the total money Money Multiplier(m) =
supply in the economy. In India, RBI is the (Monetary Base)
Central Bank.
The money multiplier approach to money supply propounded
t ͳF NFBTVSFT PG NPOFZ TVQQMZ WBSZ GSPN by Milton Friedman and Anna Schwartz, (1963) considers three
country to country, from time to time and factors as immediate determinants of money supply
from purpose to purpose. a) the stock of high-powered money (H)
t .FBTVSFNFOUPGNPOFZTVQQMZJTFTTFOUJBM b) the ratio of deposit to reserve, e = {R/D} and
as it enables a framework to evaluate c) the ratio of deposit to currency, c ={C/D}
Measurement whether the stock of money in the economy
of Money is consistent with the standards for price
stability, to understand the nature of The additional units of high powered money that goes into 'excess
Supply reserves' of the commercial banks do not lead to any additional
deviations from this standard and to study
the causes of money growth. loans and therefore, these excess reserve do not lead to the
t *O *OEJB 3#* IBT CFFO QVCMJTIJOH EBUB PO creation of deposits.
four alternative measures of money supply
denoted by M1, M2, M3, M4 besides the
When the required ratio falls, there will be multiple expansions
reserve money.
for demand deposits.
M1 = Currency and coins with the people + demand deposits of

banks (Current and Saving accounts) + other deposits with
the RBI.
M2 = M1 + savings deposits with post office savings banks. Excess reserve ratio is
M3 = M1 + net time deposits with the banking system. negatively related to the
market interest rate.
M4 = M3 + total deposits with the Post Office Savings
0SHBOJTBUJPO FYDMVEJOH/BUJPOBM4BWJOHT$FSUJmDBUFT
NEW MONETARY AGGREGATE

Effect of t 8IFO UIF 3FTFSWF #BOL MFOET UP UIF
t #BTFE PO UIF SFDFNPOEBUJPOT PG UIF 8PSLJOH (SPVQ PO Government governments under WMA/OD, it results
Money (1998), the RBI has started publishing a set of four new Expenditure in the generation of excess reserves (i.e.,
monetary aggregates on the basis of the balance sheet of the on Money excess balances of commercial banks with
banking sector in conformity with the norms of progressive supply the Reserve Bank).
liquidity. The new monetary aggregates are :

t ͳF $SFEJU .VMUJQMJFS BMTP SFGFSSFE UP A contractionary monetary policy-induced increase in interest
as the deposit multiplier or the deposit rates, increases the cost of capital and the real cost of borrowing
The Credit expansion multiplier, describes the amount GPS mSNT BOE IPVTFIPMET XIP SFTQPOE CZ DVUUJOH CBDL PO UIFJS
Multiplier of additional money created by commercial investment and purchase expenditures respectively.
bank through the process of lending the
available money, it has in excess of the The exchange rate channel works through expenditure switching
central bank's reserve requirements. between domestic and foreign goods on account of appreciation/
depreciation of the domestic currency with its impact on net
exports and consequently on domestic output and employment.
MONETARY POLICY
Two distinct credit channels - the bank lending channel and the
Monetary policy refers to the use of monetary policy instruments CBMBODF TIFFU DIBOOFM PQFSBUF CZ BMUFSJOH BDDFTT PG mSN BOE
which are at the disposal of the central bank to regulate the household to bank credit and by the effect of monetary policy on
availability, cost and use of money and credit so as to promote UIFmSNTCBMBODFTIFFUSFTQFDUJWFMZ
economic growth, price stability, optimum levels of output and
employment, balance of payments equilibrium, stable currency or
any other goal of government's economic policy. Asset prices generate important wealth effects that impact,
through spending, output and employment.
Objectives of
Monetary Policy
Operating
Framework
Monetary Policy
The Monetary
Analytics of
Policy Framework
Monetary Policy
Choosing the Choosing the Choosing the
Operative operating target intermediate target policy instruments
Procedures &
Instruments
The Monetary Monetary Policy

Policy Framework Instruments
The Organisational
Structure for Monetary Agreement
Policy Decisions
The Montary Policy
Committee ( MPC)
Direct Indirect
t 1SJDF4UBCJMJUZ
Objectives t &DPOPNJD(SPXUI Direct Instruments
of Monetary t &OTVSJOHBOBEFRVBUFnPXPGDSFEJU
Policy t $SFBUJPO PG BO FĊDJFOU NBSLFU GPS
government securities
Cash Reserve Ratio and Credit to Administered
Liquidity Reserve Ratios Priority Sector Interest Rate
prescribed from time
to time
Interest rate
Channel
Indirect Instruments
Analytics of Repos Open Market Standing Market-based

Exchange
Asset Price Monetary Operations Facilities Discount Window
Channel rate
Policy Channel
Cash Reserve Ratio
The Cash Reserve Ratio (CRR) refers to the fraction of the
total net demand and time liabilities (NDTL) of a scheduled
Quantum commercial bank in India, which it should maintain as cash
Channel deposit with the Reserve Bank irrespective of its size or
mOBODJBMQPTJUJPO

