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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.
| 51. |
Distinguish between capital and money market. |
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Answer» BASIS FOR DIFFERENCE 1.PARTICIPANTS CAPITAL MARKET-The main participants in capital market are banks, financial institutions , corporate bodies, foreign investors and retail investors. MONEY MARKET-The main participants are institutional investors. 2.INVESTMENT OUTLAY CAPITAL ,MARKET-Since, the cost of securities may be low, investment can be made in the capital market can be with less capital. MONEY MARKET-Since, the cost of securities may be high, investment in the money market requires huge capital outlay. 3.LIQUIDITY CAPITAL MARKET-The securities in capital market enjoy good liquidity. MONEY MARKET-The securities in money market enjoy high liquidity as The Discount Finance House of India works as a compulsory market maker. |
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| 52. |
What do you mean by trasury bills? |
| Answer» Treasury Bills, also known as T-bills are the short-term money market instrument, issued by the central bank on behalf of the government to curb temporary liquidity shortfalls. ... The difference between the issue price and the redemption value indicates the interest on treasury bills, called as a discount. | |
| 53. |
Explain the features of money market instruments. |
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Answer» Features of Money Market -It is a market for short term funds. -The main participants are institutional investors. -Since the cost of securities may be high, investment in the money market may require huge capital outlay. -The money market enjoys high liquidity as The Discount Finance House of India works as a compulsory market maker for it. -The instruments in money market carry low risk as the expected return is low on |
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| 54. |
What do you mean by financial market? |
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Answer» A financial market refers to the market where the creation and exchange of financial assets such as shares and debentures takes place. The following are the functions of a financial market. i) Transfer of Savings and Alternatives for InvestmentA financial market acts a link between the savers and the investors. It provides a platform for the transfer of savings from the households to the investors. It also provides savers with various alternatives for investment and thereby, directs the funds to the most productive investment. ii) Establishes the PriceSimilar to a commodity, the price of a financial asset is established through the forces of demand and supply for funds. Financial market provides a platform for the interaction of the demand of the funds (represented by the business firms) and the supply of funds (represented by the households). Thereby, it helps in determining the price of the asset being traded. iii) Facilitates LiquidityAn asset or a security can be easily purchased and sold in a financial market. This renders liquidity to the assets. That is, through trading in the financial market assets can be easily converted into cash or cash equivalents. iv) Reduced Cost of TransactionBy rendering information regarding the securities being traded, their price, availability, etc., a financial market helps in reducing the cost of transaction in terms of effort, money and time. |
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| 55. |
Describe money market. |
| Answer» Money Market refers to the market where short term funds are traded. Herein, short term funds are in the form of monetary assets having a maturity period of maximum one year. | |
| 56. |
Nature of money market can be well explained with the help of its features. State any three such features of money market. |
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Answer» Features of money market are : (i) It deals in short-term monetary assets, whose period of maturity is upto one year. (ii) It is a market where low risk, unsecured and short-term debt instruments are issued and actively traded everyday. (iii) Liquidity is provided by the Discount and Finance House of India, specially formed for this purpose. |
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| 57. |
Envmerate two segments of financal market. |
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Answer» TWO SEGMENTS OF FINANCIAL MARKET ARE 1.CAPITAL MARKET A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold. Capital markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments 2.MONEY MARKET The money market is a component of the economy which provides short-term funds. The money market deals in short-term loans, generally for a period of less than or equal to 365 days. |
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| 58. |
Explain new issue market. |
| Answer» The main features of primary marketsare: ... Therefore, it is also called thenew issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money andissues new security certificates to the investors. | |
| 59. |
What are the features of capital market perform? |
