(Q1) You are a finance expert. One of your friends comes to you and tells you that the capital market and the money market are one and the same, where as you differ with him. How would you convince him? Give any four reasons. (CBSE, Foreign 2004)
Ans. ‘Difference between Capital Market and Money Market'.
(Q2) Why was the need for establishment of Securities and Exchange Board of India (SEBI) felt? Explain the role of SEBI to fulfill this need. (CBSE, All India Comp". 2009)
Ans. In 1980, the capital market witnessed a tremendous growth due to increasing participation of the public. However, the expanding investors population resulted in variety of malpractices, like unofficial private placements, rigging of prices, non-adherence of provisions of Companies Act, etc.
These malpractices eroded the confidence of investors. The Government and stock exchanges were unable to redress the problems. As a result, Indian Government established Securities and Exchange Board of India (SEBI).
Also discuss Functions of SEBI".
(Q3) The directors of a company want to modernise its plants and machinery by making a public issue of shares. They wish to approach stock exchange, while the finance manager prefers to approach a consultant for the new public issue of shares. Advise the directors whether to approach stock exchange or a consultant for new public issue of shares and why? Also advise about the different methods which the Company may adopt for the new public issue of shares. (CBSE, Delhi 2004)
Ans. I advise the directors to approach a consultant' as new issue of shares is not possible through stock exchange. In stock exchange, buying and selling of previously issued securities is done. New public issue of shares is the activity of the primary market. So, directors should approach a consultant.
Different methods for new public issue of shares are: (i) Offer through prospectus; (ii) Offer for Sale; (ii) Private Placement; (iv) Rights Issue; (v) E-IPOs.
(Q4) Supriya's grandmother who was unwell, called her and gave her a gift packet. Supriya opened the packet and saw many crumpled share certificates inside. Her grandmother told her that they had been left behind by her late grandfather.
As no trading is now done in physical form, Supriya wants to know the process by adopting which she is in a position to deal with these certificates.
(a) Identify and state the process.
(b) Also give two reasons to Supriya why dealing with shares in physical form had been stopped. (CBSE, Sample Paper 2015)
Ans. (a) Dematerialisation – It is a process where securities held by the investor in physical form are cancelled and the investor gives an electronic entry or number so that she/he can hold it as an electronic balance in an account
(b) Problems with dealing in physical form: (i) Theft; (ii) Transfer delays (iii) Fake / forged transfer (iv) Lot of paper work involving huge time and cost.
(Q5) Give the meaning of ‘Money Market'. (CBSE, Delhi 2013)
Ans. Money market refers to market for short-term funds, which deals in monetary assets whose period of maturity is upto one year.
(Q6) What is meant by ‘allocative function' performed by financial market?
(CBSE, All India Compt. 2013)
Ans. Allocative function of financial market refers to linking the savers and investors by mobilising funds between them.
(Q7) What is meant by ‘Primary Market"? (CBSE, All India Compt. 2011)
Ans. Primary market refers to the market wherein securities are sold for the first time.
(Q8) State any one 'Regulatory Function' of Securities and Exchange Board of India (SEBI). (CBSE, Delhi 2012)
Ans. Registration of brokers and sub-brokers and other players in the market
(Q9) List any 2 characteristics of secondary market. (CBSE, Sample Paper 2012)
Ans. (i) It is a market for purchase and sale of existing securities; and (ii) Both buying and selling of securities can take place here.
(Q10) State any one ‘Protective Function' of Securities and Exchange Board of India (SEBI)
(CBSE, Delhi 2012)
Ans. Prohibition of fraudulent and unfair trade practices like making misleading statements, manipulations, price rigging, etc.
(Q11) State anyone 'Developmental function' of Securities and Exchange Board of India (SEBI).
(CBSE, All India 2012)
Ans. Training of intermediaries of the securities market.
(Q12) What is meant by financial market? (CBSE, Sample Paper 2014)
Ans. A financial market is a market for the creation and exchange of financial assets.
(Q13) State any one objective of setting up of Securities and Exchange Board of India (SEBI). (CBSE, Foreign 2012)
Ans. To regulate stock exchanges to promote their orderly functioning.
(Q14) State any one function of Stock-Exchange. (CBSE, Delhi 2012)
Ans. To provide liquidity and marketability to existing securities.
(Q15) What is meant by capital market? (CBSE, All India 2012, Delhi 2013)
Ans. Capital market refers to whole network of all organisations, institutions and instruments that provide medium and long-term funds
(Q16) State any one function of Financial Market. (CBSE, Foreign 2012)
Ans. To mobilise savings and to channelise them into most productive uses.
