CLASS XII: CHAPTER 10 QUESTION BANK
Financial Markets | 10 Practice Sets (CBSE 2026-27)
📌 General Instructions for All Sets:
- Maximum Marks: 25 | Time Allowed: 45 Minutes
- Questions 1-5 are objective type carrying 1 mark each (MCQs & Assertion-Reasoning).
- Questions 6-7 are short answer type carrying 3 marks each (30-40 words).
- Questions 8-9 are short answer type carrying 4 marks each (50-80 words).
- Question 10 is a long answer type carrying 6 marks (100-150 words).
- Strictly adhere to the CBSE Competency/Case-Based format.
📄 PRACTICE PAPER - SET 1 (Level: Easy - Fundamental Concepts)
SECTION A (1 Mark Each)
1. A market for the creation and exchange of financial assets is called:
[Case-Based] The Reserve Bank of India issues a short-term instrument on behalf of the Central Government to meet its short-term requirement of funds.
2. This instrument is known as:3. Treasury Bills are also known as:
4. Assertion (A): Financial markets perform an allocative function.
Reason (R): They allocate or direct funds available for investment into their most productive investment opportunity.
Reason (R): They allocate or direct funds available for investment into their most productive investment opportunity.
5. Assertion (A): Money market instruments are highly liquid.
Reason (R): The money market deals in long-term securities which have a maturity period of more than one year.
Reason (R): The money market deals in long-term securities which have a maturity period of more than one year.
SECTION B (3 Marks Each)
6. Explain any three functions of a Financial Market.
[Case-Based] 'Alpha Ltd.' is a highly reputed, creditworthy company. It needs short-term funds for 90 days to meet its seasonal working capital needs. It decides to issue an unsecured promissory note.
7. Identify the money market instrument. State two of its features.
SECTION C (4 Marks Each)
8. Differentiate between 'Money Market' and 'Capital Market' on the basis of: (a) Participants, (b) Instruments, (c) Investment Outlay, and (d) Duration.
[Case-Based] To protect the interests of investors and regulate the securities market, the Government of India established a specific regulatory body in 1992.
9. Identify the regulatory body. Explain any three of its overall objectives.
SECTION D (6 Marks Each)
[Case-Based] 'Global Finances' operates in the short-term funds market. The manager observes three distinct transactions in a single day. In the first transaction, Bank A faces a temporary shortage of cash to maintain its Cash Reserve Ratio (CRR) and borrows money from Bank B for exactly 24 hours. In the second transaction, the Central Government issues an instrument through the RBI at a discount to raise funds for 182 days. In the third transaction, a large corporate firm issues a short-term unsecured instrument to raise funds to cover the floatation costs of its upcoming equity issue.
10. By quoting lines from the paragraph, identify and explain the **three different Money Market Instruments** being utilized in the case.
📄 PRACTICE PAPER - SET 2 (Level: Moderate - Application & Analysis)
SECTION A (1 Mark Each)
1. The market where existing, second-hand securities are bought and sold is known as:
[Case-Based] A company issues Commercial Paper to raise funds specifically to cover the heavy advertising and underwriting costs of its upcoming initial public offer (IPO).
2. This specific use of Commercial Paper is known as:[Case-Based] When a company offers its new shares to the general public for the very first time directly through an online system of the stock exchange, it is called:
3.
4. Assertion (A): Primary market is also known as the New Issues Market.
Reason (R): In this market, securities are sold by the company directly to the investors for the first time.
Reason (R): In this market, securities are sold by the company directly to the investors for the first time.
5. Assertion (A): Stock exchanges provide liquidity and marketability to existing securities.
Reason (R): Investors can easily convert their shares into cash at any time through the stock exchange.
Reason (R): Investors can easily convert their shares into cash at any time through the stock exchange.
SECTION B (3 Marks Each)
6. Differentiate between 'Primary Market' and 'Secondary Market' on any three bases.
[Case-Based] The directors of a company had access to confidential information about a massive upcoming profit announcement. Before the news went public, they secretly bought thousands of company shares to make personal profits. SEBI immediately caught them and imposed heavy fines.
7. Identify the illegal practice. Which specific category of SEBI's functions (Protective, Regulatory, or Developmental) prevents this? Explain briefly.