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Answer» Features 1. Link between Savers and Investment Opportunities: Capital market is a crucial link between saving and investment process. The capital market transfers money from savers to entrepreneurial borrowers. 2. Deals in Long Term Investment: Capital market provides funds for long and medium term. It does not deal with channelising saving for less than one year. 3. Utilises Intermediaries: Capital market makes use of different intermediaries such as brokers, underwriters, depositories etc. These intermediaries act as working organs of capital market and are very important elements of capital market. 4. Determinant of Capital Formation: The activities of capital market determine the rate of capital formation in an economy. Capital market offers attractive opportunities to those who have surplus funds so that they invest more and more in capital market and are encouraged to save more for profitable opportunities. 5. Government Rules and Regulations: The capital market operates freely but under the guidance of government policies. These markets function within the framework of government rules and regulations, e.g., stock exchange works under the regulations of SEBI which is a government body |
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| 60. |
Give the full form of SEBI. |
| Answer» SEBI refers to Securities Exchange Board of India. | |
| 61. |
What function does financial market perform? |
| Answer» The financial market performs the function of bring together the deficit units (corporate sector) and surplus units (investors). It is through financial market that the lenders meet the borrowers. | |
| 62. |
Enumerate 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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| 63. |
In which form of market, is ownership of existing secrities exchanged between investors? |
| Answer» Correct Answer - Secondary market | |
| 64. |
Define right issue. |
| Answer» A rights issue is a way by which a listed company can raise additional capital. However, instead of going to the public, the company gives its existing shareholders the right to subscribe to newly issued shares in proportion to their existing holdings. | |
| 65. |
Explain the objectives and functions of the SEBI. |
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Answer» The overall objective of SEBI is to protect the interests of investors, promote the development of and regulate the securities market. This may be elaborated as follows: (i) To regulate stock exchanges and the securities industry to promote their orderly functioning. (ii) To protect the rights and interests of investors, particularly individual investors, and to guide and eduacte them. (iii) To prevent fraudulent activities and malpractices. (iv) To regulate and develop a code of conduct for intermediaries with a view to make them competitive and professional. Functions of SEBI SEBI performs the following functions: (i) Regulatory Functions (a) Registration of brokers, sub-brokers and other players in the market. (b) Registration of collective investment schemes and mutual funds. (c) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges. (d) Regulation of takeover bids by companies. (e) Levying fee or other charges for carrying out the purposes of the Act. (f) SEBI conducts inspections, enquiries and audits of stock exchanges. (g) Perform and exercise such power under Securities Contracts (Regulation) Act 1956, as may be delegated by the Government of India. (ii) 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 adopting a flexible approach. (iii) Protective Functions (a) Prohibition of fraudulent and unfair trade practices. (b) Controlling insider trading and imposing penalties for such practices. (c ) Undertaking steps for investor protection. lt (d) Promotion of fair practices and code of conduct in securities market. |
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| 66. |
What are the protecitve functions of SEBI? |
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Answer» Protective Functions of SEBI 1.SEBI prohibits fraudulent and unfair trade practices in the securities market 2.Promotion of fair practices and code of conduct in securities market 3.Undertaking steps for investor protection 4.Controlling insider trading and imposing penalties for such malpractices. |
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| 67. |
Why is SEBI called the watchdog of stock exchange? |
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Answer» SEBI regulates and protects the interest of investors. SEBI was established in 1988 and given a statutory 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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| 68. |
How does financial market help in mobilisation of savings and channelise them into the most productive uses? |
| Answer» A financial market facilitate the transfer of savings from savers to investors. It gives saver, the choice of investment and thus, helps to channelise surplus funds into the most productive uses. | |
| 69. |
Explain any four functions of stock exchange. |
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Answer» Functions of Stock Exchange -Ensures liquidity and marketability of existing securities by a providing a ready and continuous market for the sale and purchase of securities. -Helps in determining the prices of the securities through the forces of demand and supply. -It promotes the habit of saving and investment among the general public. -It provides a legal framework for fair and safe dealings. -It helps the companies in raising finance thus facilitating capital formation and economic growth. -It provides scope for healthy speculation in a controlled and restricted way. |
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| 70. |
Which of following is /are depository participants?A. ICICI bankB. Angel brokingC. SBI bankD. All of these |
