Financial Markets and Institutions

A repurchase agreement, or repo for short, is a type of short-term loan much used in the money markets, whereby the seller of a security agrees to buy it back at a specified price and time. The seller pays an interest rate, called the repo rate, when buying back the securities.

There are a total of 21 stock exchanges in India, with the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) being the largest. Both offer stocks with volume and opportunity as India and the exchanges continue to grow and attract foreign investment.

The Reserve Bank of India changes the cash reserve ratio from time- this is a true statement. Cash reserve ration is one of the quantitative methods of controlling credit creation capacity of the commercial bank. During inflation, Cash reserve ration is raise in order to reduce the money supply in an economy to check inflation and vice-versa.

Dividend per share is calculated by dividing total dividends paid by the number of common shares outstanding. Here, 67,600,000 / 55,000,000 equals approximately 1.229, which rounds to 1.23.

The process by which allocation of funds is done is called financial intermediation. This process helps to channelize funds from the borrowers to lenders. Financial intermediation generally cause reduction in transaction cost. This process is mainly performed by the financial intermediaries, such as stockbroker, commercial bank, investment bank, etc.

Certificates of deposit (CD) help to mobilize a large amount of money for short periods- this is a true statement. CDs are freelyy negotiable. It can be issued for a period of 91 days to 1 year. It is generally issued at a discount on the actual amount of deposits held.

Holders
of assets can readily sell their financial assets through the mechanism
of the financial market. This is because financial markets provide liquidity to Financial Assets. Liquidity of financial assets means that financial assets can be converted into cash in a short time, with little or no loss in value.

The financial market contributes towards the nation's economic growth and development. This statement is True. 
Reasons : 
(a) The place where people and institutions borrow money are brought together with those having surplus funds, is called a Financial Market.
(b) The financial market contributes to national growth by facilitating continuous flow of surplus fund to business enterprises (sick and deficit units) through its allocative function ensuring higher rate of return to the savers/household by investing the scarce resources in the enterprises having higher productivity, increasing the rate of capital formation. 
(c) The financial market contributes a lot to the development of the entreprenurial class by financing their business requirements. It obtain funds from individual households private and public sector units. Central govt. etc. and supply these funds to those business units who need it for productive purpose.
(d) The components of Financial Market is money market and capital market. It helps in accelerating the rate of industrial and economic development of the country. As a result, the standard of living and social welfare goes up. Thus, Financial market contributes towards the nations growth and development.

Primary market deals with the issue of new securities. That is, through the primary market a company raises capital directly from the borrowers. That is, once the securities are issued in primary market, they are then traded in the secondary market. It is in this sense that both the markets complement each other

International liquidity refers to the total stock of assets, such as gold, foreign exchange reserves, and special drawing rights, that a country holds to settle its international payment obligations.

`Deep market is one where there are always sufficient orders for buying and selling at fine quotations, both below and above the market price, and where there are good opportunities for swap deals.

Integration of financial markets involves the freedom and opportunity to raise funds from and to invest anywhere in the world, through any type of instrument. All the given factors are responsible for Integration of financial markets. 

Wilcox proposed that the net liquidation value of the firm is the best indicator of its financial health. The net liquidation value can be obtained by the difference in liquidation value of a firms assets and the liquidation value of its liabilities.

Long-term decisions involve setting up of the firm, expansion, diversification modernization and other similar capital expenditure decisions requiring huge investment made by raising long-term sources, the benefits of which can be seen only in the long term. Because of the huge investments involved these decisions are irreversible.

Factoring is a financial service under which the factor undertakes collection, accounting and management of the client's debt. Thus the factor is an intermediary between the supplier and the customers who performs financing and debt collection services.

Sick industrial company is company registered for not less than five years which has to the end of any financial year, accumulated losses equals to or exceeding its entire net worth.

The most important and visible effect of globalization and integration of financial markets is the increase in volatility in:
1. Interest rates
2. Exchange rates &
3. Prices of financial assets change quite frequently in response to various changes taking place in different segments of the financial markets  all over the world.