t *O *OEJB UIF mYFE SFQP SBUF RVPUFE GPS
Lower will be sovereign securities in the overnight
Higher the segment of Liquidity Adjustment Facility
liquidity in the
CRR with the (LAF) is considered as the ‘policy rate’.
system and
RBI t 3FQPPSSFQVSDIBTFPQUJPOJTBDPMMBUFSJTFE
vice versa
lending because banks borrow money from
3FTFSWF CBOL PG *OEJB UP GVMmMM UIFJS TIPSU
term monetary requirements by selling
securities to RBI with an explicit agreement
Policy Rate to repurchase the same at predetermined
Statutory Liquidity Ratio
EBUFBOEBUBmYFESBUFͳFSBUFDIBSHFECZ
t ͳF4UBUVUPSZ-JRVJEJUZ3BUJP 4-3 JTXIBUUIFTDIFEVMFE RBI for this transaction is called the ‘repo
commercial banks in India are required to maintain as rate’.
a stipulated percentage of their total Demand and Time t 3FWFSTF 3FQP JT EFmOFE BT BO JOTUSVNFOU
-JBCJMJUJFT %5- /FU %5- /%5- JO $BTI (PME PS for lending funds by purchasing
approved investments in securities. securities with an agreement to resell the
t ͳF4-3JTBMTPBQPXFSGVMUPPMGPSDPOUSPMMJOHMJRVJEJUZJO securities on a mutually agreed future date
the domestic market by means of manipulating bank credit. at an agreed price which includes interest
Changes in the SLR chiefly influence the availability of for the funds lent.
resources in the banking system for lending.
t ͳF .POFUBSZ 1PMJDZ $PNNJUUFF .1$
consisting of six members shall determine
the policy rate to achieve the inflation target
through debate and majority vote by a panel
Statutory Liquidity Ratio
of experts.
t ͳF .POFUBSZ 1PMJDZ 'SBNFXPSL
Treasury bills of the Agreement is an agreement reached
Cash
(PWFSONFOUPG*OEJB CFUXFFO UIF (PWFSONFOU PG *OEJB BOE
Monetary the Reserve Bank of India (RBI) on the
Policy maximum tolerable inflation rate as 4
(PME Dated Securities Committee percent Consumer Price Index (CPI)
inflation with a deviation of 2 percent.
t $IPJDFPGBNPOFUBSZQPMJDZBDUJPOJTSBUIFS
4UBUF(PWFSONFOU complicated in view of the surrounding
Investment uncertainties and the need for exercising
Loans
complex judgment to balance growth and
inflation concerns. Additional complexities
Other insturments arise in the case of an emerging market like
BTOPUJmFECZ3#* India.
INTERNATIONAL TRADE
Theories of International Trade
Types of Repo Market
International trade is the exchange of goods and services as well
as resources between countries and involves greater complexity
compared to internal trade
Repo on Repo on
sovereign Corporate debt Other Repos
securities securities IMPORTANT THEORIES OF INTERNATIONAL
THEORIES
The Mercantilists View of International Trade
t ͳF-JRVJEJUZ"EKVTUNFOU'BDJMJUZ -"' JT
a facility extended by the Reserve Bank of t .FSDBOUJMJTNBEWPDBUFENBYJNJTJOHFYQPSUTJOPSEFSUPCSJOH
India to the scheduled commercial banks in more precious metals and minimising imports through the
(excluding RRBs) and primary dealers to state imposing very high tariffs on foreign goods.
The Liquidity
avail of liquidity in case of requirement
Adjustment
(or park excess funds with the RBI in
(LAF) The Theory of Absolute Advantage: Adam Smith
case of excess liquidity) on an overnight
basis against the collateral of government
securities including state government t "DDPSEJOHUP"EBN4NJUIT"CTPMVUF$PTU"EWBOUBHFUIFPSZ
securities. a country will specialise in the production and export of a
commodity in which it has an absolute cost advantage.
“An investment in knowledge pays the best interest.”

— Benjamin Franklin

Forms of Import Tariffs
The Theory of Comparative Advantage : Ricardo
t 3JDBSEPhT UIFPSZ PG DPNQBSBUJWF BEWBOUBHF TUBUFT UIBU B t " TQFDJmD UBSJĉ JT BO JNQPSU EVUZ UIBU
nation should specialise in the production and export of the BTTJHOT B mYFE NPOFUBSZ UBY QFS QIZTJDBM
commodity in which its absolute disadvantage is smaller (this unit of the goods imported, whereas an
4QFDJmD5BSJĉ
is the commodity of its comparative advantage) and import ad valorem tariff is levied as a constant
the commodity in which its absolute disadvantage is greater percentage of the monetary value of one
(this is the commodity of its comparative disadvantage). unit of the imported good.
t "OBEWBMPSFNUBSJĉJTMFWJFEBTBDPOTUBOU
Ad volorem
The Heckscher-Ohlin Theory of Trade percentage of the monetary value of one
tariff
unit of the imported good.
t ͳF )FDLTDIFS0IMJO UIFPSZ PG USBEF BMTP SFGFSSFE UP BT
Factor-Endowment Theory of Trade or Modern Theory
of Trade, states that comparative advantage in cost of Anti-dumping Duties
production is explained exclusively by the differences in factor
t %VNQJOH PDDVST XIFO NBOVGBDUVSFST TFMM HPPET JO B
endowments.
foreign country below the sales prices in their domestic
market or below their full average cost of the product. It
Factor-Price Equalisation Theorem hurts domestic producers
t "OUJEVNQJOHNFBTVSFTBSFBEEJUJPOBMJNQPSUEVUJFTTPBT
t The Factor-Price Equalisation Theorem states that UPPĉTFUUIFGPSFJHOmSNhTVOGBJSQSJDFBEWBOUBHF
international trade equalises the factor prices between the
trading nations. Therefore, with free trade, wages and returns
on capital will converge across the countries. Countervailing Duties
t $PVOUFSWBJMJOHEVUJFTBSFUBSJĉTUPPĉTFUUIFBSUJmDJBMMZMPX
prices charged by exporters, who enjoy export subsidies and
New Trade Theory
tax concessions offered by the governments in their home
country.
t New Trade Theory is the latest entrant to explain the rising
proportion of world trade in the developed world and bigger
developing economies (such as BRICS) which trade in similar
products. These countries constitute more than 50% of world
trade. Accoring to this theory, two key concepts
Tariff barriers
t Economies of Scale and Network effects, affects international
create obstacles
trade in a major way.
to trade,
increase reduce the

THE INSTRUMENTS OF TRADE POLICY government prospect of
revenues. market access,
Trade policy encompasses all instruments that governments may
use to promote or restrict imports and exports
Effects of Tariff
Tariffs
protect make imported
domestic goods more
The Instruments Non-tariff Measures industries, expensive,
of Trade Policy (NTMs)
increase
Export-Related consumption
Measures of domestic
goods,
Tariff
Non-Tariff Measures
t 5BSJĉ BMTPLOPXOBTDVTUPNTEVUZJTEFmOFEBTBmOBODJBM
charge in the form of a tax, imposed at the border on goods t /POUBSJĉ NFBTVSFT /5.T BSF QPMJDZ NFBTVSFT PUIFS
going from one customs territory to another. Tariffs are the than ordinary customs tariffs, that can potentially have an
most visible and universally used trade measures. economic effect on international trade in goods, changing
quantities traded or prices or both
“Change is the end result of all true learning.”

