IBPS PO (Probationary Officer) · Banking & Financial Awareness
Money Market & Capital Market
Covers the structure and instruments of Indian money markets and capital markets including primary and secondary segments.
Eight concepts. Banking awareness splits money market from capital market by maturity and regulator, then name T-Bill tenors, primary vs secondary issue, and Sensex/Nifty counts. Tables and pegs carry the recall load; the discount-yield formula is stated without a worked numerical case.
- IBPS PO (Probationary Officer)
- Medium level
- 8 concepts
- 15 practice questions
1Money market vs capital market
The money market deals with short-term funds — maturity up to one year — and is regulated by the RBI. The capital market deals with long-term funds — over one year — and is regulated by SEBI (the Securities and Exchange Board of India).
Maturity and regulator travel together: up to one year → money market → RBI; over one year → capital market → SEBI.
Figure. Up to one year is the money market under the RBI. Over one year is the capital market under SEBI. Maturity and regulator travel as a pair.
| Market | Maturity | Regulator |
|---|---|---|
| Money market | Up to one year | RBI |
| Capital market | Over one year | SEBI |
A corporate needs overnight call money this week and, separately, plans a 10-year bond issue next year. Which regulator pairing matches the source split?
- Call money (money market) under RBI; long-term bonds (capital market) under SEBI
- Both under IRDAI because both involve 'funds'
- Both under NABARD because both can fund agriculture eventually
Short-term money-market funds → RBI; long-term capital-market securities → SEBI. IRDAI is insurance; NABARD is rural credit.
2Money market instruments
Key money-market instruments are Treasury Bills (T-Bills), Commercial Paper (CP), Certificates of Deposit (CD) and Call Money. They are characterised as highly liquid and low-risk relative to long-term capital-market instruments.
Call Money is the overnight interbank segment; T-Bills are government discount instruments; CP and CD are short-term paper issued by corporates and banks respectively in the usual textbook framing.
Figure. Money-market instruments stay inside one year: Call Money is overnight interbank, T-Bills are government discount paper up to 364 days, and CP/CD are short-term corporate and bank paper.
| Instrument | Issuer cue | Market home |
|---|---|---|
| Treasury Bills | Government of India | Money market |
| Commercial Paper | Corporates (short-term) | Money market |
| Certificates of Deposit | Banks (short-term) | Money market |
| Call Money | Interbank overnight funds | Money market |
Which set belongs entirely in the Indian money market?
- T-Bills, Commercial Paper, Certificates of Deposit, Call Money
- Sensex constituents only, with no short-term paper
- 10-year G-secs exclusively, regulated only as equity IPOs
T-Bills, CP, CD and Call Money are the named money-market set. Sensex is an equity index; long-term G-secs sit in the longer-term government securities space, not that short-term list.
3Primary and secondary capital markets
The capital market has two segments. The primary market is where new securities are issued — IPOs and FPOs are the usual examples. The secondary market is where already-issued securities are traded on stock exchanges such as the NSE and BSE.
If the company is raising fresh capital from investors, you are in the primary market. If investors are buying from other investors on an exchange, you are in the secondary market.
Figure. Primary: the issuer receives the cash for new securities. Secondary: investors trade with each other on the exchange and the company gets nothing from that trade.
| Segment | What happens | Examples |
|---|---|---|
| Primary market | New securities issued; issuer raises funds | IPO, FPO |
| Secondary market | Existing securities trade among investors | NSE, BSE trading |
An investor buys shares of a listed company from another investor on the NSE; the company itself receives no new money. Which market segment is that?
- Primary market IPO allotment
- Secondary market exchange trade
- Call Money overnight window
Trading existing shares on an exchange is the secondary market. Primary is new issue; Call Money is a money-market segment.
4Treasury Bill maturities
Treasury Bills are short-term instruments issued by the Government of India at a discount and redeemed at face value. They are available in three tenors: 91-day, 182-day and 364-day. All three are under one year, which is why T-Bills sit in the money market.
T-Bills carry no explicit coupon; the return is the gap between the discounted purchase price and the face value at redemption.
