Kerala State Board New Syllabus Plus Two Business Studies Chapter Wise Previous Questions and Answers Chapter 10 Financial Markets.
Kerala Plus Two Business Studies Chapter Wise Previous Questions Chapter 10 Financial Markets
Plus Two Business Studies Financial Markets 1 Mark Important Questions
Question 1.
State the market for medium and long term funds. (FEBRUARY – 2009)
a) Money market
b) Capital market
c) Commodity market
d) Exchange market
Answer:
Capital Market
Question 2.
Complete the series: (MAY-2009)
Bombay Stock Exchange -1875
Cochin Stock Exchange -1978
National Stock Exchange – ?
Answer:
National stock exchange – 1992
Question 3.
Complete the following series: (MAY-2009)
Bombay Stock Exchange -1875
Cochin Stock Exchange -1978
National stock exchange – 1992
OTCEI – ?
Answer:
OTCEI – 1992
Question 4.
The settlement cycle in NSE is (MARCH-2015)
a) T + 3
b) T + 2
c) T +1
d) T + 4
Answer:
b) T + 2
Question 5.
The method of issuing securities through intermediaries like issue houses or stock brokers is. (MARCH-2016)
a) Offer for sale
b) Offer through prospectus
c) Private placement
d) Rights issue
Answer:
a) Offer for sale
Question 6.
National Stock Exchange of India (NSE) started its operation in (MARCH-2017)
(a) 1992
(b) 1994
(c) 1993
(d) 2000
Answer:
(b) 1994
Question 7.
Pick out from the following a short term money instrument having a maternity period of one day to fifteen days used for meeting, cash reserve ratio requirement by commercial bank: (MAY-2017)
a) Treasury Bills
b) Call Money
c) Commercial Paper
d) Certificate of Deposits
Answer:
b) Call money
Plus Two Business Studies Financial Markets 2 Marks Important Questions
Question 1.
Write two protective functions performed by SEBI. (FEBRUARY – 2009)
Answer:
a) Prohibition of fraudulent and unfair, trade practices.
b) Controlling insider trading price rigging etc. and imposing penalties for such practices.
Question 2.
Shaheena, one of your classmates in Plus Two Com-merce class, was absent in one day. On that day teacher takes class on the process of dematerialisation. Can you help Shaheena to understand the topic that the teacher taught that day? (MARCH-2010)
Answer:
Dematerialisation : It is a process by which physical share certificates are converted into an equivalent number of securities to be held in electronic form and credited in the investors’ account. For this, the investor has to open a Demat account with an organisation called a depository.
Question 3.
Smt. Faseela is a shareholder of ABC Co. Ltd. She gets allotment of 50 shares free of cost from the company. (MARCH-2012)
i) Find out the method of share allotment referred here.
ii) How it will affect ownership?
Answer:
i) Bonus shares/Stock dividend
ii) Issue of bonus shares does not affect the capital structure of the company.
Question 4.
Complete the following series. (MAY-2013)
a) Calcutta stock exchange -1909
b) Bombay stock exchange – ?
c) OTCEI – ?
Answer:
BSE – 1875
OTCEI – 1992
Plus Two Business Studies Financial Markets 4 Marks Important Questions
Question 1.
This is the agency which regulates the securities market and protects the interest of investors.(MAY-2009)
a) Identify the agency and explain its functions.
Answer:
SEBI
Functions of SEBI
1. Regulatory Functions
a) Registration of brokers and sub brokers and other players in the market.
b) Registration of Mutual Funds.
c) Regulation of stock brokers, portfolio exchanges, underwriters, etc.
d) Regulation of takeover bids by companies
e) Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.
1) Levying fee or other charges for carrying out the purposes of the Act.
2) Development Functions
a) Training of intermediaries of the securities market.
b) Conducting research and publishing information useful to all market participants.
c) Undertaking measures to develop the capital markets by adapting a flexible approach.
3) Protective Functions
a) Prohibition of fraudulent and unfair, trade practices.
b) Controlling insider trading price rigging etc. and imposing penalties for such practices.
c) Undertaking steps for investor protection.
d) Promotion of fair practices and code of conduct in securities market.
Question 2.
Your teacher told you to prepare a table showing various money market instruments and their maturity periods. How will you prepare such a table? (MAY-2012)
Answer:
Call money market – 1 -14 days
Commercial Bill Market – 90 days
Treasury Bill Market – 14- 364 days
Commercial Paper – 3-12 Months
Certificate of deposit – 3-12 Months
Question 3.
