CBSE Class 12 Business Studies Financial Markets Worksheet Set B

Financial Market: This market refers to that market where financial securities are exchanged.

Functions of Financial Market

1. Facilitates Price Discovery

2. Provides Liquidity Financial Assets

3. Reduce the cost of transactions

4. Mobilise savings and channelize them into most productive uses.

Types of Financial Market-

1. Capital Market –

Where long term securities are sold and purchased.

2. Money Market : Which deals in short term securities i.e. whose maturity period is less than 01 year.

Types of capital market-

1. Primary or new issue market

2. Secondary Market (Stock Exchange)

Primary or new issue market-It refers to that market in which securities are sold for the first time for collecting long term capital.

Secondary Market-Where already issued securities are sale and purchase, Various methods of floating capital-

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)

Money Market –This is the market in which short term securities are trades.

Instruments:

1. Treasury Bill (T-bills) 

2. Commercial Paper

3. Call Money: 

4. Certificate of Deposit (CD):

5. Commercial Bill (Trade Bill) 

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:
NSDL – National Securities Depository Limited.
CDSL – Central Depository Services Limited.

D’MAT/Demat Account:-D’Mat Account refers to that account which is opened by the investors with depository participant to facilitate trading in shares.
Stock exchange- The stock exchange is a market in which existing securities are bought and sold.

Functions of stock exchange
1. Providing Liquidity and Marketability to Existing Securities
2. Pricing of Securities:
3. Safety of Transactions:
4. Contributes to Economic Growth:
5. Spreading of Equity Cult:
6. Providing Scope for Speculation:

Trading procedure in the stock exchange-
1. Selection of broker
2. Opening Demat Account
3. Placing the order
4. Executing the order
5. Settlement

SEBI (The Securities Exchange Board of India)- 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 regulates 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-
Functions of SEBI-
1. Regulatory Functions
2. Development Function
3. Protective Functions

Very Short Type Questions

Question. You are a finance expert. One of your friends come to you and tells you that the capital market and the money 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. “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. 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. 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. 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. “Financial markets reduces the cost of transactions.” Comment.
Answer: Financial markets provide valuable information about securities being traded in the market, which saves time, efforts and money of both buyers and sellers of financial assets in finding each other.

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.

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

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

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. 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.

Short Answer Type Question

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 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 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.-
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. 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.

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

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.

Long Answer type Questions

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 creditworthy companies to raise sort-term funds at lower rates of interest than market rates. It usually has a maturity period of 15 days to one year.
3. Call Money: 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.

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 in securities”.
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
The first step is to select a broker who will buy/sell securities on behalf of the investor. This is necessary because trading of securities can only be done through
SEBI registered brokers who are the members of a stock exchange. Brokers may be individual, partnership firms or corporate books. The broker charges brokerage / commission for his services.
2. Opening Demat account
The next step is to open a Demat account. Demat (Dematerialized) account refers to an account which an Indian citizen must open with the depository participant (banks, stock, brokers) to trade in listed securities in electronic form.
The securities are held in the electronic form by a depository. At present, there are two depositories in India NSDL (National Securities Depository Ltd.) and CDSL
(Central Depository Services Ltd.) Depository interacts with the investors through depository participants. Your Depository Participant will maintain your securities account balances and intimate to you the status of your holding from time to time.
3. Placing the order
The next step is to place the order with the broker. The order can be communicated to the broker either personally or through telephone, cell phone, e-mail etc.
The instructions should specify the securities to be bought or sold and the price range within which the order is to be executed. Only the securities of listed companies
can be traded on the stock exchange.
4. Executing the order
According to the instructions of the investor, the broker buys or sells securities.
The broker then issues a contract note. A copy of the contract note is sent to the client. The contract note contains the name and the price of the securities, names of
the parties, brokerage charged. It is signed by the broker.
5. Settlement
This is the last stage in the trading of securities done by the brokers on behalf of their clients. The mode of settlement depends upon the nature of the contract.
Equity spot market follows a T+2 rolling settlement. This means that any trade taking place on Monday gets settled by Wednesday. All trading on stock exchanges takes place between 9:55 am and 3:30 pm. Indian Standard Time, Monday to Friday.
Delivery of shares must be made in dematerialized form, and each exchange has its own clearing house, which assumes all settlement risk.