— Leo Buscaglia

t 6OJMBUFSBMUSBEFBHSFFNFOUT
CATEGORY OF NON-TARIFF MEASURES t #JMBUFSBMBHSFFNFOUT
Major Types of t 3FHJPOBMQSFGFSFOUJBMUSBEFBHSFFNFOUT
Technical Measures Agreements, in t 5SBEJOHCMPD
t 4BOJUBSZBOE1IZUPTBOJUBSZ 414 NFBTVSFTBQQMJFEUPQSPUFDU International t 'SFFUSBEFBSFB
human, animal or plant life from risks, arising form addition, Trade t $VTUPNTVOJPO
pests, contaminants, toxins or disease causing organisms. t $PNNPO NBSLFU BOE FDPOPNJD BOE
t 5FDIOJDBM #BSSJFST UP USBEF TQFDJGZJOH EFUBJMT TVDI BT TJ[F monetary union.
shape, design, labelling/marking, etc.
("55
Non-technical measures relate to trade
requirements; for example; shipping t ͳF (FOFSBM "HSFFNFOU PO 5BSJĉT BOE 5SBEF ("55
requirements, custom formalities, trade rules, provided the rules for much of world trade for 47 years from
taxation policies, etc. 1948 to 1994.
t *NQPSU 2VPUBT 3FTUSJDUJPOT PO QIZTJDBM t &JHIU NVMUJMBUFSBM OFHPUJBUJPOT LOPXO BT USBEF SPVOET IFME
amount of imported goods VOEFSUIF("55BVTQJDFT
t 1SJDF $POUSPM .FBTVSFT *NQPTJOH UBYFT PO t ͳF UI PG UIF 6SVHVBZ 3PVOE PG XBT MBTU VOEFS
charges ("55BOEDVMNJOBUFEJOUIFCJSUIPG850
t /PO "VUPNBUJD -JDFOTJOH BOE 1SPIJCJUJPOT
Non-
Limiting or prohibiting certain types of import
Technical
t 'JOBODJBM.FBTVSFT3FHVMBUJOHBDDFTTUPBOE WTO
Measures
cost of foreign exchange. t ͳF FJHIUI PG UIF 6SVHVBZ
t (PWFSONFOU 1SPDVSFNFOU 1PMJDJFT (PWU Round of 1986-94, was the The principal objective of the
may lay down policies w.r.t procurements. last and most consequential WTO
t 5SBEF3FMBUFE *OWFTUNFOU .FBTVSFT .BZ of all rounds and culminated t 5P GBDJMJUBUF UIF nPX
include rules on local content requirements in the birth of WTO and of international trade
of production a new set of agreements smoothly, freely, fairly and
t &NCBSHPT5PUBMCBOPOJNQPSUPSFYQPSUPG SFQMBDJOH UIF (FOFSBM predictably.
some commodition to a particular country or Agreement on Tariffs and
SFHJPOGPSTPNFPSJOEFmOJUFQFSJPE 5SBEF ("55
Export Related Measures The WTO does its functions The WTO Activities
by acting as a forum for trade t BSF TVQQPSUFE CZ UIF
t #BOPG&YQPSU&YQPSUTPGDFSUBJOJUFNTNBZCFCBOOFEEVSJOH negotiations among member Secretariat located in
shortages. governments, administering (FOFWB IFBEFE CZ B
t &YQPSU 5BYFT "O FYQPSU UBY JT B UBY DPMMFDUFE PO FYQPSUFE trade agreements, reviewing %JSFDUPS (FOFSBM *U IBT B
HPPETBOENBZCFFJUIFSTQFDJmDPSBEWBMPSFNBOEBOFYQPSU national trade policies, three-tier system of decision-
TVCTJEZJODMVEFTmOBODJBMDPOUSJCVUJPOUPEPNFTUJDQSPEVDFST cooperating with other making. The top level
in the form of grants, loans, equity infusions also usually international organisations decision-making body is
provide etc., or give some form of income or price support. and assisting developing the Ministerial Conference,
Both distort trade. countries in trade policy issues followed by councils namely,
through technical assistance UIFϰ(FOFSBM$PVODJMϰBOEUIF
t &YQPSU TVCTJEJFT BOE *ODFOUJWFT (JWFO CZ HPWFSONFOU UP
and training programmes. (PPET $PVODJM 4FSWJDFT
boost exports.
t 7PMVOUBSZ &YQPSU3FTUSBJOUT 7PMVOUBSZ &YQPSU 3FTUSBJOUT Council and Intellectual
(VERs) refer to a type of informal quota administered by Property (TRIPS) Council.
an exporting country voluntarily restraining the quantity of
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importing country and to avoid the effects of possible trade of which 117 are developing countries or
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for about 95% of world trade.
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processes engaged in by countries having competing objectives. t Trade without discrimination, most-favoured-nation
treatment (MFN)
t The national treatment principle (NTP)
t Free trade
Trade Negotiations t Predictability
t (FOFSBMQSPIJCJUJPOPGRVBOUJUBUJWFSFTUSJDUJPOT
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t Market access and
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t %JĊDVMUJFTUIBUUIFZGBDFJOJNQMFNFOUJOHUIF
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falls with respect to the
value of another currency or
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t "OFYDIBOHFSBUFSFHJNFJTUIFTZTUFNCZXIJDIBDPVOUSZ
manages its currency in respect to foreign currencies. Effect of Appreciation Effect of Depreciation of a
t "O BQQSFDJBUJPO PG B Currency
country’s currency changes t Exchange rate depreciation
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will lead to changes in country’s exports, raises the
t ͳF FRVJMJCSJVN WBMVF PG UIF FYDIBOHF SBUF PG B DPVOUSZT import and export volumes, relative price of its imports,
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t " nPBUJOH FYDIBOHF SBUF BMMPXT B HPWFSONFOU UP QVSTVF competitiveness of domestic leads to output expansion,
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of market intervention or maintenance of reserves. But, EFmDJUTBOEDBOXPSTFOUIF increases the international
volatile exchange rates generate a lot of uncertainties in current account. competitiveness of domestic
relation to international transactions, examples: Advanced industries, increases the
volume of exports and
economies like U.S.A, New Zealand, Sweden.
promotes trade balance.

