CBSE Class 12 Business Studies HOTs Financial Market Set C

CBSE Class 12 Business Studies HOTs Financial Market Set C

Financial Market

HOTS QUESTIONS

Q1. Write the full form of
i. OTCEI
ii. NSE
Q2. What is the basic difference between REPO rate & reverse REPO rate ?
 
Q3. State the minimum capital requirement for a Co. to be listed with OTCEI.
 
Q4. De materialization of securities has totally stream level the working of Stock Exchanges in India. Comment.
 
Q5. 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 ?
 
Q6. “Demutualization has reduced conflict the interest between exchange & broker”. Explain How ?
 
Q7. Certain instruments of money market is short term self liquidating & used to finance credit sales name the instruments.
 
Q8. Name the market segment of NSE which provide trading platform for central Govt. Securities, treasury bells, bonds of public sector etc.
 
Q9. State briefly how SEBI acts as watch dog of investors interest.
 
Q10. “Financial market perform an allocative function”. How ?
 
Q11. Explain briefly how call rate is interlinked to other sources of finance such as commercial papers and certificate deposit.
 
Q12. 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.
 
Q13. “Stock Exchange spread the equity cult in the country”. Do you agree. Give reason.
 
Q14. Name the benchmark of the BSE (Bombay stock Exchange). What does it indicate ?
 
Q15. Distinguish between rights issue and private placement as methods of floating new issue.
 
Q16. How has SEBI played a developmental role in raising the standard of trending in ‘Indian Stock Market’ ?
 
Q17. Briefly discuss price discovery mechanism in financial market.
 
Q18. What are financial assets ? How do financial market provide liquidity to time ?
 
Q19. 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. 
 
Q20. Financial market are a boon to buyers & sellers as they reduce the cost of transaction. Explain how ?
 
Q21. What is bridge financing ?
 
Answers to Hots Questions
Ans. 1. Fill form of
1. OTCEI is Over the Counter Exchange of India.
2. NSE is National Stock Exchange. ½×2=1
 
Ans. 2. 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. ½×2=1
Ans. 3. For company to be listed with OTCEI minimum paid up capital Rs. 30 Lacks or more. 1
Ans. 4 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 1
Ans. 5 The issue of Volvo Ltd would be called an E-I PO. 1
Ans. 6 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. 1
 
Ans. 7 The instrument is short term self liquidatity instrument used to finance credit sales is commercial bill. 1
Ans. 8. The segment of NSE providing trending platform for govt. securities treasury bills is the wholesale debt market segment. 1
Ans. 9. SEBI acts as a watch dog of investor interest by providing adequate & authentic information on a regular basis. 1
Ans. 10. Financial markets channelise savings of investors and makes them available for needs of industry and hence they are set to perform the allocated function. 1
Ans. 11. 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. 1
Ans. 12. The method is offer free sale. 1
Ans. 13. 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.
 
Ans. 14. The bench mark of BSE is the sensex, it indicates the price movement of shares There by the health of the economy as whole.
Ans. 15. 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.
Ans. 16. Private placement is when new issue is not offered to public bu to institutional investors and members of the public.
Ans. 17. 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.
Ans. 18. 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.
Ans. 19. 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.
Ans. 20. 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.
Ans. 21. 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 Bank

Q1. State the two categories into which financial markets are classified? (1)
Q2. Why are financial markets said to perform allocative function? (1)
Q3. State the financial limit for companies to trade in OTCEI. (1)
Q4. 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? (1)
Q5. Define a stock exchange? (1)
Q6. Explain briefly how stock exchanges provide liquidity and market ability to existing securities? (1)
Q7. What is a treasury bill? (1)
Q8. State the two segments of the NSE? (1)
Q9. What is the name given to the benchmark index of the Bombay stock exchange? (1)
Q10. State briefly have SEBI protects the interest of the inrestors? (3)
Q11. Explain the following concepts with reference of a stock exchange:-
(a) Listing of security
(b) Badla
 
Q12. 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? (3)
Q13. Briefly differentiate between dematerialisation of securities and demultualisation of stock exchange? (3)
Q14. 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? (3)
Q15. How does a stock exchange aid in pricing of securities? (3)
Q16. What is call money? Explain the effect of call rate on other sources of finance such as commercial paper. (4)
Q17. State any four objectives of NSE? (4)
Q18. Write a brief note on the organisation of SEBI? (4)
Q19. Explain briefly with an example why treasury bills are also called zero coupon bonds? (4)
Q20. What is Bridge Financing? Which instrument of money market is used as a source of Bridge Financing? (5)
Q21. Write the objectives of SEBI? (5)
Q22. (a) Name the methods of floatation of issues in the primary market. (6)
(c) Name and describe the privilege given to existing shareholders to subscribe to new issues.
(d) Name the main investors in the primary market.
 
ANSWERS TO QUESTIONS BANK

Ans. 1 Two categories into which financial markets are classified :- (½×2=1)
a) Money Market b) Capital Market
 
Ans.2 Financial Market are said to perform the allocative function as they channelies savings of in dividual investors to finance the needs of industry. (1)
 
Ans.3 For a company to trade in OTCEI it must have a paid up share capital of 30 lakhs or more. (1)
 
Ans.4 Private Placement .
 
Ans.5 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
 
Ans. 6 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.
 
Ans.7 Treasury bills is an instrument of short term.
(1)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.
 
Ans. 8 The two main market segment of NSE are :- (1) a) Wholesale dept market segment and b) Capital Market segment.
 
Ans.9 The benchmark of Bombay Stock Exchange is SENSEX. (1)
 
Ans. 10 SEBI protects interests of inverters of by providing adequate and authentic information and disclosure of information on a regulars basis. (1)
 
Ans.11 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.
 
Ans.12 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. (3)
 
Ans.13 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. (3)
 
Ans.14 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. (3)
 
Ans. 15 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.
 
Ans. 16 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. (4)
 
Ans. 17 The four main objectives of NSE are :-
d) Establishing nation wide trading facility for all types of securities. 
e) To provide equal access to investors all over the country.
f) A transparent and efficient system of trading provided.
g) It help in meeting international standards and benchmarks.
 
Ans. 18 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 (4)
 
Ans. 19 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. (4)
 
Ans. 20 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. (5)
 
Ans. 21 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. (5)
 
Ans. 22 (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.
(3x2=6)

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