CBSE Class 12 Business Studies HOTs Financial Market

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.