Class 12 Commerce Business Studies - Financial Market

Name the Apex statutory body of capital market to whom customer can complain to redress their grievances.

The Securities and Exchange Board of India(SEBI).

Mohan wants to sell $$50$$ shares of Tata Motors. Explain the trading procedure of shares.

The trading procedure of shares are:

1. Selection of a broker:
The buying and selling of securities can only be done through SEBI registered brokers who are members of the Stock Exchange. The broker can be an individual, partnership firms or corporate bodies. So the first step is to select a broker who will buy/sell securities on behalf of the investor or speculator.

2. Opening Demat Account with Depository:

Demat (Dematerialized) account refer to an account which an Indian citizen must open with the depository participant (banks or stock brokers) to trade in listed securities in electronic form. Second step in trading procedure is to open a Demat account.

3. Placing the Order:

After opening the Demat Account, the investor can place the order. The order can be placed to the broker either (DP) personally or through phone, email, etc.

4. Executing the Order:

As per the Instructions of the investor, the broker executes the order i.e. he buys or sells the securities. Broker prepares a contract note for the order executed. The contract note contains the name and the price of securities, name of parties and brokerage (commission) charged by him. Contract note is signed by the broker.

5. Settlement:

This means actual transfer of securities. This is the last stage in the trading of securities done by the broker on behalf of their clients. There can be two types of settlement.

(a) On the spot settlement:It means settlement is done immediately and on spot settlement follows. T + 2 rolling settlement. This means any trade taking place on Monday gets settled by Wednesday.

(b) Forward settlement:It means settlement will take place on some future date. It can be T + 5 or T + 7, etc. All trading in stock exchanges takes place between 9.55 am and 3.30 pm. Monday to Friday.

Identify the market highlighted in following statement.
This market directly contributes to capital market.

Primary.

Bandhu Limited is a real estate company, which was formed in $$1960$$. In about $$55$$ years of its existence, the company has managed to carve out a niche for itself in this sector. In order to establish itself in India, the company decided to list its securities on BSE, in order to raise money through India market.
State the functions performed by SEBI that make investors comfortable and secured in dealing with Bandhu Ltd.

The main regulatory functions of SEBI revolve around the effective management of the stock market. The various regulatory functions that this organization is entrusted with are:

Every mutual fund or investment plan, before being introduced into the market is to be regulated by this body
Brokers, merchant bankers are intermediaries that operate in the stock market. But there is a code of conduct and certain rules and regulations that they need to abide by and these rules have been structured, framed and put into place by SEBI
Private placement often leads to various discrepancies because of which certain regulatory measures have been put in place by SEBI, that regulates such operations
If you are associated with stock exchange in any manner, for example, you might be a share transfer agent, a stockbroker etc, you will then have to be registered with SEBI and this body will regulate your functions
One of the main functions of Sebi is to oversee the process when one company takes over another one
The audit and inquiries of various stock exchanges are also part of SEBI’s function

The Developmental functions of SEBI

If you are being trained to become an intermediate in the investment market in India, then your train will be promoted by SEBI

One of the most important developmental features of this body is that stockbrokers who are registered can now trade through the internet.
If going through the stock exchange then an initial offer made by the public on the primary market is also permissible
The expense of issue is a huge one and hence in order to reduce it, underwriting has become optional.
Following are the functions performed by SEBI that make investors comfortable and secured in dealing with Bandhu Ltd.

Bhuvan got a chance to buy shares in the ratio of $$1:1$$ from ABC company. What is this type of issue called? Explain any other two ways of issue share under primary market.

It is a type of Right Issue.Securities are issued to existing investors by offering them to buy more securities at a pre-determined price (rights)

2 types of issue under primary market are:

1. Public issue: Securities are issued to the all the members of the public who are eligible to participate in the issue.

2. Private placement: The sale of securities to a relatively small number of select investors as a way of raising capital. This is a wholesale issue of securities to institutional investors by an unlisted company.

"Stock market quotations contribute to better allocation of capital and promoting the habits of savings and investments". Explain.

A basic quote for a specific stock provides information, such as its bid and ask price, last-traded price and volume traded. Investors increasingly access stock quotes online or on mobile devices, such as smartphones, rather than through print media such as newspapers and magazines. Stock quotes can be presented with supplemental information and data such as the high and low prices for a given security that have been recorded over the course of the trading day. The stock quote may also show the change in the value of the security compared against the prior day’s closing price or the opening price of the current trading day. The difference in prices might be shown as a percentage, revealing how much the security has increased or declined in value.

What functions does financial market perform?

Financial market gives strength to economy by making finance available at the right place.Functions of financial market are:

(1) Mobilisation of Savings and their Channelization into more Productive Uses:

Financial market gives impetus to the savings of the people. This market takes the uselessly lying finance in the form of cash to places where it is really needed. Many financial instruments are made available for transferring finance from one side to the other side. The investors can invest in any of these instruments according to their wish.

(2) Facilitates Price Discovery:

The price of any goods or services is determined by the forces of demand and supply. Like goods and services, the investors also try to discover the price of their securities. The financial market is helpful to the investors in giving them proper price.

(3) Provides Liquidity to Financial Assets:This is a market where the buyers and the sellers of all the securities are available all the times. This is the reason that it provides liquidity to securities. It means that the investors can invest their money, whenever they desire, in securities through the medium of financial market. They can also convert their investment into money whenever they so desire.

(4) Reduces the Cost of Transactions:

Various types of information are needed while buying and selling securities. Much time and money is spent in obtaining the same. The financial market makes available every type of information without spending any money. In this way, the financial market reduces the cost of transactions.

What is Badla?

"Badla" in share trading means something in return. It is a system to carry-forward. Badla is the charge, which the investor pays to carry forward his position. Using the "Badla" tool or system, an investor can take a position in a scrip without actually taking delivery of the stock. He can carry-forward his position on the payment of small margin.

Who is the borrower of call money?

Banks with temporary shortage of funds.

Who provides protection and guidelines to the investors?

SEBI

Securities and Exchange Board of India. SEBI provides protection and guidelines to the investor.

Explain the term "Water the equity".

The term "Water the equity" means that equity can be easily convertible into liquid assets, such as, in cash. In simple words, water the equity can be defined as a process of converting the equity share capital held by the company into cash.

What are the regulations of SEBI that company must comply with?

Regulations of SEBI-

1. Minimum Listing Requirements for New Companies

In respect of the requirement of paid-up capital and market capitalization, the issuers shall be required to include in the disclaimer clause forming a part of the offer document that in the event of the market capitalization (product of issue price and the post issue number of shares) requirement of BSE not being met, the securities of the issuer would not be listed on BSE.

The applicant, promoters and/or group companies, shall not be in default in compliance of the listing agreement.

2. Minimum Requirements for Companies Delisted by BSE seeking Relisting on BSE

Companies delisted by BSE and seeking relisting at BSE are required to make a fresh public offer and comply with the existing guidelines of SEBI and BSE regarding initial public offerings.

3. Permission to Use the Name of BSE in an Issuer Company's Prospectus

Companies desiring to list their securities offered through a public issue are required to obtain prior permission of BSE to use the name of BSE in their prospectus or offer for sale documents before filing the same with the concerned office of the Registrar of Companies.

4. Submission of Letter of Application

As per Section 73 of the Companies Act, 1956, a company seeking listing of its securities on BSE is required to submit a Letter of Application to all the stock exchanges where it proposes to have its securities listed before filing the prospectus with the Registrar of Companies.

5. Allotment of Securities

As per the Listing Agreement, a company is required to complete the allotment of securities offered to the public within 30 days of the date of closure of the subscription list and approach the Designated Stock Exchange for approval of the basis of allotment.

In the case of Book Building issues, allotment shall be made not later than 15 days from the closure of the issue, failing which interest at the rate of 15% shall be paid to the investors.

6. Trading Permission

As per SEBI Guidelines, an issuer company should complete the formalities for trading at all the stock exchanges where the securities are to be listed within 7 working days of finalization of the basis of allotment.

A company should scrupulously adhere to the time limit specified in SEBI (Disclosure and Investor Protection) Guidelines 2000 for allotment of all securities and dispatch of allotment letters/share certificates/credit in depository accounts and refund orders and for obtaining the listing permissions of all the exchanges whose names are stated in its prospectus or offer document. In the event of listing permission to a company being denied by any stock exchange where it had applied for listing of its securities, the company cannot proceed with the allotment of shares. However, the company may file an appeal before SEBI under Section 22 of the Securities Contracts (Regulation) Act, 1956.

7. A requirement of 1% Security

Companies making public/rights issues are required to deposit 1% of the issue amount with the Designated Stock Exchange before the issue opens. This amount is liable to be forfeited in the event of the company not resolving the complaints of investors regarding a delay in sending refund orders/share certificates, non-payment of a commission to underwriters, brokers, etc.

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8. Payment of Listing Fees

All companies listed on BSE are required to pay to BSE the Annual Listing Fees by 30th April of every financial year as per the Schedule of Listing Fees prescribed from time to time.

What do you mean by penny stock?

: Penny stocks are those that trade at a very low price, have very low market capitalisation, are mostly illiquid, and are usually listed on a smaller exchange. Penny stocks in the Indian stock market can have prices below Rs 10. These stocks are very speculative in nature and are considered highly risky because of lack of liquidity, smaller number of shareholders, large bid-ask spreads and limited disclosure of information.

"Money market instruments are more safe than capital market instruments". Comment.

In the money market, extremely liquid financial instruments are traded, i.e. monetary instruments of short-term nature are dealt. On the contrary, the capital market is for long-term securities. It is a market for those securities which have direct or indirect claims to capital. the instruments traded in the money market carry low risk, hence, they are safer investments, but capital market instruments carry high risk.

The liquidity is high in the money market, but in the case of the capital market, liquidity is comparatively less. Hence, "Money market instruments are safer than capital market instruments".

What do you mean by treasury bills?

Treasury Bill:

The major instrument of the money markets is the Treasury bill which is issued for varying periods of less than one year. They are issued by the Secretary to the Treasury in England and are payable at the Bank of England. There are also the short-term government securities in the USA which are traded by commercial banks and dealers in securities. In India, the treasury bills are issued by the Government of India at a discount generally between 91 days and 364 days. There are three types of treasury bills in India—91 days, 182 days and 364 days.

Shares are given in the ratio of 1:1 What is this type of issue?

Right issue.

Describe SEBI.

SEBI (Securities and Exchange Board of India) is an apex institution for investment in India.

Following are the powers vested in SEBI:

To regulate and approve by-laws of stock exchanges
Inspect the books of accounts of recognized stock exchanges and call for periodical returns
Inspect the books of financial Intermediaries.
Compel certain companies to get listed on one or more stock exchanges
To handle the registration of brokers

Explain any two instruments used in money market.

1. Treasury Bills:

Treasury bills, also known as Zero Coupon Bonds are the instrument of short term borrowing with maturity period of less than one year.

This instrument is issued by Reserve Bank of India on behalf of the Central Government for fulfilling short term requirements of funds. They are issued at discount and are paid at par.

2. Commercial Paper:

Commercial Paper (CP) is a short term unsecured promissory note with maturity period of 15 days to one year. Since it is unsecured, it is issued by the large and creditworthy companies to meet their short term fund requirements.

Commercial Paper is issued at discount and redeemed at par. It is negotiable and transferable by endorsement. The funds raised through Commercial Paper can be used for fulfilling seasonal and working capital need. For example, for meeting the floatation cost at the time of issue of shares and debentures i.e. Bridge Financing.

In today's commercial world stock exchange performs vital role. Do you agree? Give reason to support your answer.

The stock exchange is an institution, which provides a platform for buying and selling of existing securities.

Functions of stock exchange :

Provides Liquidity and Marketability to Existing Securities

It provides a ready and continuous market where securities are bought and sold. It gives investors the chance to dis invest or reinvest.

Thus, regular dealing provides both liquidity and marketability to existing securities.

Pricing of Securities

It Helps in determining the prices of various securities that reflect their real worth. It enables correct pricing of securities through the interplay of demand and supply. The stock market index like SENSEX, reflects the market direction and indicate day-to-day fluctuations in share prices.

Safety of Transactions

It is well regulated and its dealings are well-defined according to the existing legal framework. This ensures that the investing public gets a safe and fair deal in the market.

Contributes to Economic Growth

In stock exchange, the process of disinvestment and reinvestment channelise the savings into productive investment avenues. This leads to capital formation and economic growth.

Spreading Equity Cult

It is an organised market, which takes various steps to guide and educate investors, publish information about companies listed on the exchange and ensures better and safe trading practices. These practices have played a vital role in increasing the number of people investing in equity, thus leading to wider ownership of equity.

Provides Scope for Speculation

It is generally accepted that a certain degree of speculation is necessary to ensure liquidity and price continuity in the stock market. Thus, it provides sufficient scope for speculation in a restricted and controlled manner within the provisions of law.

Outline the major instruments of money market.