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Answer» Correct Answer - D India, a Depository Participant (DP) is described as an Agent (law) of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. |
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| 71. |
Give a distinction between capital market and money market on the basis of duration. |
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Answer» Difference between capital market and money market on the basis of duration
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| 72. |
Which instrument of money market is drawn by one business firm on another for a period of 90 days? |
| Answer» Trade bills or commercial bills | |
| 73. |
State the malpractices that take place in securities market. |
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Answer» Malpractices such as existence of self-styled merchant bankers, unofficial private placements, rigging of prices, unofficial premium on new issues, non-adherence of provisions of the Companies Act, violation of rules and regulations of stock exchanges and listing requirements, delay in delivery of shares, etc that eroded investors’ confidence and multiplied investor grievances. In order to fight with such problems, government established SEBI as a separate regulatory body.Regulatory functions : (i) Registration of brokers, sub-brokers and other players in the market. (ii) Registration of collective investment schemes and mutual funds. (iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant bankers and the business in stock exchanges. (iv) Regulation of takeover bids by companies. (v) Levying fee or other charges for carrying out the purposes of the Act. (vi) SEBI conducts inspections, enquiries and audits of stock exchanges. (viii) Perform and exercise such power under Securities Contracts (Regulation) Act 1956, as may be delegated by the Government of India. |
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| 74. |
Why are money market instrument more liquid as compared to capital market instruments? |
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Answer» Correct Answer - Reliable participants and duration of inverstment is less. Money market instruments are short term loans, with maturities under one year and thus the risk associated is very less as compared to say a 10 year bond, where the industry itself may undergo a few cycles. So this macro risk manifests itselfs into this kind of liquidity. |
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| 75. |
Explain any four functions of financial market. |
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Answer» Functions of Financial Market -It performs the allocative functionby mobilisation of savings and channelising them into the most productive avenues. -It helps to determine the price for the financial asset in a particular financial market through the market forces of demand and supply. -It provides liquidity to the financial assets by providing ready markets wherein the securities can be easily converted into cash or vice versa. -It provides a common platform for exchange of securities thereby reducing the cost of transactions by saving time, effort and money spent by the buyers and sellers in locating each other. |
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| 76. |
Give any two participants in the money market? |
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Answer» Two participants in the money market are : (i) Reserve Bank of India (RBI) (ii) State Government |
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| 77. |
Primary and secondary marketsA. compete with each otherB. complement each otherC. function independentlyD. control each other |
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Answer» Correct Answer - B Primary and secondary markets complement each other. Primary market deals with the issue of new securities. ... On the other hand, secondary market deals in the purchase and sale of the existing securities. That is, once the securities are issued in primary market, they are then traded in the secondary market. |
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| 78. |
What are the different ways of issuing securities in primary market? |
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Answer» In primary market securities can be issued by: (1) Prospectus (2) Offer for sale (3) Private placement (4) Right issue (5) e-ipo (6) Preferential allotments |
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| 79. |
Distinguish between Capital Market and Money Market on the basis of the following: (a) Participants (b) Instruments |
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Answer» (a)PARTICIPANTS capital market-these are institutions , banks , corporate entities ,foreign investors and ordinary retail investors from members of public. money market-these are RBI, Finance companies ,Finance institutions ,commercial banks. INSTRUMENTS Capital marketInstrument trades are shares, debentures , bonds ,preference shares etc. money market-Instruments traded are T-bills,commercial bills,certificate of deposit etc . |
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| 80. |
