Question

Q#01: What examples can you find to differentiate following? Give accurate examples

Specialized financial institutions Vs NBFC
Bonds Vs Debentures
Treasury Bill Vs Commercial Paper
Common stock Vs Preferred Stock
Marketable Securities Vs Non Marketable Securities

Answer 1

a) Specialized financial institutions vs NBFC

Specialized financial institution is those financial institution which are setup for dedicated purposes such export-import banks (EXIM) or National housing board whereas NBFC stands for non-banking financial services which provides similar services to banks without accepting deposits such as Bajaj Finserv or HDB finance service.

b) Bond Vs debenture

Bond and debenture are debt but debenture is an unsecured instrument where as bond can be backed by a collateral. Let’s say Tata Motors issued a debt which for 10 years but it is not backed by any collateral so it would be classified as a debenture but if the same debt is backed by a collateral that would be classified as a bond.

c) Treasury bills vs Commercial paper

Treasury bills are issued by federal reserve where as commercial paper are issued by private companies; both are short-term instruments. A 180-day bill issued by federal reserve can be said to be Treasury bill where as a debt issue up to a year of maturity by APPLE or Samsung would be classified as commercial paper.

d) Common stock vs preferred stock

Common stocks have voting rights but preferred stocks do not have voting rights. Let’s say a issue by JP Morgan of equity shares also known as common stock would have voting rights but the issue of preferred stock by JP Morgan, the preferred stock holders would not have voting rights.

e) Marketable securities vs Non- marketable securities

Marketable securities can be transferred and are traded in the secondary market but non-marketable securities are not traded in the secondary market. Marketable securities such Treasury bills, treasury bond whereas non-marketable securities are like shares of private company, government saving bonds.