There are several money market instruments, including treasury bills, commercial paper, bankers' acceptances, deposits, certificates of deposit, bills of exchange, repurchase agreements, federal funds, and short-lived mortgage- and asset-backed securities.

Give the meaning of 'Secondary Market'.

Secondary market is the market where previously issued securities, such as stocks and bonds, are traded among investors. It is also the market where investors buy securities from other investors, and not from the issuing organization. The sale proceeds from the secondary market go to the investor, and not the issuing company.

Given the meaning of allocated function of financial market. State the consequences of the function.

One of the main functions of financial markets is to allocate capital. Capital markets especially facilitate the raising of capital while money markets facilitate the transfer of liquidity, in both cases matching those who have capital to those who need it.

Financial markets attract funds from investors and channel them to enterprises that use that capital to finance their operations and achieve growth, from startup phases to expansion–even much later in the firm’s life.

Without financial markets, borrowers would have difficulty finding lenders themselves. Intermediaries such as banks help in this process. Bank deposits are a simple way in which capital is allocated from a pool of savers to businesses that want to deploy it.

More complex transactions than a simple bank deposit require markets where lenders and their agents can meet borrowers and their agents, and where existing instruments can be resold. One example being a stock exchange.

What is meant by SEBI? Briefly explain its objectives.

The Securities and Exchange Board of India was established as an interim administrative body on 12 April 1988 by the Government of India.Its main objective was to promote orderly and healthy growth of securities and to provide protection to the investors.

Objectives of SEBI:

Following are the main objectives of SEBI:

1. Protection:guide, educate, and to protect the rights and interests of the investors.

2. Competitive and Professional:

To make the intermediaries like merchant bankers, brokers etc. competitive and professional by regulating their activities and developing a code of conduct.

3. Prevention of Malpractices:To prevent trading malpractices.

4. Balancing:

To establish a balance between statutory regulation and self regulation by the securities industry.

5. Orderly Functioning:

To promote orderly functioning of stock exchange and securities industry by regulating them.

State any three 'protective functions' of securities and exchange Board of India.

The three Protective Functions of SEBI are:

(i) Controlling insider trading and imposing penalties for such practices.

(ii) Undertaking steps for investor protection.

(iii) Promotion of fair practices and code of conduct in securities market.

Nature of 'capital market' can be well explained with the help of its features.
State any three such features of capital market.

Features

1. Link between Savers and Investment Opportunities:

Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers.

2. Deals in Long Term Investment:

Capital market provides funds for long and medium term. It does not deal with channelising saving for less than one year.

3. Utilises Intermediaries:

Capital market makes use of different intermediaries such as brokers, underwriters, depositories etc. These intermediaries act as working organs of capital market and are very important elements of capital market.

Nature of money market can be well explained with the help of its features. State any three such features of money market.

Money Market can be understood as the market for short term funds, wherein lending and borrowing of funds varies from overnight to a year. It is an important part of the financial system that helps in fulfilling the short term and very short term requirements of the companies, banks, financial institution, government agencies and so forth.

Salient Features of Money Market

It is a wholesale market, as the transaction volume is large.
Trading takes place over the telephone, after which written confirmation is done by way of e-mails.
Participants include banks, mutual funds, investment institutions and Central Banks.
There is an impersonal relationship between the participants in the money market, and so, pure competition exists.
Money market operations focus on a particular area, which serves a region or an area. On the basis of the market size and needs, the area may differ.

State any five methods of floating new issues in the Primary Market?

Methods of Floating New Issues in the Primary Market

Public issue: When a company raises funds by selling (issuing) its shares (or debenture / bonds) to the public through issue of offer document (prospectus), it is called a public issue. Initial Public Offer (IPO): When a (unlisted) company makes a public issue for the first time and gets its shares listed on stock exchange, the public issue is called as initial public offer (IPO).Follow-on public offer (FPO): When a listed company makes another public issue to raise capital, it is called follow-on offer (FPO).
Offer for sale: Institutional investors like venture funds, private equity funds etc., invest in unlisted company when it is very small or at an early stage. Subsequently, when the company becomes large, these investors sell their shares to the public, through issue of offer document and the company’s shares are listed in stock exchange. This is called as offer for sale. The proceeds of this issue go the existing investors and not to the company.
Private Placement: The sale of securities to a relatively small number of select investors for raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.
Rights issue (RI): When a company raises funds from its existing shareholders by selling (issuing) them new shares / debentures, it is called as rights issue. The offer document for a rights issue is called as the Letter of Offer and the issue is kept open for 30-60 days. Existing shareholders are entitled to apply for new shares in proportion to the number of shares already held.
Bonus Issue, the company issues new shares to its existing shareholders. As the new shares are issued out of the company’s reserves (accumulated profits), shareholders need not pay any money to the company for receiving the new shares.

Why was Securities and Exchange Board of India(SEBI) set up?
Explain any four objectives of SEBI.

At the end of the 1970s and during 1980s, capital markets were emerging as the new sensation among the individuals of India. Many malpractices started taking place such as unofficial self- styled merchant bankers, unofficial private placements, rigging of prices, non-adherence of provisions of the Companies Act, violation of rules and regulations of stock exchanges, delay in delivery of shares, price rigging, etc.

Due to these malpractices, people started losing confidence in the stock market. The government felt a sudden need to set up an authority to regulate the working and reduce these malpractices. As a result, the Government came up with the establishment of SEBI.

The main objectives of SEBI are:

(1) Regulation of Stock Exchanges:

The first objective of SEBI is to regulate stock exchanges so that efficient services may be provided to all the parties operating there.

(2) Protection to the Investors:

The capital market is meaningless in the absence of the investors. Therefore, it is important to protect the interests of the investors.

The protection of the interests of the investors means protecting them from the wrong information given by the companies in their prospectus, reducing the risk of delivery and payment, etc. Hence, the foremost objective of the SEBI is to provide security to the investors.

(3) Checking the Insider Trading:

Insider trading means the buying and selling of securities by those people’s directors Promoters, etc. who have some secret information about the company and who wish to take advantage of this secret information.

This hurts the interests of the general investors. It was very essential to check this tendency. Many steps have been taken to check inside trading through the medium of the SEBI.

(4) Control over Brokers:

It is important to keep an eye on the activities of the brokers and other middlemen in order to control the capital market. To have a control over them, it was necessary to establish the SEBI.

'To promote orderly and healthy growth of securities market and protection of investors, Securities and Exchange Board of India was set up.' With reference to this statement explain the objectives of Securities and Exchange Board of India.

The main objectives of SEBI are:

(1) Regulation of Stock Exchanges:

The first objective of SEBI is to regulate stock exchanges so that efficient services may be provided to all the parties operating there.

(2) Protection to the Investors:

The capital market is meaningless in the absence of the investors. Therefore, it is important to protect the interests of the investors.

(3) Checking the Insider Trading:

This hurts the interests of the general investors. It was very essential to check this tendency. Many steps have been taken to check inside trading through the medium of the SEBI.

(4) Control over Brokers:

It is important to keep an eye on the activities of the brokers and other middlemen in order to control the capital market. To have a control over them, it was necessary to establish the SEBI.

State any five regulatory functions of Securities and Exchange Board of India?

Regulatory Functions:

Regulatory functions of SEBI are as follows:

(a) Registration of Brokers and Agents:

It registers brokers, sub-brokers, transfer agents, merchant banks etc.

(b) Notifications of Rules and Regulations:

It notifies rules and regulations for the smooth functioning of all intermediaries in the securities’ market.

It levies fees, penalties and other charges for contravening its directions and orders.

(d) Regulator of Investment Schemes:

It registers and regulates collective investment schemes and mutual funds.

(e) Prohibits Unfair Trade Practices:

SEBI prohibits fraudulent and unfair trade practices.

What is meant by 'Money Market'?
Explain any two instruments used in Money Market.

The money market is a market for short-term instruments that are close substitutes for money. The short term instruments are highly liquid, easily marketable, with little change of loss. It provides for the quick and dependable transfer of short term debt instruments maturing in one year or less, which are used to finance the needs of consumers, business agriculture and the government. The money market is not one market but is “a collective name given to the various form and institutions that deal with the various grades of near money.”

The money market operates through a number of instruments.

1. Promissory Note:

The promissory note is the earliest types of bill. It is a written promise on the part of a businessman today to another a certain sum of money at an agreed future data. Usually, a promissory note falls due for payment after 90 days with three days of grace. A promissory note is drawn by the debtor and has to be accepted by the bank in which the debtor has his account, to be valid. The creditor can get it discounted from his bank till the date of recovery. Promissory notes are rarely used in business these days, except in the USA.

2. Bill of Exchange or Commercial Bills:

Another instrument of the money, market is the bill of exchange which is similar to the promissory note, except in that it is drawn by the creditor and is accepted by the bank of the debater. The creditor can discount the bill of exchange either with a broker or a bank. There is also the foreign bill of exchange which becomes due for payment from the date of acceptance. The rest of the procedure is the same as for the internal bill of exchange. Promissory notes and bills of exchange are known as trade bills.

State any five functions of 'Stock Exchange'?

Some of the Important Functions of Stock Exchange/Secondary Market are listed below:

1. Economic Barometer:

A stock exchange is a reliable barometer to measure the economic condition of a country.Every major change in country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy. Stock exchange is also known as a pulse of economy or economic mirror which reflects the economic conditions of a country.

2. Pricing of Securities:

The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government and creditors. The investors can know the value of their investment, the creditors can value the creditworthiness and government can impose taxes on value of securities.

3. Safety of Transactions:

In stock market only the listed securities are traded and stock exchange authorities include the companies names in the trade list only after verifying the soundness of company. The companies which are listed they also have to operate within the strict rules and regulations. This ensures safety of dealing through stock exchange.

4. Contributes to Economic Growth:

In stock exchange securities of various companies are bought and sold. This process of disinvestment and reinvestment helps to invest in most productive investment proposal and this leads to capital formation and economic growth.

5. Spreading of Equity Cult:

Stock exchange encourages people to invest in ownership securities by regulating new issues, better trading practices and by educating public about investment.

What is meant by 'Stock Exchange'?
Explain briefly any three of its functions.

The stock exchange is an institution which provides a platform for buying and selling of existing securities.

Functions performed by a stock exchange are:

(i) Provides liquidity and marketability to existing securities The primary function of a stock exchange is to provide a ready and continuous market where existing securities can be bought and sold.

This provides both liquidity and cash marketability to already existing securities in the market.

(ii) Pricing of securities Share prices on a

stock exchange are determined by the forces of demand and supply. Stock-market indices like SENSEX, NSE, etc reflect market direction and indicate day-to-day fluctuations in share prices. Thus, both buyers and sellers can get constant information about price movements of shares in the market.

(iii) Safety of transactions The membership of a stock exchange is well regulated and its dealings are well-defined according to the existing legal framework. This ensures that the investment of public is safe and they will get a fair deal in the market.

What is meant by 'Primary Market'?
Explain any two methods of floating new issues in the Primary Market.

A primary market issues new securities on an exchange for companies, governments and other groups to obtain financing through debt-based or equity-based securities. Primary markets are facilitated by underwriting groups consisting of investment banks that set a beginning price range for a given security and oversee its sale to investors. Once the initial sale is complete, further trading is conducted on the secondary market, where the bulk of exchange trading occurs each day.

Methods of Floatation:

Public issue: When a company raises funds by selling (issuing) its shares (or debenture / bonds) to the public through issue of offer document (prospectus), it is called a public issue. Initial Public Offer (IPO): When a (unlisted) company makes a public issue for the first time and gets its shares listed on stock exchange, the public issue is called as initial public offer (IPO).Follow-on public offer (FPO): When a listed company makes another public issue to raise capital, it is called follow-on offer (FPO).
Offer for sale: Institutional investors like venture funds, private equity funds etc., invest in unlisted company when it is very small or at an early stage. Subsequently, when the company becomes large, these investors sell their shares to the public, through issue of offer document and the company’s shares are listed in stock exchange. This is called as offer for sale. The proceeds of this issue go the existing investors and not to the company.

List the functions of a Stock Exchange and explain any two.

Functions of Stock exchange

1. Continuous market for securities

The Investors are able to invest in good securities and in case of any risk, it enables people to switch over from one security to another. So stock markets provides a ready and continuous opportunities for securities.

2. Evaluation of securities

It the stock exchange, the prices of securities clearly indicate the performance of the companies. It integrates the demand and supply of securities in an effective manner. It also clearly indicates the stability of companies. Thus, investors are in a better position to take stock of the position and invest according to their requirements.

3. Mobilizes savings

The savings of the public are mobilized through mutual funds, investments trusts and by various other securities. Even those who cannot afford to invest in huge amount of securities are provided opportunities by mutual funds and investment trusts.

4. Healthy speculation

The stock exchange encourages healthy speculation and provides opportunities to shrewd businessmen to speculate and reap rich profits from fluctuations in security prices. The price of security is based on supply and demand position. It creates a healthy trend in the market. Any artificial scarcity is prevented due to the rules and regulations of the market.