SECTION C (4 Marks Each)
8. Explain the following Money Market Instruments: (a) Commercial Bill, (b) Certificate of Deposit.
[Case-Based] 'Zeta Technologies' wants to raise ₹50 Crores. The management decides not to issue shares to the general public to save on massive floatation costs and time. Instead, they allot the entire share issue to a few selected institutional investors like LIC and UTI.
9. Identify the method of floatation in the primary market used here. State two advantages of this method.
SECTION D (6 Marks Each)
[Case-Based] The 'Bombay Stock Exchange (BSE)' is a crucial institution in the Indian economy. It allows an investor, Mr. Sharma, to quickly sell his reliance shares when he urgently needs cash for a medical emergency. Because millions of buyers and sellers participate on the BSE, the constant interplay of demand and supply helps determine the exact, fair, real-time price of these shares. Furthermore, because BSE operates under strict rules and SEBI regulations, Mr. Sharma is confident that he will not be cheated and his money is safe. The existence of such a market also encourages Mr. Sharma's friends to save their money and invest in industrial growth rather than keeping cash at home.
10. By quoting lines from the paragraph, identify and explain the **four functions of a Stock Exchange** highlighted in the case.
📄 PRACTICE PAPER - SET 3 (Level: Moderate-High - Nuanced Competency)
SECTION A (1 Mark Each)
1. The interest rate paid on Call Money is known as:
[Case-Based] A company issues a prospectus inviting the general public to subscribe to its shares. This method is the most popular way to raise funds in the Primary Market.
2. It is known as:3. SEBI conducting training programs for intermediaries of the securities market falls under which of its functions?
4. Assertion (A): Treasury bills are highly safe and carry negligible risk of default.
Reason (R): They are issued by the Reserve Bank of India on behalf of the Central Government.
Reason (R): They are issued by the Reserve Bank of India on behalf of the Central Government.
5. Assertion (A): Under 'Offer for Sale', the company does not issue shares directly to the public.
Reason (R): The company issues shares to stockbrokers or issuing houses at an agreed price, who then resell them to the investing public.
Reason (R): The company issues shares to stockbrokers or issuing houses at an agreed price, who then resell them to the investing public.
SECTION B (3 Marks Each)
6. Explain 'Call Money'. Why do banks primarily use Call Money?
[Case-Based] The management of 'QuickFoods' decided to raise additional capital. According to the Companies Act, they first offered these new shares to their existing shareholders in proportion to the shares they already held.
7. Identify the method of floatation in the primary market. Why is this method legally mandated for existing companies?
SECTION C (4 Marks Each)
8. State any four 'Protective Functions' of SEBI.
[Case-Based] Mr. Amit holds 500 shares in physical paper form. He wants to sell them online on the National Stock Exchange (NSE), but his broker tells him he cannot trade paper certificates electronically.
9. What process must Mr. Amit undergo to convert his physical shares into electronic form? Briefly explain the role of a 'Depository' in this context.
SECTION D (6 Marks Each)
[Case-Based] 'Sunrise Motors' is a newly established public company. It needs ₹500 Crores to build its first factory. The promoters decide they want a wide base of retail investors. Therefore, they draft a detailed document outlining the company's future prospects and risks, and publish it in major newspapers inviting the public to buy shares. Once the shares are issued, the investors realize they might need their money back before the company starts making profits. Fortunately, they are able to easily sell these shares to other buyers on the Bombay Stock Exchange (BSE), knowing that the BSE strictly checks the background of all brokers and monitors all transactions to prevent fraud.
10. By quoting lines from the paragraph, identify and explain: (a) The **Method of Floatation** in the Primary Market used by the company.
(b) **One function of the Stock Exchange** benefiting the investors.
(c) **One Regulatory Function of SEBI** implied in the functioning of the BSE.
📄 PRACTICE PAPER - SET 4 (Level: Hard - Analytical Competency)
SECTION A (1 Mark Each)
1. Which of the following instruments is used to finance the credit sales of firms?
[Case-Based] SEBI conducts audits of stock exchanges and registers various intermediaries like merchant bankers and mutual funds.
2. These activities fall under SEBI’s:3. The process of holding securities in an electronic form is called:
4. Assertion (A): Financial markets help in reducing the cost of transactions.
Reason (R): They provide a common platform where buyers and sellers can easily find each other, saving the time, effort, and money they would otherwise spend searching for counterparts.
