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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
SEBI is the watch dog of security market. Do you agree ? Give three reasons in support of your answer. |
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Answer» Yes, I agree as SEBI regulates and protects the interest of investors. SEBI was established in 1988 and given a status in 1992, to protect the investors from the fraudulent malpractices, rampant in securities market before 1988. As a watch dog, it regulates the market and protects the investors by keeping a check on various manipulative activities by performing the following functions: (i) Regulates takeover bids by companies. (ii) Prohibits fraudulent and unfair trade practices. (iii) Undertakes several steps to protect the investors, e.g. calls for information by conducting inspections, enquiries and audits of the companies. |
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| 2. |
State one development function of SEBI. |
| Answer» Training of intermediaries of the securities market. | |
| 3. |
Give one regulatory function of SEBI. |
| Answer» Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers in stock exchanges and other securities market . | |
| 4. |
In case of public issue of shares, in order to save company from undersubscription, the issue may beA. insuredB. riggedC. underwrittenD. All of the above |
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Answer» Correct Answer - C Underwriting services are provided by some large financial institutions, such as banks, or insurance or investment houses, whereby they guarantee payment in case of damage or financial loss and accept the financial risk for liability arising from such guarantee. |
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| 5. |
ABC Ltd. issued prospectus for the subscription of its shares for RS. 500 crores in 2008. The issue was oversubscribed by 20 times. The company issued shares to all the applicants on pro-rata basis. Later SEBI inspected the prospectus and found some misleading statement about the management of the company in it. SEBI imposed a penalty of RS. 5 crores and banned its three executive directors for dealing in securities market for three years. Identify the function and its type performed by SEBI in the above case. |
| Answer» Protective function and probibition of fraudulent and unfair trade practices. | |
| 6. |
A company wants to set up a new branch in Chennai.For additional capital company is planning to isssue equity shares to public as there is boom period in capital market and public will prefer to invest in shaes. While analysing the issue, finance manager found that floatation csots of the issue would be high and company is already in liquidity crunch. Company deemed it propre to depend market instruments for about six months. (i) Identify the method of flotion of capital, mentioned above. (ii) Besides above shares issue method, mention two other methods. (iii) Use of what kind of instrument will be appropriate for the money market. |
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Answer» (i) IPO (ii) Offer for sale, Private placement. (iii) Commercial papers |
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| 7. |
Funds raised through commercial paper are used to meet the floatation costs are known asA. equity financingB. bridge financingC. debt financingD. None of these |
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Answer» Correct Answer - B Commercial papers are used by companies for bridge financing, a method of financing used by companies before issuing shares or debentures, to cover the expenses associated with the issue of such securities, i.e.floatation costs (e.g. brokerage, commission, printing of application, advertising, etc.). |
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| 8. |
What are the methods of floatation in primary market? |
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Answer» The following are the various methods through which floating of new issues can be done. (i) Offer through Prospectus The most commonly used method for raising funds in primary market is offer through prospectus. It involves inviting the subscriptions from public by issue of prospectus. A prospectus is published as advertisements in newspapers, magazines, etc. It provides such information as the purpose for which the fund is being raised, company’s background and future prospects, its past financial performance, etc. Such information helps the public and the investors to know about the company as well as the potential risk and the earnings involved. Such issues need to be listed on one of the stock exchanges and should be in accordance with the guidelines and rules listed under the Companies Act and SEBI disclosure. (ii) Offer through Sale As against offer through prospectus, under the offer through sale method, the company does not issue securities directly to the public rather they are issued through intermediaries such as brokers, issuing houses, etc. That is, under offer through sale, securities are issued in two steps, first the company sells its securities to the intermediaries at the face value and later the intermediaries resell the securities to the investing public at a higher price than the face value to earn profit. (iii) Private Placement Under this method, the securities are sold only to some selected individuals and big institutional investors rather than to the public. The companies either allot the securities themselves or they sell the securities to intermediaries who in turn sell them to selected clients. This method saves the company from various mandatory or non-mandatory expenses such as cost of manager fees, commission, underwriter fees, etc. Thus, the companies which cannot afford the huge expenses related to public issue often go for private placement. (iv) Rights Issue Under the Companies Act 1956, it is the right of the existing share holders of a company to subscribe to the new shares issued by it. The existing share holders are offered subscription of new shares of the company in proportion to the number of shares possessed by them. (v) e-IPOs It is system of issuing securities through online system. If a company decides to offer its securities through an online system it is required to gets into an agreement with the stock exchange. This is called Initial Public Offer (IPO). Company appoints brokers for accepting applications and placing orders. A company can apply to get listed in any stock market except from the one through which it has already offered securities. |