Differentiate between money market and capital market. (MARCH-2014)
Answer:
| Capital Market | Money Market |
| 1) Market deals only long term fund. | 1) Market deals only short term fund. |
| 2) It arranges large amount of fund. | 2) It arranges small amount of fund. |
| 3) Return is high. | 3) Return is high. |
| 4) The instruments used are equity shares, preference shares, debentures and bonds. | 4) The instruments used are call money, treasury bills, trade bills, commercial paper and certificate of deposit |
| 5) SEBI is the market regulator. | 5) SEBI is the market regulator. |
| 6) Capital market instruments are highly risky. | 6) Money market _ instruments are safe |
Question 4.
“These are markets for short term funds.”(MARCH-2016)
Identify the type of financial market and list out its various instruments.
Answer:
Money Market
Money Market Instruments
1) Treasury Bill : They are issued by the RBI on behalf of the Central Government to meet its short¬term requirement of funds. They are issued at a discount on the face value of the instruments and repayable at par. They are issued in the form of promissory notes. They are also known as Zero Coupon Bonds as no interest is paid on such bills. They are highly liquid. The maturity period of these bills may be between 14 to 364 days.
2) Commercial Paper : Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a maturity period of 15 days to one year. It is sold at a discount and redeemed at par.
3) Call Money : Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.
4) Certificate of Deposit: Certificates of Deposit (CDs) are short-term instruments issued by Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from one party to another. The maturity period of CDs ranges from 91 days to one year.
5) Commercial Bill: A commercial bill is a Bill of Exchange used to finance the working capital requirements of business firms. When goods are sold in credit, the seller draws the bill and the buyer accepts it. The seller can discount the bill before its maturity with the bank.
When a trade bill is accepted by a commercial bank it is known as commercial bills.
Question 5.
The SEBI has made it mandatory forthe settlement procedure to take place in demat form in certain selected securities. Forthe benefit of an investor in the Capital market, explain how does the demat system work. (MAY-2016)
Answer:
Working of the Demat System
1) A depository participant (DP), either a bank, broker, or financial services company, may be identified.
2) An account opening form and documentation (PAN card details, photograph, power of attorney) may be completed.
3) The physical certificate is to be given to the DP along with a dematerialisation request form.
4) If shares are applied in a public offer, details of DP and demat account are to be given to the depository registrar.
5) If shares are to be sold through a broker, the DP is to be instructed to debit the account with the number of shares.
6) The broker then gives instruction to his DP for delivery of the shares to the stock exchange.
7) The broker then receives payment and pays the person forthe shares sold.
8) Alt these transactions are to be completed within 2 days, i.e., delivery of shares and payment received from the buyer is on a T+2 basis, settlement period.
Question 6.
Briefly explain different methods of floating new is-sues in the primary market. (MARCH-2017)
Answer:
Methods of flotation: There are various methods of floating new issues in the primary market. They are:
Methods of flotation: There are various methods of floating new issues in the primary market. They are:
a) Offer through Prospectus : Prospectus is an invitation to the public for the subscription of shares and debentures of a company. The issues may be underwritten and also are required to be listed on at least one stock exchange.
b) Offer for Sale: Under this method new securities are not offered directly to the public. Initially the entire lots of securities are sold to an intermediary at a fixed price. The intermediary sells these securities to the public at a higher price.
c) Private Placement: Private placement is the allotment of securities by a company to institutional investors or some selected individuals. It is less expensive and saves time.
d) Rights Issue: According to the Companies Act, if a public company wants to issue additional shares, it must first be offered to the existing shareholders, in proportion to the amount paid up on their shares. This right is known as ‘Pre-emptive right’ and such an issue is called right issue.
Question 7.
Agni Ltd. is a medium scale enterprise engaged in the manufacture of match boxes in Kerala. Forfunding its modenisation requirement, it wanted to access capital market with the least cost that is possible. Identify the stock exchange format most suited to the company.
Give any six advantage of the above market. (MAY-2017)
Answer:
a) Overthe counter exchange of India (OTCEI)
b) Advantages of OTCEI
0 It provide online trading facilities to the investors
ii) It ensures a transparent system of trading
iii) It provides a trading platform to smaller and medium companies
Plus Two Business Studies Financial Markets 5 Marks Important Questions
Question 1.
Match the following. (MARCH-2009)
Answer:
Question 2.
