AHSEC Class 12 Business Studies Chapter 10 : Financial Market Question Answer can be very Valuable & useful for the Preparation of Assam Higher Secondary Education HS 2nd Year Examination . Assam Board AHSEC HS 2nd Year Business Studies Notes gives you the best information of Financial Market Chapter . You can find solutions to their questions at both basic and advanced levels.
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| AHSEC CLASS 12 BUSINESS STUDIES |
AHSEC Class 12 Business Studies
CHAPTER-10
BUSINESS FINANCE
Short Answer Type Questions (Mark for each questions-3/4)
1. What is money market? Explain.
Ans. Money market refers to transaction involving borrowing and lending of money for short period In money market, funds can be borrowed for a short period varying from a day, a week, a month or 3 to 6 months The Reserve Bank of India describes the money market as "the centre for dealings, mainly of a short term character, in monetary assets It meets the short term requirements of borrowers and provides liquidity or cash to the lenders "
2. What is capital market.
Ans. The term capital market refers to the institutional arrangement for facilitating the borrowing and lending of long term funds. A capital market may be defined as an organised mechanism for effective and efficient transfer of money capital or financial resources from the investing public to entrepreneurs. Capital market is related to long term financial instruments both debt and equity instruments. The long term instrument consist of equity shares, debentures, bonds etc.
3.Write three nature of money market.
Ans.(i)Flow of short-term funds - The money market brings together the lenders who have surplus funds for short-term and the borrowers who are in need of short term funds.
(ii) Role of brokers-Dealing in money market may be conducted with or without the help of brokers or intermediaries.
(iii)Sub markets-Money market consists of many sub markets such as inter bank call money market, treasury bills market ete
4. Explain three characteristics of capital market.
Ans. (i) Source of long term funds - Capital market is meant to raise long term
sources for those who want to make productive investment.
(ii) Information of investors-Capital market provides useful information of investors.
(iii) Primary and Secondary market-Capital market consist of primary and secondary market. Primary market deals in new shares and mutual funds while old shares and debentures are traded in secondary market.
5. Write three objectives of SEBI.
Ans.(i) Protect interest of investors - SEBI was mainly set up to protect the interest of investors. SEBI aims at providing true and fair position of companies to investors so that they are able to make proper decision.
(ii) Promotion and Development of securities market - SEBI aims to promote healthy security market in India. It regulates stock exchanges and security markets to promote proper functioning.
(iii) Regulating securities market-SEBI was established to regulate the working of security market, stock exchanges, brokers and other intermediaries.
(iv) Mobilisation and allocation of resources-SEBI helps mobilisation and allocation of resources through securities market. It promotes healthy competition in the market and also guides for the meaningful use of funds.
6. Write four function of financial market.
Ans. (i) Intermediary for mobilisation of saving-financial market act as a link between savers and investors. The savings are transferred to those who need them for investment.
(ii) Provide liquidity to Financial Markets-Financial securities can be easily purchased and sold in financial market, thus providing liquidity to financial assets. (iii) Helping in Economic Growth-By channelising the funds from those who have surplus funds to those who need them for making investments, capital market help in the economic growth of the country.
7. What is primary or New Issue Market?
Ans. Primary market consists of issue of new securities i.e shares, debentures etc. that have never been previously issued are offered Both the new companies and the existing ones can raise capital on the new issue market. The main function of primary market is to facilitate the transfer of funds from the willing investors to the entrepreneurs setting up new corporate enterprise. Besides helping corporate enterprises in securing their funds, the new issue market chanelises the savings of individuals and offers into investments.
8. What is secondary market?
Ans. Secondary market also known as stock market represents the market where existing securities are trading. Stock exchange provides an organised mechanism of purchase and sale of existing securities. The investors want liquidity for their investment. The securities which they hold should easily be sold when they need cash. Similarly there are others who want to invest in new securities. There should be a place where securities may be purchased and sold. Stock exchange provide such a place where securities of different companies can be purchased and sold.
9.State any four function of NSEI
Ans. Four function of NSEI are__
(i) Effective regulation and monitoring of the system ensure a fair deal to the investors.
(ii) Price and brokerage are separately shown on contract notes. There is no possibility of overcharging of any commission.
(iii) Settlement and delivery are quick in the market
(iv) NSEI help to meet the current international standards of securities market.
10. State any four services of stock exchange to the society.
Ans:- The services of stock exchange to the society are as follows__
(i) Stock exchange helps in the optimum utilisation of scarce financial resources.
