LIC AAO Mains 2019- Financial and Insurance Market Questions | 25th June

Prithvi, Agni, Jal, Akash, Sabki Suraksha Hamare Paas is the slogan of Oriental Insurance Company Limited (OICL).

The tagline of Bajaj Allianz Life Insurance Company Limited is "Jiyo Befiqar".

The General Insurance Council has been constituted under section 64C of the Insurance Act, 1938 since 2001 by the Insurance Regulatory and Development Authority of India (IRDAI). The General Insurance Council is an important link between the Insurance Regulatory and Development Authority of India and the non-Life insurance industry. It also pushes for the Industry’s issues with the Government. While the Council plays the role envisaged for it by the Insurance Act, it also facilitates overall growth for the industry in a fair and equitable manner in the interest of all stake holders.

Umbrella insurance refers to liability insurance that is in excess of specified other policies and also potentially primary insurance for losses not covered by the other policies.

The Head Office of General Insurance Council is in Mumbai.

A forward contract is a customized contract between two parties, where settlement takes place on a specific date in future at a price agreed today. The main features of forward contracts are:-

They are bilateral contracts and hence exposed to counter-party risk.

Each contract is custom designed, and hence is unique in terms of contract size, expiration date and the asset type and quality.
The contract price is generally not available in public domain.

The contract has to be settled by delivery of the asset on expiration date.

In case the party wishes to reverse the contract, it has to compulsorily go to the same counter party, which being in a monopoly situation can command the price it wants.

A swap is an agreement between two parties to exchange cash flows on a determined date or in many cases multiple dates. Typically, one party agrees to pay a fixed rate while the other party pays a floating rate. For example, when trading commodities the first party, an airline company relying of kerosene, agrees to pay a fixed price for a pre-determined quantity of this commodity. The other party, a bank, agrees to pay the sport price for the commodity. Hereby the airline company is insured of a price it will pay for its commodity. A rise in the price of the commodity is in this case paid by the bank. Should the price fall the difference will be paid to the bank.

Globally, operations in the foreign exchange market started in a major way after the breakdown of the Bretton Woods system in 1971, which also marked the beginning of floating exchange rate regimes in several countries. Over the years, the foreign exchange market has emerged as the largest market in the world.

The SEBI is the regulatory authority established under Section 3 of SEBI Act 1992 to protect the interests of the investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith and incidental thereto.

The primary market is where securities are created. It’s in this market that firms float new stocks and bonds to the public for the first time. An initial public offering (IPO) is an example of a primary market.

An IPO occurs when a private company issues stock to the public for the first time. Various types of issues made by the Indian companies/corporation are a Public issue, Offer for Sale, Right Issue, Bonus Issue, Issue of IDR, etc.

Indian Depository Receipt (IDR) is a financial instrument denominated in Indian Rupees in the form of a depository receipt. The IDR is a specific Indian version of the similar global depository receipts.

Unit Trust of India was the first mutual fund set up in India in the year 1963. In late 1980s, Government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities and Exchange Board of India (SEBI) Act was passed. The objectives of SEBI are– to protect the interest of investors in securities and to promote the development of and to regulate the securities market.

Pursuant to the Vaghul Working Group recommendation for setting up an institution to provide enhanced liquidity to the money market instruments, the RBI set up the Dis­count and Finance House of India (DFHI) jointly with public sector banks and the all-India financial institutions.

Mutual fund is a mechanism for pooling money by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in offer document. Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is diversified because all stocks may not move in the same direction in the same proportion at the same time.