Idea Seeks to Capitalise on Market Momentum With the explosive growth of their subscriber base, telecom companies are all looking at capital markets to raise funds to fuel their expansion plan. Idea Cellular, the fifth largest operator in the country and the flagship telecom venture of AV Birla Group, has decided to enter the capital market to raise between Rs. 1,700 and Rs. 2,000 crore. The company has appointed J.M.Morgan Stanley, Merrill Lynch among other as look-runners for the proposed Initial Public Offer (IPO), which is expected to be ready by January end. Since, under SEBI norms, the minimum float size is 10 per cent, the company will divest between 10 and 12 per cent, "The last private placement made by the promoters is at a market capitalisation of Rs. 15,000 crore. The proposed float is expected to be at 10 to 20 per cent premium of the private placement price, " AV Birla Group recently divested 35 per cent take in the company to a clutch of private equity firms. However, this is a fresh issue of shares, where the proceeds will be utilised by Ideal Cellular for capital expenditure. After the proposed issues, the promoters stake will come down to atound 58 per cent. With reference to the above case, define capital market. |
| Answer» Capital market is a market for medium and long-term funds. This market facilitates the institutional arrangements through which long-term funds, both debt and equity are raised and invested. The capital market consists of development banks, commercial banks and stock exchanges. An ideal capital market is one, where finance is available at a reasonable cost. The process of economic development is facilitated by the existence of a well functioning capital market. | |
| 81. |
What are the possible ways for first time sale of securities by a company? |
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Answer» 1. At the time of incorporation of the company. 2. By IPO 3. Private placement |
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| 82. |
…………. is a market for the purchase and sale of existing securities.A. Primary marketB. Money marketC. Secondary marketD. Retail market |
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Answer» Correct Answer - C A secondary market is a marketplace where already issued securities – both shares and debt – can be bought and sold by the investors. So, it is a market where investors buy securities from other investors, and not from the issuing company. |
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| 83. |
Name any two instruments of money market. |
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Answer» Correct Answer - (i) Call money (ii) Treasury bill (i) Call money (ii) Treasury bill |
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| 84. |
Why si secondary market considered as market for second hand securities? |
| Answer» Secondary market is considered as market for second hand securities because in this market second hand securities are sold between investors. | |
| 85. |
To promote orderly and healthy growth of securities market and protection of investors, Securities and Exchange Board of India was set-up. With reference to this statement, explain the objectives of Securities and Exchange Board of India. |
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Answer» Objectives of SEBI 1.To provide a transparent and healthy platform for corporates to raise funds from the financial market 2.To create and enforce bye-laws for corporates and financial intermediaries. 3.To protect the rights of investors and ensure the safety of their investment 4.Listen and provide a support system for investor grievances 5.Promote and develop the financial market of India |
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| 86. |
In secondary market, sale of securities takes place between investors only, then how does this market contribute to capital formation? |
| Answer» This market contributes to capital formation indirectly by providing liquidity through stock exchange to the securities bought in primary market. | |
| 87. |
In secondary market sale of securities takes place between investors only then how does this market conribute for capital formation? |
| Answer» This market contributes for capital formation indrieotly by providing to the securities bought in pirmary market. | |
| 88. |
Allotment of securities by a company to institutional investors and selected individuals is known asA. public offerB. private offerC. private placementD. offer through prospectus |
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Answer» Correct Answer - C Private Placement Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue. Access to the primary market can be expensive on account of various mandatory and non-mandatory expenses. |
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| 89. |
These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed the most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this, there is another market in which unsecured and short-term debt instruments are actively traded evry day. These markets together help the savers and investors in directing the available fund into their most productive investment opportunity. Name the function being performed by the market in the above case. |
| Answer» The function performed by the market in the above case is - Mobilisation of savings and channelisaing them into the most productive use or allocative function. | |
| 90. |
These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed the most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this, there is another market in which unsecured and short-term debt instruments are actively traded evry day. These markets together help the savers and investors in directing the available fund into their most productive investment opportunity. Name the market segment other than the capital market segment in which unsecured and short-term debt instruments are traded. Also, give any three points of difference between the two. |
