CBSE Class 12 Business Studies Financial Market Worksheet Solved

Class 12 Business Studies Practice Set: Chapter 10 Financial Markets

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FINANCIAL MARKETS
 
1 What is Financial Market?
Financial Market is a market for creation and exchange of financial assets.
 
2 ‘Financial market plays an important role in the allocation of scarce resources in an economy by performing many important functions.’ Explain the functions of Financial Markets.
The important functions of Financial markets are:
1. Mobilization of Savings & channeling them into the most productive uses
2. Facilitate Price Discovery
3.Provide Liquidity to Financial assets
4. Reduce the cost of Transactions.
 
3 What is Money Market?
The money market is a market for short term funds which deals in monetary assets whose period of maturity is up to one year.
 
4 Explain the Money Market Instruments.
 
1. Treasury Bill: A Treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds.
 
2. Commercial Paper: Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short-term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year.
 
3. Call Money: Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial banks have to maintain a minimum cash balance known as cash reserve ratio. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio.
 
4. Certificate of Deposit: Certificates of deposit (CD) are unsecured, negotiable, short-term instruments in bearer form, issued by commercial banks and development financial institutions. They can be issued to individuals, corporations and companies during periods of tight liquidity.
 
5. Commercial Bill: A commercial bill is a bill of exchange used to finance the working capital requirements of business firms. It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.
 
5 What is Capital Market?
The term capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested.
The Capital Market can be divided into two parts: a. Primary Market b. Secondary Market.
 
6 State the differences between Capital Market and Money Market.

CBSE Class 12 Business Studies Financial Market Worksheet Solved 1

7 What is Primary Market?
The primary market is also known as the new issues market. It deals with new securities being issued for the first time.
 
8 What are the methods of floatation in Primary Market?
Methods of Floatation:
1. Offer through Prospectus: This involves inviting subscription from the public through issue of prospectus.
2. Offer for Sale: Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers.
3. Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals.
4. Rights Issue: The shareholders are offered the ‘right’ to buy new shares in proportion to the number of shares they already possess.
5. e-IPOs: A company proposing to issue capital to the public through the on-line system of the stock exchange has to enter into an agreement with the stock exchange.
 
9 What is Secondary Market?
The secondary market is also known as the stock market or stock exchange. It is a market for the purchase and sale of existing securities. Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI.

 

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Chapter 10 Financial Markets Practice Sheet and Solutions for Class 12 Business Studies

CBSE Practice Material: Class 12 Business Studies Chapter 10 Financial Markets

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