As we all know Securities & Exchange Board of India (SEBI) has taken some corrective steps to restrict functioning of Participatory Notes (P-Notes) in Indian Stock Markets. Why are P-Notes considered dangerous for the financial markets of a country?begin{enumerate}item This allows a foreign investor to invest funds without knowing the history/financial health of a company. If the company fails fforeign investors lose their money. Govt of India does not want this as this will bring a bad name to the country.item P-Notes allow foreign investors to buy shares of blue chip companies without following Konw Your Customer (KYC) norms. Hence money invested here may not be from a valid and legal source.item P-Notes are launched to arrange funds only for social schemes. Due to huge funds available with NRIs for investment they are sending it in bulk. Hence the cost of such investments is very high and it is not commercially viable for banks to accept such investments.end{enumerate}

BANKING GENERAL KNOWLEDGE

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

As we all know Securities & Exchange Board of India (SEBI) has taken some corrective steps to restrict functioning of Participatory Notes (P-Notes) in Indian Stock Markets. Why are P-Notes considered dangerous for the financial markets of a country?

A	norms. Hence money invested here may not be from a valid and legal source.
B	Only 1 is correct
C	Only 2 is correct
D	Only 3 is correct
E	Both 1 & 2 are correct

Explanation:

Detailed explanation-1: -P-notes: Offshore derivative instruments Participatory notes also called P-Notes are offshore derivative instruments with Indian shares as underlying assets. These instruments are used for making investments in the stock markets. However, they are not used within the country.

Detailed explanation-2: -Advantages of Participatory Notes PNs can be easily traded in foreign countries via endorsement and delivery. PNs are well known as investors, and hedge funds can enter Indian markets anonymously and go about their operations.

Detailed explanation-3: -Participatory notes are financial instruments used by investors or hedge funds that are not registered with SEBI to invest in Indian securities. The brokerages buy India-based securities and then issue participatory notes to foreign investors.

Detailed explanation-4: -Participation Notes are derivative instruments linked to financial instruments which usually include equities, market indices, ETFs, interest rates, currencies, or a combination of these. Investors can enjoy a potential capital gain in case their market anticipation on the underlying financial instrument is correct.

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