(ii) Stock exchange helps in the process of economic development of the country.
(iii) Stock exchange generates economic growth by encouraging investors to invest their savings in securities. It encourages capital formation in the country.
(iv) Stock exchange provides a forum for raising public debt which is required for project of national importance.
11. Explain three features of stock exchange.
Ans. Three features of stock exchange are
(i) Stock exchange is a market where dealings take place in shares, debentures and bonds issued by the companies, corporations, government etc.
(ii) Stock exchange is also called stock market or securities market.
(iii) It is a common market/meeting place of buyer and sellers of second hand securities.
Long Answer Type Questions (Mark for each question - 5)
1. Explain the Regulatory and Development function of Securities and Exchange Board of India.
Ans. The SEBI plays the role of a regulator by performing the following functions__
(i) SEBI has formed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters etc
(ii) It registers and regulates the working of collective investment schemes including mutual funds.
(iii) SEBI regulates takeover of the companies.
(iv) SEBI conducts inquiries and audit of stock exchange.
(v) It promotes and regulates self regulatory organisations.
SEBI performs the following functions for the development of capital market__
(i) It has permitted interest trading through the registered stock brokers.
(ii) It has made underwriting of new issues optional.
(iii) It undertakes programmes for the training of intermediaries in the securities market
2.Distinguish between money market and capital market.
Ans:-
3. Distinguish between primary market and secondary market.
Ans:-
4.Why was Securities and Exchange Board of India set up? Explain any four objective of SEBI.
Ans. The basic purpose of SEBI is to create an environment to facilitate efficient mobilisation and allocation of resouces through securities market. It also aims to stimulate competition and encourage innovation. SEBI creates an environment with the aim of meeting the needs of three groups which basically constitute the market, viz. the issuers of securities, the investors and the market intermediaries.
The main objectives of SEBI are__
(i) Protect the interest of investors in purchasing and selling of securities
(ii) Promote the fair dealings in the security market
(iii) Regulate and develop a code of conduct for ensuring fair practices by intermediaries like brokers, merchant bankers etc.
(iv) Ensure a market place where there is a steady flow of savings and issuers can raise funds at a relatively low cost.
5. Explain the objective of National Stock Exchange of India.
Ans. The objective of National Stock Exchange of India are
(i) To establish nationwide trading facility for securities.
(ii)To facilitate equal access to investors across the country through proper communication network.
3.To enable shorter period of settlement.
4.To meet the international market standards.
5. To provide a fair, efficient and transparent securities market using electronic trading system.
6. Describe the functions of stock exchange.
Ans. The main functions of stock exchange are discussed below -
(i) Ready market for securities - Stock exchange acts as a ready market for different kinds of securities. Because of this facility, it is an investment market for those who want to purchase securities and a seller's market for those who want to sell them.
(ii) Encouragement to savings - Stock exchange promotes the habit of savings and investment among the general public. The stock exchange provide an avenue for investment in industrial projects.
(iii) Growth of joint stock companies - The rapid growth of large scale joint stock enterprises in modern times is due largely to the investment opportunity offered by the stock exchanges.
(iv) Induces corporate enterprises to raise their standard of performance - Stock exchange force to improve the performance of companies to keep the market price of their shares stable or in increasing trend.
(v) Clearing house of information-A stock exchange is a medium of useful business information. Many stock exchange publish directories which provide data on the general, economic and business trend.
(vi) Protection of investors - Stock exchange ensures fair dealings and safety of funds. The members of the stock exchanges have to operate under certain rules and regulations which seek to check the exploitation of ignorant investors.
7.Distinguish between National Stock Exchange of India (NSEI) and Over the Counter Exchange of India (OTCEI) on the following basis: (a) Year of establishment (b) Paid up capital (c) Securities traded (d) Objective.
Ans.
8.Explain in brief about the various money market instrument.
Or
Explain in brief the following money market instrument.
(a) Treasury Bill
(b) Commercial Paper
(c) Certificate of Deposit
Ans. The important money market instruments are discussed below_
(1) Call money market - The call money market refers to the market for very short period loans. Bill brokers and dealers in the stock exchange usually borrow money for short periods from commercial banks. The money is advanced by the commercial banks to bill brokers and dealers in the stock exchange for a very short period
(2) Treasury bill - Treasury bills are issued by the Reserve Bank of India on behalf of the Government of India as a short term liability, and sold to Banks and to the public The issue period ranges from 1 to 364 days. It is a negotiable instrument and hence freely transferable.
