CBSE Class 12 Business Studies HOTs Financial Market

Please refer to CBSE Class 12 Business Studies HOTs Financial Market. Download HOTS questions and answers for Class 12 Business Studies. Read CBSE Class 12 Business Studies HOTs for Chapter 10 Financial Markets below and download in pdf. High Order Thinking Skills questions come in exams for Business Studies in Class 12 and if prepared properly can help you to score more marks. You can refer to more chapter wise Class 12 Business Studies HOTS Questions with solutions and also get latest topic wise important study material as per NCERT book for Class 12 Business Studies and all other subjects for free on Studiestoday designed as per latest CBSE, NCERT and KVS syllabus and pattern for Class 12

Chapter 10 Financial Markets Class 12 Business Studies HOTS

Class 12 Business Studies students should refer to the following high order thinking skills questions with answers for Chapter 10 Financial Markets in Class 12. These HOTS questions with answers for Class 12 Business Studies will come in exams and help you to score good marks

HOTS Questions Chapter 10 Financial Markets Class 12 Business Studies with Answers

 

Short Answer type Chapter Financial Markets Class 12 Business Studies

Question. Name the kind of issue in which shares are offered to existing shareholder.
Answer: Right Issue.

Question. Give example of any two financial intermediaries.
Answer:
a) Banks. b) Financial markets.

Question. give examples of any two money market instruments.
Answer: a) Commercial Paper. B) Call Money.

Question. what was the traditional system of trading on a stock exchange?
Answer:
Outcry or auction system
.
Question. What are the two basis on which transactions on a stock exchange may be carried out?
Answer:
Cash basis or Carry over basis.

Question. Give names of any two places where regional offices of SEBI is located.
Answer: a) Chennai b) Delhi

Question. What is the settlement cycle in NSE.
Answer: a) T+2

Question. the director of a newly established company having paid up equity share capital of 25 rores desire to get its shares traded at all India Level Stock exchange. As finance Manager of the company, Suggest the name of stock exchange for the purpose. Give any 3 reasons in support of your answer.
Answer: The company should get its share listed at OTCEI. The main features of OTCEL are the following-
1) Nation-wide listing, Listing on one exchange one can have transactions with all the counters in the whole country.
2) Exclusive list of companies, on the OTCEL only those companies are listed whose issued capital is 30 Lakh or more.
3) Investor’s registration- All the investor doing transactions on the OTCEL have got to register themselves compulsorily.
4) Transparency in transactions- All the transactions are done in the presence of the investor. The rates of buying and selling can be seen on the computer screen.

Question. “Securities and exchange Board of India (SEBI) is the watchdog of the securities market.” Do you agree ? Give four reasons in support of your answer.
Answer: Hints:- 1) regulatory functions of SEBI.

Question. The director of a company want to modernize 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. Advice the directors whether to approach stock exchange ro 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.
Answer:
the directors should approach the consultant for the new public issue of shares as the company wish to make new public issue of shares to modernize its plants and machinery.
Following are the methods which the company may adopt for the new public issue of shares:
i) Right Issue: Since it appears from the question that the company is an existing company as it wants to modernize its plant and machinery, the company by statute is required to offer these shares first to the existing shareholders in proportion to their holdings. If the existing shareholders do not take these shares then company can resort to other methods as given below.
ii) Public Offer through Prospectus: Under this method, the company can directly offer its shares to the public at large after issuing prospectus.
iii) Offer for sale: In this case, an intermediary buys all the shares from the company at agreed price and offers it to the investors at a higher rate.
iv) Private Placement: In this case also an intermediary buys the shares from the company but offers it to only a selected few for sale.

Question. the directors of a newly established company having a paid up equity share capital of Rs 25 crores, desire to get its shares traded at an all India level stock exchange. As finance manager of the company, suggest the name of the stock exchange for the purpose. Give any 3 reasons in support of your answer.
Answer:
In the given situation, I would recommend the shares of the company to be listed at the outlet the counter exchange of India (OTCEI). The reasons are:
i) In the OTCEI, there is an existence of compulsory market makers(banks/financial institutions) that buys/sells securities of the selected companies which improves the liquidity of the securities.
ii) The Company has a paid-up share capital of less than Rs 3 crores.
iii) Less stringent conditions are applicable for listing of the securities as compared to those applicable for listing in National Stock exchange of India.

