CLASS XII CHAPTER 10
: FINANCIAL MARKET- CASE STUDY
CASE 1 (HariHar Ltd)
Rahul, the Managing Director of 'HariHar Ltd.' and Sahil, the finance manager were discussing about avenues of investing the idle funds of the company. Rahul was of the opinion that money should be invested in the capital market whereas Sahil felt that it would be better if the investment was made in the money market.
Explain with the help of any two points, giving reasons, why Sahil felt that investment in the money market is better.
Sahil felt investment in the money market is better because:
1. High Liquidity: Money market instruments are highly liquid and can be quickly converted into cash whenever the company needs its idle funds back.
2. Low Risk / Safety: Money market instruments (like Treasury Bills or Commercial Paper) are generally much safer and carry lower default risk compared to capital market investments.
1. High Liquidity: Money market instruments are highly liquid and can be quickly converted into cash whenever the company needs its idle funds back.
2. Low Risk / Safety: Money market instruments (like Treasury Bills or Commercial Paper) are generally much safer and carry lower default risk compared to capital market investments.
CASE 2 (Rohit)
Rohit had recently sold a small piece of land and received a considerable amount of money. However, he planned to use this money within a few months to purchase a new shop for his business. Therefore, he did not want to invest this amount in long-term investment options such as shares or real estate.
After discussing with his financial advisor, Rohit decided to invest his money in treasury bills and short-term bank instruments. The advisor explained that these instruments are highly liquid and involve very low risk. Moreover, the maturity period of these instruments is very short, which means Rohit could easily withdraw his money whenever required. Rohit realised that this type of investment would help him keep his funds safe and available for use in the near future.
Explain with the help of any two points given in the paragraph, giving reasons, why Rohit felt that investment in the money market is better.
Rohit chose the money market because:
1. Short Maturity Period: He needed the money back "within a few months," and money market instruments mature within one year.
2. Highly Liquid and Low Risk: He wanted to "keep his funds safe and available," which is the core feature of money market instruments.
1. Short Maturity Period: He needed the money back "within a few months," and money market instruments mature within one year.
2. Highly Liquid and Low Risk: He wanted to "keep his funds safe and available," which is the core feature of money market instruments.
CASE 3 (Meena)
Capital Market Concept, Primary and Secondary Market
Meena runs a small trading business. During the off-season, she had some surplus funds which she expected to use again within six months when business activities would increase. She was looking for a safe place to park her funds for a short period.
Her bank manager advised her to invest in commercial papers and short-term certificates of deposit issued by reputed institutions. The manager explained that these instruments are easy to buy and sell and usually mature within a short period. He also told her that such investments involve relatively low risk because they are issued by reliable institutions and are meant only for short-term financing needs.
After understanding these features, Meena decided to invest her surplus funds in these instruments for the time being.
Explain with the help of any two points given in the paragraph, giving reasons, why Meena felt that investment in the money market is better.
Meena preferred the money market because:
1. Short Term Requirement: She expected to use the funds again "within six months."
2. Low Risk: The instruments are "issued by reliable institutions" making them a safe place to park funds temporarily.
1. Short Term Requirement: She expected to use the funds again "within six months."
2. Low Risk: The instruments are "issued by reliable institutions" making them a safe place to park funds temporarily.
CASE 1 (Tech Work)
Tech Work' an Artificial Intelligence (AI) startup started in 2024. It was earning good profits. It wanted to expand its business and for its research and development, it required 100 crores. The Chief Executive Officer of 'Tech Work' consulted the Finance Manager who suggested that there is a market which facilitates transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or expand existing ones through the issue of securities. The management of 'Tech Work' decided to raise funds from the investors by issuing equity shares@200 per share for the first time.
(i) Name the type of capital market through which 'Tech Work' decided to raise funds for its expansion.
(ii) State three features of the market identified in (i) above.
(ii) State three features of the market identified in (i) above.
(i) Primary Market (New Issue Market).
(ii) Features of Primary Market:
1. It is the market for new securities.
2. Funds are raised by companies directly from investors.
3. It has no fixed geographical location.
(ii) Features of Primary Market:
1. It is the market for new securities.
2. Funds are raised by companies directly from investors.
3. It has no fixed geographical location.
CASE 2 (BrightTech Electronics)
BrightTech Electronics Ltd. is a well-known company that manufactures home appliances. Due to increasing demand for its products, the company decided to expand its operations by setting up a new manufacturing unit. For this purpose, the company required a large amount of long-term funds.
The Board of Directors decided to raise the required funds by issuing new equity shares to the public. Interested investors were invited to subscribe to these shares through a public issue. The company believed that this method would help it raise large funds from a wide number of investors.
After the shares were issued, many investors who had purchased them started trading these shares on the stock exchange whenever they wanted to sell them or buy more shares. This allowed investors to easily convert their investments into cash whenever required.
(i) Name the type of capital market through which the firm decided to raise funds for its expansion.