Figure. T-Bills come in three tenors — 91, 182 and 364 days — all under one year, so they sit in the money market. Return is the discount to face, not a coupon.
| Tenor | Market | Pricing shape |
|---|---|---|
| 91 days | Money market | Issued at discount; redeemed at par |
| 182 days | Money market | Issued at discount; redeemed at par |
| 364 days | Money market | Issued at discount; redeemed at par |
Treasury Bills in India are issued for which maturity set?
- 91 days, 182 days and 364 days
- 2 years, 5 years and 10 years only
- Overnight call only, with no discount instrument
T-Bills use the three money-market tenors 91, 182 and 364 days. Multi-year tenors are not T-Bill maturities.
5T-Bill discount yield formula
Because T-Bills are issued at a discount to face value, the money-market yield formula is \mathrm{Yield} = \frac{\text{Face Value} - \text{Purchase Price}}{\text{Purchase Price}} \times \frac{365}{\text{Days to maturity}} \times 100.
The formula annualises the discount using a 365-day year. This topic states the relation; it does not walk a separate numerical purchase-price example.
Figure. T-Bill yield annualises the discount: (face − price) / price, times 365 / days to maturity, times 100. The figure shows the cash path; the formula annualises it.
| Symbol / piece | Meaning |
|---|---|
| Face Value − Purchase Price | Rupee discount earned if held to maturity |
| ÷ Purchase Price | Return relative to amount invested |
| × (365 / Days to maturity) | Annualises using a 365-day year |
| × 100 | Expresses the result as a percent |
A T-Bill is bought below face value and redeemed at par at maturity. Which statement matches the pricing idea?
- Return equals an explicit coupon printed like a corporate bond's annual interest rate alone
- Return is the difference between discounted purchase price and face value at redemption (annualised by the yield formula when needed)
- T-Bills always trade only in the secondary equity market under Sensex rules
T-Bills are discount instruments: earn the gap to face value. They are not coupon bonds, and they are money-market government paper, not Sensex equity rules.
6RBI, SEBI and neighbouring regulators
Split the regulators cleanly: RBI for the money market and banks; SEBI for the capital / securities market (statutory since 1992); IRDAI for insurance; PFRDA for pensions. NABARD handles rural credit — it is not the capital-market regulator.
A question that names the 'securities and capital market' is pointing at SEBI even if the product is a bond rather than a share.
Figure. Match the domain: RBI for banks and the money market, SEBI for securities, IRDAI for insurance, PFRDA for pensions. NABARD is rural credit — not the capital-market regulator.
| Regulator | Domain | Statutory cue |
|---|---|---|
| RBI | Money market and banks | Central bank |
| SEBI | Capital / securities market | Statutory since 1992 |
| IRDAI | Insurance | Not capital-market regulator |
| PFRDA | Pensions | Not money-market regulator |
| NABARD | Rural credit | Not SEBI's job |
Which body is the regulator of the securities and capital market in India?
- RBI
- SEBI
- IRDAI
SEBI regulates the capital/securities market (statutory since 1992). RBI covers money market and banks; IRDAI covers insurance.
7Sensex and Nifty 50
The BSE Sensex tracks 30 major companies. The NSE Nifty 50 tracks 50 major companies. Both serve as benchmark indices of the Indian equity market.
Counts are the recall: Sensex 30, Nifty 50. Live index levels change daily and are not stable facts to memorise.
Figure. Headcounts are the recall: Sensex tracks 30 companies, Nifty 50 tracks 50. Live index levels change daily and are not stable facts.
| Index | Exchange | Constituents |
|---|---|---|
| Sensex | BSE | 30 major companies |
| Nifty 50 | NSE | 50 major companies |
A quiz asks how many major companies the BSE Sensex and the NSE Nifty 50 each track.
- Sensex 50 and Nifty 30
- Sensex 30 and Nifty 50
- Both track exactly 100 companies
Sensex = 30; Nifty 50 = 50. Swapping the counts is the usual trap.
8Free-float market-cap weighting
Both Sensex and Nifty are free-float market-capitalization weighted. Free-float weighting means a company's weight reflects the value of shares available for public trading, not the entire promoter-locked capitalisation.
The construction fact is that weighting method by name, held beside the 30/50 counts — not a hand calculation of index points.