Reason (R): They provide a common platform where buyers and sellers can easily find each other, saving the time, effort, and money they would otherwise spend searching for counterparts.
5. Assertion (A): A stock exchange is a part of the Primary Market.
Reason (R): A stock exchange exclusively facilitates the issuance of fresh, new shares by a company directly to the investors.
Reason (R): A stock exchange exclusively facilitates the issuance of fresh, new shares by a company directly to the investors.
SECTION B (3 Marks Each)
6. Explain the term 'Dematerialization' (Demat). Why is a Demat account necessary for an investor today?
[Case-Based] 'Alpha Ltd.' sold goods worth ₹10 Lakhs to 'Beta Ltd.' on credit. Alpha Ltd. urgently needed cash, so it drew a bill of exchange on Beta Ltd., which Beta accepted. Alpha Ltd. then got it discounted from a bank.
7. Identify the money market instrument used. Explain its mechanism briefly.
SECTION C (4 Marks Each)
8. Explain any four 'Regulatory Functions' of SEBI.
[Case-Based] A well-known software company decided to raise equity capital. However, instead of going through the hassle of printing prospectuses, they appointed a SEBI-registered broker. They sold all the new shares to the broker at a fixed price. The broker then sold these shares to the public at a slightly higher price.
9. Identify and explain the method of floatation used in the primary market. How does it benefit the issuing company?
SECTION D (6 Marks Each)
[Case-Based] The 'Capital Market' is the backbone of the Indian economy. It provides long-term funds to industrial enterprises. However, this market is broadly divided into two major components. In the first component, companies like 'Zomato' and 'Paytm' raised fresh capital from the public for the very first time to fund their massive expansions. In the second component, existing shareholders of these companies trade those shares among themselves daily. Without the second component, no investor would ever put their money in the first component, as their funds would be locked forever.
10. By quoting lines from the paragraph, identify and explain the **two major components of the Capital Market**. Also, explain the specific relationship between these two components highlighted in the last line of the case.
📄 PRACTICE PAPER - SET 5 (Level: Advanced - Evaluation Competency)
SECTION A (1 Mark Each)
[Case-Based] Short-term, unsecured, negotiable instruments issued by commercial banks and development financial institutions to individuals and corporations during periods of tight liquidity are called:
1.
2. Promoting fair practices and code of conduct in the securities market is a:
3. Assertion (A): e-IPOs are becoming the preferred method of floatation.
Reason (R): In an e-IPO, a company issues capital to the public through the online system of the stock exchange, bypassing the massive paperwork and delays of traditional prospectuses.
Reason (R): In an e-IPO, a company issues capital to the public through the online system of the stock exchange, bypassing the massive paperwork and delays of traditional prospectuses.
4. Assertion (A): Capital market instruments carry lower risk compared to money market instruments.
Reason (R): Capital market instruments have a long maturity period and are highly susceptible to fluctuations in business and market conditions over time.
Reason (R): Capital market instruments have a long maturity period and are highly susceptible to fluctuations in business and market conditions over time.
5. The minimum face value of a Treasury Bill is:
SECTION B (3 Marks Each)
6. State any three 'Developmental Functions' of SEBI.
[Case-Based] A bank has a sudden shortfall in its cash reserves and immediately borrows ₹50 Crores from another bank for two days.
7. Identify the money market instrument. What is the relationship between the rate of interest on this instrument and other money market instruments?
SECTION C (4 Marks Each)
8. Distinguish between 'Treasury Bill' and 'Commercial Paper' on the basis of: (a) Issuer, (b) Purpose, (c) Safety, and (d) Maturity period.
[Case-Based] A company published highly misleading financial statements to artificially inflate its share price just before issuing new shares to the public. The innocent public lost millions.
9. Identify the illegal practice highlighted here. Explain any three functions of SEBI specifically designed to protect investors from such practices.
SECTION D (6 Marks Each)
[Case-Based] Mr. Verma wants to invest his savings in the stock market. He approaches a registered broker. The broker tells him that before any trading can begin, he must open two specific accounts. The first account is with a bank to handle the monetary transactions. The second account is with a Depository Participant (DP) to hold the digital shares. Once the accounts are opened, Mr. Verma instructs the broker to buy 100 shares of Reliance Industries. The broker logs into the stock exchange computer system, matches the order, and executes the trade. Two days later, the shares are electronically credited to Mr. Verma's account, and the money is deducted from his bank.