‘SEBI’ is the watch dog of the securities market.’ Substantiate your answer. (FEBRUARY-2010)
Answer:
Functions of SEBI
1. Regulatory Functions
a) Registration of brokers and subbrokers and other players in the market.
b) Registration of Mutual Funds.
c) Regulation of stock brokers, portfolio exchanges, underwriters, etc.
d) Regulation of takeover bids by companies
e) Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.
1) Levying fee or other charges for carrying out the purposes of the Act.
2) Development Functions
a) Training of intermediaries of the securities market.
b) Conducting research and publishing information useful to all market participants.
c) Undertaking measures to develop the capital markets by adapting a flexible approach.
3) Protective Functions
a) Prohibition of fraudulent and unfair, trade practices.
b) Controlling insidertrading price rigging etc. and imposing penalties for such practices.
c) Undertaking steps for investor protection.
d) Promotion of fair practices and code of conduct in securities market.
Question 3.
It is a market for short-term financial assets having a maturity period of less than one year.(MARCH-2010)
a) Explain the concept referred above.
b) How it differs from capital market?
Answer:
a) Money Market
| Capital Market | Money Market |
| 1) Market deals only long term fund. | 1) Market deals only short term fund. |
| 2) It arranges large amount of fund. | 2) It arranges small amount of fund. |
| 3) Return is high. | 3) Return is high. |
| 4) The instruments used are equity shares, preference shares, debentures and bonds. | 4) The instruments used are call money, treasury bills, trade bills, commercial paper and certificate of deposit |
| 5) SEBI is the market regulator. | 5) SEBI is the market regulator. |
| 6) Capital market instruments are highly risky. | 6) Money market _ instruments are safe |
Question 4.
Stock exchanges are termed as the barometer of the economic progress in a country. (MAY-2010)
a) Do you agree with this statement?
b) Analyse the statement by connecting with the functions of stock exchange.
Answer:
a) Yes.
b) Functions of a Stock Exchange
1) Providing Liquidity and Marketability to Existing Securities: Stock Exchange provides
a ready and continuous market for the sale and purchase of securities.
2) Pricing of Securities : A stock exchange is a mechanism of constant valuation through which the prices of secuqjies are determined. It is based on the forces of demand and supply.
3) Safety of Transaction: Stock exchange has its own well-defined rules and regulations. This ensures safety and fair dealings to investors.
4) Contributes to Economic Growth : Stock exchange provides a platform by which savings are channelised into the most productive investment proposals, which leads to capital formation and economic growth.
5) Providing Scope for Speculation : Stock exchange provides scope within the provisions of Law for speculation in a restricted and controlled manner.
6) Economic barometer: A stock exchange serves as a barometer of a country’s economic condition. Price trends in stock exchange indicate whether economy is going through boom or depression
Question 5.
Mercy, a computer operator of a private firm, wishes to buy some shares from stock exchange. (MARCH-2012)
1) Can she buy shares directly from the stock ex-change? State the reason.
2) Can she purchase shares of all companies from the stock exchange? State the reasons.
Answer:
1) No. Only members of stock exchange are allowed to enter the stock exchange.
2) No. Only listed and govt, securities are permitted to be traded in the stock exchange.
Question 6.
Manoj purchased 250 shares of Coal India Ltd. from the primary market. Later, he sold the shares of Coal India and earned a profit of Rs. 7,500/-. But all these transactions were done without physical transfer of share certificate. What is this system? What are the advantages of this system? (MAY-2012)
Answer:
Dematerialisation : It is a process by which physical share certificates are converted into an equivalent number of securities to be held in electronic form and credited in the investors’ account. For this, the investor has to open a Demat account with an organisation called a depository.
Benefits of Depository Services and Demat Account
1) Sale and Purchase of shares and stocks of any company make easy.
2) Saves time.
3) No paperwork.
4) Lower transaction costs.
5) Ease in trading.
6) Transparency in transactions.
7) No counterfeiting of security certificate.
8) Physical presence of investor is not required in stock exchange.
Question 7.
‘Money market is a wholesale market and capital market is a retail market.’ Do you agree with this statement? (MARCH-2013)
Give other 5 differences between them.
Answer:
a) Yes
| Capital Market | Money Market |
| 1) Market deals only long term fund. | 1) Market deals only short term fund. |
| 2) It arranges large amount of fund. | 2) It arranges small amount of fund. |
| 3) Return is high. | 3) Return is high. |
| 4) The instruments used are equity shares, preference shares, debentures and bonds. | 4) The instruments used are call money, treasury bills, trade bills, commercial paper and certificate of deposit |
| 5) SEBI is the market regulator. | 5) SEBI is the market regulator. |
| 6) Capital market instruments are highly risky. | 6) Money market instruments are safe |
Question 8.