(Q17) Give the meaning of ‘Secondary Market’. (CBSE, Delhi 2013)
Ans. Secondary market refers to market for sale and purchase of previously issued securities.
(Q18) State any one consequence of a well performed 'allocative function' of financial market. (CBSE, Delhi 2013)
Ans. Financial market offers competitive rate of return to households for their savings.
(Q19) State the ‘essential function' of primary market'. (CBSE, All India 2013)
Ans. The essential function of primary market is to facilitate the transfer of investible funds from savers to entrepreneurs through issue of securities for the first time.
(Q20) Name two major alternative mechanisms through which allocation of funds can be done.
Ans. (i) Banks; (ii) Financial Markets. (CBSE, All India 2013)
(Q21) What is meant by ‘financial intermediation"? (CBSE, Delhi Compt. 2013)
Ans. The process by which allocation of funds is done is called financial intermediation.
SHORT ANSWER TYPE QUESTIONS
(Q1) "Financial market plays an important role in the allocation of scarce resources in an economy by performing many important functions." Explain any four such functions.
(CBSE, All India 2011, Delhi 2014)
Explain any four functions of financial market. (CBSE, Sample Paper 2015)
(Q2) What is meant by 'money market"? Briefly explain the concept of ‘call money'.
(CBSE Delhi 2007)
(Q3) Explain the following money market instruments: (CBSE Delhi 2010)
(a) Treasury bill; (b) Commercial Paper.
(Q4) Define Capital Market. State the two parts of capital market. (CBSE Delhi 2009)
(Q5) Define primary market. State any two methods of issuing securities in primary market.
OR (CBSE, Sample Paper 2010)
What is meant by ‘Primary Market"? Explain any two methods of floating new issues in the Primary Market. (CBSE, Delhi 2011)
(Q6) Distinguish between Capital market and Money market on the basis of: (i) Participants, (ii) Instruments traded, (iii) Investment outlay, and (iv) Safety. (CBSE, Delhi 2005)
Differentiate between the two segments of financial market on any three basis of:
(CBSE, Delhi Compt. 2013)
(Q7) Distinguish between ‘Primary’ and 'Secondary market on the basis of: (i) Sale of securities, (ii) Capital formation, (iii) Determination of price, (iv) Location. (CBSE Delhi 2006)
Differentiate between ‘Primary Market' and ‘Secondary Market'. (CBSE, Delhi 2009)
Differentiate between the two parts of capital market on any three basis.
(CBSE, All India Compt. 2013)
(Q8) Give the meaning of stock exchange. State its three functions.
In today's commercial world, the Stock-Exchange performs many vital functions which leads the investors towards positive environment. Explain how by giving any four reasons.
OR (CBSE, All India 2005, Delhi 2011)
‘Stock Exchange not only contributes to the economic growth, but performs many other functions. Explain any three such functions. (CBSE, All India 2014)
(Q9) ‘To promote orderly and healthy growth of securities market and protection of investors, Securities and Exchange Board of India was set up.’ With reference to this statement explain the objectives of Securities and Exchange Board of India. (CBSE, Delhi 2011)
(Q10) Explain the procedure of trading in a ‘Stock Exchange'. (CBSE, Sample Paper 2008)
(Q11) State any four protective functions of Securities and Exchange Board of India (SEBI).
(CBSE, Delhi 2004, 2006)
(Q12) State any four regulatory functions of Securities and Exchange Board of India (SEBI).
(CBSE, Delhi 2004, 2006)
(Q13) State any two developmental functions and any two regulatory functions of Securities and Exchange Board of India (SEBI). (CBSE, Delhi 2004)
(Q14) List any two characteristics of secondary market. (CBSE, Sample Paper 2014)
(Q15) Give the meaning of the following money market instruments: (i) Certificate of deposit; and (ii) Commercial bill. (CBSE, Delhi Compt. 2014)
LONG ANSWER TYPE QUESTIONS
(Q1) State any five functions of ‘Stock Exchange'. (CBSE, Delhi 2010)
Explain any four functions of Stock Exchange'. (CBSE, Delhi 2012, 2013)
(Q2) Distinguish between “Capital Market' and ‘Money Market on the following basis: (i) Participants (ii) Instruments traded (iii) Duration of securities traded (iv) Expected return (v) Safety.