Important Questions for NCERT Class 12 Business Studies Financial Markets

Question. _______ is a link between savers & borrowers, helps to establish a link between savers & investors
(a) Marketing
(b) Financial market
(c) Money market
(d) None of these

Answer : B

Question. __________ is the organisations, institutions that provide long term funds.
(a) Capital market
(b) Money market
(c) Primary market
(d) Secondary market

Answer : A

Question. When securities are allotted to institutional investors & some selected individuals is referred to as _________.
(a) Initial public offer
(b) Offer through prospectus
(c) Private placement
(d) Offer for sale

Answer : C

Question. Which of the following are the instruments of money market?
(a) Call money
(b) Certificate of deposits
(c) Trade bills
(d) All of the above

Answer : A

Question. Stock exchange is known as __________ market for securities.
(a) Primary market
(b) Secondary market
(c) Capital market
(d) None of the above

Answer : B

Question. _________ is a market for lending & borrowing of short term funds.
(a) Money market
(b) Primary market
(c) Capital market
(d) All of the above

Answer : A

Question. ____________ is also called zero coupon bond.
(a) Trade bills
(b) Call money
(c) Treasury bills
(d) Commercial papers

Answer : C

Question. The short term financial instruments traded in money market is commonly called
(a) Call money
(b) Certificate of deposits
(c) Trade bills
(d) Commercial Paper

Answer : D

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

Answer : B

Question. Which of the following is the function of financial market?
(a) Mobilization of savings
(b) Price fixation
(c) Provide liquidity to financial assets
(d) All of the above

Answer : D

Question. Which of the following statements is not true with regard to Treasury bills?
(a) Are issued in the form of a promissory note.
(b) They are highly liquid and have assured yield
(c) They carry high risk of default.
(d) They are available for a minimum amount of ₹25,000 and in multiples thereof.

Answer : C

Question. Which of the following statements is not true with regard to Commercial paper?
(a) Is a long-term unsecured promissory note with a fixed maturity period.
(b) It usually has a maturity period of 15 days to one year.
(c) It is sold at a discount and redeemed at par.
(d) Companies use this instrument for bridge financing.

Answer : A

Question. Which of the following statements is not true with regard to Call money?
(a) It is short-term finance repayable on demand.
(b) Its maturity period ranges from one day to fifteen days.
(c) There is a direct relationship between call rates and other short-term money market instruments.
(d) It is used for inter-bank transactions.

Answer : C

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

Answer : A

Question. The allocated function is performed by
(a) Financial market
(b) Capital market
(c) Money market
(d) All of the above

Answer : D

Question. Which of the following statements is not true with regard to stock exchange?
(a) It provides a platform for buying and selling of new securities.
(b) It curbs the marketability of the securities.
(c) By providing a ready market, it extends liquidity to the securities.
(d) It provides a platform for buying and selling of old securities.`

Answer : B

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

Answer : C

Question. Raj Enterprises wishes to invest ₹1,10,000 in treasury bills. What is the maximum number of treasury bills it can buy with this fund?
(a) 6
(b) 7
(c) 4
(d) 2

Answer : C

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

Answer : D

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

Answer : A

Question. The Index of NSE is called ________ .
(a) INDEX
(b) NIFTY
(c) SENSEX
(d) LISTING

Answer  :  B

Question. Educating the investor is the ________ function of SEBI.
(a) Protective
(b) Regulatory
(c) Both the above
(d) Developmental

Answer  :  A

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

Answer  :  C

Question. Primary and secondary markets:
(a) Compete with each other
(b) Complement each other
(c) Function independently
(d) Control each other

Answer  :  B

Question. A Treasury Bill is 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. If a firm requires to two crores for six months time to keep the stock of raw material, it should approach
(a) Money market
(b) Capital market
(c) Both (a) and (b)
(d) None of the above

Answer  :  A

Question. Call money, treasury bill, C.R., etc. are the instruments of
(a) Capital Market
(b) Money market
(c) Both (a) and (b)
(d) None of the above

Answer  :  B

Question. The safest instrument of money market is
(a) Call Money
(b) Commercial Paper
(c) Treasury Bill
(d) Commercial Bill

Answer  :  C

Question. The new issues market is also known as-
a. Money market
b. Pomary market
c. Stock exchange
d. Secondary market 

Answer  : A

Question. To meet floatation cost, firms generally issue the following instrument of money market.
(a) Call Money
(b) Commercial Paper
(c) Treasury Bill
(d) Commercial Bill

Answer  :  B

FILL IN THE BLANKS

1. An institution which provides a platform for buying and selling of existing securities is known as Stock exchange

2. The facilities of reinvestment and disinvestment in securities is provided by Stock exchange. Institution/organization . 

