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1. What do you mean by ‘Financial Market’?
Ans: It is a market that helps transfer of funds between investors (lenders) and borrowers (users). It deals in financial instruments like bills of exchange, shares, debentures, bonds etc.
Name the money market instrument which is mainly used by the banks to meet their temporary requirement of cash.
Ans: Call money.
State the meaning of capital market.
Ans: Capital Market raises capital by issuing various securities like debentures and bonds.
Briefly explain rolling settlement.
Ans:
Rolling settlement means that transactions are settled after a fixed number of days of the transaction rather than on a particular day of the week.
For example, if a stock exchange goes in for ‘T+2’ days of rolling the transaction is settled within two working days of occurring of the transaction, ‘T’ being the day of the transaction.
This is facilitated through electronic transfer of shares, through Dematerialised Account or Demat Account.
Mention the organisations that are part of the organised money market in India.
Ans: The Indian money market consists of :
Reserve Bank of India (Leader of money market in India)
Commercial banks
Co-operative banks, and
Other specialised financial institutions.
Non-Banking Financial Companies (NBFCs) and financial institutions like LIC, GIC, UTI, etc.
Describe the two components of the securities market, in detail.
Ans: The market where securities are traded is known as Securities market.
It consists of primary and secondary market.
The primary market deals with new or fresh issue of securities and is, therefore, also known as new issue market;
The secondary market provides a place for purchase and sale of existing securities and is often termed as stock market or stock exchange.
Q) Distinguish between primary and secondary markets.
What do you mean by ‘Depository’?
Ans: Depository is like a bank in which an investor can deposit and withdraw his shares.
Depository Participant (DP) is an agent of the depository.
Investors interact only with DPs.
Any financial institution can become DP after registration with SEBI.
What is the capital market? How does it differ from the money market?
Refer to notes
Define stock exchange and explain its functions.
Ans: Stock Exchange is an organisation or association, whether incorporated or not, established for the purpose of assisting, regulating and controlling the business of buying, selling or dealing in shares.
The functions of stock exchange are as follows:
Provides a ready and continuous market: Listed securities (shares, debentures) can be bought and sold regularly and conveniently.
Provides information about prices and sales:
It maintains a complete record of all transactions every day.
It supplies regular information on their prices and sales volumes to press and other media.
This enables the investors to take quick decisions on purchase and sale of securities in which they are interested.
Provides safety to dealings and investment: Transactions on the stock exchange are conducted only amongst its members with transparency and strictly confirm to its rules and regulations.
Better Allocation of funds: Funds flow from the less profitable to more profitable enterprises and they avail of the greater potential for growth.
Reflect economic and business conditions: Stock exchanges reflect the changing conditions of the economic health of a country. Share prices are highly sensitive to changing economic, social and political conditions.
List any 4 advantages of stock exchanges to companies.
Companies listed on stock exchange enjoy better goodwill and credit-standing.
The market for their securities is enlarged as investors all over the world become aware securities to invest.
The value of their securities increases opportunities for joint ventures, mergers, etc. is enhanced.
The companies have the convenience to decide upon the size, price and timing of the issue.
Give the full form of NSDL.
State the full form of CDSL.
Ans: The full form of NSDL is National Securities Depository Limited
Ans: The full form of CDSL is Central Depository Services (India) Limited
State the advantages of stock exchanges to investors.
Ans: The advantages of stock exchanges to investors are:
Convenience of buying and selling the securities at will and at a good time.
Investors are free from anxiety about delivery and payments because of the assured safety in dealings at the stock exchange.
Investors can decide when to purchase and sell as regular information on prices of securities traded is available.
It becomes easier for them to raise loans from banks against their holdings in securities traded at the stock exchange as banks can use them as collateral.
State the advantages of stock exchanges to society.
Ans: The advantages of stock exchanges to society are:
Encourages people to save and invest in long-term securities.
New issue market helps in promotion and expansion of industrial activity, which helps in industrial growth.
Indicates economic health of the country through the movement of share prices in the stock exchange.
Helps government borrowing, since government securities are also traded at the stock exchanges.
What is meant by a ‘Demat’ account?
Ans:
Investors who want to get securities in electronic forms open a Demat account.
Demat account is the short form of Dematerialized account.
Demat account refers to an account which an indian citizen must open with the company (Depository participant) to trade in listed securities in electronic form.
From this account one can hold shares of various companies in the dematerialised/electronic form.
Anil wants to invest money in share market. As a financial advisor what will you suggest him to do?
As a financial advisor, I would suggest the following benefits of investing through the stock exchange:
Convenience: Easy buying and selling of securities at any time.
Safety: Transactions are secure, ensuring no worries about payments or deliveries.
Price Updates: Regular information on price movements helps in making informed decisions about buying or selling.
Loan purpose: Share can be used as collateral (security) to raise loans from banks when needed.
Give four examples of credit instruments of the money market.
Ans: Three money market instruments or securities are:
Call Money :
Call money is mainly used by banks to meet their temporary requirement of cash.
They borrow and lend money from each other normally on a daily basis.
It is repayable on demand
Its maturity period varies between one day to a fortnight.
Certificate of Deposit:
Certificate of Deposit (CDs) are short-term instruments.
They are issued by Commercial Banks and Special Financial Institutions (SFIs),
They are freely transferable from one party to another.
The maturity period ranges from 91 days to one year.
These can be issued to individuals, cooperatives and companies.
Commercial Paper:
Commercial paper (CP) is a popular instrument for financing working capital requirements of companies.
It is an unsecured instrument issued in the form of promissory note.
It can be issued for a period ranging from 15 days to one year.
Trade Bill :
When the traders buy goods from the wholesalers or manufacturers on credit.
If any seller does not want to wait or needs money immediately, he/she can draw a bill of exchange or trade bill in favour of the buyer.
This trade bill can now be discounted with a bank before its maturity.
Q) Enumerate any four main objectives for which SEBI (Securities Exchange Board of india) was granted statutory recognition in 1992.
Ans: Four main objectives for which SEBI (Securities Exchange Board of India) was granted statutory recognition in 1992 are:
Protecting the interest of investors in securities;
Promoting the development of securities market;
Regulating the securities market and
Matters connected therewith or incidental thereto.
Explain the role played by SEBI in protecting investors’ interests and controlling the business at stock exchange.
Ans: As part of SEBI’s efforts to protect investors' interests, SEBI has:
Simplified issue procedures
Companies to disclose all risk factors associated with their projects before releasing IPO
All IPO documents are verified by SEBI to ensure that the disclosure is authentic and accurate.
Ir has also introduced a code of advertisements for public issues to ensure fair and truthful disclosure.
In case the issue is under - subscribed that is it was not able to collect 90% of amount offered to the public, the entire amount would be refunded to the investors.
Q) Enumerate any four objectives of the National Stock Exchange in India.
Ans: Four objectives of National Stock Exchange in India are:
To provide a nationwide transparent market for all types of securities.
To ensure access to investors all over the country through an appropriate communication network.
To provide an efficient securities market using electronic trading systems.
To meet international standards.