10. By analyzing the case above, outline the **exact step-by-step trading procedure** on a stock exchange followed by Mr. Verma and his broker, culminating in the final settlement (T+2 rolling settlement).
📄 PRACTICE PAPER - SET 6 (Level: Expert - Complex Case Studies)
SECTION A (1 Mark Each)
1. Which of the following is NOT a participant in the Money Market?
[Case-Based] A stock exchange provides a mechanism for constantly valuing securities based on the forces of demand and supply.
2. This function is known as:3. Assertion (A): SEBI was established to protect the rights of investors.
Reason (R): Before SEBI, there were malpractices like price rigging, delay in delivery of shares, and insider trading which shattered investor confidence.
Reason (R): Before SEBI, there were malpractices like price rigging, delay in delivery of shares, and insider trading which shattered investor confidence.
4. Assertion (A): The secondary market does not directly contribute to capital formation.
Reason (R): The secondary market only involves the exchange of already existing shares between investors; the money does not go to the company.
Reason (R): The secondary market only involves the exchange of already existing shares between investors; the money does not go to the company.
5. T-Bills are issued at a discount and redeemed at par. The difference between the issue price and the redemption value represents:
SECTION B (3 Marks Each)
6. Explain 'Price Rigging' and 'Insider Trading'. Why does SEBI prohibit them?
[Case-Based] 'Zeta Corp' is issuing new equity shares. To avoid the massive cost and delay of printing a prospectus, they bypass the general public completely. They negotiate directly with UTI (Unit Trust of India) and a few large mutual funds, selling the entire issue to them.
7. Identify the method of floatation. State two of its advantages.
SECTION C (4 Marks Each)
8. State four functions of a 'Stock Exchange' that benefit the investors and the overall economy.
[Case-Based] During a severe cash crunch, a commercial bank issued an unsecured, short-term, negotiable instrument in bearer form to a large corporation to raise funds.
9. Identify the money market instrument. Differentiate it from a Commercial Paper on any three bases.
SECTION D (6 Marks Each)
[Case-Based] The Government of India observed that massive household savings were locked in bank lockers and gold, generating zero industrial growth. To channelize these savings, they heavily promoted the 'Financial Markets'. Thanks to this, Mr. Sharma, a retired teacher, easily invested his savings in the shares of a growing solar power company. The market ensured that the solar company (which needed funds for productive use) was perfectly matched with Mr. Sharma (who had surplus funds). Because the shares are traded on the stock exchange, Mr. Sharma knows their exact daily value and can instantly sell them if he needs cash without searching for a buyer himself.
10. By quoting lines from the paragraph, identify and explain the **four functions of the Financial Market** being performed in the economy.
📄 PRACTICE PAPER - SET 7 (Level: Expert - Integrated Concepts)
SECTION A (1 Mark Each)
[Case-Based] If a company offers new shares to its existing shareholders in the ratio of 1 new share for every 5 shares currently held, it is known as:
1.
2. Who is the apex regulatory body for the overall capital market in India?
3. Assertion (A): A Commercial Paper is used for 'Bridge Financing'.
Reason (R): Companies issue Commercial Papers to meet the floatation costs (like brokerage, printing) required to issue long-term securities in the capital market.
Reason (R): Companies issue Commercial Papers to meet the floatation costs (like brokerage, printing) required to issue long-term securities in the capital market.
4. Assertion (A): The Money Market deals in instruments with a maturity period of more than one year.
Reason (R): Instruments like Treasury Bills and Call Money are used for long-term capital investments.
Reason (R): Instruments like Treasury Bills and Call Money are used for long-term capital investments.
5. In India, the electronic system of holding and transferring securities is maintained by:
SECTION B (3 Marks Each)
6. Explain the term 'Allocative Function' of the financial market. What are its two main consequences?
[Case-Based] SEBI recently launched an online educational portal to educate retail investors about the risks of the stock market. It also simplified the online registration process for new stockbrokers.
