CBSE Class 12 Business Studies Financial Market VBQs

Question. Which of the following participants represent capital market?
(a) development banks
(b) commercial banks
(c) stock exchanges
(d) all of the above

Answer : D

Question. Which of the following statements is not true with regard to primary market?
(a) is also known as the old issues market.
(b) it facilitates the transfer of investible funds from savers to entrepreneurs.
(c) it deals with new securities being issued for the first time.
(d) it facilitates the transfer of investible funds from savers to entrepreneurs.

Answer : A

Question. Who issues a treasury bill?
(a) any nationalized bank
(b) Reserve bank of India
(c) any private sector bank
(d) all of the above

Answer : B

Question. Which of the following is not a protective function of stock exchange?
(a) prohibition of fraudulent and unfair trade practices.
(b) controlling insider trading.
(c) regulation of takeover bids by companies.
(d) promotion of fair practices and code of conduct in securities market.

Answer : C

Question. A company can raise capital through the primary market in the form of
(a) equity shares
(b) preference shares
(c) debentures
(d) all of the above

Answer : D

Question. Which of the following statements is not true with regard to capital market?
(a) the funds are raised for a short period of time.
(b) both debt and equity funds can be raised.
(c) it is classified into two types.
(d) all of the above.

Answer : A

Question. It is a number assigned to each transaction by the stock exchange and is printed on the contract note.
(a) pan number
(b) unique order code
(c) contract note
(d) none of the above

Answer : B

Question. The capital market consists of
(a) development banks
(b) commercial banks
(c) stock exchanges
(d) all of the above

Answer : D

Question. Which of the following statements is not true with regard to money market?
(a) it involves low market risk.
(b) it is situated at specific locations.
(c) deals in unsecured and short-term debt instruments.
(d) the instruments traded are highly liquid.

Answer : B

Question. Stock exchange works as a mechanism for valuation of securities through the forces of demand and supply. Identify the related function performed by the stock exchanges.
(a) providing liquidity and marketability to existing securities.
(b) safety of transaction.
(c) pricing of security.
(d) spreading of equity cult

Answer : C

Question. When is a trade confirmation slip issued to the investor?
(a) on execution of the order
(b) on placing an order
(c) on settlement of the order
(d) none of the above

Answer : A

Question. It is an instrument of short-term borrowing by the government of India maturing in less than one year.
(a) treasury bill
(b) commercial bill
(c) call money
(d) none of the above

Answer : A

Question. Which of the following statements is true with regard to financial markets?
(a) they link the households which save funds and business firms which invest these funds.
(b) they work as an intermediary between the savers and the investors by mobilizing funds between them.
(c) they allocate funds available for investment into their most productive investment opportunity.
(d) all of the above

Answer : D

Question. It acts like a bank and keeps securities in electronic form on behalf of the investor.
(a) depository participant
(b) stock exchange
(c) depository
(d) none of the above

Answer : C

Question. Under this method of floatation in primary market, a subscription is invited from general public to invest in the securities of a company through the issue of advertisement.
(a) private placement
(b) offer through prospectus
(c) offer for sale
(d) all of the above

Answer : B

Question. It is a method by which banks borrow from each other to be able to maintain the cash reserve ratio.
(a) commercial bill
(b) commercial papers
(c) call money
(d) none of the above

Answer : C

Question. The process of holding shares in electronic form is known as
(a) demutualization
(b) dematerialization
(c) speculation
(d) none of the above

Answer : B

Question. One of the common irregularities noted by the securities and exchange board of India during the inspection of a stock exchange was that it was dealing with unregistered sub-brokers. Identify the related function of securities and exchange board of India.
(a) regulatory function
(b) protective function
(c) developmental function
(d) none of the above

Answer : A

Question. It is a market for short-term funds which deals in monetary assets whose period of maturity is up to one year.
(a) primary market
(b) secondary market
(c) capital market
(d) money market

Answer : D

Question. Stock exchanges provide an opportunity to the investors to disinvest and invest. Identify the related function of the stock exchange.
(a) providing scope for speculation.
(b) spreading of equity cult 
(c) pricing of security.
(d) providing liquidity and marketability to existing securities.