3. The prices of securities are determined by the forces of demand and supply.

4. Creating awareness and educating the public about investment in securities is the Spreading of Equity Cult function of SEBI.

5. The function of SEBI which leads to capital formation and economic growth.

6. Discount finance house of India has been established for a specific objective of providing a ready market to money market instruments.

7. Securities are not issued directly to the public but are offered for the sale through intermediaries.

8. The prices in the primary market are determined by the management of the company.

9. The forces of demand and supply help to establish a price for the commodity as service in the financial market.

10. Households are also known as ________ in the market.

11. Money market is the source of short term finance.

12. Financial market act as link between savers and investors.

13. The maturity for money market instruments for a period of one year.

14. Commercial bill is also known as bill of exchange.

15. Treasury bills are issued by Reserve Bank of India on behalf of the Government of India

SHORT ANSWER TYPE QUESTIONS

Question. Explain the four functions of ‘Secondary Market’.
Answer: 1. The four functions of Secondary Market are mentioned below.
• The main function is to provide marketability and liquidity to the present securities and assets. It provides a platform for trading to present customers.
• It allows a constant estimate of the securities and helps in building demand and supply. This estimation helps in determining the price of the securities.
• It guarantees fairness and safety in a transaction.
• It gives a platform for channelising the saving to the most profitable way.

Question. State the protective function of the Securities and Exchange Board of India.
Answer: The protective function of the Securities and Exchange Board of India is.
• It examines violations such as violation of rules and insider trading, and disobey to the companies act.
• It provides information about the companies needed by the client.
• It provides guidelines related to the investments in securities.
• It also provides a code of conduct for business practices

Question. Explain the objectives of the Securities and Exchange Board of India (SEBI).
Answer: Objectives of the Securities and Exchange Board of India (SEBI).
• Regulate share exchange and securities used to promote orderly function.
• Protect interest and right of individual investors, investors, and guide and train them.
• To prevent fraud and accomplish a balance between self-regulation by the security industry and its statutory body.

Question. “Unicon Securities Pvt. Ltd” was established to deal in securities. It was registered as a stock broker with National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these exchanges. It is also a depository participant with CDSL and NSDL. In the first three years, it developed its business successfully. After that the composition of Board of Directors changed. Some customers complained to the customer care centre of the company that shares purchased by them and for which the payment has been duly made, were not transferred to their D’mat Accounts by “Unicon securities Pvt. Ltd” . The executive of customer care centre promised the aggrieved customers that their shares will be transferred to their respective D’mat Accounts very soon. But the company delayed the matter and didn’t transfer the shares of the customers to their D’mat Accounts. This eroded investors confidence and multiplied, their grievances.
1. Identify the step of trading procedure in a stock exchange which has not been followed by “Unicon Securities Pvt. Ltd” .
2. Name the Apex statutory body of capital market to whom customer can complain to redress their grievances.
Answer: a. The step of trading procedure in a stock exchange which has not been followed by “Unicon Securities Pvt. Ltd” is settlement i.e. the delivery of shares through the D’mat Account of the broker to D’mat account of the investors.
b. The Securities and Exchange Board of India (SEBI) is the Apex statutory body of capital market to whom customer can complain to redress their grievances.

LONG ANSWER TYPE QUESTIONS

Question. The directors of Vinod Limited 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 a consultant for 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.
Answer: Directors of company should approach consultant or a stock exchange advisor/expert. He will help the directors and company for the new issue of shares. After new issue of shares company will be able to fulfil its aim of modernising plants and machinery.Stock exchange is a place where investors feel safe and secure while they make any transaction. Approaching stock exchange is the right choice for the company because it will assure the investors that their investments have high liquidity. Investors can convert their shares into cash any time by selling them in the stock market.Company may follow different methods for public issue of shares:
1. Company may sell its shares to a particular group through private placement of shares. In this case general public cannot buy the shares of such company. 2. Company may offer its shares to the general public and may issue its prospectus to attract them to invest in company’s shares.
3. Instead of issuing shares directly company may sell these shares to an intermediary at a fixed price and intermediary will resell them to the general public at a higher price.