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| 9. |
What do you understand by insider trading ? |
| Answer» It means buying and selling of securities by those persons (Directors, promoters, etc), who have some secret information about the company and who wish to take advantage of such secret information. This hurts the interests of the general investors. It was very essential to check this tendency. Many steps have been taken to ckeck insider trading through the medium of the SEBI. | |
| 10. |
What is the latest trading system in the stock exchange? |
| Answer» Online, screen-based electronic trading system, i.e. through computer terminals is the latest trading system in the stock exchange. | |
| 11. |
Discuss in brief any two methods of floatation in primary market. |
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Answer» The primary market is also known as the new issues market. It deals with new securities being issued for the first time. There are various methods of floating new issues in the primary market: (i) Offer Through Prospectus This involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital, through an advertisement in newspapers and magazines. The issues may be underwritten and also required to be listed on at least one stock exchange. The contents of the prospectus have to be in accordance with the provisions of the Companies Act and SEBI disclosure and investor protection guidelines. (ii) Offer for Sale Under this method securities are not issued directly to the public but offered for sale through intermediaries like issuing houses or stock brokers. In this case, company sells securities enblock at an agreed price to brokers who, in turn, resell them to the investing public. |
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| 12. |
The Director of Pico Limited decided to declare bonus issue of equity shares to the shareholders in its Annual General Meeting. Immediately one of the Director purchases 20,000 shares from market @ 30 per share and sold them @ 100 share as bonus issue was declared and made capital gain from it. (i) Name the practice used by the Director taking the benefits of internal information. (ii) How does SEBI prohibit such practices? |
| Answer» Correct Answer - (i) Insider trading (ii) Refer to. Page 413 | |
| 13. |
Sudha Ltd. Has sold 1 lakh equity shares of RS 10 each at RS 12 per share to an investement banker, who offered them to the public at RS 20 each. Identify the method of floation. |
| Answer» Correct Answer - Offer for sale. | |
| 14. |
Name the financial instrument which may be used in the following situations: (i) A company needs funds to meet floatation cost in order to issue equity shares in the market. (ii) The instrument that is issued during the period of tight liquidity when the deposit growth of bank is slow but demand for credit is high. (iii) These are also known as zero coupon bonds and are isssued by RBI on the behalf of central goverment. (iv) It is used by one bank having surplus funds to meet the funds requirements of another bank facing shortage of funds. |
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Answer» Correct Answer - (i) Commerical Paper (ii) Commercial Bill (iii) Treasury Bill (iv) Cali Money |
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| 15. |
Mohan wants to sell 50 shares of Tata Motors. Explain the trading procedure of shares. |
| Answer» Correct Answer - Refer to Page 408 | |
| 16. |
An investor wanted to invest Rs 20,000 in Treasury Bills for a period of 91 days. When he approached the Reserve Bank of India for this purpose he came to know that it was not possible. Identify the reason why the investor could not invest in the Treasury Bill. |
| Answer» The investor cannot invest in Treasury Bills because it is available in the denominations of Rs. 25,000 and it multiples only. | |
| 17. |
What are the objectives of SEBI? or Why was SEBI set up? Explain any three objectives of SEBI. |
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Answer» The Securities and Exchange Board of India (SEBI) was established by the Government of India on 12th April, 1988 with an objective to protect the interest of investors and to promote the development and regulation of the securities market. The SEBI many objectives. Some of them are described below: (i) To regulate stock exchange and securities industry to promote their orderly functioning. (ii) To protect the rights and interests of investors, particularly individual investors and to guide and educate them. (iii) To prevent trading malpractices and achieve balance between self-regulation by the securities industry and its statutory regulation. |
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| 18. |
What are the objectives of SEBI? |
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Answer» Securities and Exchange Board of India (SEBI) was established for promoting an orderly and healthy growth of the securities market in India. The following points highlight the overall objectives of SEBI. (i) Regulation: The basic objective of SEBI is to regulate the functioning of stock exchange and the securities market. It aims at providing a place where the issuers of securities (i.e. companies) can raise funds in an easy and confident manner. (ii) Protection: SEBI works on educating the investors and provide guidelines related to investment. It provides them adequate and reliable information about the companies and thereby, helps them in taking wise and informed investment decisions. (iii) Prevention: To combat the malpractice in trading of securities was the basic reason for the establishment of SEBI. Malpractice such as insider trading, violation of rules and regulations, non-adherence to Companies Act, etc. erodes the confidence of investors. SEBI aims at checking these malpractice by creating a balance between the self regulation of a business and the legal statutory regulations. (iv) Code of Conduct: Through regulation, SEBI develops a code of conduct for the fair trade practices by the intermediaries such as brokers, merchant bankers, underwriters, etc. SEBI controls the activities of these intermediaries and provides them a professional and competitive environment |