(3) Trade bills-Trade bills are drawn by one business firm on another. These are short term instruments generally issued for a period of 90 days. A trade bill is a written acknowledgement of debt by the market directing to pay a specified sum of money to a particular person.
(4) Commercial paper - Commercial paper was introduced in India as money market instrument in 1990. It is an unsecured promissory note, issued by a corporate with a fixed maturity period which varies from 3 to 12 months. Commercial banks and mutual funds are the main investors in this instrument.
(5) Certificate of deposit - It is a time deposit or fixed deposit which can be sold in the Secondary market. Only a bank can issue a certificate of deposit. It is a bearer certificate and is negotiable in the market. It is issued by banks against deposits kept by companies and institution. The period ranges from 91 days to one year.
9. "SEBI is the regulator of Indian Capital Market." Comment.
Ans. "SEBI is the regulator of Indian Capital market." The SEBI plays the role of regulator by performing the following functions__
(i) It registers and regulates the working of stock brokers, sub-brokers, shares transfer agents, merchants bankers, underwriters, investment advisers and such other intermediaries who may be associated with the securities market in any manner.
(ii) It regulates business in the securities market by enforcing its rules and regulations.
(iii) It registers and regulates the working of collective investment schemes including mutual funds.
(iv) It regulates substantial acquisition of shares.
10. Explain the various functions of SEBI.
Ans. The various functions of SEBI are as follows__
(1) Protective function - Protective functions of SEBI are
(a) SEBI prohibits fraudulent and unfair trade practices in securities market.
(b) SEBI prohibits insider trading.
(c) SEBI promotes fair practices and code of conduct in securities market.
(2) Development Function -
(a) SEBI promotes training of intermediaries of the security market
(b) It undertakes measures to develop the capital market by adopting a flexible and adoptable approach
(3) Regulatory Function
(a) SEBI regulates the business in stock exchanges and any other securities market.
(b) It registers and regulates the working of stock brokers, sub brokers, merchant bankers, underwriters and such other intermediaries who may be associated with securities markets
(c) It registers and regulates the working of mutual funds etc
(d) It conducts inquiries and audits of stock exchanges.
(4) Educative function -The educative function of SEBI are -
(a) Promoting investors education.
(b) Conducting research for the improvement in capital market.
(5) Miscellaneous Function
(a) Performing any such functions as may be prescribed.
(b) Levging fee or other charges for carrying out the purpose of the Act.
11. State any five methods of floating new issues in the primary market.
Ans. The methods of floating new issues in the primary market are -
(i) Public issue through prospectus- Under this method company issues a prospectus to inform and attract general public. In prospectus company provides details about the purpose for which funds are being raised, past financial performance of the company etc.
(ii) Offer for sale - Under this method new securities are offered to general public but not directly by the company but by an intermediary who buys whole lot of securities from the company
(iiii) Private placement- Under this method the securities are sold by the company to an intermediary at a fixed price and in second step intermediaries sell these securities not to general public but to selected clients at higher price.
(iv) e-IPOs - It is the new method of issuing securities through online system of stock exchange. In this company has to appoint registered brokers for the purpose of accepting applications and placing orders.
(v) Right issue - This is the issue of new shares to existing shareholders. It is called right issue because it is the pre-emptive right of shareholders that company must offer them the new issue before subscribing the outsiders.
12. Discuss the procedure of purchase and sale of securities in a stock exchange.
Ans. The procedure of purchase and sale of securities in a stock exchange are - 1.Selection of Broker - Investors intended to buy or sell securities start by selecting brok to buy or sell securities start by selecting broker to buy or sell securities for them through computer.
2.Placing order-After selecting the broker the investors specify the type and number
of securities they want to buy or sell.
3.Execution of Order-In online trading the trading takes place on the screen only. The brokers buy or sell according to instruction of clients.
4.Settlement - Most of the time the settlement takes place in on line for cash and on the spot but forward settlement is also permitted.
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CHAPTER-WISE SOLUTION FOR BUSINESS STUDIES
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SL.NO
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Chapters
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Link
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| 1 | Nature and Significance of Management | Click here |
| 2 | Principles of Management | Click here |
| 3 | Business Environment | Click here |
| 4 | Planning | Click here |
| 5 | Organising | Click here |
| 6 | Staffing |
Click here |
| 7 | Directing | Click here |
| 8 | Controlling | Click here |
| 9 | Business Finance | Click here |
| 10 | Financial Market | Click here |
| 11 | Marketing Management | Click here |
| 12 | Consumer Protection Act. | Click here |
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