All questions of Financial Market for Commerce Exam

There are a total of 21 stock exchanges in India, with the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) being the largest.

Background:
The National Stock Exchange (NSE) is the largest stock exchange in India. It was established in 1992 and is located in Mumbai. The NSE offers a variety of financial products and services, including equity and derivatives trading.
Answer:
The correct answer is A: 2000. NSE commenced futures trading in the year 2000. Here is a detailed explanation:
Explanation:
- The National Stock Exchange (NSE) started operations in 1994 with the launch of the Wholesale Debt Market (WDM) segment.
- The NSE introduced the Capital Market (Equities) segment in November 1994, allowing trading in equities and providing a platform for investors to buy and sell shares.
- However, futures trading on the NSE did not begin until the year 2000.
- Futures trading involves buying or selling an asset at a predetermined price on a future date. It allows investors to speculate on the price movement of the underlying asset without actually owning it.
- The introduction of futures trading on the NSE in 2000 provided an additional avenue for investors to participate in the stock market and manage their risk exposure.
- Since then, the NSE has become a popular platform for trading futures contracts, offering a wide range of futures products across various asset classes, including equities, indices, currencies, and commodities.
Key Points:
- The NSE commenced futures trading in the year 2000.
- Futures trading allows investors to speculate on the price movement of an underlying asset.
- The NSE offers a variety of futures products across different asset classes.
Overall, the NSE has played a significant role in the development of the Indian stock market, and the introduction of futures trading in 2000 was a major milestone in its history.

Demat Account is an account that is used to hold shares and securities in electronic format. The full form of Demat account is a dematerialised account. ... The charges of Demat account vary as per the volume held in the account, type subscribed, and the terms and conditions laid by the depository and the stock broker.

Offer through prospectus involves inviting subscription from the public through issue of prospectus.

Method of Floatation Used by Rajni Auto Manufacturers

Rajni Auto Manufacturers used the method of Right issue to offer shares to their existing shareholders.

Explanation:

1. Right Issue:
- Right issue is a method of raising capital where existing shareholders are given the right to purchase new shares in proportion to their current shareholding.
- This method allows the company to reward its loyal shareholders by offering them the opportunity to maintain their ownership percentage in the company.

2. Benefits of Right Issue:
- It helps in maintaining the ownership structure of the company.
- It provides existing shareholders with the first opportunity to purchase additional shares.
- It can be a cost-effective way for the company to raise capital as it does not involve underwriting fees.

3. Company's Approach:
- Rajni Auto Manufacturers values its loyal stakeholders and aims to keep them associated with the organization for longer durations.
- By offering a right issue, the company demonstrates its commitment to rewarding existing shareholders and maintaining their trust.

In conclusion, the use of the right issue method by Rajni Auto Manufacturers reflects the company's focus on retaining the loyalty of its shareholders and strengthening its relationship with them.

Money Market is the part of financial market where instruments with high liquidity and very short-term maturities are traded. It's the place where large financial institutions, dealers and government participate and meet out their short-term cash needs. They usually borrow and lend money with the help of instruments or securities to generate liquidity. Due to highly liquid nature of securities and their short-term maturities, money market is treated as safe place.

Money market is a market for short term instruments. Since all the given options are short time instruments, option d is the right answer.

Understanding the Assertion and Reason
The assertion (A) states that the capital market is the biggest source for the growth of an economy. This is widely recognized as true because capital markets facilitate the mobilization of savings and investments which drive economic growth.

Role of Capital Markets
- **Long-term Financing**: Capital markets provide long-term funds essential for businesses to expand, innovate, and improve efficiency.
- **Investment Opportunities**: They offer a platform for individuals and institutions to invest in a variety of financial instruments, increasing capital inflows into the economy.

Assertion Analysis
- **True Statement**: The assertion accurately reflects the significance of capital markets in the economic framework.
- **Growth Catalyst**: By channeling funds into productive ventures, capital markets substantially contribute to GDP growth and job creation.