Question. Explain the various money market instruments.
Answer: Money market instruments are:
i. Commercial Bill: A Commercial bill is also known as a bill of exchange. A Commercial bill is mainly used to provide sufficient working capital to a business firm. It is mainly suitable where goods are sold on credit. A seller may face the problem of working capital because his customers will pay the amount on a specified date. The seller could wait until the specified date or make use of a bill of exchange. If a seller needs funds quickly before the maturity date of the bill than this bill can be discounted with the bank. When a bill is accepted by the buyer, it is known as a trade bill and when this trade bill is accepted by the commercial bank, it is known as the commercial bill.
ii.Commercial Paper: Commercial Paper is a short term unsecured instrument. It is negotiable and transferable by endorsement and delivery with a fixed maturity period. Commercial papers are usually issued by large and creditworthy companies with the purpose of raising short term funds. Commercial papers are sold at a discount and redeemed at par. The Maturity period of commercial paper is 15 days to one year. Funds arranged through commercial paper are used for Bridge Financing i.e. to meet the floatation costs.
iii.Call Money: Call money refers to the short term finance with the maturity period of one day to fifteen days. It is mainly used for inter-bank transactions. It is compulsory for all commercial banks to maintain a minimum cash balance known as Cash Reserve Ratio. Call money is the amount borrowed by a bank from another bank to maintain the cash reserve ratio. The interest rate paid on call money is known as Call Rate. This rate is not fixed. It varies from hour-to-hour and day-to-day. When call rate is higher than other market instruments i.e. commercial paper and certificates of deposit etc. become relatively cheaper.
iv. Certificate of Deposit: Certificates of deposit are short term instruments issued by commercial banks and development financial institutions against the deposits. It is a bearer document. Mainly time period involved in the certificate of deposit is 91 days to one year. It is an unsecured and negotiable instrument. Certificate of deposit can be issued to individuals, corporations and companies. It is helpful in arranging large amount when companies/individuals are facing the problem of tight liquidity.
v. Treasury Bill: Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year. They are thus useful in managing short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments. Treasury Bills are available for a minimum amount of Rs.25,000 and in multiples of Rs. 25,000. Treasury bills are issued at a discount and are redeemed at par. Treasury bills are also issued under the Market Stabilization Scheme (MSS).

Question. Describe the trading and settlement procedure of stock exchange.
Answer: i. Selection of a Broker
The first step is to select a broker, who will buy/sell securities on behalf of the speculator/investor. This is necessary because trading of securities can only be done through SEBI registered brokers, who are members of stock exchange. Brokers may be individuals, partnership firms and corporate bodies.
ii. Opening Demat Account with Depository
The next step is to open a demat account. Demat (Dematerialised) account refers to an account which an Indian citizen must open with the depository participant (banks and stock brokers) to trade in listed securities in “electronic form. The securities are held in the electronic form by a depository. ‘Depository’ is an institution/organisation which holds securities (e.g. shares, debentures, bonds, mutual funds, etc) in electronic form, in which trading is done.
iii. Placing the Order
The next step is to place the order with the broker. The order can be communicated to the broker either personally or through telephone, cell phone, e-mail, etc. The instructions should specify the securities to be bought or sold and the price range within which the order is to be executed. Only the securities of listed companies can be traded on the stock exchange.
iv. Executing the Order
According to the instructions of the investor, the broker buys or sells securities. The broker, then issues a contract note. A copy of the contract note contains the name and the price of securities, names of the parties, brokerage charges, etc. It is duly signed by the broker.
v. Settlement
This is the last stage in the trading of securities done by the brokers on behalf of their clients. The mode of settlement depends upon the nature of the contract. Equity spot markets follow a T + 2 rolling settlement. This means that any trade taking place on Monday gets settled by Wednesday. Stock, exchange operates from Monday to Friday between 9:55am and 3:30pm. Each exchange has its own clearing house, which assumes all settlement risk. 1. The various functions of financial market highlighted in the above case are: 0. Financial market reduces the cost of transactions. The buyers on the one hand get to know about the securities and they get a place where securities are sold helping reduce the wastage of time, effort and money.