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| 19. |
Give any three features of capital market. |
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Answer» Features of Capital Market 1.It is a market for long term funds. 2.The main participants in capital market are banks, financial institutions, corporate bodies, foreign investors and retail investors. 3.Since the cost of securities may be low, investment can be made in the capital market with less capital. 4.The securities in capital market enjoy good liquidity. 5.The instruments in capital market carry high risk as the expected return on them is high. |
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| 20. |
Stock exchange helps inA. providing liquidity to existing securitiesB. contributing to economic growthC. pricing of securitiesD. All of the above |
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Answer» Correct Answer - D Stock exchange provides a ready and continuous market for securities . Regular dealing provides both liquidity and marketability to existing securities. |
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| 21. |
SEBI was established on ……… and its headquarter is situated at …… .A. 12th April 1988, MumbaiB. 12th April 1090, MumbaiC. 12th May 1988, DelhiD. 12th May 1990, Delhi |
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Answer» Correct Answer - A Securities Exchange Board of India (SEBI) was established in 1988 to regulate the functions of securities market. SEBI promotes orderly development in the stock market. SEBI was set up with the main idea to keep a check on malpractices and protect the interest of investors. |
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| 22. |
Discuss in detail the type of market which deals in previously issued securities. |
| Answer» Secondary market means market for purchase and sale of previously issued securities. Once a company has sold its shares and debentures to the public, these securities are traded on the stock exchange where they are listed. It is also known as the stock market or stock exchange. It provides liquidity and marketability to existing securities. | |
| 23. |
Who do you mean by penny stock? |
| Answer» These are securities that have no value on the stock exchange but whose trading contributes to speculation. | |
| 24. |
History of the Stock Market in India The history of the stock market in India goes back to the end of the eighteenth century when long-term negotiable securities were first issued. In 1850 the Companies Act was introduced for the first time bringing with it the feature of limited liability and generating investor interest in corporate securities. The first stock exchange in India was set-up in 1875 as The Native Share and Stock Brokers Association in Bombay. Today it is knows as the Bombay Stock Exchange (BSE). This was followed by the development of exchanges in Ahmedabed (1894), Calcutta (1908) and Madras (1937). It is interesting to note that stock sxock exchanges were first set up in major centers of trade and commerce. Until the early 1990s, the Indian secondary market comprised regional stock exchanges with BSE heading the list. After the reforms of 1991, the India secondary market acquired a three tier form. This consists of : Regional Stock Exchanges National Stock Exchange (NSE) Over the Counter Exchange of India (OTCEI ) stock exchange. What functions are performed by stock exchange. |
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Answer» Functions of stock exchange are (i) Pricing of securities It helps in determining the prices of various securities that reflect their real worth, through the interplay of demand and supply. The stock market index like SENSEX, reflects the market direction and indicate day-to-day fluctuations in share prices. (ii) Safety of transactions It is well regulated and its dealings are well-defined according to the existing legal framework. This ensures that the investing public gets a safe and fair deal in the market. (iii) Contributes to economic growth In stok exchange, the process of disinvestment and reinvestment channelise the savings into productive investment avenues. This leads to capital formation and economic growth. (iv) Spreading equity cult It is an organised market, which takes various steps to guide and educate investors, publish information about companies listed on the exchange and ensures better and safe trading practices. These practices have played a vital role in increasing the number of people investing in equity, thus leading to wider ownership of equity. |
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| 25. |
What is penny stocks? |
| Answer» They are securities that have no value on the stock exchange but whose trading contributes to speculation. | |
| 26. |
Stock Market Index A stock market index is a barometer of market behaviour. It measures overall market sentiment through a set of stocks that are representative of the market . It reflects market direction and indicates day-to-day fluctuations in stock prices. An ideal index must represent changes in the prices of securities and reflect price movements of typical shares for better market representation. In the India markets the BSE, SENSEX and NSE, NIFTY are important indices. Some important global stock market indices are : `*` Dow Jones Industrial Average is among the oldest quoted stock market index in the US. `*` NASDAQ` Composite Index is the market capitalisation weightages of prices for stocks listed in the NASDAQ stock market. `*` S and P 500 Index is made up of 500 biggest publicly traded companies in the US. The S and P 500 is often treated as a proxy for the US stock market. `*` FTSE 100 consists of the largest 100 companies by full market value listed on the London Stock Exchange. The FTSE 100 is the benchmark index of the European market. What is meant by NSE. |