Reason Analysis
- **True but Limited**: The reason (R) is also true, as capital markets indeed provide funds to both organized and unorganized sectors.
- **Scope of Impact**: However, the explanation does not fully encapsulate why the assertion is true. While capital markets fund various sectors, the assertion emphasizes their role in overall economic growth, which is broader than simply providing funds.

Conclusion
Given that both statements are true, but the reason does not adequately explain why the assertion holds, the correct choice is:
- **Option b**: Both A and R are true, but R is not the correct explanation of A.
This highlights the importance of understanding the distinct roles of capital markets in economic growth versus the specific functions they serve in funding.

Dematerialisation is the process by which a client can get physical certificates converted into electronic balances. An investor intending to dematerialise its securities needs to have an account with a DP. Holdings in only those securities that are admitted for dematerialisation by NSDL can be dematerialised.

Value of Sensex = (Total free float market capitalization/ Base market capitalization) * Base period index value. The base period (year) for Sensex calculation is 1978-79. The base value index is 100. Using the above formula, one can calculate the value of BSE Sensex.

Assertion (A): Stock exchange is an unorganised market.
Reason (R): Stock exchange makes complete information available to the public in regard to prices and volume of transactions taking place every day.

To determine the correct answer, let's analyze both the assertion and the reason individually.

Assertion (A): Stock exchange is an unorganized market.
This statement implies that the stock exchange is not organized or structured. In reality, stock exchanges are highly organized and regulated entities where the trading of securities takes place. They have specific rules, regulations, and procedures that govern the buying and selling of stocks. The stock exchange provides a platform for companies to list their shares and investors to trade these shares. Therefore, Assertion (A) is false.

Reason (R): Stock exchange makes complete information available to the public in regard to prices and volume of transactions taking place every day.
This statement highlights one of the key functions of a stock exchange, which is to provide complete and transparent information to the public. Stock exchanges have systems in place to disseminate information about prices and volume of transactions in real-time. This information is crucial for investors to make informed decisions about buying or selling securities. Therefore, Reason (R) is true.

Based on the analysis of the individual statements, we can conclude that:

A is false, as stock exchanges are organized markets.
R is true, as stock exchanges do provide complete information to the public.

Hence, the correct answer is option 'D': A is false, but R is true.

Assertion (A): Government of India decided to setup a separate regulatory body known as Securities and Exchange Board of India.
Reason (R): SEBI was set up to prevent trading malpractices and achieve a balance between self regulation by the securities industry and its statutory regulation.

Explanation:
The given assertion states that the Government of India decided to set up a separate regulatory body known as Securities and Exchange Board of India (SEBI). This assertion is true. SEBI was established on April 12, 1992, as a regulatory authority to protect the interests of investors in securities and to promote the development of the securities market in India.

The reason given for the assertion is that SEBI was set up to prevent trading malpractices and achieve a balance between self-regulation by the securities industry and its statutory regulation. This reason is also true and provides an accurate explanation for the establishment of SEBI.

SEBI plays a crucial role in regulating the securities market in India. It aims to protect the interests of investors by ensuring fair practices, promoting transparency, and maintaining market integrity. SEBI acts as a watchdog for the securities market and ensures that market participants comply with the regulations and guidelines set by the board.

SEBI's primary objective is to prevent trading malpractices. It does so by implementing various regulations, such as insider trading regulations, prohibition of fraudulent and unfair trade practices, and guidelines for the functioning of intermediaries in the securities market.

Additionally, SEBI aims to achieve a balance between self-regulation by the securities industry and its statutory regulation. This means that while SEBI sets regulations and guidelines for market participants, it also encourages self-regulation by industry players. SEBI works closely with various market intermediaries, such as stock exchanges, brokers, and mutual funds, to ensure compliance with regulations and foster a healthy and vibrant securities market.