5. Mobility of funds

The stock exchange enables both the investors and the companies to sell or buy securities and thereby enable the availability of funds. By this, the money market also is strengthened as even short-term funds are available. The banks also provide funds for dealing in the stock exchanges.

'In today's commercial world, the Stock Exchange performs many vital functions which lead the investors towards positive environment'.
Explain how by giving any four reasons.

Some of the Important Functions of Stock Exchange/Secondary Market are listed below:

1. Economic Barometer:

2. Pricing of Securities:

3. Safety of Transactions:

4. Contributes to Economic Growth:

What is meant by 'Primary Market'?
Differentiate between 'Primary Market' and 'Secondary Market' on any four points.

The Primary Market, also known as a New Issue Market, is where new securities are issued – it is part of the capital market. Corporations, national and local governments, and other public sector institutions can get financing through the sale of new stock or bond issues through the primary market.

BASIS	primary market	secondary market
Meaning	The marketplace for new shares is called primary market.	The place where formerly issued securities are traded is known as Secondary Market.
Type of Purchasing	direct	indirect
Financing	It supplies funds to budding enterprises and also to existing companies for expansion and diversification.	It does not provide funding to companies.
Price	Fixed	Fluctuates, depends on the demand and supply force

Explain Commercial Paper?

Commercial bill is a bill of exchange used to finance the credit sales of firms. It is a short term, negotiable and self liquidity instrument. In case of goods sold on credit, the buyer is liable to make the payment on a specific date in future.

The seller could either wait till the maturity date or can draw a bill of exchange. When this bill is accepted by the buyer it becomes a marketable instrument and is called a trade bill. If the seller wants the funds before the maturity date, he can get the bill discounted from the bank. When a commercial bank accepts a trade bill it becomes a commercial bill.

Explain the following as factors affecting the choice of capital structure:
(i)Cash flow position
(ii)Cost of equity
(iii)Floatation costs
(iv)Stock-market conditions

Capital structure refers to the proportion of debt and equity held by a company.

(i)Cash flow position: The cash flow position should be such that a company must be able to fulfill its cash obligations and is also left with some buffer. The capital structure of the company should be decided taking this factors into consideration.

(ii)Cost of equity: Higher the cost of equity , in terms of divided payments,lower is its proportion in the total capital and vice-verse.

(iii) Floatation cost: Costs involved in raising funds from various sources affect the choices of the capital structure by a company.Higher the costs related to public issue of shares or debentures, higher is the use of debts rather than equity.

(iv)Stock-market conditions: Favourable stock market conditions makes equity more attractive, increasing its proportion in the total capital and vice-versa.

Explain the following money market instrument "Call money".

Call Money:

There is the call money market in which funds are borrowed and lent for one day. In the notice market, they are borrowed and lent upto 14 days without any collateral security. But deposit receipt is issued to the lender by the borrower who repays the borrowed amount with interest on call. In India, commercial banks and cooperative banks borrow and lend funds in this market but mutual funds and all-India financial institutions participate only as lenders of funds.

Identify the method of flotation adopted by the company.

Private Placement is the method of flotation adopted by the company-

Shares can be distributed through outright sale by companies to select group of persons (u/s 80 of the Companies Act 1956). This is known as placement or private placement. In other words, when an issuer makes an issue of securities to a select group of persons not exceeding 49, and which is neither a rights issue nor a public issue, it is called a private placement.

'Stock Exchange not only contributes to the economic growth, but performs many other functions'. Explain any three such functions.

Stock Exchange refers to a market where buying and selling of the existing securities take place.

The main functions of a stock exchange are:

(i)To provide liquidity and marketability: Stock exchange provides a ready platform for trading of existing securities.Through stock exchange,securities can be easily converted into cash whenever required. In addition,long-term securities can be converted to medium-term and short-term ones through stock exchange.

(ii) To determine prices: A stock exchange helps in establishing the prices of the monetary assets that are traded in that market.It provides a platform for interaction of buyers and sellers of securities;thereby,it helps in the determinations of prices of the securities through the forces of demand and supply.

(iii)To ensure fair and safe market: As stock exchange is a legal and well regulated market. It trades within the defined and the existing legal framework, ensuring safety and fairness in transactions.

How stock market reaction effect dividend decision?

Stock Market Reaction

Generally, an increase in dividends has a positive impact on stock market, whereas, a decrease or no increase may have a negative impact on stock market. Thus, while deciding on dividends, this should be kept in mind.

How access to capital market effect dividend decision?

Access to Capital Market
Large and reputed companies generally have easy access to the capital market and, therefore, may depend less on retained earnings to finance their growth. These companies tend to pay higher dividends than the smaller companies. In this way capital market effect dividend decisions.

Name the financial market used for raising working capital.
Explain instruments of that market?

Money market-

Money market refers to a market where financial instruments with high liquidity and short term maturities ranging from overnight to one year like treasury bills and commercial paper are traded. Money markets provide a variety of functions for either individual, corporate or government entities. Liquidity is often the main purpose for accessing money markets. When short-term debt is issued, it's often for the purpose of covering operating expenses or working capital for a company or government and not for capital improvements or large-scale projects.

Identify the type of financial market through which the company is planning to raise fund.

Money market basically refers to a section of the financial market where financial instruments with high liquidity and short-term maturities are traded. Money market has become a component of the financial market for buying and selling of securities of short-term maturities, of one year or less, such as treasury bills and commercial papers, certificate of deposit.

Description: Money market consists of negotiable instruments such as treasury bills, commercial papers. and certificates of deposit. It is used by many participants, including companies, to raise funds by selling commercial papers in the market. Money market is considered a safe place to invest due to the high liquidity of securities.

Define money market.

The money market is a market for short-term funds that deal in monetary assets whose period of maturity is upto one year. These assets are close substitutes for money.

State any four functions of 'Stock Exchange.'

Sock Exchange refers to a market where buying and selling of the existing securities take place. The following are the main functions of a stock exchange.
(I) Provides Liquidity and marketability Stock exchange provides a ready platform for trading of existing securities. In other words, it provides a continuous market fore sale and purchase of securities. Through stock exchange, securities can he easily converted into cash whenever required. In addition, long-term securities can he converted to medium term and short term through stock exchange.
(ii) Determination Prices: Mock exchange helps in establishing the price of the monetary assets .at are traded in that market, It provides a platform for interaction for buyers and sellers of securities and thereby, helps in the determination of prices of the securities through the forces of demand a. supply.
(iii) Facilitates Economic Growth: In a Stock Exchange the securities are continuously brought and sold. This continuous process of disinvestment and reinvestment helps in channelising the savings and the Investments to the most productive use. This, enhances capital formation and economic grow.
(iv) Scope for Speculation It is generally believed that certain degree of speculation is necessary for better liquidity and to maintain demand and supply of securities. Stock exchange provides a reasonable and controlled scope of speculation within the provisions of law.

Distinguish between the following
Money market and Capital market.

Basis	Money market	Capital market
Meaning	A Market where short term funds are borrowed and lend.	A market for borrowing and lending long term capital required by business enterprise.
Terms of finance	It provides short term funds, in short term instruments where the maturity is measured in days, weeks, or months.	It is a market for long tern instruments which is measured in years.
Instruments	The instruments dealt in the market are bills of exchange, treasury bills, banker's acceptance, etc.	The instruments dealt in this market are bonds, debentures, equity shares and stock.
Functions	Money market exists as a mechanism of liquidity adjustments i.e. a link between the depositors and borrowers.	Capital market functions as a link between the investors and entrepreneurs.
Risk	The prices of these instruments do not fluctuate and they carry very low market risk.	The instruments are long term and subject to market fluctuations and so they carry very high financial and market risk.
Institution	The commercial banks are the important institutions in the money market.	The stock exchange is an important institution in the Capital Market.

Distinguish between the following:
Primary market and secondary Market

Basis

Primary market

Secondary market

Meaning

A security market in which new issue of securities i.e. fresh or newly issued fresh shares, or debentures are sold by the newly established or existing company is called Primary Market.

A Security market in which second hand or existing securities are purchased and sold repeatedly is called secondary Market

Functions

Its main function is to raise long-term funds through fresh issue of securities. So only buying of securities takes place securities can't be sold here by investors.

Its main function is to make available continuous and ready market for existing long-term securities. In this market, both buying and selling of securities by the investors takes place.

Participants

The main participants of this market are financial institutions, mutual funds, underwriters, individual investors etc.

The main participants of secondary market are the participants of primary market, stock brokers and the members of stock exchanges.

Listing requirements

Requirements

In case of primary market, listing of securities are not required.

In the case of secondary market, listing of securities are required for their authorized trading.

Determinants of price

In this market, the prices of securities are determined by the management of the Corporate houses with due SEBI's requirement in respect of new issue of securities

In the secondary market, the prices of securities are determined by the force of demand and supply of the securities in market.

What are the major alternatives for funds allocation?

There are two major alternative mechanisms through which allocation of funds can be done:
1. Banks
2. Financial markets.

Distinguish between
Money market and Capital market

Basis	Money market	Capital market
Meaning	A Market where short term funds are borrowed and lend.	A market for borrowing and lending long term capital required by business enterprise.
Terms of finance	It provides short term funds, in short term instruments where the maturity is measured in days, weeks, or months	It is a market for long term instrument which is measured in years.
Instrument	The instruments dealt in the market are bills of exchange, treasury bills, banker's acceptance, etc	The instruments dealt in this market are bonds, debentures, equity shares and stock.
Functions	Money market exists as a mechanism of liquidity adjustments i.e. a link between the depositors and borrowers.	Capital market functions as a link between the investors and entrepreneurs.
Risk	The prices of these instruments do not fluctuate and and they carry very low and market risk	The instruments are long term and subject to market fluctuations and so they carry very high financial and market risk
Institutions	The commercial banks are the important institutions in the money market	The stock exchange in an important institution in the Capital Market.

Define financial markets.

A financial market helps to link the savers and the investors by mobilizing funds between them. In doing so it performs what is known as an allocative function. It allocates or directs funds available for investment into their most productive investment opportunity.

Name the committees worked under SEBI.

The SEBI formed two advisory committees. They are -
1. The Primary Market Advisory Committee, and
2. The Secondary Market Advisory Committee.
These committees consist of the market players, the investor's associations recognized by the SEBI, and the eminent persons in the capital market. They provide important inputs to the SEBI's policies.

What is a Limit Order?

An order to buy or sell a share at a specified price is called a Limit Order. The execution of an order is done only if the specified price is reached. It sets a minimum price that the seller is willing to accept and the maximum price that a buyer is willing to pay.

What are the types of Capital Market?

The types of Capital markets are:-
1. Primary Market - In the primary market, fresh financial securities are issued by way of IPO, FPO, via banks, etc.
2. Secondary Market - In the secondary market, already issued financial securities are traded, i.e. purchased and sold by market participants.

Define depository participant (DP).

The Depository Participant (DP) serves as an intermediary between the investor and the Depository (NSDL or CSDL) who is authorized to maintain the accounts of dematerialized shares.

What is Internet Trading?

Internet Trading is a trading platform with internet as the medium. Its execution takes place through order routing system, which will rout traders order to exchange trading system. Thus, it is accessible to every trader across the globe. SEBI approved internet trading in early 2000.

What is Market Capitalisation?

Market Capitalisation is the total market value of a company to compute its size in terms of its wealth. It is calculated multiplying the total outstanding shares of the company with the current market value per share. It is usually used in case of listed companies.

Define 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. It consists of a series of channels through which savings of the community are made available for industrial and commercial enterprises and for the public in general.

What are medium-term public deposits and what are their advantages to public deposits?

Public deposits:- Public deposits refer to unsecured deposits invited from the public. A company wishing to invite public deposits place an advertisement in the newspaper. Any member of the public can fill up the prescribed form and deposit money with the company. Generally, the public deposit can be invited by companies for a period of six months to 3 years.

Advantages of public deposits:-

Simple procedure:- The procedure for obtaining a public deposit is much simpler than the equity and debenture issues. For obtaining public deposits companies do not take permission from the controller of capital and there is no need to get listed in any stock exchange market.
Economical:- Obtaining public deposits involves very less cost. Companies don't need to spend on prospectus and underwriter's commission. There are very few administrative costs involved in obtaining public deposits. The interest paid on public deposits is less than the interest paid on debentures and loans.
No Security:- Public deposits are unsecured so the assets of the company are free to be used as a mortgage in the future.
Flexibility:- Public deposits can be repaid when they are not required. Therefore public deposits introduce flexiblity in the financial structure of the company.

What do you mean by Money market and how is it different from capital market?

A money market is a component of financial market that deals with the buying and selling or lending and borrowing of short term assets which have a duration of one year or less whereas a capital market is a component of financial market that deals with the buying and selling or lending and borrowing of long term assets like debt and equity backed securities of business concerns which have a duration of more than one year.

Explain in brief the part played by stock exchange in Financial matters of business.

A stock exchange is a platform where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments of a company at any time and anywhere around the world. The part played stock exchange are:-

Providing liquidity and Marketability to Existing Securities.
Stock Exchange provides a ready and continuous market for buying and selling securities of the companies.