7. Which category of SEBI’s functions do these activities fall under? State one more function of this category.
SECTION C (4 Marks Each)
8. Explain the following methods of floatation in the Primary Market: (a) Offer through Prospectus, (b) e-IPO.
[Case-Based] 'Alpha Ltd.' is a highly rated company. To meet its short-term seasonal working capital needs for 6 months, it issues an unsecured promissory note at a discount.
9. Identify the instrument. Why can only highly rated companies issue this instrument? What is its usual maturity period?
SECTION D (6 Marks Each)
[Case-Based] Mr. Amit is the Finance Manager of 'SuperCements'. He needs to arrange ₹50 Crores for a period of 5 years to buy new machinery. His friend suggests he should use 'Money Market' instruments like Commercial Papers or Call Money because they are processed very quickly. Mr. Amit laughs and tells his friend that he clearly doesn't know the difference between the Money Market and the Capital Market. He explains that since he needs the funds for 5 years, he must approach the Capital Market.
10. Help Mr. Amit explain the difference to his friend. Differentiate between the **Money Market** and the **Capital Market** on the basis of: (a) Meaning, (b) Participants, (c) Instruments traded, (d) Duration/Maturity, (e) Liquidity, and (f) Safety/Risk.
📄 PRACTICE PAPER - SET 8 (Level: Advanced Board Mock 1)
SECTION A (1 Mark Each)
1. Which of the following is NOT a function of SEBI?
[Case-Based] A stock exchange mandates that all listed companies must submit their quarterly financial reports for public viewing to ensure transparency.
2. This fulfills the stock exchange function of:3. Assertion (A): Secondary market indirectly promotes capital formation.
Reason (R): By providing liquidity to investors, the secondary market encourages them to invest in the primary market, knowing they can easily sell the shares later.
Reason (R): By providing liquidity to investors, the secondary market encourages them to invest in the primary market, knowing they can easily sell the shares later.
4. Assertion (A): A Depository Participant (DP) acts as an agent between the Depository and the investor.
Reason (R): An investor cannot directly open a Demat account with NSDL or CDSL; they must go through a registered DP like a bank or broker.
Reason (R): An investor cannot directly open a Demat account with NSDL or CDSL; they must go through a registered DP like a bank or broker.
5. Call money is mainly used by:
SECTION B (3 Marks Each)
6. State three reasons why SEBI was established.
[Case-Based] A company successfully issues shares to the public in the Primary Market. A week later, these shares are listed and traded actively on the NSE.
7. Explain how the Primary Market and Secondary Market are complementary to each other.
SECTION C (4 Marks Each)
8. Explain the term 'Treasury Bill'. Why are they considered the safest money market instrument?
[Case-Based] A corporate firm has surplus cash of ₹10 Crores sitting idle for the next 45 days. It wants to earn interest without taking any risk. It buys an instrument issued by a commercial bank.
9. Identify the instrument. Explain its features and state who else can issue it.
SECTION D (6 Marks Each)
[Case-Based] 'InnovateTech' is launching a massive IPO to raise ₹1,000 Crores. The CEO is worried about two things. First, he fears the massive paperwork, printing of prospectuses, and the slow manual processing of applications. The merchant banker advises him to use an online method directly through the stock exchange to eliminate this hassle. Second, the CEO is worried about the massive ₹20 Crores floatation cost (underwriting and broker fees) required just to launch the IPO. The finance manager suggests issuing a short-term, unsecured promissory note to the money market to temporarily raise this ₹20 Crores.
10. By quoting lines from the paragraph, identify and explain: (a) The specific **Method of Floatation** suggested by the merchant banker.
(b) The specific **Money Market Instrument** suggested by the finance manager.
(c) The exact term used for raising short-term funds to cover floatation costs.
📄 PRACTICE PAPER - SET 9 (Level: Advanced Board Mock 2)
SECTION A (1 Mark Each)
[Case-Based] SEBI imposes a penalty on a mutual fund company for misleading investors with false returns data.
1. This action highlights SEBI's:2. Which of the following is an instrument of the Capital Market?
3. Assertion (A): Under Private Placement, a company saves a lot of time and money.
Reason (R): The company does not have to issue a formal prospectus, run massive ad campaigns, or pay heavy underwriting commissions to reach the general public.
Reason (R): The company does not have to issue a formal prospectus, run massive ad campaigns, or pay heavy underwriting commissions to reach the general public.