In conclusion, both the assertion and the reason are true, and the reason provides a correct explanation for the establishment of SEBI.

Understanding Bridge Financing and Money Market Instruments
The company, in its initial phase of securing funds, opted for Bridge Financing to address immediate expenses associated with issuing shares. A key component of Bridge Financing is the use of money market instruments, which are short-term financial tools.
Why Commercial Paper?
- Nature of the Instrument:
- Commercial paper is an unsecured, short-term debt instrument issued primarily by corporations to raise funds for working capital. It typically has a maturity of up to 270 days.
- Quick Access to Funds:
- The urgency for funds, as indicated in the scenario, aligns perfectly with the characteristics of commercial paper. It allows companies like Rajesh's to quickly access capital without the lengthy process associated with traditional loans.
- Cost-Effectiveness:
- Issuing commercial paper can be more cost-effective than bank loans, particularly for well-rated companies. This is essential for the company to meet its floating costs efficiently.
- Flexibility:
- Commercial paper provides flexibility in terms of the amount and maturity, which suits the company's immediate financing needs.
Conclusion
Thus, given the context of the company’s decision to conduct Bridge Financing and the need for a short-term financial solution, the issuance of commercial paper stands out as the most appropriate money market instrument. This instrument effectively met the company's requirements for rapid and flexible funding.

Stock exchange provides safety, security and equity in dealings as transactions are conducted as per well defined rules and regulations. Transactions on the stock exchange are conducted in strict conformity to its rules and regulations which include the procedure and timings of delivery and payment to be followed.

Understanding Private Placement
Private placement is a method of raising capital through the sale of securities to a selected group of investors, rather than through a public offering. This approach is often used by companies looking to secure funding without the extensive regulatory requirements associated with a public offering.
Key Characteristics of Private Placement
- Targeted Investors: In this scenario, ISQAA SOLAR Limited is raising ₹ 4,500 crores by allotting securities specifically to a consortium of financial institutions. This means they are not opening the subscription to the general public, which is a hallmark of private placement.
- Efficient Capital Raising: By opting for a private placement, ISQAA SOLAR can quickly raise the required capital without the complexities of a public offer. This allows for a faster execution of their funding strategy.
- Less Regulatory Scrutiny: Private placements typically involve less regulatory scrutiny compared to public offerings, making it a less cumbersome option for companies in need of immediate funding.
Comparison with Other Methods
- Offer for Sale: This involves existing shareholders selling their shares to the public, which is not the case here.
- Rights Issue: This allows existing shareholders the right to purchase additional shares, but this method does not apply since the securities are not being offered to the public.
- Offer through Prospectus: This method involves a formal invitation to the public to subscribe to shares, which is again not applicable in this context.
Conclusion
The decision to allot securities to a consortium of financial institutions clearly identifies the method as private placement. This choice aligns well with ISQAA SOLAR's immediate capital needs while minimizing regulatory burdens.

The SEBI has formed two advisory committees. They are the Primary Market Advisory Committee and the Secondary Market Advisory Committee. The objectives of these two committees is to advise SEBI on issues related to the development of primary market in India.

Assertion and Reason:
- Assertion (A): The returns on Treasury Bills are not that attractive.
- Reason (R): They are zero-risk instruments.

Explanation:
Definition:
- Treasury Bills (T-bills) are short-term debt instruments issued by the government to finance its short-term borrowing requirements. They are considered to be one of the safest investment options available in the market.

Explanation of Assertion (A):
- The returns on Treasury Bills are typically lower compared to other investment options such as stocks, bonds, or mutual funds.
- The reason behind this is that T-bills are considered to be low-risk investments as they are backed by the government.
- The government guarantees the repayment of the principal amount invested in T-bills along with the promised interest.
- Due to the low risk associated with T-bills, investors are willing to accept lower returns.

