Introduction to Stocks and Shares

From a score perspective, Mains (Phase II) is the most crucial exam towards becoming an RBI Grade-B officer. As the gap between Phases I & II is a mere 15 days, you need to prepare for both phases simultaneously. To ensure a good score across the sections of Phase II, you need to adopt an effective strategy and put in lots of hard work.

The Phase II exam paper has 3 sections: Finance & Management (F&M), Economic & Social Issues (ESI), and English (Writing Skills). Each section is of 100 marks; and has a 90-minute time limit. While F&M and ESI are objective papers, English (Writing Skills) is a descriptive paper. Since the paper is of objective type, conceptual clarity is essential to avoid mistakes while identifying the correct answer from the options provided. Numericals is included in the Finance section of F&M. So, ensure that you memorize all the relevant formulae.

Another part of F&M is Stocks and Shares.

Let's now take a look at some of the associated concepts:

What is a Financial Market?

A financial market is where people trade financial securities and derivatives (such as, futures and options) at low transaction costs. Securities include stocks & bonds, and precious metals. Capital market is a type of financial market, which consists of stock and bond markets, commodity markets, derivatives markets, future markets, foreign exchange markets, cryptocurrency markets, spot markets, and interbank lending markets.

What is a Stock Market?

A stock market (equity market or share market) is a combination of buyers and sellers of stocks, which represent rights claims on businesses. These may comprise securities listed on both public stock exchange and the privately traded.

What are Stocks & Shares?

Stock is a broad term used to describe the ownership certificates of any company. On the other hand, shares refer to the rights certificates of a company. So, if investors say they own stocks, they are usually referring to their overall ownership in one (or more) companies. Stocks and shares can be issued from primary and secondary markets.

What is a Primary Market?

Primary Market consists of provisions, which facilitate the obtaining of long-term funds by companies by the way of making a fresh issue of shares and debentures. One must know that companies make a fresh issue of shares and/or debentures at their initial stages; and, if necessary, subsequently for the growth of business. It is usually done through private placement; through friends, relatives, and financial institutions; or by making a public issue. In any case, companies must follow a well-established legal procedure; and involve several intermediaries (such as, underwriters, brokers, etc.) who form an essential part of the primary market.

What is a Secondary Market?

Secondary market, also known as stock market (or stock exchange) plays an equally important role in mobilizing long-term funds by providing the necessary liquidity to holdings in shares and debentures. It is a place where these securities can be encashed without any difficulty and delay. It is an organized market, where shares and debentures are traded regularly with a high degree of transparency and security. In fact, an active secondary market facilitates the growth of the primary market, as the investors in the primary market are assured of a continuous market for the liquidity of their holdings.

Note: This was just an introduction to the section. You will need to study the above-mentioned topics (as well as other financial topics) in depth. As the questions asked are quite technical in nature, a good strategy will be to make notes on important finance concepts to revise on a regular basis.

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