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Answer» Money market is the market segment where unsecured, short-term debt instruments are traded. For the three points difference between money and capital market, refer to NCERT Folder question 4 of Short Answer Type Questions. |
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| 91. |
These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this, there is anther market in which unsecured and short-term debt instruments are actively traded everyday. These markets together help the savers and investros in directing the available funds into their most productive investment opprtunity. (a) Name the function being performed by the market in the above case. (b) Name the market for short term debt. (c) Differentiate between both the market. |
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Answer» (a) Mobilisation of savings and channeling them into the most productive uses/Allocative function. (b) Money market Difference between Capital Market and Money Refer to page……. |
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| 92. |
Sterlite Industries Sterlite Industries, part of the London listed Vedanta Resources Group, is scheduled to be listed on the New York Stock Exchange through an initial public offering (IPO) of about ` $ 2 ` billion. The proceeds will be used to fund its ` $ 1.9` billion, Greenfield power project in Orissa and to expand its aluminium and copper facilities. The IPO is a part of an enabling resolution passed by Sterlite to raise upto 12,500 crores through American Depository Shares (ADS). Consequently, the company has increased its authorised capital from Rs. 150 crore to Rs. 185 crore by creating an additional 17.5 crore equity shares of Rs. 2 each. The shares of Sterlite, which will be among the first metal firms from India to list on NYSE, outpaced Sensex and rose by ` 1.4%` to close at Rs. `145.2` on BSE on the day of the announcement . What do you mean by e-IPO? |
| Answer» e-Initial Public Offer When the public issue is made through an online system of stock exchange, it is knows as e-IPO, i.e. electronic Initial Public Offer. | |
| 93. |
Given the meaning of Formal Organisation .State its any four advantage. |
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Answer» Formal Organisation It refers to the organisation structure which is designed to accomplish a particular task . It specifies clearly authority and responsibility relationship The Advantages of formal organisation are -It is easier to fix responsibility since mutual relationship is clearly defined -There is no ambiguity in the role that each member has to play as duties are specified . It avoids duplication of workUnity of command is maintained through an estalished chain of command -It leads to effective accomplishment of goals by providing a frame work for the operation to be performed and ensuring that each employee knows the role he has to play. -It provides stability to the organisations because the behaviour of the employees can be fairly predicted as there are specific rules to guide them. |
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| 94. |
State any one function of stock exchange. |
| Answer» Stock exchange provides a ready market where securities are bought and sold. | |
| 95. |
What is the OTCEI? |
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Answer» The OTCEI is a company incorporated under the Companies Act 1956 to provide access to small and medium companies to capital market for raising funds. It provides an efficient and transparent avenue for capital market investment. It provides a fully electronic, single window and transparent system for securities exchange. Basically, it is a place where buyers seek sellers and vice-versa in order to negotiate the terms and conditions for sale/purchase of securities. In the OTC exchange, a buyer/seller walks on its counter, taps on computer screen, finds quotes and attempt to finalise a deal. Thus, there is no fixed geographical area for its operations, providing a simplified process of dealing in securities in an easy and economical way. However, the OTCEI has now been withdrawn. |
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| 96. |
Which organisation/institution provides scope for speculation? |
| Answer» Correct Answer - Stock exchange | |
| 97. |
How many stock exchanges are there in India? |
| Answer» There are 24 stock exchanges in India and the Bombay Stock Exchange is the oldest one. | |
| 98. |
Give the full form of the following abbreviations. (i) NSEI (ii) OTCEI (iii) NASDAQ |
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Answer» (i) NSEI National Stock Exchange of India. (ii) OTCEI Over the Counter Exchange of India. (iii) NASDAQ National Association of Securities Dealers Automated Quotations. |
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| 99. |
State two objectives of NSE. |
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Answer» The important objectives of the NSEI are given below: (i) To provide a fair, transparent and efficient securities market to investors using electronic trading system. (ii) To establish nationwide trading facility for equities and debt instruments. |
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| 100. |
The settlement cycle in NSE isA. `T+5`B. `T+3`C. `T+2`D. `T+1` |
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Answer» Correct Answer - (c) (c) T+2 is a correct answer. |
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