Explanation of Reason (R):
- Treasury Bills are known for their zero-risk nature.
- This means that the chances of default by the government on its repayment obligations are extremely low.
- The government is considered to be the most creditworthy borrower in the country.
- Unlike other investment options, such as stocks or corporate bonds, there is no risk of losing the principal amount invested in T-bills.
- Therefore, T-bills are considered to be zero-risk instruments.

Conclusion:
- Both the assertion and reason are true.
- The reason (R) correctly explains the assertion (A) as T-bills being zero-risk instruments contribute to their relatively unattractive returns.
- Hence, option (A) is the correct answer.

"Capital Markets" refers to activities that gather funds from some entities and make them available to other entities needing funds. The core function of such a market is to improve the efficiency of transactions so that each individual entity doesn't need to do search and analysis, create legal agreements, and complete funds transfer.

Treasury bill means one type of instrument which is issued by RBI for short term period for increase cash liquidity. treasury bill is also known as zero coupon bond because no interest paid on it. Treasury bill is also known as T-bill.

In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).

'The Reserve Bank Of India' is India's Central Banking institution, which controls the monetary policy of the Indian rupee. 'RBI' is not a part of Capital Market.

Role of SEBI in Capital Markets
The question pertains to the regulatory framework governing capital markets in India, specifically focusing on the role of the Securities and Exchange Board of India (SEBI).
Regulatory Authority
- SEBI is the apex statutory body responsible for regulating the securities market in India. It was established to protect the interests of investors, promote the development of the securities market, and regulate its functioning.
Inspection and Enquiries
- In the scenario described, “Unicon Securities Pvt. Ltd.” faced complaints from customers regarding the non-transfer of purchased shares to their Demat Accounts.
- The delays and lack of action led to a significant erosion of investor confidence, prompting the need for regulatory intervention.
SEBI's Actions
- SEBI conducted inspections and enquiries to detect irregularities in the operations of the stockbroker. This is a standard procedure for SEBI when there are complaints or when irregularities are suspected.
- The board's role includes ensuring compliance with rules and regulations set forth for stockbrokers and safeguarding investor interests.
Conclusion
- Given SEBI's mandate, it was the appropriate authority to investigate the issues raised by the customers of “Unicon Securities Pvt. Ltd.”
- Therefore, the correct answer to the question is option 'D' - SEBI. This highlights SEBI's crucial role in maintaining order and transparency in the capital market.

Understanding Assertion (A)
Assertion (A) states: "Exchanges of debentures and shares are done in the industrial securities market."
- This statement is true because the industrial securities market is a platform where various financial instruments, including shares and debentures, are traded.
Understanding Reason (R)
Reason (R) states: "Exchanges of shares and debentures are divided into two markets: primary market and secondary market."
- This statement is also true. The financial market is indeed categorized into two segments:
- Primary Market: Where new securities are issued and sold for the first time.
- Secondary Market: Where existing securities are traded among investors.
Relationship Between A and R
- While both statements are true, the reason provided (R) does not directly explain the assertion (A).
- Assertion (A) focuses on the venue for trading (industrial securities market), while Reason (R) discusses the market structure (primary and secondary markets) without specifically connecting it to the industrial securities market.
Conclusion
- Therefore, the correct option is (a): "Both A and R are true, but R is not the correct explanation of A."

SEBI is a statutory regulatory body established on the 12th of April, 1992. It monitors and regulates the Indian capital and securities market while ensuring to protect the interests of the investors, formulating regulations and guidelines.

Explanation:
Assertion (A) and Reason (R) are related to the functions performed by SEBI (Securities and Exchange Board of India).

Assertion (A) Explanation:
- Assertion (A) states that controlling insider trading and imposing penalties for such practices is a protective function of SEBI.
- This statement is true because SEBI is responsible for ensuring fair practices in the securities market and protecting the interests of investors. Insider trading, which involves buying or selling securities based on non-public, material information, is illegal and can harm market integrity. SEBI's role in controlling insider trading helps maintain a level playing field for all market participants.