Answer : D

Question. The mandatory detail that an investor has to provide to the broker at the time of opening a demat account is
(a) date of birth and address
(b) residential status (Indian/NRI)
(c) pan number
(d) bank account details

Answer : C

Question. After the trade has been executed, the broker issues a contract note to the investor within
(a) 52 hours
(b) 24 hours
(c) 48 hours
(d) 12 hours

Answer : B

Question. It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.
(a) commercial bill
(b) commercial papers
(c) call money
(d) none of the above

Answer : A

Question. It is used as an alternative to bank borrowing for large and creditworthy companies.
(a) commercial bill
(b) commercial papers
(c) call money
(d) none of the above

Answer : B

Question. Jaykant is holding hundred shares of a company. He has been given a privilege offer to subscribe to a new issue of shares of the same company in proportion of 2:1 to the number of shares already possessed by him. Identify the method of floatation being described in the above case.
(a) rights issue
(b) offer for sale
(c) offer through prospectus
(d) private placement

Answer : A

Very Short Answer Type Questions :

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. 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. 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. 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) Utilises intermediaries.

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. 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. 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.

Short Answer Type Questions :

Question. Ganesh steel ltd.‟ is a large and credit-worthy company manufacturing steel for the Indian market. It now wants to enter in to the Asian market and decides to invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost the company decides to tap the money market.
1. Name and explain the money-market instrument the company can use for the above purpose.
2. What is the duration for which the company can get funds through this instrument?
State any other purpose for which this instrument can be used.
Answer : 1. Commercial paper
2. 15 days to one year
It can also be used for seasonal and working capital needs.

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. 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. 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. 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. ‘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. 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. These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is undertaking measures to develop the capital market in which unsecured and short-term debt instruments are actively traded every day. these markets together help the savers and investors in directing the available funds into their most productive investment opportunity. a. Name the function being performed by the market in the above case. b. Also, explain briefly three other functions performed by this market.
Answer : (a) Mobilization of funds is the function being performed by the financial market.
(b) The other functions being performed are outlined below.
i. Price determination.
ii. Liquidity to financial assets
It provides common platform for exchange of securities

Question. After doing a course in online trading, Arsh started an online portal for stock trading under the name ‘investment guru’. He met his school friend Ajay after a long time in a bank where Ajay had come to open a d-mat account. Arsh urged Ajay to invest in the forthcoming IPO of a blue chip companies whereas Ajay was inclined to buy existing securities of the other companies to build his investment portfolio.
In context of the above case:
(a) Identify the two different types of capital market being referred to by quoting lines from the para.
(b) State any four differences between the two different types of capital markets as identified in part (a).
Answer : The two different types of capital market being referred to are-
(i) Primary market: -“Arsh urged Ajay…….. Companies.”
(ii) Seondary market: -“ Ajay was inclined……… portfolio.”
(c) Differences between primary market and secondary market:

Question. A company require RS. 2 crores for inventory, payment of wages, salaries, maintaining bank balance, etc.
1. Suggest which financial market company may approach and why?
2. State the instruments to raise finance in that market.
Answer : 1. Money market is the market from where it can raise money to fulfil its requirement. The reason is company require money for working capital i.e. Maximum for 1 year and market for short-term is money market.
2. The instrument to raise money in money market are:
1. Call money
2. Treasury bill
3. Commercial bill
4. Commercial paper
5. Certificate of deposit.