Question. Name the market where companies issue new securities.
Answer: Primary Market. 

Question. How many stock exchanges are there in India?
Answer: There are 22 regional stock exchanges and 2 National level Stock Exchanges- NSEI and OTCEI. 

Question. Why secondary market is considered as market for second hand securities?
Answer: Because in this market existing and second hand securities are sold between investors.

Question. Which money market security is also known as Zero Coupon Bond?
Answer: ‘Treasury Bill’ is also known as Zero Coupon Bond. 

Question. Explain the term : Price Rigging
Answer: Price Rigging refers to manipulating the prices of securities with the main objectives of inflating or depressing the market price of securities. 

Question. A wants to get his company listed in National Stock Exchange . His company’s paid up capital is Rs. 20,00,000. Can he get it listed? Kindly advise him.
Answer: No, he cannot get it listed in NSE because to get listed in NSE minimum paid up capital required is Rs. 3 crore. 

Question. Distinguish between Capital market and money Market on the basis of following- (i) Participants (ii) Duration (iii) instruments
Answer: (i) Participants- The participants in capital market are financial institutions, banks, public and private companies, foreign investors and ordinary retail investors from public whereas in money market, the participants are financial institutions, banks , public and private companies but foreign investors and ordinary retail investors do not participate.
(ii) Duration- The capital market deals in medium and long term securities. Whereas the money market deals with short term securities having maximum tenure of one year.
(iii) Instruments- The common instruments of capital market are Equity shares, Debebtures, Pref. Shares, Bonds whereas the common instrument of money market are Treasury Bills, commercial bills, Certificate of Deposits, commercial paper.

Question. Nature of ‘Capital market” can be well explained with the help of its features . State any three such features of Capital Market.
Answer: (i) Link between saver and investment opportunities.
(ii) Deals in long term investment.
(iii) Utilizes intermediaries.

Question. Nature of ‘Money Market’ can be well explained with the help of its features. State and three such features of money market.
Answer: (i) Market for short term funds,
(ii) Deals in monetary assets whose period of maturity is upto one year,
(iii) Market where low risk, unsecured and short term debt instruments are issued and actively traded everyday.

Question. State any three objectives of NSE.
Answer: (i) Establishing a nationwide trading facility for all types of securities.
(ii) Ensuring equal access to investors all ovet the country through an appropriate communication network.
(iii) providing a fair, efficient and transparent securities market using electronic trading system. 

Question. Explain any three functions of a Stock Exchange.
Answer: (i) A Stock Exchange is a reliable barometer to measure the economic condition of a country.
(ii) It helps to value the securities on the basis of demand and supply factors.
(iii) It provides ready market for sale and purchase of securities. 

Question. ‘SEBI is the watchdog of security market’. Comment.
Answer: SEBI was setup in 1988 to regulate the functions of the securities market and to protect the interest of investors but SEBI was found ineffective in regulating the activities of stock market. It was able to observe and watch only but failed to take corrective measure that is why it is called as watchdog.

Question. ‘Stock market imparts liquidity to investment’. Comment.
Answer: The Stock market is a place where securities of companies are bought and sold. Generally the securities are long term and get matured only after a long period of time. These securities can be sold in stock market and can be easily converted into cash. The presence of market is an assurance to investors that their investment can be converted into cash as and when required by them. 

Question. State any two methods of issuing securites in Primary Market.
Answer: The Primary market is also known as the new issues market. It deals with new securities being issued for the first time. The securities may be issued in primary market by following two methods:
(i) Public issue through prospectus
(ii) Offer for sale.