“Only listed securities are permitted to be traded in the stock exchange” – Comment. Also explain functions of stock exchange. (MAY-2013)
Answer:
Only listed and Government securities are traded in the stock exchange,
Functions of a Stock Exchange
1) Providing Liquidity and Marketability to Existing Securities: Stock Exchange provides
a ready and continuous market for the sale and purchase of securities.
2) Pricing of Securities : A stock exchange is a mechanism of constant valuation through which the prices of secuqjies are determined. It is based on the forces of demand and supply.
3) Safety of Transaction: Stock exchange has its own well-defined rules and regulations. This ensures safety and fair dealings to investors.
4) Contributes to Economic Growth : Stock exchange provides a platform by which savings are channelised into the most productive investment proposals, which leads to capital formation and economic growth.
5) Providing Scope for Speculation : Stock exchange provides scope within the provisions of Law for speculation in a restricted and controlled manner.
6) Economic barometer: A stock exchange serves as a barometer of a country’s economic condition. Price trends in stock exchange indicate whether economy is going through boom or depression.
Question 9.
Indian money market is a well developed one with the active participation of large number of financial institutions and the presence of innovative financial instruments. (MARCH-2015)
a) Name any three participants of Indian money market.
b) Name any three innovative financial instruments prevailing in Indian money market.
Answer:
a) RBI, Commercial bank, IFCI, IDBI, ICICI, LIC, UTI etc.
b) Call money Commercial bill Treasurybill Commercial paper Certificate of deposit
Plus Two Business Studies Financial Markets 8Marks Important Questions
Question 1.
“It is the regulatory & development agency of Indian Capital Market.” (MARCH-2011)
1) Identify the agency referred here,
Explain the functions performed by this agency,
Answer:
SEBI
Functions of SEBI
1. Regulatory Functions
a) Registration of brokers and subbrokers and other players in thd market.
b) Registration of Mutual Funds.
c) Regulation of stock brokers, portfolio exchanges, underwriters, etc.
d) Regulation of takeover bids by companies
e) Calling for information by undertaking inspection, conducting enquiries and audits of stock exchanges and intermediaries.
1) Levying fee or other charges for carrying out the purposes of the Act.
2) Development Functions
a) Training of intermediaries of the securities market.
b) Conducting research and publishing information useful to all market participants.
c) Undertaking measures to develop the capital markets by adapting a flexible approach.
3) Protective Functions
a) Prohibition of fraudulent and unfair, trade practices.
b) Controlling insidertrading price rigging etc. and imposing penalties for such practices.
c) Undertaking steps for investor protection.
d) Promotion of fair practices and code of conduct in securities market.
Question 2.
“BSE Sensex reached a new record of 20893 point as a result of Listing by Coal India Ltd.” This was headline in a newspaper. (MARCH-2011)
i) Which Financial Market is referred here?
ii) What are its functions?
iii) Which types of Secuitites are traded in this mar-ket?
Answer:
a) Stock Exchange
b) Functions of a Stock Exchange
1) Providing Liquidity and Marketability to Existing Securities: Stock Exchange provides a ready and continuous market for the sale and purchase of securities.
2) Pricing of Securities : A stock exchange is a mechanism of constant valuation through which the prices of secuqjies are determined. It is based on the forces of demand and supply.
3) Safety of Transaction: Stock exchange has its own well-defined rules and regulations. This ensures safety and fair dealings to investors.
4) Contributes to Economic Growth : Stock exchange provides a platform by which savings are channelised into the most productive investment proposals, which leads to capital formation and economic growth.
5) Providing Scope for Speculation : Stock exchange provides scope within the provisions of Law for speculation in a restricted and controlled manner.
6) Economic barometer: A stock exchange serves as a barometer of a country’s economic condition. Price trends in stock exchange indicate whether economy is going through boom or depression.
c) Securities traded in the secondary market are:
i) Corporate Securities
ii) Government Securities
iii) Listed Securities
Question 3.
Explain in detail the difference between capital market and money market of the country. (MAY-2013)
Answer:
Money Market: The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year. It enables in raising short term fund for meeting day-to-day requirements. The major participants in the money market are the Reserve Bank of India, Commercial Banks, Non-Banking Finance Companies, State Governments, Large Corporate Houses and Mutual Funds.