4. Assertion (A): The settlement cycle on Indian stock exchanges is T+2.
Reason (R): This means that the trade settlement (delivery of shares and payment of cash) must be completed within 2 working days from the day the trade was executed.
Reason (R): This means that the trade settlement (delivery of shares and payment of cash) must be completed within 2 working days from the day the trade was executed.
5. The minimum amount for which Commercial Paper can be issued is:
SECTION B (3 Marks Each)
6. Explain 'Right Issue' and 'Private Placement' as methods of floatation.
[Case-Based] Before buying shares, an investor looks at the real-time ticker on the stock exchange website to see exactly what price buyers are willing to pay and sellers are willing to accept.
7. Which specific function of the stock exchange is highlighted here? Explain how the stock exchange performs this function.
SECTION C (4 Marks Each)
8. Explain any four 'Protective Functions' of SEBI designed to safeguard investors.
9. "Financial markets help to link the savers and the investors." Elaborate on this statement by explaining the allocative function of financial markets.
SECTION D (6 Marks Each)
[Case-Based] 'Zeta Pharma' was a highly reputed company. However, the Board of Directors discovered that their Chief Financial Officer (CFO) was leaking confidential data about a failed drug trial to his family members. Before the news hit the market and the share prices crashed, his family members sold all their shares at the high price, avoiding massive losses. When the public found out, they lost complete faith in the stock market and stopped investing. To restore confidence, the government passed strict laws and empowered a specific regulatory body to investigate the CFO, freeze his assets, and ban him from trading for life.
10. Identify the **illegal practice** performed by the CFO. Identify the **Regulatory Body** that intervened. Explain any **four overall objectives** of this regulatory body.
📄 PRACTICE PAPER - SET 10 (Level: Ultimate Board Challenger)
SECTION A (1 Mark Each)
1. Which of the following statements perfectly defines a Depository?
[Case-Based] A company issues shares to a broker at ₹100 per share. The broker then sells them to the public at ₹120 per share.
2. This method is called:3. Assertion (A): Secondary market promotes economic growth.
Reason (R): By constantly valuing securities, it ensures that funds flow away from unprofitable, dying companies and move towards the most productive, high-growth companies.
Reason (R): By constantly valuing securities, it ensures that funds flow away from unprofitable, dying companies and move towards the most productive, high-growth companies.
4. Assertion (A): Call money rates are highly volatile.
Reason (R): Call money is borrowed/lent for 1 to 15 days, and its rate varies from day to day and sometimes even from hour to hour based on the liquidity in banks.
Reason (R): Call money is borrowed/lent for 1 to 15 days, and its rate varies from day to day and sometimes even from hour to hour based on the liquidity in banks.
5. Registration of mutual funds and regulating their business is a:
SECTION B (3 Marks Each)
6. Differentiate between 'Capital Market' and 'Money Market' on the basis of Risk and Liquidity.
[Case-Based] A bank has to maintain a minimum cash balance with the RBI (Cash Reserve Ratio). It falls short by ₹10 Crores and borrows it from another bank.
7. Identify the instrument. Explain its mechanism.
SECTION C (4 Marks Each)
8. Explain the following functions of a Stock Exchange: (a) Providing liquidity and marketability, (b) Safety of transaction.
9. Outline the exact procedure of trading on a stock exchange from 'Selection of a broker' to 'Execution of the order'.
SECTION D (6 Marks Each)
[Case-Based] 'Alpha Limited', a highly reputed firm, needed ₹100 Crores for a long-term infrastructure project. Instead of issuing shares to the public, they approached a consortium of life insurance companies and mutual funds and successfully sold all their shares directly to them, saving huge advertising costs. A few months later, to meet an urgent working capital requirement of ₹20 Crores for 90 days, Alpha Limited issued an unsecured, short-term promissory note at a discount. Meanwhile, the Securities and Exchange Board of India (SEBI) noticed that some brokers were giving fraudulent investment advice regarding Alpha's shares. SEBI immediately cancelled the registration of those brokers and published a booklet to educate retail investors.
10. By quoting lines from the paragraph, identify and explain: (a) The **Method of Floatation** used in the Capital Market.
(b) The **Money Market Instrument** issued by the firm.
(c) **One Regulatory Function** and **One Protective/Developmental Function** performed by SEBI.
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