DETERMINATION OF NOMINAL EXCHANGE RATE Forward and /or Future Market
e
t $POUSBDUTCVZPSTFMMDVSSFODJFTGPSGVUVSFEFMJWFSZXIJDIBSF
S$ carried out in forward and/or future
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are carried out in forward and futures markets
e eq
INTERNATIONAL CAPITAL MOVEMENTS

D$
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as foreign aid, grants, borrowings, deposits from non resident
Qe $
Indians, investments in the form of foreign portfolio investment
Changes in Exchange Rate (FPI) and foreign direct investment (FDI)
Home-Currency Depreciation under Floating Exchange Rates

e International
Trade
S$
Exchange Rate Rs/$
e*
International
e eq E Capital
Movements
D1 $
D$
Qe Q* $ (Billions) FDI FPI
Home-Currency Appreciation under Floating Exchange Rates

e
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resident of one country (i.e. home country) acquires ownership of an
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E asset in the host country.
e eq
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land, inventories, etc. and have three components, viz., equity
capital, reinvested earnings and other direct capital in the form
D$
of intra-company loans. FDI may be categorised as horizontal,
O Qe Q* $ (Billions) vertical or conglomerate. Two-way direct foreign investments
reciprocal investments.
FOREIGN EXCHANGE MARKET ͳFNBJOSFBTPOTGPSGPSFJHOEJSFDUJOWFTUNFOUTBSFQSPmUT IJHIFS

rate of return, possible economies of large-scale in operation, risk
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markets and a physical place; any given moment, all availability of needed inputs and tax and investment incentives.
institutions rather, it is an markets tend to have
that handle ele ctronically the same exchange rate
the exchange linked network for a given currency. Foreign portfolio investment is the flow of ‘financial capital’
of foreign bringing buyers Arbitrage refers to the with stake in a firm at below 10 percent and does not involve
currencies and sellers practice of making manufacture of goods or provision of services, ownership
is known as together and SJTLMFTT QSPmUT CZ management or control of the asset on the part of the investor.
the foreign has only very intelligently exploiting
e xc h a n g e narrow spreads price differences of
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dealing places. (FDI) (FPI)
Investment involves creation *OWFTUNFOU JT POMZ JO mOBODJBM
Types of transactions in a forex market : of physical assets assets
Has a long-term interest and Only short-term interest and
Spot Market therefore remains invested for generally remain invested for
long short periods
t $VSSFOUUSBOTBDUJPOTXIJDIBSFDBSSJFEPVUJOUIFTQPUNBSLFU Relatively difficult to withdraw Relatively easy to withdraw
and exchange involves immediate delivery

Not inclined to be speculative Speculative in nature
Often accompanied by Not accompanied by technology (i) Green field investment
technology transfer transfer (establishment of a new overseas
Direct impact on employment No direct impact on affiliate for freshly starting production
of labour and wages employment of labour and by a parent company).
wages
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management and control management and control FDI which makes use of the existing
Securities are held with Securities are held purely as infrastructure by merging, acquiring
TJHOJmDBOU EFHSFF PG JOnVFODF B mOBODJBM JOWFTUNFOU BOE OP or leasing, instead of developing a
by the investor on the TJHOJmDBOUEFHSFFPGJOnVFODFPO completely new one. For e.g., in India
management of the enterprise the management of the enterprise 100% FDI under automatic route is
allowed in Brownfield Airport projects.
Modes of FDI
t 0QFOJOH PG B TVCTJEJBSZ PS BTTPDJBUF DPNQBOZ JO B GPSFJHO In India, foreign investment is prohibited in the following sectors:
country J -PUUFSZCVTJOFTTJODMVEJOH(PWFSONFOUQSJWBUFMPUUFSZ POMJOF
t &RVJUZJOKFDUJPOJOUPBOPWFSTFBTDPNQBOZ lotteries, etc.
t "DRVJSJOHBDPOUSPMMJOHJOUFSFTUJOBOFYJTUJOHGPSFJHODPNQBOZ JJ (BNCMJOHBOECFUUJOHJODMVEJOHDBTJOPT FUD
t .FSHFSTBOEBDRVJTJUJPOT ." (iii) Chitfunds
t +PJOUWFOUVSFXJUIBGPSFJHODPNQBOZ (iv) Nidhi company
t (SFFOmFMEJOWFTUNFOU (v) Trading in Transferable Development Rights
t #SPXOmFMEJOWFTUNFOUT (vi) Real Estate Business or Construction of Farm Houses
CROSSWORD SOLUTION  APRIL 2022

1
S 2
I 3
X S 4
I 5
G 6
M 7
A 8
C 9
R
10
U I B 11
C A A D 12
I E
13
P T R 14
F 15
P R 16
K F C
P 17
L I 18
C 19
K 20
P I R
21
L 22
G 23
I T 24
E U 25
S U
26
I L 27
O 28
E T S 29
A I
30
E C G C 31
F P H 32
R T
R 33
C R R 34
K M
35
I 36
M 37
F 38
I I 39
F 40
T E
41
F O C U 42
S 43
C A P N
44
D C A 45
S C E R T T
"I realised that becoming a master of karate was not about learning 4,000 moves
but about doing just a handful of moves 4,000 times."
— Chet Holmes

BUSINESS AND COMMERCIAL KNOWLEDGE
CA FOUNDATION - PAPER 4B - BUSINESS AND COMMERCIAL KNOWLEDGE
ͳJTDBQTVMFPO'PVOEBUJPO1BQFSQBSU**#VTJOFTTBOE$PNNFSDJBM,OPXMFEHFCSPBEMZDPWFSTUIFDPNQBOJFTEJTDVTTFE
in detail in Chapter 3 of the Study Material. To facilitate easy understanding of the significant changes in the year 2021, an
attempt has been made to give an overview of the significant changes in the companies in tabulated form.
It may be kept in mind that the capsule is not the replacement of the Study Material. Reading of Study Material is absolute
essential. This capsule is intended to assist you in the process of quick revision.
A. AN OVERVIEW OF SELECTED INDIAN COMPANIES