(CBSE, Delhi 2003, 2014)
(Q3) Why was Securities and Exchange Board of India (SEBI) set up? Explain any four objectives of SEBI. (CBSE, Delhi 2009)
(Q4) Explain any five Regulatory functions of Securities and Exchange Board of India.
(CBSE, Delhi 2009, 2010)
(Q5) Give the meaning of ‘Offer through Prospectus', 'Rights Issue' and 'Private Placement'.
(Q6) Explain the following money market instruments: (a) Call Money; (b) Treasury bill; (c) Commercial Paper; (d) Certificate of Deposit. (CBSE, Delhi 2013)
(Q7) What is meant by 'Primary Market? Differentiate between ‘Primary Market’ and ‘Secondary Market' on any four points. (CBSE, Foreign 2012)
(Q8) Explain the steps in the Trading Procedure of Stock Exchange.
(CBSE, Sample Paper 2014, Delhi Compt. 2014)
(Q9) What is meant by 'Capital Market? Name the two types of capital market and differentiate between the two on any four basis. (CBSE, Ali India Compt. 2014)
(Q10) Explain (i) Commercial Paper and (ii) Certificate of Deposit as Money Market Instruments. (CBSE, Delhi Compt. 2012)
(Q11) Explain any four functions of ‘Financial Market’. (CBSE Delhi 2012)
(Q12) Explain any four methods of floatation of new issues in the Primary Market.
(CBSE, Sample Paper 2014)
(Q13) Explain Trading Procedure of a Stock Market.
Ans. Depository’ is an institution/organisation which holds securities e.g: shares, debentures, bonds, mutual funds etc in electronic form, in which trading is done.
DPS are agents – Stock brokers (R-Trading)
The procedure for purchase and sale of securities in a stock exchange involves the following steps:
(1) Selection of broker :: The first step is to select a broker who will buy/sell securities on behalf of the investor. This is necessary because trading of securities can only be done through SEBI registered brokers who are the members of a stock exchange. Brokers may be individual, partnership firms or corporate books. The broker charges brokerage / commission for his services.
(2) Opening demat account :: The next step is to open a demat account. Demat (Dematerialised) account refers to an account which an Indian citizen must open with the depository participant (banks, stock, brokers) to trade in listed securities in electronic form.
The securities are held in the electronic form by a depository. At present, there are two depositories in India NSDL (National Securities Depository Ltd.) and CDSL (Central Depository Services Ltd.)
Depository interacts with the investors through depository participants. Your Depository Participant will maintain your securities account balances and intimate to you the status of your holding from time to time.
(3) Placing the order :: The next step is to place the order with the broker. The order can be communicated to the broker either personally or through telephone, cell phone, e-mail etc.
The instructions should specify the securities to be bought or sold and the price range within which the order is to be executed. Only the securities of listed companies can be traded on the stock exchange.
(4) Executing the order :: According to the instructions of the investor, the broker buys or sells securities. The broker then issues a contract note. A copy of the contract note is sent to the client. The contract note contains the name and the price of the securities, names of the parties, brokerage charged. It is signed by the broker.
(5) Settlement :: This is the last stage in the trading of securities done by the brokers on behalf of
their clients. The mode of settlement depends upon the nature of the contract. Equity spot market follow a T+2 rolling settlement. This means that any trade taking place on Monday, gets settled by Wednesday. All trading on stock exchanges takes place between 9:55 am and 3:30 pm. Indian Standard Time, Monday to Friday. Delivery of shares must be made in dematerialized form, and each exchange has its own clearing house, which assumes all settlement risk.
(Q14) The methods of floating new issues in the Primary Market are: (Any 4)
Ans. (1) Offer through Prospectus :: It is the Method of Floating new issues by inviting subscriptions from the public through issue of Prospectus. A prospectus makes a direct appeal to investors to raise capital, through advertisement in newspapers and magazines.
(2) Offer For Sale :: It is the method in which the Securities are not Issued directly to the Public but through intermediaries like Issuing Houses or Stock Brokers. A company sells securities en bloc at an agreed price to brokers who, in turn, resell them to the investing public.
(3) Private Placement :: It refers to the allotment of securities by a company to institutional investors and some selected individuals. Some companies cannot afford a public issue and choose to use private placement.
(4) Rights Issue :: It is the privilege given to existing shareholders to subscribe to new issue of shares in proportion to the number of shares they already hold. The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.
(5) E-IPO :: It refers to Issuing Securities through the online system of Stock Exchanges. The company has to enter into an agreement with the stock exchange