Money Market Instruments
1) Treasury Bill : They are issued by the RBI on behalf of the Central Government to meet its short¬term requirement of funds. They are issued at a discount on the face value of the instruments and repayable at par. They are issued in the form of promissory notes. They are also known as Zero Coupon Bonds as no interest is paid on such bills. They are highly liquid. The maturity period of these bills may be between 14 to 364 days.
2) Commercial Paper : Commercial paper is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a maturity period of 15 days to one year. It is sold at a discount and redeemed at par.
3) Call Money : Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.
4) Certificate of Deposit: Certificates of Deposit (CDs) are short-term instruments issued by
Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from one party to another. The maturity period of CDs ranges from 91 days to one year.
5) Commercial Bill: A commercial bill is a Bill of Exchange used to finance the working capital requirements of business firms. When goods are sold in credit, the seller draws the bill and the buyer accepts it. The seller can discount the bill before its maturity with the bank.
When a trade bill is accepted by a commercial bank it is known as commercial bills.
Capital Market: It is a market for long term funds where debt and equity are traded. It consists of development banks, commercial banks and stock exchanges. The capital markfet can be divided into:
1. Primary Market.
2. Secondary Market
Primary Market : The primary market is also known as the new issues market. It deals with new securities being issued for the first time. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. Funds raised may be for setting up new projects, expansion, diversification, etc. of existing enterprises. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals.
Methods of flotation: There are various methods of floating new issues in the primary market. They are:
a) Offer through Prospectus : Prospectus is an invitation to the public for the subscription of shares and debentures of a company. The issues may be underwritten and also are required to be listed on at least one stock exchange.
b) Offer for Sale: Under this method new securities are not offered directly to the public. Initially the entire lots of securities are sold to an intermediary at a fixed price. The intermediary sells these securities to the public at a higher price.
c) Private Placement: Private placement is the allotment of securities by a company to institutional investors or some selected individuals. It is less expensive and saves time.
d) Rights Issue: According to the Companies Act, if a public company wants to issue additional shares, it must first be offered to the existing shareholders, in proportion to the amount paid up on their shares. This right is known as ‘Pre-emptive right’ and such an issue is called right issue.
e) Electronic Initial Public Offer (e-IPOs): It is a method of issuing securities through on-line system of stock exchange. Such a company has to enter into an agreement with the stock exchange. This is called an e-initial public offer.
|
Capital Market |
Money Market |
| 1) Market deals only long term fund. | 1) Market deals only short term fund. |
| 2) It arranges large amount of fund. | 2) It arranges small amount of fund. |
| 3) Return is high. | 3) Return is high. |
| 4) The instruments used are equity shares, preference shares, debentures and bonds. | 4) The instruments used are call money, treasury bills, trade bills, commercial paper and certificate of deposit |
| 5) SEBI is the market regulator. | 5) SEBI is the market regulator. |
| 6) Capital market instruments are highly risky. | 6) Money market _ instruments are safe |
Question 4.
Asianet Communications Ltd. proposes to raise additional capital through issue of its shares for modernising their communication equipments. Being a specialist in securities you are asked to advice them the various methods of raising capital in the primary market. Advise the company in this issue (MAY-2013)
Answer:
Primary Market : The primary market is also known as the new issues market. It deals with new securities being issued for the first time. A company can raise capital through the primary market in the form of equity shares, preference shares, debentures, loans and deposits. Funds raised may be for setting up new projects, expansion, diversification, etc. of existing enterprises. The investors in this market are banks, financial institutions, insurance companies, mutual funds and individuals.
Methods of flotation: There are various methods of floating new issues in the primary market. They are:
a) Offer through Prospectus : Prospectus is an invitation to the public for the subscription of shares and debentures of a company. The issues may be underwritten and also are required to be listed on at least one stock exchange.
b) Offer for Sale: Under this method new securities are not offered directly to the public. Initially the entire lots of securities are sold to an intermediary at a fixed price. The intermediary sells these securities to the public at a higher price.
c) Private Placement: Private placement is the allotment of securities by a company to institutional investors or some selected individuals. It is less expensive and saves time.
d) Rights Issue: According to the Companies Act, if a public company wants to issue additional shares, it must first be offered to the existing shareholders, in proportion to the amount paid up on their shares. This right is known as ‘Pre emptive right’ and such an issue is called right issue.
e) Electronic Initial Public Offer (e-IPOs): It is a method of issuing securities through on-line system of stock exchange. Such a company has to enter into an agreement with the stock exchange. This is called an e-initial public offer.