S. Company’s Name Incorpo- Headquarters Chairman Present Chief Chief Ranking Ranking
No ration Managing Executive Financial in Forbes in Forbes
year Director Officer Officer World’s World’s
Largest Public Best
Corporations Employer’s
List 2021 List 2021
1 Adani Ports 1998 Ahmedabad, (BVUBNCIBJ Karan Deepak 1489th
and Special (VKBSBU Shantilal (BVUBNCIBJ Maheshwari
Economic India Adani Adani
Zone Ltd.
2 Asian Paints 1942 Mumbai, Amit Syngle Amit Syngle RJ 1536th
Ltd. Maharashtra, Jeyamurugan
India
3 Axis Bank 1993 Mumbai, Amitabh Amitabh Puneet 585th 254th
Ltd. Maharashtra, Chaudhry Chaudhry Sharma
India
4 Bajaj Auto 1945 Pune, Rahul Bajaj Rajiv Bajaj Rajiv Bajaj Dinesh 1620th
Ltd. Maharashtra, Thapar
India
5 Bharti Airtel 1995 New Delhi, India Sunil Bharti (PQBM7JUUBM (PQBM7JUUBM Soumen Ray 725th
Ltd. Mittal
6 Bharat 1952 Mumbai, Arun Kumar Arun Kumar K Padmakar Ramakrishna 792nd
Petroleum Maharashtra, Singh Singh (VQUB7FUTB
Corporation India
Ltd.
7 Cipla Ltd. 1935 Mumbai, Y K Hamied Umang Vohra Umang Vohra Kedar 460th
Maharashtra, Upadhye
India
8 Coal India 1975 Kolkata, Pramod Pramod Sunil Kumar 770th
Ltd. West Bengal, Agrawal Agrawal Mehta
India
9 Dr. Reddy’s 1984 Hyderabad, Kallam Satish Erez Israeli Parag
Lab. Ltd. Telangana, Reddy Agarwal
India
10 Flipkart 2007 Singapore Kalyan Sriram
(legal domicile) Krishnamurthy Venkataraman
Bengaluru,
Karnataka, India
(Operational
Headquarters)
11 ("*- 1984 New Delhi, India Manoj Jain Manoj Jain Manoj Jain A K Tiwari 1377th
(India) Ltd
12 HDFC Bank 1994 Mumbai, Deepak S Sashidhar Srinivasan 116th 77th

Ltd. Maharashtra, Parek Jagdishan Vaidyanathan
India
13 ICICI Bank 1994 Mumbai, (JSJTI Sandeep Sandeep Rakesh Jha 182nd 65th
Ltd. Maharashtra, Chandra Bakhshi Bakhshi
India Chaturvedi
14 Indian Oil 1959 New Delhi, India Shrikant Sandeep 599th
Corporation Madhav ,VNBS(VQUB
Ltd. Vaidya
15 Infosys Ltd. 1981 Bengaluru, Nandan Salil Parekh Salil Parekh Nilanjan Roy 492nd 588th
Karnataka, Nilekani
India
16 ITC Ltd. 1910 Kolkata, Sanjiv Puri Sanjiv Puri Sanjiv Puri Supratim 833rd 453rd
West Bengal, Dutta
India

BUSINESS AND COMMERCIAL KNOWLEDGE
S. Company’s Name Incorpo- Headquarters Chairman Present Chief Chief Ranking Ranking
No ration Managing Executive Financial in Forbes in Forbes
year Director Officer Officer World’s World’s
Largest Public Best
Corporations Employer’s
List 2021 List 2021
17 Larsen & 1938 Mumbai, Anil S.N. S.N. Shankar 366th 127th
Toubro Ltd. Maharashtra, Manibhai Subrahmanyan Subrahmanyan Raman
India Naik
18 NTPC Ltd. 1975 New Delhi, India (VSEFFQ (VSEFFQ Anil Kumar 513th
Singh Singh (BVUBN
19 Oil & Natural 1956 Uttarakhand, Dr. Alka Dr. Alka Anurag 665h 404th
(BT India Mittal Mittal Sharma
Corporation
Ltd.
20 1PXFS(SJE 1989 (VSVHSBN Sreekant Sreekant Mohammed 796th
Corporation Haryana, Kandikuppa Kandikuppa Taj
of India Ltd. India Mukarrum
21 Reliance 1973 Mumbai, Mukesh Mukesh Mukesh Srikanth 55zh 52nd
Industries Maharashtra, Ambani Ambani Ambani Venkatchari
Ltd. India and Alok
Agarwal
22 State Bank 1806 Mumbai, Dinesh C.S. Setty, Charanjit 110th 119th
of India Maharashtra, Kumar Khara Ashwani Bhatia, Surinder
India Swaminathan J., Singh Attra
Ashwini
Kumar Tewari
23 Tata Sons 1868 Bombay House, Natarajan Natarajan Saurabh Tata Motors- Tata
Private Ltd. Mumbai, Chandrasekaran Chandrasekaran Agarwal and 784th (SPVQo
nd
Maharashtra, Eruch Noshir TCS – 322 746th
India Kapadia Tata Steel –
939th
24 Wipro Ltd. 1945 Bengaluru, Rishad Premji Rishad Premji Thierry Jatin Dalal 769th
Karnataka, Delaporte
India
B. AN OVERVIEW OF SELECTED GLOBAL COMPANIES