Question. Saqib ltd. Is a large credit worthy company operating in the Kashmir valley. It is an export oriented unit, dealing in exclusive embroidered shawls. The floods in the valley have created many problems for the company. Many craftsmen and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get an uninterrupted supply or raw material, and the duration of the production cycle has also increased. To add to the problems of the organization, the suppliers of raw material who were earlier selling on credit are asking the company, for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company feels that taking a bank loan is the only option with the company to meet its short term shortage of cash. as a finance manager of the company name and explain the alternative to bank borrowing that the company can use to resolve the crisis.
Answer : Regulatory function—(any three)
Registration of intermediaries-:
♦ notification about rules and regulations
♦ levying of fees
♦ regulation of investment schemes
♦ inspections and enquiries
Development functions-:
♦ training to intermediaries
♦ promotion of fair trade
♦ research
Protective functions-:
♦ prevents insider trading
♦ prohibits unfair trade practices
♦ promotes fair trade practices
♦ educates investors

Question. A company require Rs. 2 crore for inventory, payment of wages, salaries, maintaining bank balance, etc.
1. Suggest which financial market company may approach and why?
2. State the instruments to raise finance in that market.
Answer : (a) commercial paper:
♦ It is an instrument by large and creditworthy companies to raise short term funds at lower rates of interest than the market rates.
♦ It is an unsecured, negotiable promissory note with a fixed maturity period.
(b) Commercial bill:
♦ The holder of trade bill has the liberty to retain these bill till their maturity or he can discount these bills with a bank, if is in need of funds, before the maturity date of these bills.
♦ When trade bills are accepted by the commercial banks, they are known as commercial bills.
It is a bill of exchange used to finance working capital requirement of business firms. It is short-term, negotiable and self-liquidating instrument

Question. Veeru works as a waiter in a five-star hotel in Mumbai. while serving the customer he overhears him at the table saying that the he has made profits higher than expected by investing in securities market . So, Ragu also decides to make a nominal investment from his saving in the stock market in pursuit of higher gains:
In context of the above case:
As a financial consultant, apprise him of the steps involved in the working of a demat system.
Answer : Veerun has to initiate the following steps.
i. Open a demat account with a depository participant who may either be a bank, broker or financial services company.

Question. The directors of a company want to modernize its plant and machinery by making a public issue of shares. They wish to approach the stock exchange, while the finance manager prefers to approach a  consultant for the new public issue of shares.
advise the directors whether to approach the stock exchange or a consultant for new public issue of shares and why. Also advise them about different methods which the company may adopt for the new public issue of shares.
Answer : The directors should approach a consultant for new public issue of shares. The stock exchanges deal with sale and purchase of existing securities only, not in new issue of securities. Different methods which the company may adopt for the new public issue of shares:
1. Offer through prospectus
2. Offer for sale
3. Private placement
4. Rights issue
5. E-ipos.

Question. Financial market plays an important role in the allocation of scarce resources in an economy by performing various functions” explain any three functions of financial market.
Answer : 1.mobilization of savings and channelling them into the most productive uses: a financial market facilitates the transfer of savings from savers to investors (industries)
2.facilitates price discovery: in the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.
3. Provide liquidity to financial assets: financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required

Question. Supriya’s grandmother who was unwell, called her and gave her as gift packet. Supriya opened the packet and saw many crumpled share certificates inside. Her grandmother told her that they had been left behind by her late grandfather
As no trading is now trading is done on physical form, Supriya wants to know the process by adopting which she is in a position to deal with these certificates.
(a) identify and state the process
(b) Also, give two reasons to Supriya why dealing with shares in physical form has been stopped.
Answer : a. Dematerialization refers to the process of holding securities in electronic form.
b. The two problems of holding shares in physical form as follows:
i. There is a danger of loss or theft.
ii. There is risk of forgery, as the buyer may be delivered fake certificates.