What are money markets? How are they different from capital markets?

Fill in the blanks with appropriate words.
The sole objective of business should be earning _________ profit.

The sole objective of a business should be earning maximum profit as it complements other objectives of growth and expansion of the business and even sometimes when it comes to survival. Therefore, earning maximum profit is highly important for the business.

Answer the following questions:
What are the important functions of stock exchanges?

The securities contract and regulation act defines a stock exchange as, "An organization or body of the individual, whether incorporated or not established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities.

The function of Stock Exchange/Secondary Market:-

Economic Barometer:- A stock exchange is a reliable barometer to measure the economic condition of a country. Every major change in the country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy. The stock exchange is also known as a pulse of the economy or economic mirror which reflects the economic conditions of a country.
Pricing of securities:- The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth-oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government, and creditors. The investors can know the value of their investment, the creditors can value the creditworthiness, and government can impose taxes on the value of securities.
Contribute to economic growth:- In stock exchange securities of various companies are bought and sold. This process of disinvestment and reinvestment helps to invest in the most productive investment proposal and this leads to capital formation and economic growth.
Spreading of equity cult:- Stock exchange encourages people to invest in ownership securities by regulating new issues, better trading practices, and by educating the public about investment.
Liquidity:- The main function of the stock market is to provide a ready market for the sale and purchase of securities. The presence of the stock exchange market gives assurance to investors that their investment can be converted into cash whenever they want. Investors can invest in long-term investment projects without any hesitation, as because of stock exchange they can convert long-term investment into short-term and medium term.

Match the items of Column - I with the items in Column II and suggest the correct code

List 1	List 2
Interbank call market	Short-term maturity
Commercial Bills	Money market
Commercial paper market	Short term maturity
Treasury bills	Government papers

What is meant by 'Capital Structure'?

The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings.
Short-term debt such as working capital requirements is also considered to be part of the capital structure.

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 the most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this, there is another market in which unsecured and short-term debt instruments are actively traded everyday. 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) Name the market segment other than the capital market segment in which unsecured and short-term debt instruments are traded. Also, give any three points of difference between the two.

(a) The function being performed by the market is the Allocative function.
(b) The market segment other than the capital market segment in which unsecured and short-term debt instruments are traded is called the Money Market. The three points of difference between the two are as follows:

Basis of difference	Capital Market	Money Market
Time span of Securities	It mainly deals in the trading of medium and long-term securities wherein the maturity period is more than one year.	It deals in the trading of short-term securities where in the maturity period can vary from one day to a maximum of one year
Liquidity	The securities traded are liquid in nature as they are tradable on stock exchanges. However, they are less liquid in comparison to the money market securities.	The securities traded are highly liquid in nature. This is because DFHI (Discount and Finace House of India) discounts money market securities and offers a ready market for them
Expected returns	Expected returns are higher due to the possibility of capital gains in the long term and regular dividends or bouns	Expected returns are lower due to shorter duration

An investor wanted to invest Rs. $$20,000$$ in Treasury Bills for a period of $$91$$ days. When he approached the Reserve Bank of India for this purpose he came to know that it was not possible.
Identify the reason why the investor could not invest in the Treasury Bill.

A Treasury bill is an instrument of short-term debt, issued by the RBI on behalf of the Central Government to meet its short-term requirement of funds.

The treasury bill are available at the minimum amount of Rs 25000.

This minimum criteria of a Treasury Bill is not fulfilled by the investor and could not invest in the Treasury Bills.

Write only a word or a phrase or a term which can substitute the following statement.
Name the form of electronic currency that exits only in cyberspace.

Digital Cash is the electronic currency that exists only in cyberspace. This currency has no real physical properties. However, it offers the consumers to use it as real currency in an electronic format. Examples of digital cash are money in Paytm Wallet, Google Pay , Amazon Pay Wallet, etc.

Discuss any five features of developing economy.

Following are the features of developing economy:
(1) Less per capita Income : National income of developing countries is less, while population growth rate is high. So, per capita income remains low. Because of less per capita income, living standard of people is low.
(2) Population growth: Population growth rate is high in developing nations. Rate of population growth is 2 or more in these nations.
(3) Dependence on agriculture : Main occupation of the people of developing countries is agriculture. More than 60% of the population is dependent on agriculture for employment .
(4) Unequal distribution of income: Unequal distribution of income and factors of production is seen in developing countries. This inequality is seen in cities as well as villages.
(5) Unemployment: Unemployment may be counted as an important feature of developing countries.
Other than this Poverty, Dual economy and Insufficient infrastructure facilities are also important features.

What is the OTCEI?

The OTCEI (over the counter exchange of India) is a company incorporated under the Companies Act 1956. Over the counter market may be defined as a place where buyers seek sellers and vice-versa and then attempt to arrange terms and conditions for purchase/sale acceptable to both the parties. There is no particular market place in the geographical sense and it is a negotiated market place that exists anywhere as opposed to the auction market place, represented by the activity on securities exchanges.

Match list 1 with list 2.

List 1	List 2
Reduce the Cost of Transactions	Valuable information about securities
Provide Liquidity to Financial Assets	Easy purchase and sale of financial assets
Financial markets	money and capital markets
Facilitate Price Discovery	Demand and supply help to establish a price

Answer briefly:
Define Management as a process.

Management is a dynamic process of getting things done by others with the aim of achieving common goals effectively and efficiently.

For management to implement smoothly in an organisation, all the functions starting from planning to organizing then staffing to directing and ending up with controlling is essential.

Name the market where companies issue new securities.

Primary Market

The primary market is that part of the capital markets that deals with the issue of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue.

In secondary market sale of securities takes place between investors only, then how does this market contribute for capital formation?

This market contributes for capital formation indirectly by providing liquidity to the securities bought in primary market.

'Money market instruments are more liquid than capital market instruments'. Comment.

Money market instruments are more liquid than capita market instruments. The financial market is a place where investors deal in financial instruments. It provides a vehicle for allocation of savings to investment. It can be grouped as money market and capital market. Both the markets are very important in the financial sector. In the money market, extremely liquid financial instruments are traded, i.e. monetary instruments of short-term nature are dealt. On the contrary, the capital market is for long term securities. It is a market for those securities which have direct or indirect claims to capital.

Name the two segments of capital market.

Capital markets help to channelize surplus funds from savers to institutions which then invest them into productive use. Generally, long-term securities take place in this market. The capital market is bifurcated in two segments, primary market and secondary market:

a) Primary Market: Otherwise called as New Issues Market, it is the market for the trading of new securities, for the first time. It embraces both initial public offering and further public offering. In the primary market, the mobilisation of funds takes place through prospectus, right issue and private placement of securities.

b) Secondary Market: Secondary Market can be described as the market for old securities, in the sense that securities which are previously issued in the primary market are traded here. The trading takes place between investors, that follows the original issue in the primary market. It covers both stock exchange and over-the counter market.

What is meant by capital market?

Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying and selling are undertaken by participants such as individuals and institutions. Capital markets help to channelize surplus funds from savers to institutions which then invest them into productive use. Generally, long-term securities take place in this market.

How many regional stock exchanges are there in India? Name the oldest one.

There are 23 Stock Exchanges in India.

BSE(Bombay Stock Exchange) is the oldest stock exchange.

Enumerate the objectives of SEBI.

The main objectives of SEBI are:

1) Regulation of Stock Exchanges:The first objective of SEBI is to regulate stock exchanges so that efficient services may be provided to all the parties operating there.

2) Protection to the Investors:The capital market is meaningless in the absence of the investors. Therefore, it is important to protect the interests of the investors.

3) Checking the Insider Trading:Insider trading means the buying and selling of securities by those people’s directors Promoters, etc. who have some secret information about the company and who wish to take advantage of this secret information.

This hurts the interests of the general investors. It was very essential to check this tendency. Many steps have been taken to check inside trading through the medium of the SEBI.

4) Control over Brokers:It is important to keep an eye on the activities of the brokers and other middlemen in order to control the capital market. To have a control over them, it was necessary to establish the SEBI.

Which money market security is also known as zero coupon bond?

A zero-coupon bond (also discount bond or deep discount bond) is a bond where the face value is repaid at the time of maturity.

Explain any four functions of financial market.

Any four unctions of financial market are as follows :

a) Mobilization of Savings and Channelizing them into the Most Productive Uses:

A financial market facilitates the transfer of savings from savers to investors. Thus, it helps in channelizing surplus funds into the most productive uses.

b) Facilitating Price Discovery:

Households represent the supply of funds and the business firms represent the demand. The interaction between the demand and supply helps in the price discovery of financial asset, which is being traded in a particular market.

c) Providing Liquidity to Financial Assets:

Financial market facilitates easy purchase and sale of financial assets. In doing so, they provide liquidity, which means that financial assets are easily converted into cash whenever required.

d) Reducing the Cost of Transactions:

Financial markets provide a common platform where buyers and sellers meet. It helps in saving time, effort and money of the buyers and sellers at the time of trading in the market, by providing them valuable information.

'SEBI is the watch dog of security market.' Comment.

SEBI regulates the market and protects the investors by keeping a check on various manipulative activities. SEBI regulates takeover bids by companis. It prohibits fraudulent and unfair trade practices. SEBI undertakes several steps to protect the interests of the investors by conducting inspections and enquiries. It helps to provide safety to the investment.

Identify the step of trading procedure in a stock exchange which has not been followed by 'Unicon securities Pvt. Ltd.'.

Delivery of shares in D'mat form directly to investors D'mat Account by the broker.

ABC Ltd. issued prospectus for the subscription of its shares for Rs. $$500$$ crores in $$2008$$. The issue was oversubscribed by $$20$$ times. The company issued shares to all the applicants on pro-rata basis. Later SEBI inspected the prospectus and found some misleading statement about the management of the company in it. SEBI imposed a penalty of Rs. $$5$$ crores and banned its three executive directors for dealing in securities market for three years. Identify the function and its type performed by SEBI in the given case.

Protective function and prohibition of fraudulent and unfair trade practices.

Sudha Ltd. has sold $$1$$ lakh equity shares of Rs. $$10$$ each at Rs. $$12$$ per share to an investment banker, who offered them to the public at Rs. $$20$$ each. Identify the method of flotation.

Offer for sale.

Identify and state the process.

Dematerialisation is a process through which physical securities such as share certificates and other documents are converted into electronic format and held in a Demat Account. A depository is responsible for holding the securities of a shareholder in electronic form.

The process of dematerialisation is as follows:

Dematerialisation starts with opening a Demat account. For demat account opening, you need to shortlist a Depository Participant (DP) that offers Demat services.
To convert the physical shares into electronic/demat form, A Dematerialisation Request Form (DRF), which is available with the Depository Participant (DP), has to be filled in and deposited along with share certificates. On each share certificate, 'Surrendered for Dematerialisation' needs to be mentioned.
The DP needs to process this request along with the share certificates to the company and simultaneously to registrars and transfer agents through the depository.
Once the request is approved, the share certificates in the physical form will be destroyed, and confirmation of dematerialization will be sent to the depository.

The depository will then confirm the dematerialisation of shares to the DP. Once this is done, a credit in the holding of shares will reflect in the investor's account electronically.

This cycle takes about 15 to 30 days from the submission of dematerialization request.

Dematerialisation is possible only with a Demat account, therefore it is essential to learn how to open a demat account to understand dematerialisation.

Write two values not followed by Unicon Securities Pvt. Ltd.

(a) Honesty
(b) Commitment or any other.

Name the financial instrument which may be used in the following situation.
It is used by one bank having surplus funds to meet the funds requirements of another bank facing shortage of funds.

Call Money.

Name the authority which regulates such behaviour. Write any three other functions of this authority.

Authority in Security Exchange Board of India(SEBI).
Their functions are: (i) Protective functions,
(ii) Development functions, (iii) Regulatory functions.

Name the financial instrument which may be used in the following situation.
A company needs funds to meet flotation cost in order to issue equity shares in the market.

Commercial Paper.

Identify type of malpractice used by Charu.

Price Rigging.

Besides the shares issue method, mention two other methods.

Offer for sale, Private placement.

Name the financial instrument which may be used in the following situation.
The instrument that is issued during the period of tight liquidity when the deposit growth of bank is slow but demand for credit is high.

Commercial Bill.

Name the financial instrument which may be used in the following situation.
These are also known as zero coupon bonds and are issued by RBI on the behalf of central government.

Treasury Bill.

How does SEBI prohibit such practices?

In the above mentioned situation, SEBI prohibits such practice on ground of insider trading. Insider trading is regarded as illegal trade practice where trade on stocks is done based on the non-public and confidential information. SEBI prohibits such ractices in order to regualate the activities of stock exchange in a proper way.

Dinesh has $$100$$ equity shares of a company. He wants to sell $$500$$ of these shares. Which market should he approach? Write any three advantages of selling through such a market.

Secondary Market.

Identify the market highlighted in following statement.
This market deals in instrument whose maturity is upto one year.