S. Company’s Name Incorpo- Headquarters Chairman Chief Chief Ranking in Ranking Ranking
No ration Executive Financial Forbes World’s in Forbes in Fortune
year Officer Officer Largest Public World’s Best 500
Corporations Employer’s Companies
List 2021 List 2021 List 2021
1 Amazon 1994 Seattle, Jeff Bezos Andy Jassy Brain T. 10th 4th 2nd
Washington, U.S. Olsavsky
2 American 1850 New York, United Stephen Stephen Jeffery C 95th 245th 312th
Express States of America Squeri Squeri Campbell
3 Apple 1977 California, United Tim Cook Luca Maestri 6th 5th 3rd
States of America
4 (PMENBO 1869 New York, United David M. David M. Stephen 26th 660th 59th
Sachs States of America Solomon Solomon Scherr
5 HP Inc. 1939 California, United Charles Enrique Marie Myers 709th 197th 56th
States of America Victor Bergh Lores
6 IBM 1911 New York, United Arvind Arvind James J. 59th 2nd 42nd
Corporation States of America Krishna Krishna Kovnaugh
7 Intel 1968 California, United Omar Ishrak Patrick Paul (FPSHF%BWJT 36th 69th 40th
Corporation States of America (FMTJOHFS
8 Microsoft 1975 Washington, John W. Satya Nadella Amy Hood 15th 3rd 15th
Corporation Thompson
9 Nestle 1866 Vevey, Switzerland Paul Bulcke Ulf Mark Francois- 39th 501st
Schneider Xavier Roger
10 Walmart 1969 Arkansas, United (SFHPSZ# Dough Bret Biggs 18th 1st
States of America Penner McMillon

KNOWLEDGE UPDATE
PRACTICAL ASPECTS ON FORENSIC ACCOUNTING AND FRAUD DETECTION
How is a forensic accounting analysis different from an audit?
The use of accounting theories, principles or analyses in a legal
action, often through expert testimony is known as Forensic Sr. Particulars Audit Forensic
Accounting. It is the study and interpretation of accounting No. Accounting
evidence. It is the application of accounting methods to the tracking
and collection of forensic evidence, usually for investigation and 1. Objective Express opinion Whether any fraud
prosecution of criminal acts such as embezzlement or fraud. as to “true & fair” has taken place in
'PSFOTJD "DDPVOUJOH FYBNJOFT JOEJWJEVBM PS DPNQBOZ mOBODJBM presentation. books.
records as an investigative measure that attempts to derive evidence
suitable for use in litigation. 2. Techniques ‘Substantive’ and Investigative,
‘Compliance’ substantive, or in-
procedure. depth checking.
The term Forensic Accounting envelops a wide scope of exercises Sample based.
including:
3. Period Normally for No such limitations.
t "O JOEJWJEVBM XJUI TDJFOUJmD UFDIOJDBM PS PUIFS a particular
specialised knowledge who is engaged to assist accounting
The Expert the “trier of fact” (a judge or jury) to understand period.
Witness the evidence or to determine a fact in issue.
4. 7FSJmDBUJPO Relies on the Independent
of stock, management WFSJmDBUJPO PG
t &JUIFS SFWJFXJOH JOUFSOBM DPOUSPMT UP WFSJGZ estimation of certificate/ suspected/selected
their adequacy or providing consultation in the realizable value Management items.
development and implementation of an internal of current assets, representation.
Fraud
control framework aligned to an organisation’s provisions,
Prevention
SJTLQSPmMF liability, etc.
5. Off balance Used to vouch Regulatory &

t Simply means the discovery of fraud. It includes sheet items (like the arithmetic propriety of these
a variety of strategies, such as internal control contracts etc.) accuracy & transactions /
QSPDFEVSFT TUBUJTUJDBM BOBMZTJT mOBODJBM compliance with contracts are
Fraud statements analysis, etc. The detective procedures
Detection procedures. examined.
are designed to identify an error or irregularity
after it has occurred. 6. A d v e r s e Negative opinion Legal determination
mOEJOHT JGBOZ PS RVBMJmFE of fraud impact
opinion expressed BOE JEFOUJmDBUJPO
t ͳFBQQMJDBUJPOPGDPNQVUFSUFDIOPMPHZJOBMFHBM with/without of perpetrators
action. It is focused on evidence contained in RVBOUJmDBUJPO depending on scope.
Computer computer equipment and various related storage
Forensics devices.
Where are the Fraud Vulnerabilities and why do they Occur?

"TQFSBTUVEZCZ"TTPDIBNBOE(SBOUͳPSOUPODPOEVDUFEJO UIFNPTUWVMOFSBCMFTFDUPSTUP'SBVEJO*OEJBBSF
Real Estate & Financial Telecom Manufacturing Electronics & IT Hospitality &
Infrastructure Services (5 %) (3 %) / ITeS Tourism
(52 %) (34 %) (2 %) (2 %)
4PVSDF'SBVE",FZHPWFSOBODFSJTLTUVEZCZ"TTPDIBNBOE(SBOUͳPSOUPODPOEVDUFEJO
ͳFJODSFBTJOHBEWFSTFFĉFDUTPG'SBVE NFSJUJUTGVSUIFSTUVEZBOEUIFmSTUTUFQJOUIBUTUVEZJTVOEFSTUBOEJOHBTUPA8IZEP'SBVET)BQQFO
The fraud triangle, developed by Donald Cressey, is a model for explaining the factors that cause someone to commit occupational fraud. It
consists of three components which together lead to fraudulent behaviour:

KNOWLEDGE UPDATE
Perceived
Pressure
Perceived
opportunity
Rationalisation
Fraud auditing is designed to look for seven types of fraud, according Why are Forensic Auditors required?
to Business Network’s “Recognising Fraud Indicators.” If we classify
They can resolve the matters by combining accounting knowledge and
frauds based on industry, following are the types of frauds:
experience with respect to:
Bank Fraud Filing Investigative

frauds Prevention requirements methodologies
Consumer Corporate
frauds frauds Assignments with
Fraud Court regulatory agencies
Detection systems like SEBI, RBI.
EOW etc.
Types of frauds Internal Controls