| Answer» National Stock Exchange of India (NSE) NSE is the largest, most modern, technology driven exchange, incorporated in 1992 and recognised as stock exchange in April 1993. It was set -up by leading financial institutions, banks, insurance companies and other financial intermediaries. Its Board comprises of senior executives from promoter institutions and eminent professionals. | |
| 27. |
Stock Market Index A stock market index is a barometer of market behaviour. It measures overall market sentiment through a set of stocks that are representative of the market . It reflects market direction and indicates day-to-day fluctuations in stock prices. An ideal index must represent changes in the prices of securities and reflect price movements of typical shares for better market representation. In the India markets the BSE, SENSEX and NSE, NIFTY are important indices. Some important global stock market indices are : `*` Dow Jones Industrial Average is among the oldest quoted stock market index in the US. `*` NASDAQ Composite Index is the market capitalisation weightages of prices for stocks listed in the NASDAQ stock market. `*` S and P 500 Index is made up of 500 biggest publicly traded companies in the US. The S and P 500 is often treated as a proxy for the US stock market. `*` FTSE 100 consists of the largest 100 companies by full market value listed on the London Stock Exchange. The FTSE 100 is the benchmark index of the European market. What are the objectives of NSE? |
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Answer» The main objectives of NSE are : (i) Establishing a nationwide trading facility for all types of securities. (ii) Ensuring equal access to investors all over the country. (iii) Providing a fair, efficient and transparent securities market. (iv) Enabling shorter settlement cycles and book entry settlements. (v) Meeting international standards and benchmarks. |
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| 28. |
How does stock exchange spread equity cult? |
| Answer» Spreading of Equity Cult: The stock exchange plays an essential role to encourage the investors to invest in ownership securities. Stock exchange guides the investors by giving them economic updates generally this information is published, by giving knowledge about investment and giving better trading practices and much more. | |
| 29. |
Name the common instruments of capital market. |
| Answer» Common instruments of capital market are: shares, debentures, bonds etc. | |
| 30. |
What is meant by capital market? |
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Answer» Correct Answer - Capital market acts as a link between savers and inverstors. It provides long term funds. Capital market acts as a link between savers and inverstors. It provides long term funds. |
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| 31. |
Define financial assets. |
| Answer» The financial assets can be defined as an investment asset whose value is derived from a contractual claim of what they represent. These are liquid assets as the economic resources or ownership can be converted into something of value such as cash. These are also referred to as financial instruments or securities | |
| 32. |
Name the two segments of capital market. |
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Answer» Correct Answer - (i) Primary market (ii) Secondary market Capital Market, is used to mean the market for long term investments, that have explicit or implicit claims to capital. Long term investments refers to those investments whose lock-in period is greater than one year. Two segments of capital market: 1. primary market 2. secondary market. |
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| 33. |
How does financial markets help, in reducing cost? |
| Answer» Reduces the cost of Transactions: Various types of information is needed while buying and selling securities. Much time and money is spent in obtaining it. The financial market makes available every type of information without spending any money. In this way, the financial market reduces the cost of transactions. | |
| 34. |
What is REPO and reverse REPO? |
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Answer» Repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation. A reverse repo is a short-term agreement to purchase securities in order to sell them back at a slightly higher price. |
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| 35. |
Who are brokers? |
| Answer» Brokers may be individuals, partnership firm or corporate bodies. They are the intermediaries between the buyers and sellers of securities. | |
| 36. |
Outline the major instruments of money market. |
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Answer» The various instruments of money market are 1.Treasury bills - Short term finance, Negotiable instrument, Highly safe(because it is issued by RBI) , issued at discount and redeemed at par, transferrable instruments, available for Rs.25000 and denominations thereof. ( 14 - 364 days) 2. Commercial papers - Short term finance, promissory notes, unsecured instrument, issued only by highly credit worthy companies, issued at discount redeemed at par, helps in bridge financing, negotiable instruments.(15-365 days) 3. Call money - Short term finance issued for 1-15 days, commercial banks are obliged to keep reserves with central banks. These reserves are known as Cash reserve ratio. Call money is used to maintain the CRR. Interest paid on call money is call rate. There exist an inverse relation between demand for call money and call rate. 4. Certificate of deposit Bearer issued by commercial banks and development financial banks against deposits kept by companies and institutions. Negotiable instruments, time period ranges from 91- 1 year, an unsecured instrument, helps to raise large amount in short period. 5.Commercial bill Short term instrument used by business firms to meet working capital required. ( Used for credit purchases). It is a written acknowledgement of debt, where the seller draws a bill and the buyer accepts it. On being accepted , it becomes a marketable instrument and is called a trade bill.These are negotiable instruments.They can be discounted with the banks even before the due date . The difference between the amount of the bill and the amount paid by the bank to the seller is the discount charged. |
