CASELECT 1: Reshu's father has gifted her shares of a large cement company, with which he had been working. The securities were in physical form. She already has a bank account and does not possess any other forms of securities. She wished to sell the shares and approached a registered broker for the purpose.
Mention one mandatory detail which she will have to provide with the broker. (1 Mark) [CBSE, SAMPLE PAPER 2016]
Solution: Permanent Account Number (PAN).
CASELECT 2: Meca Ltd. a reputed automobile manufacturer needs rupees ten crores as additional capital to expand its business. Atul Jalan, the CEO of the company wanted to raise funds through equity. On the other hand, the Finance Manager Nimi Sahdev said that the public issue may be expensive on account of various mandatory and non-mandatory expenses. Therefore, it was decided to allot the securities to institutional1 investors.
Name the method through which the company decided to raise additional capital. (1 Mark) [CBSE, DELHI 2017]
Solution: Private Placement.
CASELECT 3: Sika Ltd., a reputed industrial machines manufacturer, needs rupees twenty crores as additional capital to expand the business. Mr. Amit Joshi, the chief executive officer (CEO) of the company wants to raise funds through equity. The finance manager, Mr. Narender Singh, suggested that the shares may be sold to investing public through intermediaries, as the same will be less expensive.
Name the method through which the company decided to raise additional capital. (1 Mark) [CBSE, OD 2017]
Solution: Offer for Sale.
CASELECT 4: An investor wanted to invest Rs. 20,000 in Treasury Bills for a period of 91 days. When he approached the Reserve Bank of India for this purpose he came to know that it was not possible.
Identify the reason why the investor could not invest in the Treasury Bill. (1 Mark) [CBSE, DELHI 2018]
Solution: The investor could not invest in the treasury bill as these instruments can be issued for a minimum amount of Rs. 25,000 and multiples of Rs. 25,000 thereafter.
CASELECT 5 :'Stock Exchange not only contributes to the economic growth, but performs many other functions'. Explain any three such functions. (3 Marks) [CBSE, OD 2014]
Solution: Stock Exchange refers to a market where buying and selling of the existing
The main functions of a stock exchange are:
(i) To provide liquidity and marketability: Stock exchange provides a ready platform for trading of existing securities. Through stock exchange, securities can be easily converted into cash whenever required. In addition, long-term securities can be converted to medium-term and short-term ones through stock exchange.
(ii) To determine prices: A stock exchange helps in establishing the prices of the monetary
assets that are traded in that market. It provides a platform for interaction of buyers and sellers of securities thereby, it helps in the determination of prices of the securities through the forces of demand and supply.
(iii) To ensure fair and safe market: As stock exchange is a legal and well regulated market. It trades within the defined and the existing legal framework, ensuring safety and fairness in transactions.
CASELECT 6 : Keeping in mind the emerging nature of the securities market in India, Securities and Exchange Board of India (SEBI) was entrusted with the twin task of regulation and development of securities market. Out of this, state the developmental functions of Securities and Exchange Board of India (SEBI). (3 Marks) [CBSE, OD COMPTT. 2015]
Solution: The developmental functions of SEBI are:
(i) It trains intermediaries of the securities market.
(ii) It conducts research and publish information useful to all market participants.
(iii) It undertakes measures to develop the capital markets by adapting a flexible approach.
CASELECT 7: Saqib Ltd. is a large credit worthy company operating in the Kashmir Valley. It is an export oriented unit, dealing in exclusive embroidered shawls. The floods in the valley have created many problems for the company. Many craftsmen and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get an uninterrupted supply of raw material and the duration of the production cycle has also increased. To add to the problems of the organisation, the suppliers of raw material who were earlier selling on credit are asking the company, for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company feels that taking a bank loan is the only option with the company to meet its short term shortage of cash. As a finance manager of the company name and explain the alternative to bank borrowing that the company can use to resolve the crisis. (3 Marks) [CBSE, SAMPLE PAPER 2016]
Solution: Commercial Paper: It is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rate of interest than market rates. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be financially strong.
CASELECT 8: 'Ganesh Steel Ltd.' is a large and credit-worthy company manufacturing steel for the Indian market. It now wants to cater to the Asian market and decided to invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost the company decides to tap the money-market.
(a) Name and explain the money-market instrument the company can use for the above purpose.
(b) What is the duration for which the company can get funds through this instrument?
(c) State any other purpose for which this instrument can be used. (4 Marks) [CBSE, DELHI 2015]
(a) Commercial Paper (Bridge Financing): Commercial paper is a short term unsecured promissory note. It is negotiable and can easily be transferable by endorsement. Only large companies who have high creditworthiness in the markets can issue Commercial Paper. It usually has a maturity period of 15 days to 1 year.
(b) 15 days to one year.
(c) Commercial Papers is an alternative to bank borrowing and is used to provide short term funds for seasonal and working capital needs.
CASELECT 9: Mr. Aditya Gupta was the chairman of 'Vandan Bank'. The Bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank announced taking over of 'Karur Bank'. Aditya Gupta knew that the share price of Vandan Bank would rise on this announcement. Being a part of the hank, he was not allowed to buy shares of the hank. He called one of his
rich friends Nimesh and asked him to invest Rs. 6 crores in the shares of his bank promising him the capital gain. As expected, the share prices went up by 40% and the market price of Nimesh's shares was now Rs. 8.4 crores Rupees. He had earned a profit of 2.4 crores Rupees. He gave Rs. 1.2 crore Rupees to Mr. Aditya Gupta and kept Rs. 1.2 crore with him. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange
Board of India (SEBI) was able to detect this irregularity. SEBI imposed a heavy penalty on Aditya Gupta.
By quoting the lines from the above para identify and state any two function, Rs. that were performed by SEBI in the above case. (4 Marks) [CBSE, OD & FOREIGN 2016]
Solution: Functions that were performed by SEBI in the above case were:
(i) Regulatory function: SEBI can call for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.
Lines: 'On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity.'
(ii) Protective function: SEBI controls insider trading and imposes penalties for such practices.
Lines: 'The SEBI imposed a heavy penalty on Adiya Gupta.
CASELECT 10: These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this there is another market in which unsecured and short-term debt instruments are actively traded everyday. These markets together help the savers and investors in directing the available funds into their most productive investment opportunity.
(a) Name the function being performed by the market in the above case.
(b) Also explain briefly three other functions performed by this market.
(4 Marks) [CBSE, Delhi 2017]
(a) Mobilisation of savings and channeling them into the most Productive
(b) The other functions of financial markets are:
(i) Facilitates price discovery: In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.
(ii) Provide liquidity to financial assets: Financial markets facilitate easy purchase and sale of financial assets. Financial markets provide liquidity to financial assets, so that they can be easily converted into cash whenever required.
(iii) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money.