Money Market

The money market is an organized exchange market where participants can lend and borrow short-term, high-quality debt securities with average maturities of one year or less. The market enables governments, banks, and other large institutions to sell short-term securities to fund their short-term cash flow needs.

Identify the market highlighted in following statement.
It deals in medium and long term securities.

Money Market.

Identify the market highlighted in following statement.
It is also known as Stock Exchange and deals in sale and purchase of previously issued securities.

Secondary Market.

Identify the market highlighted in following statement.
It requires less investment as value of securities is generally low.

Stock Exchange.

Why are money market Instruments are more liquid a compared to capital market instruments?

The financial market is a marketplace where investors deal in financial instruments. It provides a vehicle for allocation of savings to investment. It can be grouped as money market and capital market. Both the markets are very important in the financial sector. In the money market, extremely liquid financial instruments are traded, i.e. monetary instruments of short-term nature are dealt. On the contrary, the capital market is for long term securities. It is a market for those securities which have direct or indirect claims to capital.

What do you mean by a stock index? How is it calculated?

A stock market index is a barometer of market behaviour. It measures overall market-trend through a set of stocks which are representatives of the market. An ideal index must represent changes in the prices of securities and also shows the price movement of different classes of shares. It also indicates market direction and day to day fluctuations in stock prices common. Stock market indices used in India are SENSEX, NIFTY, etc.

Who determines the prices of new IPO?

Management of the company.

What is the minimum amount of treasury bill?

Rs. $$25,000$$.

How is the price of securities determined in the secondary market?

By demand and supply of share in the market.

How does the SEBI exercise control over 'R' limited in the interest of investors?

To protect the interest of investor the SEBI performs following function.
The figures are taken from the website of national stock exchange of India. They illustrate the movement of NSE stock indices as well as World stock indices on the date indicated.

What is REPO rate? How can it result in lowering the rate of interest on loans?

The rate at which RBI repurchases government securities from banks is known as REPO rate. When government repurchases the securities in return the banks get cash to meet their short term requirement and they can give loan at low rate of interest.
Whenever RBI wants to lower the interest rate it reduced the REPO rate. It will become more clear from following cycle.
As the REPO rate charged by RBI reduces, the money is available to banks at low rate, they pass the benefit to the end user by lowering the rate of interest on loan.
Reverse REPO rate is opposite to REPO rate.

What factors effect the movement of stock indices?
Elaborate on the nature of these factors.

The factors which affect the movement of stock indices are:
(i) Demand and supply of various securities
(ii) Financial position of the company
(iii) Bank rate
(iv) Speculative pressure
(v) Activities of financial institutions
(vi) Government policy
(vii) Political development.

What conclusions can you draw from the various movements of NSE stock indices?

On comparing the previous and current index of NSE we can see that there is depression in the market as index is down for all the sectors.

State the functions of stock exchange used in given paragraph.

The functions referred in given para are:
(a) Provide liquidity
(b) Helps in price discovery
(c) Economic barometer.

Name and explain the money-market instrument the company can use for the given purpose.

Commercial Paper

Commercial paper is an unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts payable and inventories, and meeting short-term liabilities. Maturities on commercial paper rarely range longer than 270 days. Commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates.

Name the concept which separate the ownership and control of stock exchange.

The concept which separate the ownership and control of stock exchange is Demutualisation.

State the instruments to raise finance in that market.

The instrument to raise money in money market are:
(a) Call money
(b) Treasury bill
(c) Commercial bill
(d) Commercial paper
(e) Certificate of deposit.

What relationship do you see between the movement of indices in World Market and NSE indices?

We can see that world indices and NSE indices are moving in same direction there is direct relation between NSE indices and world market indices. As there is negative trend in World Index it is bringing negative trend in NSE index also.

Name the body set up by the government of India to contract the stock exchange.

The regulatory body set up by government of India is "SEBI" Securities Exchange Board of India.

Suggest which financial market company may approach and why?

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.

What is the duration for which the company can get funds through this instrument?

The duration for which the company can get funds through this instrument is 15 days to 1 year.

What are the functions of financial markets?

Financial market gives strength to economy by making finance available at the right place.Functions are:

(1) Mobilisation of Savings and their Channelization into more Productive Uses:Financial market gives impetus to the savings of the people. This market takes the uselessly lying finance in the form of cash to places where it is really needed. Many financial instruments are made available for transferring finance from one side to the other side. The investors can invest in any of these instruments according to their wish.

(2) Facilitates Price Discovery:The price of any goods or services is determined by the forces of demand and supply. Like goods and services, the investors also try to discover the price of their securities. The financial market is helpful to the investors in giving them proper price.

(4) Reduces the Cost of Transactions:Various types of information are needed while buying and selling securities. Much time and money is spent in obtaining the same. The financial market makes available every type of information without spending any money. In this way, the financial market reduces the cost of transactions.

Explain the objectives and functions of SEBI.

The main objectives and functions of SEBI are:

(1) Regulation of Stock Exchanges:The first objective of SEBI is to regulate stock exchanges so that efficient services may be provided to all the parties operating there.

(2) Protection to the Investors:The capital market is meaningless in the absence of the investors. Therefore, it is important to protect the interests of the investors.

This hurts the interests of the general investors. It was very essential to check this tendency. Many steps have been taken to check inside trading through the medium of the SEBI.

(4) Control over Brokers:It is important to keep an eye on the activities of the brokers and other middlemen in order to control the capital market. To have a control over them, it was necessary to establish the SEBI.

What are the functions of Stock Exchange?

Functions of Stock Exchange:

1. Marketability of securities

Stock exchanges are the markets for purchasing and selling securities. As they provide a ready and continuous market for securities, the securities can be converted into cash without delay.

2. Evaluation of securities

In stock exchanges, prices of securities are determined by investors’ demand and suppliers’ preferences. Stock exchanges integrate the demand and supply of securities and determine their prices on a continuous basis. The prices prevailing in the stock exchanges are called quotations. These quotations enable the investor to evaluate the value of his shareholding.

3. Safety of investment

Stock exchanges operate under the rules, bye-laws and regulations duly approved by the government. The members of stock exchange are bound by them. Stock exchanges provide the most perfect type of market by making the transactions publicly known to the investors. Besides this, they avoid over trading and speculation through various regulatory measures. These factors ensure a great measure of safety and fair dealing to the investors.

4. Capital formation

Capital formation occurs due to savings and investments. Stock exchanges facilitate capital formation in the country. They create the healthy habit of saving, investing and risk bearing among the investors. The prices quoted in stock exchanges indicate the extent of popularity of companies. Investors are attracted towards profitable companies and come forward to invest their savings in the corporate securities. Thus, stock exchanges facilitate flow of capital into more profitable channels.

5. Regulation and Motivation of Companies

Companies wishing to list their shares on a stock exchange should follow certain rules and regulations. For example, every year, they should submit to stock exchange all relevant data relating to their financial affairs. So, the listing companies will safegurad their interest by monitoring their financial performance carefully. Thus, the stock exchanges by quoting the prices of securities motivate the companies concerned to improve their financial performance.

"Money market is essentially market for short term funds". Discuss.

Over-the-counter trading is done in the money market and it is a wholesale process. It is used by the participants as a way of borrowing and lending for the short term.

Explain the various money market instruments.

Instruments of the Money Market:

The money market operates through a number of instruments.

1. Promissory Note:

2. Bill of Exchange or Commercial Bills:

3. Treasury Bill:

But the major instrument of the money markets is the Treasury bill which is issued for varying periods of less than one year. They are issued by the Secretary to the Treasury in England and are payable at the Bank of England. There are also the short-term government securities in the USA which are traded by commercial banks and dealers in securities. In India, the treasury bills are issued by the Government of India at a discount generally between 91 days and 364 days. There are three types of treasury bills in India—91 days, 182 days and 364 days.

4. Call and Notice Money:

5. Inter-bank Term Market:

This market is exclusively for commercial and cooperative banks in India, which borrow and lend funds for a period of over 14 days and upto 90 days without any collateral security at market-determined rates.

6. Certificates of Deposits (CD):

Certificates of deposits are issued by commercial banks at a discount on face value. The discount rate is determined by the market. In India the minimum size of the issue is Rs. 25 lakhs with the minimum subscription of Rs. 5 lakhs. The maturity period is between 3 months and 12 months.

7. Commercial Paper (CP):

Commercial papers are issued by highly rate companies to raise short-term working capital requirements directly from the market instead of borrowing from the banks. CP is a promise by the borrowing company to repay the load at a specified date, normally for a period of 3 months to 6 months. This instrument is very popular in the USA, UK, Japan, Australia and a number of other countries.

What are the objectives of SEBI?

The main objectives of SEBI are:

(1) Regulation of Stock Exchanges: The first objective of SEBI is to regulate stock exchanges so that efficient services may be provided to all the parties operating there.

(2) Protection to the Investors: The capital market is meaningless in the absence of the investors. Therefore, it is important to protect the interests of the investors.

(3) Checking the Insider Trading: Insider trading means the buying and selling of securities by those people’s directors Promoters, etc. who have some secret information about the company and who wish to take advantage of this secret information. This hurts the interests of the general investors. It was very essential to check this tendency. Many steps have been taken to check inside trading through the medium of the SEBI.

(4) Control over Brokers: It is important to keep an eye on the activities of the brokers and other middlemen in order to control the capital market. To have a control over them, it was necessary to establish the SEBI.

Explain the capital market reforms in India.

The major reforms undertaken in capital market of India includes:-

Establishment of SEBI:The SEBI was set up with the fundamental objective, "to protect the interest of investors in securities market and for matters connected therewith or incidental thereto."
Increasing of Merchant Banking Activities: It has proved as a helping hand to factors related to the capital market
Growing Mutual Fund Industry:The growing of mutual funds in India has certainly helped the capital market to grow. Public sector banks, foreign banks, financial institutions and joint mutual funds between the Indian and foreign firms have launched many new funds
Investor's Protection :It works in educating and guiding investors. It tries to protect the interest of the small investors from frauds and malpractices in the capital market.

What is REPO and reverse REPO?

Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation

Reverse Repo rate is the rate at which RBI borrows money from the commercial banks. The increase in the Repo rate will increase the cost of borrowing and lending of the banks which will discourage the public to borrow money and will encourage them to deposit.

Distinguish between capital market and money market.

The financial market is a place where investors deal in financial instruments. It provides a vehicle for allocation of savings to investment. It can be grouped as money market and capital market. Both the markets are very important in the financial sector. In the money market, extremely liquid financial instruments are traded, i.e. monetary instruments of short-term nature are dealt. On the contrary, the capital market is for long term securities. It is a market for those securities which have direct or indirect claims to capital.

Capital Market plays a crucial role in the development of the economy because it provides channels for mobilization of funds. On the other hand, money market possesses a range of operational features.

What are the methods of flotation in Primary Market?

Methods of Floatation in Primary Market are:

Offer through Prospectus: Offer through prospectus is the most popular method of raising funds by public companies in the primary market. This involves inviting subscription from the public through issue of the prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines.
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.
Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue.
Rights Issue: This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company.

What is treasury bill?

Treasury Bills, also known as T-bills are the short-term money market instrument, issued by the central bank on behalf of the government to curb temporary liquidity shortfalls. These do not yield any interest, but issued at a discount, at its redemption price, and repaid at par when it gets matured.

T-bills are the key segment of the financial market, which is utilised by the government to raise short-term funds, for fulfilling periodic discrepancies between its receipts and expenditure. The difference between the issue price and the redemption value indicates the interest on treasury bills, called as a discount.

Define new issue market.

A new issue is a stock or bond that is being sold to investors for the first time. This new issue can be an Initial Public Offering (IPO) of a company or it can be a new issue floated by an organization that has floated many such issues in the past. The market that deals with these new issues is called the new issue market, as opposed to the secondary market that deals with existing shares and bonds.

"Money market instruments are more liquid than capital market instruments". Comment.

Give any three features of capital market.

Features

1. Link between Savers and Investment Opportunities:

Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers.

2. Deals in Long Term Investment:

Capital market provides funds for long and medium term. It does not deal with channelising saving for less than one year.

3. Utilises Intermediaries:

Describe insider trading.

Insider trading is the buying or selling of a security by someone who has access to material nonpublic information about the security. Insider trading can be illegal or legal depending on when the insider makes the trade. It is illegal when the material information is still nonpublic.

Insider trading is defined as a malpractice wherein trade of a company's securities is undertaken by people who by virtue of their work have access to the otherwise non public information which can be crucial for making investment decisions.

What do you mean by financial market?

What are the features of capital market instruments?

Capital market is a market for medium and long term funds. It includes all the organizations, institutions and instruments that provide long term and medium term funds.The features of capital market are as follows:

1. Link between Savers and Investment Opportunities:

Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers.

2. Deals in Long Term Investment:

Capital market provides funds for long and medium term. It does not deal with channelising saving for less than one year.

3. Utilises Intermediaries:Capital market makes use of different intermediaries such as brokers, underwriters, depositories etc. These intermediaries act as working organs of capital market and are very important elements of capital market.