Securities Insurance Risk
Implementation
frauds frauds Management
and Review
Compliance Evidence
Health and Regulatory Collection and
Cyber
Care Functions Analysis
frauds
frauds
NEWS UPDATES
ECONOMIC UPDATES
t ͳF 3FTFSWF #BOL IBT SFDFOUMZ SFMFBTFE EBUB SFMBUJOH UP t 0OBSFWJFXPGUIFMJNJUTBOELFFQJOHJOWJFXUIFHSBEVBM
India’s International Investment Position at end-December lifting of Covid-19 restrictions, it has been decided to
ͳF SBUJP PG *OEJBT JOUFSOBUJPOBM mOBODJBM BTTFUT UP revert to the WMA limits and timelines for OD for State
JOUFSOBUJPOBMmOBODJBMMJBCJMJUJFTTUPPEMPXFSBUJO%FD (PWFSONFOUT65T BT SFDPNNFOEFE CZ UIF "EWJTPSZ
2021. Committee on Ways and Means Advances to State
Source:https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/ (PWFSONFOUTͳFTFOPSNTXJMMCFFĉFDUJWFGSPN"QSJM
PR193966AB2B94D130480987FFEAB0A446A6A1.PDF 2022 and are subject to review.
Source: https://www.rbi.org.in/Scripts/BS_PressRelease
t *O UIF CJHHFTU NFSHFS JO DPSQPSBUF IJTUPSZ *OEJBT MBSHFTU Display.aspx?prid=53499
IPVTJOHmOBODFDPNQBOZ)PVTJOH%FWFMPQNFOU'JOBODF
Corporation (HDFC) will merge into HDFC Bank which t (%1JOUIFSFHJPOXJMMFYQBOECZJOBOEJO
is India’s leading private lender, according to a regulatory 2023, on continued recovery in domestic demand and solid
mMJOH exports. Inflation will rise to 3.7% in 2022 and 3.1% in 2023
Source:https://www.indiatvnews.com/business/news/ as per the Asian Development Outlook April 2022.
hdfc-to-be-merged-with-hdfc-bank-share-price-bse-nse- Source:https://www.adb.org/outlook
shareholding-2022-04-04-767544
FOUR WEEKS RESIDENTIAL PROGRAMME:
STEP INTO A FUTURE WITH GREAT CAREER POSSIBILITIES
Businesses across industries and professions are looking for professionals with all rounded personality and global skillsets. The Four
Weeks Residential Programme conceptualised by ICAI provides a unique opportunity for the CA students to develop communication,
interpersonal, decision making, teamwork, creative problem solving & leadership skills, in the state of art residential campus at Centres of
Excellence - Hyderabad and Jaipur. The conducive environment at COEs helps students to unlock their true potential to give their best to
the world.
Training Methodology
Best global practices are employed to give an exposure of real-life scenarios to students alongwith an advantage of the Classroom learning
and live interaction with the subject experts.
Role Behaviour Case Mock

Plays Simulations Games
Modelling Studies Interviews
Programme Deliverables
Personality traits look Business Communication

Learning Strategies for
forward by Global & Presentation Skills for
Conflict Management
Businesses Global Engagement
Adaptability
Building Teamwork Fine art of good
& Continuous
through and impacting
development to fine tune
Team Activities communication
responsiveness
Mock Interviews / Group

Interpersonal & Practice Development
Discussion / Resume
Negotiation Skills and Management
Writing
Business-
Social Etiquettes
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ANNOUNCEMENT
ICAI is Celebrating Iconic Day on

8th June 2022
ͳFNF"DIJFWFNFOUT!
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The Students Skills Enrichment Board is organising an Iconic Day on 8th June, 2022 commemorating the celebrations of National level
Talent Search on the ͳFNFi"DIJFWFNFOUT!w under the banner of “Azadi Ka Amrit Mahotsav”. The programme entails the
DPOEVDUJPOPG/BUJPOBM&MPDVUJPO$POUFTUXIJDIXJMMCFDPOEVDUFEBUUISFFMFWFMTBTGPMMPXT
Level-I: Will be organised by Branches and Regional Councils [For level-I contest, the Regional Councils will also be treated as Branches
and winners from each Regional Council will be selected for level-II at Regional level]
Level-II: Winners of Level-I will participate at Level-II to be organised at Regional Level by respective Regional Council.
Level-III: Winners of Level-II will participate at National Level to be organised by Head Office at Delhi.
/VNCFSPGXJOOFSTBU#SBODI-FWFM
From Branches, the number of contestants selected for Regional Level Contest would depend upon the membership strength (as on
1st April every year) of the Branch and is as below:
Branches having less than 750 members - 1 winner
Branches having more than 750 members - 2 winners
For level-I contest, the Regional Councils will also be treated as Branches and winners from each Regional Council will be selected for
level-II at Regional level
/VNCFSPGXJOOFSTBU3FHJPOBM-FWFMFour (04) students from each region will be selected to participate at National Level.
The regional level contest will be conducted between 1st May, 2022 to 10th May, 2022 and National Level contest will be held on
8th June, 2022 at New Delhi.
Upcoming Events for May, 2022

S.no. Region Region/Branch Dates Program
1 EIRC EIRC of ICAI 1st May, 2022 Regional Level Talent Search-Elocution
Contest
2 WIRC WIRC of ICAI 2nd May, 2022 Regional Level Talent Search-Elocution
Contest
3 NIRC NIRC of ICAI 6th May, 2022 Regional Level Talent Search-Elocution
Contest
4 SIRC SIRC of ICAI 8th May, 2022 Regional Level Talent Search-Elocution
Contest
5 CIRC CIRC of ICAI 10th May, 2022 Regional Level Talent Search-Elocution
Contest

Announcement of four weeks 260321new.pdf 1 4/18/2022 10:50:30 AM
RNI NO. 66180/1997
Postal Registration: DL(C)-01/1280/2021-23, License To Post Without Prepayment,
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Posting Date: Last Three Days of Advance Month DQGŵUVWIRXUGD\VRIFXUUHQWPRQWKGD\VGDWHVRQO\
DDWHRISXEOLFDWLRQ: 26th of previous month
CROSSWORD - MAY 2022