Question. Explain the terms: (i) Bulls (ii) Bears (iii) Stag
Answer: (i) Bulls- A bull is a speculator who expects rise in price. He buys securities with a view to sell them in future at a higher price and making profit out of it.
(ii) Bears- A bear is a speculator who expects fall in the price. He sells securities which he does not possess.
(iii) Stag- A stag is a speculator who applies for new securities in expectation that prices will rise by the time allotment and he can sell them at premium. 

Question. What function does financial market perform?
Answer: The financial market performs the function of bringing together the deficit units ( corporate Sector) and surplus units (investors). It is through financial market that the lender meet the borrowers.

Question. Write the full form of
i. OTCEI
ii. NSE
Answer: 
Fill form of 
1. OTCEI is Over the Counter Exchange of India.
2. NSE is National Stock Exchange.
 
Question. What is the basic difference between REPO rate & reverse REPO rate ?
Answer: The basic difference between repo rate & reverse reporate is as follows:— Repo rate is the rate at which commercial banks borrow from RBI. Reverse repo rate is the rate of which RBI borrows from commercial banks.
 
Question. State the minimum capital requirement for a Co. to be listed with OTCEI.
Answer: For company to be listed with OTCEI minimum paid up capital Rs. 30 Lacks or more.
 
Question. De materialization of securities has totally stream level the working of Stock Exchanges in India. Comment.
Answer: De materialization of securities refers to book entries when securities are traded. There is no physical transfer to share certificates therefore the danger of loss of theft or forgery etc is minimized
 
Question. Volvo Ltd is proposing to issue capital through on live system of stock exchange and has entered into an agreement with The Stock exchange. What would this type of issue be called ?
Answer: The issue of Volvo Ltd would be called an E-I PO.
 
Question. “Demutualization has reduced conflict the interest between exchange & broker”. Explain How ?
Answer: De mutualisation refers to reparation of ownership and management in stock exchange. Earlier brokers & intermediaries owned and operated stock exchange with demutualisation the conflict of interest between various groups has been minimized.
 
Question. Certain instruments of money market is short term self liquidating & used to finance credit sales name the instruments.
Answer: The instrument is short term self liquidatity instrument used to finance credit sales is commercial bill.
 
Question. Name the market segment of NSE which provide trading platform for central Govt. Securities, treasury bells, bonds of public sector etc.
Answer: The segment of NSE providing trending platform for govt. securities treasury bills is the wholesale debt market segment.
 
Question. State briefly how SEBI acts as watch dog of investors interest.
Answer: SEBI acts as a watch dog of investor interest by providing adequate & authentic information on a regular basis.
 
Question. “Financial market perform an allocative function”. How ?
Answer: Financial markets channelise savings of investors and makes them available for needs of industry and hence they are set to perform the allocated function. 
 
Question. Explain briefly how call rate is interlinked to other sources of finance such as commercial papers and certificate deposit.
Answer: Call rate is interlinked to other sources of finance such as commercial paper in the following way ; As call rate increases the demand for other sources such as commercial papers becomes more as they become cheaper in comparison to call money. 
 
Question. A Method of floating new issues does not deal directly to public but operates through inter me chases like issuing louses and brokers’ Name the Mehtod.
Answer: The method is offer free sale.
 
Question. “Stock Exchange spread the equity cult in the country”. Do you agree. Give reason.
Answer: Yes, stock exchange spread equity cult in the country because will share of ownership of share of company’s possible. When share are offered in the stock exchange and subscribell by members of the public.
 
Question. Name the benchmark of the BSE (Bombay stock Exchange). What does it indicate ?
Answer: The bench mark of BSE is the sensex, it indicates the price movement of shares There by the health of the economy as whole.
 
Question. Distinguish between rights issue and private placement as methods of floating new issue.
Answer: Rights issue refers to the right of existing shareholders of a company to e subscribe to new issue of shares in proportion to their holding.
 
Question. How has SEBI played a developmental role in raising the standard of trending in ‘Indian Stock Market’ ?
Answer: Private placement is when new issue is not offered to public bu to institutional investors and members of the public.
 