Figure. Free-float weighting counts only shares available for public trading. Promoter-locked capitalisation does not inflate the index weight.
| Cue | Sensex / Nifty fact |
|---|---|
| Weighting method | Free-float market-capitalization weighted |
| Sensex count | 30 stocks |
| Nifty 50 count | 50 stocks |
| Role | Benchmark Indian equity indices |
Relative to an equal-weighted basket, how are Sensex and Nifty weighted?
- Price-weighted only by the single highest share price
- Free-float market-capitalization weighted
- Weighted only by the number of employees in each firm
Both benchmarks are free-float market-cap weighted. Employee count is irrelevant; pure price-weighting is not how these indices are constructed.
Notes
- Money market vs capital market: The money market deals with short-term funds (maturity up to one year) and is regulated by the RBI, while the capital market deals with long-term funds (over one year) and is regulated by SEBI.
- Money market instruments: Key instruments include Treasury Bills (T-Bills), Commercial Paper (CP), Certificates of Deposit (CD) and Call Money; they are highly liquid and low-risk.
- Capital market segments: The capital market has a primary market, where new securities are issued (e.g., IPOs), and a secondary market, where existing securities are traded on stock exchanges like the NSE and BSE.
- Treasury Bills: T-Bills are short-term instruments issued by the Government of India at a discount and redeemed at face value, available in 91-day, 182-day and 364-day maturities.
- Stock market indices: The BSE Sensex tracks 30 major companies and the NSE Nifty 50 tracks 50 major companies, serving as benchmark indices of the Indian equity market.
Formulas
- Regulators: Money market -> RBI; Capital/securities market -> SEBI (Securities and Exchange Board of India, statutory since 1992).
- T-Bill maturities: 91 days, 182 days and 364 days; issued at a discount to face value and redeemed at par.
- T-Bill yield: \text{Yield} = \frac{\text{Face Value} - \text{Purchase Price}}{\text{Purchase Price}} \times \frac{365}{\text{Days to maturity}} \times 100.
- Market split: Primary market = new issue market (IPO/FPO); Secondary market = trading of already-issued securities on exchanges.
- Benchmark indices: BSE Sensex = 30 stocks; NSE Nifty = 50 stocks; both are free-float market-capitalization weighted.
Exam traps & shortcuts
- Money market = short-term + RBI; Capital market = long-term + SEBI - fix the 'time + regulator' pair for each.
- Sensex = 30, Nifty = 50 - remember the numbers and their exchanges (BSE and NSE respectively).
- Primary market = 'new' securities (IPO); Secondary market = 'used'/existing securities trading - primary comes first.
- T-Bills come in '91-182-364 days' - note they are all under a year, confirming they are money-market instruments.
Reference tables
| Item | Fact |
|---|---|
| Money market | ≤ 1 year; RBI; T-Bills, CP, CD, Call Money |
| Capital market | > 1 year; SEBI (statutory 1992) |
| Primary / secondary | New issue (IPO/FPO) vs exchange trading of existing securities |
| T-Bill tenors | 91, 182, 364 days; discount to face value |
| Sensex / Nifty | 30 / 50 stocks; free-float market-cap weighted |
| Other regulators | IRDAI insurance; PFRDA pensions; NABARD rural credit |
Recap
Read only this the night before.
- Split
- Money market ≤1 year → RBI. Capital market >1 year → SEBI.
- Instruments
- Money market: T-Bills, CP, CD, Call Money — liquid, short-term.
- Segments
- Primary = new issue (IPO/FPO). Secondary = NSE/BSE trading of existing securities.
- T-Bills
- 91 / 182 / 364 days; issued at discount, redeemed at par; no explicit coupon.
- SEBI
- Capital/securities market regulator; statutory since 1992.
- Indices
- Sensex 30 (BSE); Nifty 50 (NSE); free-float market-cap weighted.
- Neighbours
- IRDAI insurance; PFRDA pensions; NABARD rural credit — not SEBI.
Practise Money Market & Capital Market
Reading is free and needs no account. Practice, mocks and progress live in the app.
- 15 exam-style questions on this topic, with explanations
- A 6-question practice set that ends the chapter
- Timed mocks scored with the real marking scheme
- Readiness tracked per topic, kept on your device