4. Determinant of Capital Formation:

The activities of capital market determine the rate of capital formation in an economy. Capital market offers attractive opportunities to those who have surplus funds so that they invest more and more in capital market and are encouraged to save more for profitable opportunities.

State the role of SEBI in regulating the capital market.

SEBI plays a very important role in regulating capita market.SEBI is regulator to control Indian capital market. Since its establishment in 1992, it is doing hard work for protecting the interests of Investor.

Role of SEBI is as follows:

1. Power to make rules for controlling stock exchange :

SEBI has power to make new rules for controlling stock exchange in India. For example, SEBI fixed the time of trading 9 AM and 5 PM in stock market.

2. To provide license to dealers and brokers :

SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers. One of main example is ULIPs case. SEBI said, " It is just like mutual funds and all banks and financial and insurance companies who want to issue it, must take permission from SEBI."

3 To Control the Merge, Acquisition and Takeover the companies :

Many big companies in India want to create monopoly in capital market. So, these companies buy all other companies or deal of merging. SEBI sees whether this merge or acquisition is for development of business or to harm capital market.

4. To audit the performance of stock market :

SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges.

Describe price rigging.

Price rigging is an illegal action that occurs when parties conspire to fix or inflate prices to achieve higher profits at the expense of the consumer. Also known as "price fixing" or "collusion", price rigging can be found in any industry. It has the effect of dampening competition, which tends to favor the consumer with greater variety and lower prices. Price rigging is a form of market manipulation.

Enumerate two segments of financial market.

Two segments of financial market are:

Primary Market:The transactions in primary markets exist between issuers and investors. It is the market for newly issued securities i.e securities which are issued for the first time.
Secondary Market:Secondary markets allow investors to buy and sell existing securities.The transaction exists between investors.

Describe money market.

The Directors of a Company want to modernise 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. Advise the directors whether to approach stock exchange or consultant for the 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.

I advise the directors to approach a ‘consultant’ as new issue of shares is not possible in stock exchange. Stock exchange is a secondary market, where, only existing securities are traded.

For new public issue, primary market or the new issue market is an appropriate place. Different methods of floatation of new issues of shares are:

(i)Offer through prospectus.

(ii) Offer for sale.

(iii) Rights issue.

(iv) e-IPOs.

Explain features of money market instruments.

Money market is a market for short termmoney market are R.B.I., Commercial Banks, LIC, GIC, etc.money market is the source of finance for working capital. Transactions of money market include lending and borrowing of cash for a short period of time and also sale and purchase of securities having one year term or which gets redeemed (paid back) within one year period.

The features of money market instruments are as follows:

1. Market for short term.

2. No fixed geographical location.

3. Major Institutions involved in money market are R.B.I., Commercial Banks, LIC, GIC, etc.

4. Common Instruments of money market are Call money, Treasury Bill, CP, CD, Commercial bill, etc.

Distinguish between primary and secondary market.

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What is meant by 'Capital market'?

A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments.

"Capital Markets" refers to activities that gather funds from some entities and make them available to other entities needing funds. The core function of such a market is to improve the efficiency of transactions so that each individual entity doesn't need to do search and analysis, create legal agreements, and complete funds transfer.

Why is SEBI called the watchdog of stock exchange?

SEBI regulates and protects the interest of investors. SEBI was established in 1988 and given a statutory status in 1992, to protect the investors from the fraudulent malpractices, rampant in securities market before 1988. As a watch dog, it regulates the market and protects the investors by keeping a check on various manipulative activities by performing the following functions:

(i) Regulates takeover bids by companies.

(ii) Prohibits fraudulent and unfair trade practices.

(iii) Undertakes several steps to protect the investors, e.g. calls for information by conducting inspections, enquiries and audits of the companies.

State any one 'Development function' of Securities and Exchange Board of India.

The three development functions of SEBI are:

(i) Training of intermediaries of the securities market.

(ii) Conducting research and publishing information useful to all market participants.

(iii) Undertaking measures to develop the capital markets by adapting a flexible approach.

What are the protective functions of SEBI?

The three protective functions of SEBI are as follows:

(i) Controlling insider trading and imposing penalties for such practices.

(ii) Undertaking steps for investor protection.

(iii) Promotion of fair practices and code of conduct in securities market.

What do you mean by listing of securities? How are listed securities traded in the stock exchange market?

Listing means the admission of securities of a company to trading on a stock exchange. Listing is not compulsory under the Companies Act 2013/1956. It becomes necessary when a Public Limited Company wants to issue shares or debentures to the public. When securities are listed on a stock exchange, the company has to comply with the requirements of the exchange.The listing provides an exclusive privilege to securities on the stock exchange. Only listed shares are quoted on the stock exchange. Stock exchange provides transparency in transactions of listed securities and equality and competitive conditions. Listing is beneficial for the company, to the investor, and to the public at large.

Securities are often listed in a stock exchange, an organized and officially recognized market on which securities can be bought and sold. Issuers may seek listings for their securities to attract investors, by ensuring there is a liquid and regulated market that investors can buy and sell securities in

What is meant by Primary market? Briefly explain the concept of initial public offer.

The primary market is the part of the capital market that deals with the issuance of new securities and then sold to investor directly by the issuer. Investor buy securities that were never traded before. Primary markets create long term instruments through which corporate entities raise funds from the capital market. It is also known as the New Issue Market

Initial public offering is the process by which a private company can go public by sale of its stocks to general public. It could be a new, young company or an old company which decides to be listed on an exchange and hence goes public.Companies can raise equity capital with the help of an IPO by issuing new shares to the public or the existing shareholders can sell their shares to the public without raising any fresh capital.

What are the regulatory functions of SEBI?

These functions are performed by SEBI to regulate the business in stock exchange. To regulate the activities of stock exchange following functions are performed:

(i) SEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc.

(ii) These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.

(iii) SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner.

(iv) SEBI registers and regulates the working of mutual funds etc.

(v) SEBI regulates takeover of the companies.

Give the meaning of 'Financial Market'.

Financial Market refers to a marketplace, where creation and trading of financial assets, such as shares, debentures, bonds, derivatives, currencies, etc. take place. It plays a crucial role in allocating limited resources, in the country’s economy. It acts as an intermediary between the savers and investors by mobilising funds between them.The financial market provides a platform to the buyers and sellers, to meet, for trading assets at a price determined by the demand and supply forces.

Give the meaning of 'Money Market'.

The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year. Among the most common money market instruments are negotiable certificates of deposit (CDs), banker's acceptances, commercial paper, municipal notes, federal funds and repurchase agreements (repos).

Name the two major alternative mechanisms through which allocation of funds can be done.

The two major alternative mechanisms through which allocation of funds can be done is through Banks and Financial Market.

What is meant by 'Financial Market'?

A financial market is a broad term describing any marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial markets are typically defined by having transparent pricing, basic regulations on trading, costs and fees, and market forces determining the prices of securities that trade.

What is meant by a 'Commercial Paper'?

Commercial Paper:

Explain the following money market instrument "Treasury Bill".

Treasury Bills:

Treasury bills, also known as Zero Coupon Bonds are the instrument of short term borrowing with maturity period of less than one year.

This instrument is issued by Reserve Bank of India on behalf of the Central Government for fulfilling short term requirements of funds. They are issued at discount and are paid at par.

This difference between the issue and the redemption price is the interest payable. They are highly liquid and no risk of default of payment is there. They are issued of Rs.25, 000 or in multiples thereof.

State any one 'Protective Function' of Securities and Exchange Board of India.

The Protective Functions of SEBI is Controlling insider trading and imposing penalties for such practices.

State the essential function of 'primary market'.

Main features of the primary market (type of Capital Market) are as follow:

(1) It is related with New Issues:The first important feature of the primary market is that it is related with the new issues. Whenever a company issues new shares or debentures, it is known as Initial Public Offer (IPO).

(2) It has No Particular Place:Primary market is not the name of any particular place but the activity of bringing in new issues is called the primary market.

(3) It has Various Methods of Floating Capital:

Following are the methods of raising capital in the primary market:

(i) Public Issue:

(ii) Offer for Sale:

(iii) Private Placement:

(iv) Right Issue:

(v) Electronic Initial Public Issue (e-IPOs):

(4) It Comes before Secondary Market:

The transactions are first made in the primary market. The turn of the secondary market comes later.

State any one consequence of a well performed 'allocated function' of a Financial market.

Financial market act as an intermediary between saver and user of fund.Hence, it performs the allocative function by creating productive investment oppurtunity.

Give the meaning of 'Capital Market'.

Capital markets help channelise surplus funds from savers to institutions which then invest them into productive use. Generally, this market trades mostly in long-term securities.

Distinguish between 'Capital Market' and 'Money Market' on the following bases:
(i) Duration of securities traded
(ii) Participates
(iii) Instruments traded
(iv) Safety
(v) Expected return.

The major point of distinction are as follows:

Basis of Difference	Capital Market	Money Market
Duration of securities traded	More than a year	Within a year
Participates	Financial institutions,Banks,Foreign investors,Corporate entities etc.	RBI,Banks and financial institutions.
Instruments traded	Shares, Debentures, Bonds, Retained Earnings, Asset Securitization, Euro Issues etc.	Treasury Bills, Commercial Papers, Certificate of Deposit, Trade Credit etc.
Safety	Less secured	Comparatively more safer than capital market
Expected return.	Comparatively high	Less

'Financial market plays an important role in the allocation of scarce resources is an economy by performing many important functions.' Explain any three such functions.

'Financial market plays an important role in the allocation of scarce resources is an economy by performing many important functions.' Three functions of financial market are:

a) Mobilization of savings and channelizing them into the most productive uses: Financial markets transfers savings of savers to most appropriate investment opportunities.

b) Provide liquidity to financial assets: In financial markets financial securities can be bought and sold easily so financial markets provide a platform to convert securities in cash.

c) Facilitate price discovery: Demand and supply of financial assets and securities in financial markets help in deciding the prices of various financial securities.

Explain the following money market instrument "Commercial Bill".

Explain any three developmental functions of SEBI.

The three development functions of SEBI are:

(i) Training of intermediaries of the securities market.

(ii) Conducting research and publishing information useful to all market participants.

(iii) Undertaking measures to develop the capital markets by adapting a flexible approach.

Explain any three functions of 'Stock Exchange'?

The three functions of stock exchange are as follows:

(1) Providing Liquidity and Marketability to Existing Securities. Stock exchange is a market place where previously issued securities are traded. Various types of securities are traded here on regular basis.

(2) Pricing of securities:A stock exchange provides platform to deal in securities. The forces of demand and supply work freely in the stock exchange. In this way, prices of securities are determined

(3) Safety of Transactions:Stock exchanges are organised markets. They fully protect the interest of investors. Each stock exchange has its own laws and bye-laws. Each member of stock exchange has to follow them and if any member is found violating them, his membership is cancelled.

Give the meaning of both the segments of Financial market.

Types of financial market are:

Capital Markets:A capital market is one in which individuals and institutions trade financial securities. Organizations and institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. This type of market is composed of both the primary and secondary market

Money Market: The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), banker's acceptances, U.S. Treasury bills, commercial paper, municipal notes, eurodollars, federal funds and repurchase agreements (repos). Money market investments are also called cash investments because of their short maturities.

Explain 'Treasury Bill' and 'Call Money' as money market instruments.

Treasury Bills:

Treasury bills, also known as Zero Coupon Bonds are the instrument of short term borrowing with maturity period of less than one year.

This instrument is issued by the Reserve Bank of India on behalf of the Central Government for fulfilling short term requirements of funds. They are issued at discount and are paid at par.

Call Money is short term finance used for inter-bank transactions. It has a maturity period of one day to fifteen days. All the commercial banks are required to maintain cash balance which is known as Cash Reserve Ratio (CRR). The Reserve Bank of India keeps on changing this ratio from time to time thus affecting the availability of funds, for providing loans, with the banks. Call money is a facility under which banks borrow money from each other to maintain CRR at rate of interest known as Call Rate. This rate keeps on changing from day to day and sometimes from hour to hour.

The relationship between call rates and other short term instruments such as commercial papers, certificates of deposit etc. is an inverse relationship. An increase in call money rates increases the demand for other short term instruments.

Give the meaning of both parts of Capital Market.

Capital market consists of primary markets and secondary markets. Primary markets deal with trade of new issues of stocks and other securities, whereas secondary market deals with the exchange of existing or previously-issued securities. Another important division in the capital market is made on the basis of the nature of security traded, i.e. stock market and bond market.

What is meant by 'Capital Market'?
Name the two segments of Capital Market.

A capital market is one in which individuals and institutions trade financial securities. Organizations and institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Two type of segment of Capital Market are primary and secondary markets.

Explain any four methods of flotation of new issue in the 'Primary Market'.

1. Public issue: Securities are issued to the all the members of the public who are eligible to participate in the issue.

3. Preferential issue: A private placement of securities by a listed company. Securities are issued to an identified set of investors which may include promoters, strategic investors, employees and such groups.