Reason (R) Explanation:
- Reason (R) states that registration of collective investment schemes and Mutual Funds is a development function of SEBI.
- This statement is false because the registration of collective investment schemes and Mutual Funds is actually a regulatory function of SEBI, not a development function. SEBI regulates the issuance and trading of securities to protect investors and promote market transparency. By registering collective investment schemes and Mutual Funds, SEBI ensures that these entities comply with regulatory requirements and safeguard investor funds.
Therefore, the correct answer is option 'C' - A is true, but R is false.

A settlement is a colony or any small community of people. This can be a community that's smaller than a town, like a village. Also, if one country establishes a colony somewhere else, that can be called a settlement. The other kind of settlement happens when something is settled, like the end of a disagreement.

SEBI is not a participant in the money market. Let's understand why:

Money Market

The money market is a segment of the financial market where short-term borrowing and lending take place. It deals with instruments that have a maturity period of up to one year. Some examples of money market instruments are treasury bills, commercial papers, certificates of deposit, etc.

Participants of Money Market

1. Reserve Bank of India (RBI)

2. Commercial banks

3. Non-banking financial companies (NBFCs)

4. Primary dealers

5. Discount and finance house of India (DFHI)

6. Corporate entities

7. Mutual funds

8. Individuals

SEBI

SEBI stands for the Securities and Exchange Board of India. It is a regulatory body that oversees the securities market in India. It was established in 1988 and got statutory powers in 1992. Its primary objective is to protect the interests of investors and promote the development of the securities market.

Why SEBI is not a participant in the Money Market

SEBI is not a participant in the money market because it is not involved in short-term borrowing and lending activities. Its mandate is limited to regulating the securities market, which includes stocks, bonds, and other long-term investments. Therefore, SEBI does not deal with money market instruments, and it is not a participant in the money market.

Assertion (A): Screen-based trading system cuts down on time, cost and risk of error as well as on the chances of fraud.
Reason (R): Screen-based trading system electronically matches the buyer and seller in an order-driven system.

The correct option is A, which means both the assertion and reason are true, and the reason is the correct explanation of the assertion.

Explanation:
A screen-based trading system is an electronic platform that allows traders to buy and sell securities using a computer with an internet connection. This system has several advantages over the traditional open outcry method of trading. Let's analyze the assertion and reason in detail:

Screen-based trading system cuts down on time, cost and risk of error as well as on the chances of fraud:
- Time: In a screen-based trading system, traders can execute trades quickly and efficiently. They can enter buy or sell orders directly into the system without the need for physical interaction, which saves time compared to the manual process of open outcry trading.
- Cost: Screen-based trading eliminates the need for physical trading floors, reducing the costs associated with maintaining such facilities. It also eliminates the need for brokers or intermediaries, reducing transaction costs.
- Risk of error: The screen-based trading system has built-in checks and balances that help reduce the risk of manual errors. The system validates orders and ensures that they meet the necessary criteria before executing them, minimizing the chances of error.
- Chances of fraud: The electronic nature of screen-based trading makes it easier to track and monitor transactions, reducing the chances of fraudulent activities. The system records and stores all trade-related information, making it easier to investigate and detect any fraudulent behavior.

Screen-based trading system electronically matches the buyer and seller in an order-driven system:
- In a screen-based trading system, buyers and sellers submit their orders electronically, which are then matched by the system based on predefined rules. This process is known as an order-driven system, where the system matches the orders of buyers and sellers to execute trades.
- The screen-based trading system automatically matches the best available bid and ask prices, ensuring fair and transparent price discovery. It eliminates the need for physical market makers or specialists to match the orders, reducing the chances of unfair practices.

Therefore, the reason provided in the statement correctly explains why the screen-based trading system cuts down on time, cost, risk of error, and chances of fraud.

All of these..
Because in capital market our level is up and marketing is done through all of these instruments.