Question. What is another name of secondary market? Explain the trading procedure of it.
Answer : Trading procedure: -
The procedure for purchase and sale of securities in a stock exchange involves the following steps:
1. Selection of broker -the first step is to select a broker who will buy/sell securities on behalf of the investor. This is necessary because trading of securities can only be done through sebi registered brokers who are the members of a stock exchange.
2. Opening demat account -the next step is to open a demat account. Demat (dematerialised) account refers to an account which an Indian citizen must open with the depository participant (banks, stock, brokers) to trade in listed securities in electronic form.
3. Placing the order -the next step is to place the order with the broker. The order can be communicated to the broker either personally or through telephone, cell phone, e-mail etc.
4. Executing the order -according to the instructions of the investor, the broker buys or sells securities.
5. Settlement -this is the last stage in the trading of securities done by the brokers on behalf of their clients. The mode of settlement depends upon the nature of the contract.
equity spot market follows a t+2 rolling settlement. This means that any trade taking place on Monday gets settled by Wednesday.

Question. The SEBI has imposed a penalty of 7269.5 crore on pearls Agrotech corporation limited (pacl) and its four directors- Tarlochan Singh, Sukudev Singh , Gurmeet Singh, and Subrata Bhatacharya who had  mobilized funds from the general public through illegal collective investments schemes in the name of purchase and development of agriculture land. While imposing the penalty, the biggest in its history , securities and exchange boards of India said the company deserved maximum penalty for duping the common man. Its prevention of fraudulent and unfair trade practices regulations provides for severe penalties for dealing with such violation. As per SEBI norms, it can impose penalty of 25 crore or three times of the profit made by indulging in fraudulent and unfair trade practices of the illicit gains.
in the context of the above case:
State the objectives of setting up SEBI 
Identify the type of function performed by SEBI by quoting lines from the above paragraph.
Answer : a. The objective of setting up SEBI is
i. To prevent malpractices in securities market.
ii. To protect rights and interests of investors,
iii. To regulate and develop code of conduct between brokers.
iv. To regulate stock market to promote their orderly functioning.
b. Protective function is performed by SEBI

Question. Sumita is a professor in a reputed business institute. While explaining the procedure of stock exchange trading, she shared with her students that many years back she had bought 200 shares of a leading  automobiles company. As per the settlement procedure she paid for the shares and received the share certificates in physical form. However, when she had sent those certificates to the company to get them  endorsed in her name, she was informed by the company that those certificates were duplicate. Therefore, in order to protect the investors from many such malpractices, now only screen – based trading is done and dematerialization is compulsory. In context of the above case:
1. What is screen based trading?
2. Give the meaning of „dematerialization‟. State any two of its advantages.
Answer : screen – based trading refers to the process of buying or selling securities online.

Question. Incorporated in 1990, raju diary ltd is one of the leading manufacturers and marketers of diary-based branded foods in india. In the initial years, its operation were restricted only to collection and  distribution of milk. But, over the years it has gained a reasonable market share by offering a diverse range of diary based products including fresh milk, flavored yogurt, ice creams, butter milk, cheese, ghee etc. In order to raise the capital finance its expansion plans, raju diary ltd. Has decided to approach capital market through a mix of offer for sale of 4 crore shares and a public issue of 2 crores shares.
In context of the above case:
(a) Name and explain the segment of capital being approached by the company
(b) Identify the methods of floatation used by the company to raise the required capital. Give one difference between them.
Answer : Primary market is the segment.
a. The two methods of floatation are –issue through prospectus and offer for sale.
b. In case of issue through prospectus, the company approaches the members directly by issuing a prospectus whereas in offer for sale through intermediaries.

Question. Few years ago, there were many malpractices, unfair trade practices and frauds and scams were taking place in stock exchange. All these affected investor’s confidence, faith and trust in stock exchange. The government of India decided to set up a separate body for this purpose who was given control of stock exchange. This separated ownership and control of stock exchange.
Name the concept which separate the ownership and control of stock exchange. Name the body set up by the government of India to contract the stock exchange. State the objectives of that regulating body.
Answer : 1. The concept which separate ownership and control is called as demutualization.
2. The regulatory body set up by government of India is “SEBI” securities exchange board of India.
3. The objectives of SEBI are:
The overall objectives of SEBI are to protect the interest of investors and to promote the development of stock exchange and to regulate the activities of stock market.