Question. Briefly discuss price discovery mechanism in financial market.
Answer: Shares prices in a stock exchange are determined by prices of demand and supply. As demand for share of a particulars company increases the price also increases and vice versa. The role of intermediaries like brokers also influence movement of shares prices by their buying and selling.
 
Question. What are financial assets ? How do financial market provide liquidity to time ?
Answer: financial assets basically refer to assets which can be traded in the financial market like shares or debentures. Financial Markets provide Liquidity to such assets as they can be readily sold and converted into cash whenever require.
 
Question. What is the other name given to zero coupen bond issued by RBI on behalf of Govt of India ? Why are they called zero coupen bond. 
Answer: The other name given to Zero Coupon Bonds is ‘Treasury Bill’s. They are called zero coupon as they are issued at a price less than the face value but are repaid at par.
 
Question. Financial market are a boon to buyers & sellers as they reduce the cost of transaction. Explain how ?
Answer: Financial markets reduce cost of transaction as they save time money and effort of both buyers and sellers by providing a common platform for them to meet and deal with each other.
 
Question. What is bridge financing ?
Answer: Bridge finance is the intermediary finance which a company needs to raise in association with a long term finance for eg. I) a company needs to raise long term finance from capital market, bridge finance enables it to meet flotation cost associated with issue such brokerage. This raised through commercial paper.
 
Question. State the two categories into which financial markets are classified?
Answer: Two categories into which financial markets are classified :-
a) Money Market b) Capital Market
 
Question. Why are financial markets said to perform allocative function?
Answer: Financial Market are said to perform the allocative function as they channelies savings of in dividual investors to finance the needs of industry.
 
Question. State the financial limit for companies to trade in OTCEI.
Answer: For a company to trade in OTCEI it must have a paid up share capital of 30 lakhs or more.
 
Question. Brite Industries Ltd raises its share capital by allotment to some selected individuals and institutional investors. Name the method chosen by it to raise capital?
Answer: Private Placement .
 
Question. Define a stock exchange?
Answer: A stock exchange has been defined by Securities Contracts Regulation Act 1956 as a body of individuals whether incorporated or not constituted for the purpose of assiting, regulating or controlling the business of buying selling or
dealing in securities
 
Question. Explain briefly how stock exchanges provide liquidity and market ability to existing securities?
Answer: Stock exchange provides a continuous market where securities are brought and sold. It this provide opportunities for investors to disinvest and re- invest in securities. It there by provides liquidity and easy marketability to securities.
 
Question. What is a treasury bill?
Answer: Treasury bills is an instrument of short term.
borrowing by Govt. of India maturing in less than one year. They are issued at a price less than par value and can be redeemed at par value. The difference between issueprice and redemption value represents interest payable on them.
 
Question. State the two segments of the NSE?
Answer: The two main market segment of NSE are :- a) Wholesale dept market segment and b) Capital Market segment.
 
Question. What is the name given to the benchmark index of the Bombay stock exchange?
Answer: The benchmark of Bombay Stock Exchange is SENSEX.
 
Question. State briefly have SEBI protects the interest of the inrestors?
Answer: SEBI protects interests of inverters of by providing adequate and authentic information and disclosure of information on a regulars basis.
 
Question. Explain the following concepts with reference of a stock exchange:-
(a) Listing of security
(b) Badla
Answer: a) Listing refers to inclusion of a company’s name on the official trading list of the stock exchange. Companies must fulfill requirements set to get their securities listed.
b) Badla :- When transaction in a stock exchange are carried over it is called badla. Transactions made in one accounting period are settled by payment for purchases and delivery of share certificate in the next settlement period.
 
Question. Excel Ltd proposes to raise capital from the public to the time of Rs.100 crores.
It proposes to go public through the online system of the stock exchange. What is this method of raising capital called? State briefly the procedure for the same?
Answer: The method to be adopted is called ‘E-IPO’ or electronic Intial Public offer under this method the company Excel Ltd has to enter into an agreement with the stock exchange. SEBI registered brokers have to be appointed for
accepting applications and placing orders with the company. The company should also appoint a register to the issue having electronic connectivity with the exchange. The issuer company can apply for listing of its securities on any other exchange other than exchange through which it was offered its securities . A head manager may be appointed to co-ordinate the issue.
 