4. Qualified Institutional Placement (QIP): A private placement of securities by a listed company to a set of institutional investors termed as qualified institutional buyers is a QIP.

Distinguish between 'Capital Market' and 'Money Market' on the basis of:
(i) Liquidity
(ii) Investment outlays
(iii) Participants
(iv) Safety
(v) Instruments.

Basis	Capital market	Money market
Liquidity	Capital market securities are considered liquid because of stock exchange but compared to money market instruments these are less liquid.	Money market securities enjoy higher degree of liquidity.
Investment outlays	The investment in capital market does not require huge financial investment	The money market instruments are quite expensive so huge financial investment is required.
Participants	Thee participants of capital market are financial institutions, banks, public and private companies, foreign and ordinary retail investors from public.	Thee participants of money market are banks, private and public companies but foreign and ordinary retail investors do not participate in money market.
Safety	The instruments of the capital market are riskier .	The instruments in the money market are safe and less risky due to short duration.
Instruments	The instruments dealt in this market are bonds, debentures, equity shares and stock.	The instruments dealt in the market are bills of exchange, treasury bills, banker's acceptance, etc

Explain any four functions of stock exchange?

1. Continuous and ready market for securities

Stock exchange provides a ready and continuous market for purchase and sale of securities. It provides ready outlet for buying and selling of securities. Stock exchange also acts as an outlet/counter for the sale of listed securities.

2. Facilitates evaluation of securities

Stock exchange is useful for the evaluation of industrial securities. This enables investors to know the true worth of their holdings at any time. Comparison of companies in the same industry is possible through stock exchange quotations (i.e price list).

3. Encourages capital formation

Stock exchange accelerates the process of capital formation. It creates the habit of saving, investing and risk taking among the investing class and converts their savings into profitable investment. It acts as an instrument of capital formation. In addition, it also acts as a channel for right (safe and profitable) investment.

4. Provides safety and security in dealings

Stock exchange provides safety, security and equity (justice) in dealings as transactions are conducted as per well defined rules and regulations. The managing body of the exchange keeps control on the members. Fraudulent practices are also checked effectively. Due to various rules and regulations, stock exchange functions as the custodian of funds of genuine investors.

Explain the following money market instrument " Certificate of deposit".

Certificates of Deposits (CD):

How does nature of Business affect the requirement of fixed and working capital?

Hint: Manufacturing Business- More Fixed and Working Capital.
Service Industry- Less Fixed and Working Capital.

Explain the following money market instrument "Commercial paper".

Commercial Paper (CP):

What is meant by 'Capital Market'?
Differentiate between 'Capital Market' and 'Money Market' on any four bases.

Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and Institutions. Capital market consists of primary markets and secondary markets. Primary markets deal with trade of new issues of stocks and other securities, whereas secondary market deals with the exchange of existing or previously-issued securities. Another important division in the capital market is made on the basis of the nature of security traded, i.e. stock market and bond market.d institutions.

The difference between both the market are as follows:

Basis for comparison	Capital Market	Money Market
Meaning	A section of financial market where long term securities are issued and traded.	A segment of the financial market where lending and borrowing of short term securities are done.
Financial Instruments	Shares, Debentures, Bonds, Retained Earnings, Asset Securitization, Euro Issues etc.	Treasury Bills, Commercial Papers, Certificate of Deposit, Trade Credit etc.
Institutions	Commercial banks, Stock exchange, non-banking institutions like insurance companies etc.	Central bank, Commercial bank, non-financial institutions, bill brokers, acceptance houses, and so on.
Risk Factors	Comparatively high	Low

How conditions in financial market influence capital structure decision? Explain any other two factors.

During boom conditions it is easy to raise capital by issue of equity shares. During recession in capital market investor prefer to invest in debt.

State the segment of financial market for fixed capital.

Hint: Capital Market.

Explain Certificate of Deposit as Money Market Instruments?

Certificate of Deposit:

Certificates of deposit are short term instruments issued by commercial banks and financial institutions to the individuals, corporations and companies. They are unsecured and negotiable. Such instruments are usually issued by banks when they have a tight liquidity position because of slow growth of bank deposits but the demand for credit is high.

Name the financial market used for raising fixed capital.

Capital market.

Identify the value being emphasized by the Company's Act in placing certain restrictions.

Value of safety.

'Mission Coach Ltd.' is a large and creditworthy company manufacturing coaches for Indian Railways. It now wants to export these coaches to other countries 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 a huge flotation cost. To meet the expenses of the flotation cost, the company decides to tap the money market.
(a) Name and explain the money-market instrument the company can use for the above purpose.
(b) What is the duration for which the company can get funds through this instrument?
(c) State any other purpose for which this instrument can be used.

(a) The money market instrument that can be used by Mission Coach Ltd. is 'commercial paper'. Commercial paper is an unsecured short-term money market instrument. It is a negotiable and transferable promissory note with a maturity period ranging from a minimum of 15 days to a maximum of 1 year. They were introduced in India in 1990. Commercial papers are mainly issued by large and credit-worthy companies to raise short-term funds.

(b) Commercial papers provide funds and have a maturity period ranging from a minimum of 15 days to a maximum of 1 year.

(c) Another purpose for the issuance of commercial paper is to finance the seasonal and working capital needs of an organization.

State the value emphasize in given para.

Value of efficient use of finance and no wastage of finance.

What is meant by Primary Industry?

Primary industry is a type of industry which deals with extraction of natural resources and conversion into commodities and products for the customer. Also it deals with breeding and reproduction of plants and animals. These industries can be further sub divided into two:

Extractive industries: Ex: Mining and Lumbering
Genetic industries: Poultry farms, cattle breeding

State the segment of financial market for working capital.

Money Market.

State the three important decisions mentioned in given para also quote the lines for each decision.

Hint: (I) Financing Decision: "Efficient acquisition of finance".
(II) Investment Decision- "Efficient utilisation of finance.
(III) Dividend decision "Efficient disposal of finance".

Answer the following question in $$15$$ to $$20$$ sentences.
State any five features of stock exchange.

Features of Stock Exchange

Characteristics or features of stock exchange are:-

Market for securities : Stock exchange is a market, where securities of corporate bodies, government and semi-government bodies are bought and sold.

Deals in second hand securities : It deals with shares, debentures bonds and such securities already issued by the companies. In short it deals with existing or second hand securities and hence it is called secondary market.

Regulates trade in securities : Stock exchange does not buy or sell any securities on its own account. It merely provides the necessary infrastructure and facilities for trade in securities to its members and brokers who trade in securities. It regulates the trade activities so as to ensure free and fair trade

Allows dealings only in listed securities : In fact, stock exchanges maintain an official list of securities that could be purchased and sold on its floor. Securities which do not figure in the official list of stock exchange are called unlisted securities. Such unlisted securities cannot be traded in the stock exchange.

Transactions effected only through members : All the transactions in securities at the stock exchange are effected only through its authorised brokers and members. Outsiders or direct investors are not allowed to enter in the trading circles of the stock exchange. Investors have to buy or sell the securities at the stock exchange through the authorised brokers only.

Answer the following question in $$10$$ to $$12$$ sentences.
State any four differences between capital market and money market.

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Answer the following question in $$20$$ to $$30$$ sentences.
State the functions of SEBI.

Functions of SEBI

The functions and powers of SEBI have been listed in the SEBI Act,1992. SEBI caters to the needs of three parties operating in the Indian Capital Market. These three participants are mentioned below:

1. Issuers of the Securities: Companies that issue securities are listed on the stock exchange. They issue shares to raise funds. SEBI ensures that the issuance of Initial Public Offerings (IPOs) and Follow-up Public Offers (FPOs) can take place in a healthy and transparent way.

2. Protects the Interests of Traders & Investors: It is a fact that the capital markets are functioning just because the traders exist. SEBI is responsible for safeguarding their interests and ensuring that the investors do not become victims of any stock market fraud or manipulation.

3. Financial Intermediaries: SEBI acts as a mediator in the stock market to ensure that all the market transactions take place in a secure and smooth manner. It monitors every activity of the financial intermediaries, such as broker, sub-broker, NBFCs, etc

Write a word/term/phare which can substitute the following statements:
An institution which controls and regulates activities of the stock exchange.

SEBI: The stock market in each country now is governed/controlled by the corresponding governing bodies in that country. Ex: SEC (Securities Exchange Commission) for the USA , SEBI (Securities & Exchanges Board of India) for India.

Answer the following question in $$15$$ to $$20$$ sentences.
Distinguish between money market and capital market.

1. Short-term securities are traded in Money Market. Unlike Capital Market, where long-term securities are created and traded.

2. Capital Market more formal in nature compared to Money Market.

3. Money Market securities are less risky compared to Capital Market securities because they are issued for a shorter period and involve lower volatility.

4. Money Markets are highly liquid compared to Capital Markets.

5. Money Market helps in meeting short-term credit requirements of the companies such as working capital etc. However, the Capital Market helps in meeting long-term credit requirements of the companies, like providing fixed capital to purchase land, building or machinery etc.

6. Return on Investment is high in Capital Market compared to Money Market as Capital Market securities involve higher risk compared to Money Market securities.

7. A timeframe of redemption of Money Market securities is less than one year, while Capital Market securities get due after one year or even remains irredeemable in some cases

Answer the following question in $$20$$ to $$25$$ sentences.
What is stock exchange? Explain the functions of stock exchange.

Stock Exchange

The secondary tier of the capital market is what we call the stock market or the stock exchange. The stock exchange is a virtual market where buyers and sellers trade in existing securities. It is a market hosted by an institute or any such government body where shares, stocks, debentures, bonds, futures, options, etc are traded.

A stock exchange is a meeting place for buyers and sellers. These can be brokers, agents, individuals. The price of the commodity is decided by the rules of demand and supply. In India, the most prominent stock exchange is the Bombay Stock Exchange. There are a total of twenty-one stock exchanges in India.

Functions of the Stock Exchange

Liquidity and Marketability: One of the main drawing factors of the stock exchange is that it enables high liquidity. The securities can be sold at a moment’s notice and be converted to cash. It is a continuous market and the investors can divest and reinvest with ease as per their wishes.
Price Determination: In a secondary market, the only way to determine the price of securities in via the rules of supply and demand. A stock exchange enables this process via constant valuation of all the securities. Such prices of shares of various companies can be tracked via the index we call the Sensex.
Safety: The government strictly governs and regulates the stock exchanges. In the case of the BSE, the Securities Board of India is the governing body. All transactions occur within the legal framework. This provides the investor with assurances and a safe place to transact in securities.
Contribution to the Economy: As we know the stock exchange deals in already-issued securities. But these securities are continuously sold and resold and so on. This allows the funds to be mobilized and channelized instead of sitting idle. This boosts the economy.

Spreading of Equity: The stock exchange ensures wider ownership of securities. It actually educates the public about the safety and the benefits of investing in the stock market. It ensures a better quality of transactions and smooth functioning. The idea is to get more public investors and spread the ownership of securities for the benefit of everyone.
Speculation: One often hears that the stock exchange is a speculative market. And while this is true, the speculation is kept within the legal framework. For the stake of liquidity and price determination, a healthy dose of speculative trading is necessary, and the stock exchange provides us with such a platform.

Answer the following question in a sentence or a word.
Expand "SEBI".

Market regulator SEBI (Securities and Exchange Board of India) has decided to expand the reach of the arbitration centers in the country. The regulator has asked stock exchanges to double their number within a year.

The stock exchanges having nationwide terminals should provide arbitration facility (i.e arbitration as well as appellate arbitration) at least at all centres specified by SEBI from time to time, SEBI said in a circular on Friday.

However, the exchanges having nationwide terminals may provide arbitration facility at additional centres, if they so desire. The arbitration and appellate arbitration shall be conducted at the centre nearest to the address provided by client in the KYC (know your customer) form.

Other stock exchanges should provide the arbitration facility, including appellate arbitration, at the place where it is located.

The application under section 34 of the Arbitration and Conciliation Act, 1996, if any, against the decision of the appellate panel should be filed in the competent court nearest to the address provided by client in the KYC form, the circular further said.

The stock exchanges are advised to make necessary amendments for the implementation of the above decision immediately.

SEBI has also directed stock exchanges to communicate to SEBI, the status of implementation of the provisions of this circular in the monthly development reports to SEBI.

At present, arbitration is currently available at eight centers. These include Delhi, Mumbai, Kolkata, Chennai, Ahmedabad, Hyderabad, Kanpur and Indore. Stock exchanges have now been asked to provide arbitration facilities at Bangalore, Pune, Jaipur, Gaziabad, Lucknow, Gurgaon, Patna and Vadodara.

An arbitration centre is a place where disputes between brokers and their clients are resolved. Disputes could be on issues such as a client alleging that the broker has traded in his account without his permission.

Answer the following question in a sentence or a word.
Expand NSEI.

