CBSE Class 12 Business Studies Financial Markets Worksheet Set A

Question. Primary and Secondary Markets
a. Compete with each other
b. Complement each other
c. Function independently
d. Control each other

Answer : B

Question. Total number of stock exchanges in India are
a. 25
b. 21
c. 22
d. 23

Answer : A

Question. The settlement cycle in NSE is
a. T+5
b. T+3
c. T+2
d. T+1

Answer : C

Question. National Stock Exchange in India was recognized as stock exchange in the year.
a. 1992
b. 1993
c. 1994
d. 1995

Answer : B

Question. Treasury Bills are basically
a. an instrument to borrow short term funds
b. an instrument to borrow long term funds
c. an instrument of capital market
d. none of the above.

Answer : A

Question. Certain instruments of money market is short self-liquidating & used to finance credit sales name the instruments:
a. Call Money
b. Certificate of Deposit
c. Commercial Bill
d. Treasury Bill

Answer : C

Question. Educating the investor is the ____________ function of SEBI.
a. Protective
b. Regulatory
c. Both the a and b
d. developmental.

Answer : A

Question. Which of the following falls in the category of Zero Coupon Bond?
a. Treasury Bill
b. Commercial Paper
c. Certificate of Deposit
d. Commercial Bill

Answer : A

Question. Which of the following is the method of collecting capital?
a. Public offer
b. Offer for sale
c. Private Placement
d. All of the above

Answer : D

Question. Which of the following takes advantage of the internal trading?
a. All shareholders
b. All Debenture holders
c. People having secret information of the company
d. All the employees

Answer : C

Important Questions for Ncert Class 11 Business Studies Directing

Very Short Answer Type Questions :

Question. What is meant by right issue?
Answer : Right issue refers to a method in which company offers the new shares to its existing shareholders in proportion of shares already held by them.

Question. Supriya’s grandmother who was unwell, called her and gave her a gift packet. Supriya opened the packet and saw many crumpled share certificate inside. Her grandmother told her that they had been left behind by her late grandmother. As no trading is now done in physical form, Supriya wants to know the process by adopting which she is in a position to deal with these certificates.
(i) Identify and state the process.
(ii) Also give two reasons to Supriya why dealing with shares in physical form had been stopped.
Answer : (i) Dematerialization: It is a process where securities held by the investors in physical form are cancelled and the investors give an electronic entry or number so that she/ he holds it as an electronic balance in an account.
(ii) Problems with dealing in physical form:
(a) Theft.
(b) Transfer delays.

Question. Name the two methods of floating new issues in the primary market.
Answer : (i) Offer through prospectus;
(ii) Private Placement.

Question. You are a finance expert. One of your friends come to you and tells you that the capital market and the money market are one and the same, whereas you differ with him. How would you convince him? Give any four reasons.
Answer : I will convince my friend by telling him the point of difference between capital market and money market.

Question. State any one objective of setting up of Securities and Exchange Board of India (SEBI).
Answer : To regulate stock exchange to promote their orderly functioning.

Question. Due to various malpractices and exploitation of investors in the securities market, the Indian Government established a separate regulatory body to protect the investors and to develop and regulate the securities market. Identify the regulatory body set up by the government.
Answer : Securities and Exchange Board of India (SEBI).

Question. “All securities can be traded in the stock exchange.”Do you agree?
Answer : No, I do not agree with the given statement. Securities of only those companies can be traded in the stock exchange, which have completed its listing requirement.

Question. Which bearer document is issued by a bank against deposit kept by the companies and institutions for a short period?
Answer : Certificate of Deposit.

Question. Why do money market instrument are more liquid as compare to capital market instrument?
Answer : Monet market instrument are more liquid as compare to capital market instrument due to presence of Discount Finance House of India (DFHI) in money market. DFHI provides a ready market for money market instrument and that is why, these instruments enjoy higher liquidity.

Question. What is meant by ‘Allocative Function’ performed by financial market?
Answer : Allocative function of financial market refers to linking the savers and investors by mobilizing funds between them.

Short Answer Type Questions :

Question. What do you mean by the SEBI? Explain its objectives.
Answer : The Securities Exchange Board of India was established in 1992 to protect the interest of investors and to regulate and control the trading of financial securities.
Objectives of SEBI-
1. Regulation of stock exchange- It regulate stock exchanges so that efficient services may be provided to all the parties operating there.
2. Protection to the Investors- SEBI protects interest of investors from wrong information given by the company and reducing the risk of delivery and payment etc
3. Checking the Insider Trading- It means the buying and selling of securities by those persons (Directors, Promoters etc) who have some secret information about the company and who wish to take advantages of this secret information. SEBI check insider trading.

Question. What do mean by the DeMat account? Explain.
Answer : DeMat (Dematerialization) Account refers to that account which is opened by the investors with depository participant to facilitate trading in shares.

