1. Financial Market: Concept and Functions
3 Marks
Define Financial Market. Explain its role in the 'Allocative Function'.
CBSE 2019
A financial market is a platform that facilitates the creation and exchange of financial assets. Its allocative function involves channelizing the surplus funds from savers (households) to the most productive investment opportunities (business firms). This increases the rate of capital formation and economic growth.
4 Marks
Explain any four functions of a Financial Market.
CBSE 2021
1. Mobilisation of Savings: Channelises household savings into productive investments.
2. Facilitating Price Discovery: The interaction between demand (firms) and supply (households) helps establish the price of securities.
3. Providing Liquidity: Allows investors to easily sell assets and convert them into cash.
4. Reducing Cost of Transactions: Provides a common platform and information, saving time and effort for both buyers and sellers.
2. Facilitating Price Discovery: The interaction between demand (firms) and supply (households) helps establish the price of securities.
3. Providing Liquidity: Allows investors to easily sell assets and convert them into cash.
4. Reducing Cost of Transactions: Provides a common platform and information, saving time and effort for both buyers and sellers.
2. Money Market vs. Capital Market
3 Marks
Define 'Money Market'. State its basic features.
PREDICTIVE 2026
The Money Market is a market for short-term funds which deals in financial assets whose period of maturity is up to one year.
Features:
1. It deals with short-term monetary assets.
2. It is a low-risk market as instruments are issued by highly creditworthy entities.
3. It provides high liquidity as instruments are close substitutes for money.
Features:
1. It deals with short-term monetary assets.
2. It is a low-risk market as instruments are issued by highly creditworthy entities.
3. It provides high liquidity as instruments are close substitutes for money.
6 Marks
Distinguish between Money Market and Capital Market on the basis of: (a) Maturity, (b) Participants, (c) Instruments, (d) Investment Outlay, (e) Liquidity, (f) Safety.
CBSE 2023 / SQP 2025
1. Maturity: Money Market is for < 1 year; Capital Market is for > 1 year.
2. Participants: Money Market involves RBI, Banks, FIs; Capital Market involves Individual Investors, Brokers, Stock Exchanges.
3. Instruments: Money Market uses T-bills, CP; Capital Market uses Equity, Debentures, Bonds.
4. Investment Outlay: Money Market requires huge sums (Wholesale); Capital Market allows small investments (Retail).
5. Liquidity: Money Market is highly liquid; Capital Market is comparatively less liquid.
6. Safety: Money Market is safer due to short duration and high-grade issuers; Capital Market involves higher risk of principal and returns.
2. Participants: Money Market involves RBI, Banks, FIs; Capital Market involves Individual Investors, Brokers, Stock Exchanges.
3. Instruments: Money Market uses T-bills, CP; Capital Market uses Equity, Debentures, Bonds.
4. Investment Outlay: Money Market requires huge sums (Wholesale); Capital Market allows small investments (Retail).
5. Liquidity: Money Market is highly liquid; Capital Market is comparatively less liquid.
6. Safety: Money Market is safer due to short duration and high-grade issuers; Capital Market involves higher risk of principal and returns.
3. Capital Market: Primary and Secondary
4 Marks
Explain 'Offer through Prospectus' and 'Rights Issue' as methods of floating in Primary Market.
CBSE 2022
Offer through Prospectus: The most popular method where a company invites the general public to subscribe to its securities through an advertisement. It must comply with SEBI and Companies Act requirements.
Rights Issue: This is a privilege given to existing shareholders to subscribe to new shares in proportion to the shares they already hold. It protects the control of existing shareholders.
Rights Issue: This is a privilege given to existing shareholders to subscribe to new shares in proportion to the shares they already hold. It protects the control of existing shareholders.
6 Marks
Compare and Contrast Primary Market and Secondary Market.
PREDICTIVE 2026
1. Nature of Securities: Primary deals with new securities; Secondary deals with existing/second-hand securities.
2. Participant Flow: In Primary, funds flow from investors to the company; In Secondary, funds flow between investors.
3. Price Determination: In Primary, prices are determined by management; In Secondary, prices depend on demand and supply forces.
4. Entry: Primary involves direct dealing with the company; Secondary involves dealing through intermediaries on the stock exchange.
5. Location: Primary has no fixed geographical location; Secondary operates via specific stock exchanges.
2. Participant Flow: In Primary, funds flow from investors to the company; In Secondary, funds flow between investors.
3. Price Determination: In Primary, prices are determined by management; In Secondary, prices depend on demand and supply forces.
4. Entry: Primary involves direct dealing with the company; Secondary involves dealing through intermediaries on the stock exchange.
5. Location: Primary has no fixed geographical location; Secondary operates via specific stock exchanges.
4. Stock Exchange: Functions and Procedure
4 Marks
State any four functions of a Stock Exchange.
CBSE 2020
1. Providing Liquidity: Continuous market for buying/selling.
2. Pricing of Securities: Discovery of price via demand/supply.
3. Safety of Transactions: Trade happens under legal framework/SEBI rules.
4. Contributes to Economic Growth: Disinvestment and reinvestment channelize savings into productive units.
2. Pricing of Securities: Discovery of price via demand/supply.
3. Safety of Transactions: Trade happens under legal framework/SEBI rules.
4. Contributes to Economic Growth: Disinvestment and reinvestment channelize savings into productive units.
6 Marks
Explain the steps involved in the screen-based trading procedure of a Stock Exchange.
CBSE SQP 2024
1. Selection of a Broker: Registering with a SEBI-recognized broker.
2. Opening Demat Account: Holding securities in electronic form.
3. Placing the Order: Telling the broker the name, quantity, and price of shares.
4. Execution of Order: Broker matches the order on the electronic exchange.
5. Settlement: The actual transfer of shares and money, usually on T+1 (Transaction + 1 day) basis.
2. Opening Demat Account: Holding securities in electronic form.
3. Placing the Order: Telling the broker the name, quantity, and price of shares.
4. Execution of Order: Broker matches the order on the electronic exchange.
5. Settlement: The actual transfer of shares and money, usually on T+1 (Transaction + 1 day) basis.
5. SEBI: Objectives and Functions
4 Marks
Discuss the 'Developmental Functions' of SEBI.
PREDICTIVE 2026
1. Training of intermediaries of the securities market.
2. Conducting research and publishing information useful to all market participants.
3. Undertaking measures to develop the capital markets by adapting a flexible approach.
4. Permitting internet-based trading through registered stock brokers.
2. Conducting research and publishing information useful to all market participants.
3. Undertaking measures to develop the capital markets by adapting a flexible approach.
4. Permitting internet-based trading through registered stock brokers.
6 Marks
Explain the three categories of SEBI functions with two examples each.
CBSE 2023
1. Regulatory Functions: Registration of brokers; Levying fees.
2. Development Functions: Training intermediaries; Promoting internet trading.
3. Protective Functions: Prohibition of insider trading; Prohibition of fraudulent/unfair trade practices (price rigging).
2. Development Functions: Training intermediaries; Promoting internet trading.
3. Protective Functions: Prohibition of insider trading; Prohibition of fraudulent/unfair trade practices (price rigging).
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