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Q25 (IAS/2023) Economy › Money, Banking & Inflation › Financial markets overview Official Key

Consider the following markets : 1. Government Bond Market 2. Call Money Market 3. Treasury Bill Market 4. Stock Market How many of the above are included in capital markets?

Result
Your answer: —  ·  Correct: B
Explanation

The correct answer is Option 2 (Only two). The Indian financial market is broadly divided into the Money Market and the Capital Market based on the maturity period of the instruments traded.

  • Capital Markets deal with long-term funds (maturity exceeding one year). In this question, the Government Bond Market (Gilt-edged market) and the Stock Market (Equity/Secondary market) fall under this category as they facilitate long-term capital formation.
  • Money Markets deal with short-term funds (maturity up to one year). The Call Money Market (inter-bank overnight lending) and the Treasury Bill Market (short-term sovereign debt instruments issued for 91, 182, or 364 days) are integral components of the money market.

Therefore, since only the Government Bond Market and the Stock Market are capital market components, the count is two. Options 1, 3, and 4 are incorrect because they either undercount or misidentify short-term money market instruments as capital market entities.

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Q. Consider the following markets : 1. Government Bond Market 2. Call Money Market 3. Treasury Bill Market 4. Stock Market How many of …
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Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 7.5/10 · 2.5/10
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This is a classic 'Taxonomy' question found in every standard Economy textbook (NCERT/Singh/Singhania). The core competency tested is simply distinguishing between 'Money Market' (short-term, <1 year) and 'Capital Market' (long-term, >1 year). No current affairs required; this is static theory.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Is the Government Bond Market included in the capital markets?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 9: Agriculture > CAPITAL MARKET > p. 261
Presence: 5/5
“Capital markets are such avenues for investors looking for return on their capital. Thus, in simple terms, capital markets serve the purpose of channelising savings and surplus funds into investments. Even the government, for meeting its development goals, likes creating new infrastructure and capital formation, participates in capital market by raising funds from individuals and financial institutions through Government Bonds or Dated Government Securities. Capital Markets include both debt (bond, debentures, etc.) and equity (shares). Generally, the period of investment in Capital Markets is more than 1 year, as it caters to long-term needs of the borrower.”
Why this source?
  • Explicitly states the government raises funds through Government Bonds/Dated Government Securities as participation in the capital market.
  • Directly defines capital markets as including debt (bonds, debentures) as well as equity.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > Govt. Securities Market: > p. 47
Presence: 5/5
“This market is regulated and managed by RBI. When Govt. (Central or State) wants money, RBI raises money for them by issuing securities/bonds in the Govt. Securities Market. First time the securities are issued in the Govt. Securities Market (basically primary market transaction) and then secondary market transactions happen. All the four types of Govt. securities i.e., "Cash Management Bills", "Treasury Bills", "Dated Securities" and "State Development Loans" are traded in the Govt. Securities Market. "Treasury Bills", "Dated Securities" and "State Development Loans" are also traded in Capital Market like BSE/NSE.”
Why this source?
  • Describes the Government Securities Market managed by the RBI for issuing government securities (primary issuance).
  • Specifically notes Treasury Bills, Dated Securities and State Development Loans are also traded in the Capital Market like BSE/NSE (secondary trading).
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.7 Financial Markets > p. 50
Presence: 4/5
“A financial market is a market that brings buyers and sellers together to trade in financial securities or assets such as stocks, bonds, derivatives, currencies etc. Financial markets are broadly of two types. • 1. Capital Market: Financial markets for buying and selling debt and equity securities. In this market (generally) securities of medium and long term of more than one year are bought and sold. Capital markets are of two types: • (i) Primary Market: It refers to the capital market where securities are created. It is in this market that companies sell new shares and bonds for the first time (Initial Public Offering, IPO).”
Why this source?
  • Defines capital market as the financial market for buying and selling debt and equity securities.
  • Frames capital market as the venue for medium- and long-term securities, which covers government bonds.
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Statement analysis

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