Question. Briefly differentiate between dematerialisation of securities and demultualisation of stock exchange?
Answer: Demutualization :-Refers to separation of ownership and control of stock exchange from trading rights of members. This reduces conflict of interest between exchange and brokers and reduces chances of brokers using stock
exchanges for personal games.
Dematerlisation of Securities :- Refers to electronic book entry form of holding and transferring securities. There is no physical transfer and therefore problem of the theft, forgery, delay etc. are eliminated.
 
Question. State briefly the names of the three interest gourps for productions of whose interest SEBI was established. Also write how it protects the interests of any one such group?
Answer: The three interest group are :- Issuers, investors and intermediaries. SEBI protects interest of intermediaries by offering a competitive, professional and expanding market with adequate and efficient infrastructure so that they are able to render better service to investors and issuers.
 
Question. How does a stock exchange aid in pricing of securities?
Answer: In the financial market, the forces of demand and supply interact and fix the prices of securities. Investor, household represent supplier of funds and business forms the demand. Various market forces also interact and help in
fixation of prices of securities.
 
Question. What is call money? Explain the effect of call rate on other sources of finance such as commercial paper.
Answer: Call money is a short term finance repayable on demand with a period of one to fifteen days. It is used to finance inter bank transaction. It is method by which banks borrow from each other to be able to maintain the cash reserve ratio with the RBI.
 
Question. State any four objectives of NSE?
Answer: a)The four main objectives of NSE are :-
b) Establishing nation wide trading facility for all types of securities. 
c) To provide equal access to investors all over the country.
d) A transparent and efficient system of trading provided.
e) It help in meeting international standards and benchmarks.
 
Question. Write a brief note on the organisation of SEBI?
Answer: SEBI is a statutory body. Its activities have been divided into five major departments. Each department is leaded by an executive directors. It has head office in Bombay. It has two advisory committees – Primary and secondary Market Advisory Committees. These committees consist of market players investors association and eminent persons in the capital markets
 
Question. Explain briefly with an example why treasury bills are also called zero coupon bonds?
Answer: Zero coupon Bonds is the other name given to treasury bill. This is because they are issued at a price lower than face value and are redeemed at par. The difference between issue price and redemption value represent interest
receivable on them also called discount. For eq. a treasury bill of face value Rs. 100,000 may be issue at Rs. 96,000, Rs. 4000 representing the interest payable.
 
Question. What is Bridge Financing? Which instrument of money market is used as a source of Bridge Financing?
Answer: Commercial paper is a source of bridge financing. Bridge financing refers to short term funds for seasonal and working capital needs. Le it may be used as an associated source of financing. If a company needs long term finance buy machinery it must raise these finds from the capital market. For this company must incur floatation costs – brokerage commission funds used to finance such needs over called bridge financing.
 
Question. Write the objectives of SEBI?
Answer: The objectives of SEBI are :-
To regulate working of stock exchanges and promote their orderly functioning. It aims to protects rights and interests of investors. It strives at preventing and eliminating trading mal practices. Regulates and develops a code of conduct and fair practices by intermediaries and brokers. With a view to make them competitive and professional.
 
Question. (a) Name the methods of floatation of issues in the primary market.
(c) Name and describe the privilege given to existing shareholders to subscribe to new issues.
(d) Name the main investors in the primary market.
Answer: (a) Method of floatation of new issues in the primary market are :-
• Offer through prospectus.
• Offer for sale
• Private placement
• Rights issue
• E-IPOS
(b) Rights issue — refers to the privelege given to existing shareholders. Any new issue is first offers to them before it is offered to the public.
(c) The main investors in the primary market are banks, financial institutions insurance companies , mutual funds and individuals.
 

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