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Chapter – X
What is meant by capital market? Describe its nature. –
- It is a market where all organizations, financial institutions and instruments provide long and medium term funds to the business sector.
- The two major components of capital market are
Primary (new issue market)
Secondary market (stock exchange).
The nature of capital market can be understood from the following points:
- It acts a link between savers and borrowers who need funds to invest profitably and efficiently.
- It helps firms to procure finances for long-term investments such as buying plant & machinery, building, etc.
- It obtains its funds through issue of various securities such as equity shares, bonds, debentures and innovative securities like zero interest bonds and deep discount bonds.
- It functions thru’ various intermediaries such as underwriters, bankers, stock brokers, etc.
- It includes both individual investors and institutional investors such as UTI, LIC, IDBI, etc
State any four PROTECTIVE functions of SEBI? (What is insider trading)?
It prohibits insider trading. It prevents insiders such as directors, promoters who have access to price sensitive information regarding securities of the company (which is not available to the public) to make individual profits through trading of securities.
It prohibits fraudulent and unfair trade practices in the security market like making misleading statements and price rigging. (Manipulating with the sole intention of inflating or deflating the market price of securities is termed as “price rigging) It promotes fair practices and code of conduct in the securities market.
Example: Looks after the interest of the debenture holders in terms of any mid term revision of interest rate, etc.
- It takes steps to educate investors. in brief any four reasons in support of your answer. 4 marks - CBSE-2005 Set 1, 2.
- It carries out audit of the share markets
- It regulates takeover of companies
- It regulates the business being conducted in the share market.
- It registers and regulates the working of brokers, sub brokers, transfer agents, merchant banks, underwriters, etc.
- It registers and regulate the credit rating agency, venture capital funds and mutual funds
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