The National Stock Exchange of India Limited (NSEI) is the leading stock exchange of India, located in Mumbai. The NSE was established in 1992 as the first dematerialized electronic exchange in the country. NSE was the first exchange in the country to provide a modern, fully automated screen-based electronic trading system which offered easy trading facility to the investors spread across the length and breadth of the country. Vikram Limaye is Managing Director & Chief Executive Officer of NSE.

What is the purpose and role of SEBI?

The basic purpose of SEBI is to create an environment to facilitate efficient mobilization and allocation of resources through the securities markets. It also aims to stimulate competition and encourage innovation. This environment includes rules and regulations, institutions and their interrelationships, instruments, practices, infrastructure, and policy framework.

This market helps to save time, effort and money that both buyers and sellers of a financial asset would have to otherwise spend to try and find each other.
Name the market and identify the function being referred to.

The market mentioned in the above case is financial market.
The function being referred here is reduction of cost of transaction.

List the market segments of NSE.

The Exchange provides trading in the following two segments:
(i) Whole Sale Debt Market Segment - It deals in fixed income securities and is fast gaining ground in an environment that has largely focused on equities.
(ii) Capital Market Segment - It provides an efficient and transparent platform for trading of equity, preference shares, debentures, warrants, exchange-traded funds as well as retail Government securities.

One of the functions of Securities and Exchange Board of India is
Promotion of fair practices and code of conduct in securities market. State the category to which this function belongs and state any two other functions of this category.

These functions are categorized as “Protective Functions”. These functions are performed by SEBI to protect the interest of the investors and provide safety of investment.
Following are the protective functions of SEBI:
(i) To check unfair trade practices such as, supply of misleading statements to cheat the investors in connection with the securities market;
(ii) To promote code of conduct relating to securities market.

'Foods India Ltd. is a company engaged in the production of packaged juice since $$2010$$. Over this period, a large number of competitors have entered the market and are putting a tough challenge to Foods India Ltd.. To face this challenge and to increase its market share, the company has decided to replace the old machinery with an estimated cost of $$Rs.100$$ crores. To raise the finance, the company decided to issue $$9\%$$ debentures. The Finance department of the company has estimated that the cost of issuing the $$9\%$$ debentures will be $$Rs. 10,00,000$$. The company wants to meet its floatation cost.
(a) Explain the instrument that the company may issue for this purpose.
(b) In which type of financial market, is the instrument explained in (a) above traded ? Also explain how safe the instruments are in this market.

(a) To compensate its floatation cost of issuing 9 % Debentures, the finance Manager of “Foods India Ltd.” should issue “Commercial Paper” for this purpose. Commercial Papers are “unsecured promissory note” used to meet the floatation cost, which is used to raise long term funds. These papers were introduced in India for the first time in the year 1990.

(b) Such instruments are traded in the “Money Market” and Commercial Paper is a short term unsecured promissory note. So, it is beneficial for the company to issue such instruments, as no security is required to be provided by the company.

Write a short note on the following topic- Sensex.

The term Sensex refers to the benchmark index of the BSE in India. The Sensex is comprised of 30 of the largest and most actively traded stocks on the BSE and provides a gauge of India's economy. It is float-adjusted and market-capitalization-weighted. The Sensex is reviewed semi-annually each year in June and December.

Answer the following question:
Explain any five examples of credit instruments of money market.

Commercial Paper: Large companies with impeccable credit can simply issue short-term unsecured promissory notes to raise cash. Asset-backed commercial paper is a derivative based upon commercial paper.
Treasury Bills: The federal government raises operational cash by issuing treasury bills in the following duration : 4 weeks, 13 weeks, 26 weeks, and one year.
Futures Option: Traders can also buy just the option, without an obligation, to buy or sell a money market futures contract at an agreed-upon price on or before a specified date. There are options on three instruments: three-month Treasury bill futures, three-month euro futures, and one-month euro futures.
Municipal Notes: Cities and states issue short-term bills to raise cash. The interest payments on these are exempt from federal taxes.
Swaps:Banks act as middlemen for companies that want to protect themselves from changes in interest rates

State the functions performed by financial market.

The following are the functions performed by Financial Market:
(a) Mobilization of savings and channelling them into the most productive uses: A financial market facilitates the transfer of savings from savers to the investors. It gives savers the choice of different investments and thus helps to channelize surplus funds into the most productive use.
(b) Facilitate price discovery: The forces of demand and supply help to establish a price for a commodity or service in the market. 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.
(c) Provide liquidity to the 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. Holders of assets can readily sell their financial assets through the mechanism of the financial market.
(d) Reduce the cost of transactions: Financial markets provide valuable information about securities being traded in the market. It helps to save time, effort and money that both buyers and sellers of a financial asset would l-rave to otherwise spend to try and find each other. The financial market is thus, a common platform where buyers and sellers can meet for fulfilment of their individual needs.

Mr. Vikas Mehra was the Chairman of 'IBM Bank'. The Bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank was about to announce the taking over of 'UK Bank'. Mr. Vikas Mehra knew that the sharp price of 'IBM Bank' would rise on this announcement. Being a part of the Bank, he was not allowed to buy shares of the bank. He called one of his rich friends Mukand and asked him to invest Rs. 4 crores in shares of his bank promising him the capital gains.
As expected after the announcement, the share prices went up by 50% and the market price of Mukand's shares was now Rs. 6 crores. Mukand earned a profit of Rs. 2 crores. He gave Rs.1 crore to Vikas Mehra and kept Rs. 1 crore with him. On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity. SEBI imposed a heavy penalty on Vikas Mehra.
Quoting the lines from the above para identify and state any two functions performed by SEBI in the above case.

In the above-mentioned case, SEBI intervened to perform the following two functions:
(i) Regulatory function: 'On regular inspection and by conducting enquiries of the brokers involved, Securities and Exchange Board of India (SEBI) was able to detect this irregularity.'
SEBI can call for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.
(ii) Protective function: 'The SEBI imposed a heavy penalty on Vikash Mehra.'
SEBI controls insider trading and imposes penalties for such practices.

Financial Market - Class 12 Commerce Business Studies - Extra Questions

Name the Apex statutory body of capital market to whom customer can complain to redress their grievances.

Mohan wants to sell $$50$$ shares of Tata Motors. Explain the trading procedure of shares.

Identify the market highlighted in following statement.This market directly contributes to capital market.

Bhuvan got a chance to buy shares in the ratio of $$1:1$$ from ABC company. What is this type of issue called? Explain any other two ways of issue share under primary market.

"Stock market quotations contribute to better allocation of capital and promoting the habits of savings and investments". Explain.

What functions does financial market perform?

What is Badla?

Who is the borrower of call money?

Who provides protection and guidelines to the investors?

Explain the term "Water the equity".

What are the regulations of SEBI that company must comply with?

What do you mean by penny stock?

"Money market instruments are more safe than capital market instruments". Comment.

What do you mean by treasury bills?

Shares are given in the ratio of 1:1 What is this type of issue?

Describe SEBI.

Explain any two instruments used in money market.

In today's commercial world stock exchange performs vital role. Do you agree? Give reason to support your answer.

Outline the major instruments of money market.

Give the meaning of 'Secondary Market'.

Given the meaning of allocated function of financial market. State the consequences of the function.

What is meant by SEBI? Briefly explain its objectives.

State any three 'protective functions' of securities and exchange Board of India.

Nature of 'capital market' can be well explained with the help of its features. State any three such features of capital market.

Nature of money market can be well explained with the help of its features. State any three such features of money market.

State any five methods of floating new issues in the Primary Market?

Why was Securities and Exchange Board of India(SEBI) set up?Explain any four objectives of SEBI.

'To promote orderly and healthy growth of securities market and protection of investors, Securities and Exchange Board of India was set up.' With reference to this statement explain the objectives of Securities and Exchange Board of India.

State any five regulatory functions of Securities and Exchange Board of India?

What is meant by 'Money Market'?Explain any two instruments used in Money Market.

State any five functions of 'Stock Exchange'?

What is meant by 'Stock Exchange'?Explain briefly any three of its functions.

What is meant by 'Primary Market'?Explain any two methods of floating new issues in the Primary Market.

List the functions of a Stock Exchange and explain any two.

'In today's commercial world, the Stock Exchange performs many vital functions which lead the investors towards positive environment'.Explain how by giving any four reasons.

What is meant by 'Primary Market'? Differentiate between 'Primary Market' and 'Secondary Market' on any four points.

Explain Commercial Paper?

Explain the following as factors affecting the choice of capital structure:(i)Cash flow position(ii)Cost of equity(iii)Floatation costs(iv)Stock-market conditions

Explain the following money market instrument "Call money".

Identify the method of flotation adopted by the company.

'Stock Exchange not only contributes to the economic growth, but performs many other functions'. Explain any three such functions.

How stock market reaction effect dividend decision?

How access to capital market effect dividend decision?

Name the financial market used for raising working capital.Explain instruments of that market?

Identify the type of financial market through which the company is planning to raise fund.

Define money market.

State any four functions of 'Stock Exchange.'

Distinguish between the followingMoney market and Capital market.

Distinguish between the following:Primary market and secondary Market

What are the major alternatives for funds allocation?

Distinguish between Money market and Capital market

Define financial markets.

Name the committees worked under SEBI.

What is a Limit Order?

What are the types of Capital Market?

Define depository participant (DP).

What is Internet Trading?

What is Market Capitalisation?

Define capital market.

What are medium-term public deposits and what are their advantages to public deposits?

What do you mean by Money market and how is it different from capital market?

Explain in brief the part played by stock exchange in Financial matters of business.

What are money markets? How are they different from capital markets?

Fill in the blanks with appropriate words.The sole objective of business should be earning _________ profit.

Answer the following questions:What are the important functions of stock exchanges?

Match the items of Column - I with the items in Column II and suggest the correct code

What is meant by 'Capital Structure'?

An investor wanted to invest Rs. $$20,000$$ in Treasury Bills for a period of $$91$$ days. When he approached the Reserve Bank of India for this purpose he came to know that it was not possible.Identify the reason why the investor could not invest in the Treasury Bill.

Write only a word or a phrase or a term which can substitute the following statement.Name the form of electronic currency that exits only in cyberspace.

Discuss any five features of developing economy.

What is the OTCEI?

Match list 1 with list 2.

Answer briefly:Define Management as a process.

Name the market where companies issue new securities.

In secondary market sale of securities takes place between investors only, then how does this market contribute for capital formation?

'Money market instruments are more liquid than capital market instruments'. Comment.

Name the two segments of capital market.

What is meant by capital market?

How many regional stock exchanges are there in India? Name the oldest one.

Identify the market highlighted in following statement.
This market directly contributes to capital market.

Nature of 'capital market' can be well explained with the help of its features.
State any three such features of capital market.

Why was Securities and Exchange Board of India(SEBI) set up?
Explain any four objectives of SEBI.

What is meant by 'Money Market'?
Explain any two instruments used in Money Market.

What is meant by 'Stock Exchange'?
Explain briefly any three of its functions.

What is meant by 'Primary Market'?
Explain any two methods of floating new issues in the Primary Market.

'In today's commercial world, the Stock Exchange performs many vital functions which lead the investors towards positive environment'.
Explain how by giving any four reasons.

What is meant by 'Primary Market'?
Differentiate between 'Primary Market' and 'Secondary Market' on any four points.

Explain the following as factors affecting the choice of capital structure:
(i)Cash flow position
(ii)Cost of equity
(iii)Floatation costs
(iv)Stock-market conditions

Name the financial market used for raising working capital.
Explain instruments of that market?

Distinguish between the following
Money market and Capital market.

Distinguish between the following:
Primary market and secondary Market

Distinguish between
Money market and Capital market

Fill in the blanks with appropriate words.
The sole objective of business should be earning _________ profit.

Answer the following questions:
What are the important functions of stock exchanges?

An investor wanted to invest Rs. $$20,000$$ in Treasury Bills for a period of $$91$$ days. When he approached the Reserve Bank of India for this purpose he came to know that it was not possible.
Identify the reason why the investor could not invest in the Treasury Bill.

Write only a word or a phrase or a term which can substitute the following statement.
Name the form of electronic currency that exits only in cyberspace.

Answer briefly:
Define Management as a process.

Name the financial instrument which may be used in the following situation.
It is used by one bank having surplus funds to meet the funds requirements of another bank facing shortage of funds.

Name the financial instrument which may be used in the following situation.
A company needs funds to meet flotation cost in order to issue equity shares in the market.

Name the financial instrument which may be used in the following situation.
The instrument that is issued during the period of tight liquidity when the deposit growth of bank is slow but demand for credit is high.

Name the financial instrument which may be used in the following situation.
These are also known as zero coupon bonds and are issued by RBI on the behalf of central government.

Identify the market highlighted in following statement.
This market deals in instrument whose maturity is upto one year.

Identify the market highlighted in following statement.
It deals in medium and long term securities.

Identify the market highlighted in following statement.
It is also known as Stock Exchange and deals in sale and purchase of previously issued securities.

Identify the market highlighted in following statement.
It requires less investment as value of securities is generally low.

What factors effect the movement of stock indices?
Elaborate on the nature of these factors.