19. An Indian brand (Perfume) present in and
1 2 3 4 5 6 7 8
around India.
9 10 21. A technology that uses LEDs in which the
light is produced by organic molecules.
11 12 13 23. ______ is the sounds or tones generated by a
telephone when the numbers are pressed.
14 15 16 17
26. ______ monitors and regulates the Indian
capital and securities market while ensuring
18 19 20
to protect the interests of the investors,
21 22 23 formulating regulations and guidelines.
28. A freely available and global framework for
24 25 26 exchanging business information.
29. The world’s leading professional body for
27 28
Accounting Technicians.
31. Abbre: Employee Engagement Lifecycle.
29 30 31
32. The selling price per unit minus the variable
32 33 34 35 36 cost per unit.
33. Stands for exempli gratia in Latin, which
37 38 means “for example”.
35. A component of salary of government
employees and pensioners, aimed at soothing
the impact of inflation.
ACROSS 30. A smart home solution provider that
1. A medium- to long-term debt instrument offers home automation devices.
used by large companies to borrow 32. _____ advises the government on
NPOFZ BUBmYFESBUFPGJOUFSFTU policy matters and formulates plans
9. Abbre: Rapid Micro Product for the development of electricity
Development. systems.
10. __ FM is a broadcast station from 34. An investment instrument almost
Antigonish, Nova Scotia, Canada. TJNJMBSUPmYFEEFQPTJUT
11. A revolutionary technique to precisely 36. An American retail and outdoor
quantify nucleic acids. recreation services corporation.
13. ____ are the rights given to persons over 37. An English musician and has been the
the creations of their minds. guitarist for a number of rock bands
14. It is the leverage associated with and artists.
JOWFTUNFOUBDUJWJUJFTPGBmSN 38. A classifying phrase or name applied
15. _____is a branch of economics focusing to a person or thing.
on the economic analysis of the
constitutional law of a state. DOWNWARD
16. The Economics research wing of RBI. 1. A defence R&D hub which develops
18. A statement offering to do something. defence technologies, systems/
20. _______ are government funded public products that are required for Indian
universities in India, founded pursuant to Armed Forces.
the second-generation reforms for legal 2. A person employed for wages or
education sought to be implemented by salary, especially at non-executive
the Bar Council of India. level.
21. An Indian multinational OTA, homes 3. _____ creates payment solutions for
and living spaces. retailers and customers worldwide.
22. A diagnostic medical imaging test. 4. ___ tools are technology platforms
23. __ shipping is a term that indicates a that can alert security teams of
seller is responsible for the safe delivery malicious activity.
of goods, and is also responsible for all 5. A fast, smart and secure web browser.
transportation costs and risks. 6. A wireless system comprised of two
24. Being in accordance with law. components: tags and readers.
25. ______ is well known for its contribution 7. The action of spending funds.
through research in social work, social 8. The amount that remains when use or
sciences, human resources management OFFEJTTBUJTmFE
& health systems located in Mumbai. 12. A project management planning tool
27. A test that detects abnormalities in brain used to calculate the amount of time,
waves. JU XJMM UBLF UP SFBMJTUJDBMMZ mOJTI B
28. __ Photoelectric Sensors for Transparent project.
Material Detection. 15. A credit loss accounting standard
29. A Swedish–Swiss multinational (model) that was issued by the
corporation headquartered in Zürich, Financial Accounting Standards If undelivered, please return to: The
Switzerland, operating mainly in robotics, Board. Institute of Chartered Accountants of
power, heavy electrical equipment, and 17. The Latin alphabet Internet country India, ICAI Bhawan, Indraprastha Marg,
automation technology areas. code top-level domain (ccTLD) for New Delhi-110104
Russia.
36

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VOL 25 NO.

12 PAGES 36 MAY 2022 50

Total Circulation: 2,80,097 EDITOR: CA. DAYANIWAS SHARMA

02 May 2022 The Chartered Accountant Student

The Chartered Accountant Student May 2022 03

04 May 2022 The Chartered Accountant Student

based on Paper 6B: Financial Services and Capital Market for

The Chartered Accountant Student May 2022 05

06 May 2022 The Chartered Accountant Student

CHAPTER 1 – GLOBAL FINANCIAL MARKET

Service providers in Financial Market

They provide individuals, companies, governments and quasi- Brokers

The Chartered Accountant Student May 2022 07

Securities and Exchange Board of India (SEBI)

CHAPTER 3 – CAPITAL MARKET - PRIMARY

To mobilise resources for investments.

To facilitate the process of eﬃcient price discovery.

08 May 2022 The Chartered Accountant Student

%FCFOUVSFT#POET One of the most popular

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The Chartered Accountant Student May 2022 09

CHAPTER 4 – CAPITAL MARKET - SECONDARY

10 May 2022 The Chartered Accountant Student

Stock Market Organisation in India

The stock market organisation in India as shown in the above diagram

Transparency brings better governance.

0QFO B %FNBU "DDPVOU Just as a bank account is required to

Nine-tenths of education is encouragement.

The Chartered Accountant Student May 2022 11

%FMJWFSZPGTIBSFTUPUIFCSPLFSGPSTBMF The delivery of shares Rolling Settlement

The buyback is a process in which a company uses its surplus cash to

I. Trading Rules and Regulations Custodians/ Clearing banks Depositories

12 May 2022 The Chartered Accountant Student

IX. Short Selling Different types of risks with regard to debt

&ODVVLÀFDWLRQRI,QGLDQ'HEW0DUNHW Reinvestment Counter Party 1SJDF 3JTL It

“The learning process continues until the day you die.”

The Chartered Accountant Student May 2022 13

Not many instruments

Money Market Participants or Intermediaries

Players restricted Co-operative Banks

14 May 2022 The Chartered Accountant Student

Money Market Instruments

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t $%T JTTVFE JO QIZTJDBM GPSN BSF GSFFMZ

The Chartered Accountant Student May 2022 15

Statutory Liquidity Ratio (SLR)

“If you cannot do great things, do small things in a great way.”

16 May 2022 The Chartered Accountant Student

The concept of Money Demand: Important theories

Functions of Classical Approach

Characteristics Neo Classical

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A Unit of A Store of t ͳF %FNBOE GPS .POFZ BT #FIBWJPVS

The Chartered Accountant Student May 2022 17

Reserve Money = Currency in circulation + Bankers’ deposits

M1 = Currency and coins with the people + demand deposits of

NEW MONETARY AGGREGATE

18 May 2022 The Chartered Accountant Student

The Monetary Monetary Policy

Analytics of Repos Open Market Standing Market-based

The Chartered Accountant Student May 2022 19

“An investment in knowledge pays the best interest.”

20 May 2022 The Chartered Accountant Student

%FCFOUVSFT#POET One of the most popular

%FSJWBUJWFT " EFSJWBUJWF JT B mOBODJBM

0QFO B %FNBU "DDPVOU Just as a bank account is required to

%FMJWFSZPGTIBSFTUPUIFCSPLFSGPSTBMF The delivery of shares Rolling Settlement

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