Question. What is Primary or New issue market? Explain various methods of floating capital.
Answer : It refers to that market in which securities are sold for the first time for collecting long term capital.
Various methods of floating capital.- (ACRONYM-POORE)
1. Public Issue- Under this method, the company issues a prospectus and invites the general public to purchase shares or debentures.
2. Offer for Sale- Under this method, Firstly the new securities are offered to an intermediary at a fixed price. They further resell the same to the general public.
3. Private Placement- The company sell securities to the institutional investors or brokers instead of selling them to the general public.
4. Right Issue – When an existing company issues new securities, First of all it invites its existing shareholders.
5. Electronic Initial Public offer (e-IPO’s) – Under this method, companies issue their securities through the electronic medium (i.e. internet)

Question. Mr. Rohit is a holder of financial securities in Futura limited. He wants to sell his securities to purchase new securities of another company. You are required to suggest him the markets where he can sell his securities and describe the concept. Explain two function of that market.
Answer : Financial Market: This market refers to that market where financial securities are exchanged.
Functions of Financial Market
1. 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.
2. Provides Liquidity Financial Assets:- This is market where the buyers and the sellers of all the securities are available all the times. This is a reason that it provides liquidity securities. It means that they 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.

Question. What are the functions of SEBI? Explain.
Answer : Functions of SEBI-
(i) Regulatory Functions- These functions aim to regulate the functioning of the stock exchange. It includes registration of brokers, Investment schemes, and regulation of stock bankers.
(ii) Development Function- These functions aim to promote the development of stock exchange. It includes registration of brokers, Investment schemes, and regulation of stock bankers. It includes training of intermediaries of the securities market.
(iii) Protective Functions- These functions aim to protect interest of investors, controlling insider trading, unfair trade practice etc.

Question. What do you mean by the Depository? Explain
Answer : Depository:- A Depository is an institution which holds the shares of an investor in electronic form. It act as bank where investors can open a securities account and deposit the electronic form of securities. At present, there are two depository institutions in India:
1. NSDL – National Securities Depository Limited.
2. CDSL – Central Depository Services Limited.

Long Answer type Questions :

Question. Give the meaning and definition of Stock exchange? Explain the functions of stock exchange.
Answer : Meaning-The stock exchange is a market where existing securities are bought and sold. Definition-The securities contract (regulation) act, 1956 defines “a stock exchange as an association, organization, body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing insecurities”.
Functions of stock exchange
1. Providing Liquidity and Marketability to Existing Securities: It gives investors the chance to disinvest and re-invest. This provides both liquidity and easy marketability to already existing securities in the market.
2. Pricing of Securities: Share prices on a stock exchange are determined by the forces of demand and supply. A stock exchange is a mechanism of constant valuation through which the prices of securities are determined.
3. Safety of Transactions: The membership of a stock exchange is well regulated and its dealings are well defined according to the existing legal frame work. This ensures that the investing public gets a safe and fair deal on the market.
4. Contributes to Economic Growth: A stock exchange is a market in which existing securities are re-sold or traded. Through this process of disinvestment and reinvestment savings get channelized into their most productive investment avenues.
This leads to capital formation and economic growth.
5. Spreading of Equity Cult: The exchange can play a vital role in ensuring wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments.
6. Providing Scope for Speculation: The stock exchange provides sufficient scope within in the provisions of law for speculative activity in a restricted and controlled manner.

Question. Describe procedure to trade securities in a Stock Exchange.
Answer : Trading Procedure:-
The procedure for purchase and sale of securities in a stock exchange involves the following steps:
1. Selection of broker and signing of broker- client agreement, submitting other details including PAN (mandatory)
2. Opening Demat Account or ‘beneficial owner’(BO) account with depository participant(DP)
3. Placing the order with broker and confirmation slip issued to investor by broker.
4. Broker will in-line match the share and best price available.
5. When the price will match order will be executed electronically and a trade confirmation slip will be issued to the investor.
6. Within 24 hours, contract Note will be issued by the broker containing details of the transaction. it is legally enforceable and helps to settle disputes.
7. Investor has to deliver the shares or pay cash for the shares. This is called the pay- in-day.
8. Cash is paid or securities are delivered on pay-in-day , which is before T+2 day.
9. On T+2 day, exchange will deliver shares or make payment to the other broker. This is called pay-out day. The broker will make payment to the investor within 24 hours of pay-out day.
10. The broker can deliver directly to demat account.

Question. Which financial market meets the short term financial requirement of business? Identify concept and Explain instruments of that market.
Answer : Money Market Instruments:
1. Treasury Bill (T-bills): It is basically an instrument of short-term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds.
2. Commercial Paper: It is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and credit worthy companies to raise sort-term funds at lower rates of interest than market rates. It usually has a maturity period of 15days to one year.
3. Call Money: It is a short-term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. It is a method by which banks borrow from each other to be able to maintain the cash reserve ratio.
4. Certificate of Deposit (CD): It is an unsecured, negotiable short-term instrument in bearer form, issued by commercial banks and development financial institutions. It can be issued to individuals, corporations and companies.
5. Commercial Bill (Trade Bill): It is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. The bill can be discounted with a bank if the seller (drawer) needs funds before the bill maturity.