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?

(a) Only one
(b) Only two ✓ UPSC's answer
(c) Only three
(d) All four

Why the answer is (b)

• Financial markets are divided by maturity: the money market deals in funds for up to one year, the capital market in long-term funds of more than a year.

• The government bond (G-Sec) market, with dated securities of 5 to 40 years, is part of the capital market (item 1); the stock market, where equity is raised and traded, is the other main segment (item 4).

• The call money market (overnight to 14-day interbank lending) and the treasury bill market (91-, 182- and 364-day government paper) are money-market segments (items 2 and 3).

• Hence two of the four belong to capital markets, option (b).

Why the other options are wrong

(a) Only one: Both the G-Sec market and the stock market are capital markets, so the count is two.
(c) Only three: Call money and T-bills are money-market instruments.
(d) All four: Call money and treasury bills belong to the money market.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2023, held on 28 May 2023. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.