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| 37. |
What are the functions of financial markets? |
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Answer» The functions of a financial market are : (i) MOBILISATION OF SAVINGS : Financial market mobilise the savings of the people. It enables them to invest their savings in most productive financial assets. (ii) FACILITATING PRICE DISCOVERY : Financial market helps in determining the prices of various financial assets. These prices are usually determined by the demand and supply of funds in the market. (iii) LIQUIDITY OF FINANCIAL ASSETS : Through the medium of financial market , the investors can invest their money in securities, whenever they want. The sale and purchase take place with the help of primary market and secondary market.Thus, providing liquidity to financial assets. (iv) REDUCING COST TRANSACTIONS : Financial market provides complete information regarding price, availability and cost of various financial securities. So investors and companies do not have to spend much on getting such information. |
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| 38. |
What is dematerialisation of securities? |
| Answer» To eliminate the problems of theft, forgery, transfer delays, etc, an electronic book entry form of holding and transferring securities has been introduced. This is knows as dematerialisation of securities. | |
| 39. |
What is Badla? |
| Answer» Carry over of settlement at some forward date is known as Badla. | |
| 40. |
A ……… is a speculator, who expects rise in price of securities and a ………. is a speculator, who expects fall in price of securities.A. bull, bearB. bear, bullC. broker, stagD. stag, broker |
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Answer» Correct Answer - A A speculator who expects a rise in price of securities in the future are called as bull. A bull is an optimistic speculator. He expects a rise in the price of the securities in which he deals. |
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| 41. |
What is REPO rate? How can it result in lowering the rato of interset on loans? |
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Answer» The rate at which RBI repurchases govrenment securities from banks is known as REPO rate. When government repurchases the securities in return, the banks get cash to meet their short term requirement and they can give loan at low rate interest. Whenever RBI wants to lower the interest rate, it reduces the REPO rate. It will become more clear from following cycle. `(##BST_XII_C10_E02_018_A01##)` As the REPO rate charged by RBI reduces, the money is available to banks at low rate, they pass the benefit to the end user by lowering the rate of interst on loan. Reverse REPO rate is opposite to REPO rate. |
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| 42. |
What is dematerialisation (demat)? |
| Answer» It is an electronic book entry form of holding and transferring securites. | |
| 43. |
What is the minimum amonut of Treasury Bill? |
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Answer» Correct Answer - RS.25,000. the minimum amount of treasury bill is 25000 |
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| 44. |
To be listed on NSEl, the minimum capital requirements for a companyA. RS.5 croresB. RS. 3 croresC. RS. 6 croresD. RS. 1 crore |
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Answer» Correct Answer - (b) (b) Rs. 3 crores option is a correct answer. |
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| 45. |
REPO isA. Repurchase agreementB. Reliance PetroleumC. Read and ProcessD. None of the above |
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Answer» Correct Answer - (a) (a) Repurchase agreement is a correct answer. |
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| 46. |
Describe price rigging. |
| Answer» Price rigging is an illegal action that occurs when parties conspire to fix or inflate prices to achieve higher profits at the expense of the consumer. Also known as "price fixing" or "collusion," price rigging can take place in any industry. ... Price rigging is a form of market manipulation. | |
| 47. |
What is treasury bill? |
| Answer» ◆A Treasury bill 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 issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds. | |
| 48. |
Distinguish between capital market and money market. |
| Answer» Money markets are used for a short-term basis, usually for assets up to one year. Conversely, capital markets are used for long-term assets, which are any asset with maturity greater than one year. Capital markets include the equity (stock) market and debt (bond) market. | |
| 49. |
Describe SEBI. |
| Answer» Securities and Exchange Board of India (SEBI) is a statutory regulatory body entrusted with the responsibility to regulate the Indian capital markets. It monitors and regulates the securities market and protects the interests of the investors by enforcing certain rules and regulations. | |
| 50. |
Treasury Bills are basicallyA. An instrument to borrow short term funds.B. An instrument to borrow long term fundsC. An instrument of capital marketD. None of the above |
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Answer» Correct Answer - (a) (a)An instrument to borrow short term funds.is a correct option |
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