(ii) State three features of the market identified in (i) above.
(ii) State three features of the market identified in (i) above.
(i) Primary Market. (The initial issue to raise funds).
(ii) Features of Primary Market:
1. It deals with new securities being issued for the first time.
2. It facilitates the transfer of investible funds from savers to entrepreneurs.
3. Prices of securities are determined by the management of the company.
(ii) Features of Primary Market:
1. It deals with new securities being issued for the first time.
2. It facilitates the transfer of investible funds from savers to entrepreneurs.
3. Prices of securities are determined by the management of the company.
CASE 3 (UrbanRide Motors)
Capital Market Difference: Capital vs Money Market, Primary vs Secondary Market
UrbanRide Motors Ltd. manufactures electric bicycles. The company planned to introduce a new production line to meet the growing demand for electric vehicles. For this purpose, the management decided to issue debentures to the public to raise long-term funds.
The debentures were offered to investors for the first time through a public issue. Many investors purchased these debentures because they offered a fixed rate of interest. Later, some investors who wanted to sell their debentures before maturity started selling them through the stock exchange, where other investors were willing to purchase them.
This system helped investors easily buy and sell the securities even after their initial issue.
(i) Name the type of capital market through which the firm decided to raise funds for its expansion.
(ii) State three features of the market identified in (i) above.
(ii) State three features of the market identified in (i) above.
(i) Primary Market.
(ii) Features:
1. Only buying of securities takes place in this market (securities cannot be sold there).
2. It comes before the secondary market.
3. Various methods of floatation can be used (Offer through prospectus, Rights issue, etc.).
(ii) Features:
1. Only buying of securities takes place in this market (securities cannot be sold there).
2. It comes before the secondary market.
3. Various methods of floatation can be used (Offer through prospectus, Rights issue, etc.).
CASE 1 (Hitesh Ltd)
'Hitesh Ltd.' is a well-known company in the cement industry since 1999. The company has an authorised capital of 100 crore and is listed with a reputed stock exchange. The value of its shares is increasing day-by-day due to increase in the demand for cement. Now the company wants to enter into car manufacturing business. For this it requires 200 crore. The Finance Manager of the company decides to raise this capital by a public issue.
(a) Identify the market in which the company's existing securities are being traded.
(b) Name the market through which the company wants to raise its capital of 200 crore for its new business.
(c) Distinguish between the markets identified in (a) and (b) above on the basis of any two points.
(b) Name the market through which the company wants to raise its capital of 200 crore for its new business.
(c) Distinguish between the markets identified in (a) and (b) above on the basis of any two points.
(a) Secondary Market (Stock Exchange) (where existing securities are traded).
(b) Primary Market (where fresh capital of 200 crore is raised via public issue).
(c) Differences:
1. Nature of Securities: Primary market deals with new securities; Secondary market deals with existing, already issued securities.
2. Buying and Selling: In Primary market, investors only buy securities from the company. In Secondary market, investors both buy and sell securities among themselves.
(b) Primary Market (where fresh capital of 200 crore is raised via public issue).
(c) Differences:
1. Nature of Securities: Primary market deals with new securities; Secondary market deals with existing, already issued securities.
2. Buying and Selling: In Primary market, investors only buy securities from the company. In Secondary market, investors both buy and sell securities among themselves.
CASE 2 (BrightTech Electronics)
BrightTech Electronics Ltd. is a well-known company manufacturing home appliances. The shares of the company were issued to the public a few years ago. At present, many investors regularly buy and sell these shares on the stock exchange depending on market conditions and their investment plans.
Recently, the company decided to expand its operations by launching a new range of energy-efficient appliances. For this purpose, the management planned to raise additional funds by issuing new shares to the public. The company believed that this would help it collect the required capital for its expansion project.
(a) Identify the market in which the company’s existing securities are being traded.
(b) Name the market through which the company wants to raise its capital for its new business.
(c) Distinguish between the markets identified in (a) and (b) above on the basis of any two points.
(b) Name the market through which the company wants to raise its capital for its new business.
(c) Distinguish between the markets identified in (a) and (b) above on the basis of any two points.
(a) Secondary Market (Stock Exchange).
(b) Primary Market.
(c) Differences:
1. Location: Primary market has no fixed geographical location; Secondary market has a fixed physical location (Stock Exchange).
2. Capital Formation: Primary market directly promotes capital formation; Secondary market indirectly promotes capital formation by providing liquidity.
(b) Primary Market.
(c) Differences:
1. Location: Primary market has no fixed geographical location; Secondary market has a fixed physical location (Stock Exchange).
2. Capital Formation: Primary market directly promotes capital formation; Secondary market indirectly promotes capital formation by providing liquidity.
CASE 3 (UrbanRide Motors)
UrbanRide Motors Ltd. manufactures electric bicycles and scooters. The company issued shares to investors several years ago when it started its business. At present, many investors who already own these shares trade them regularly through the stock exchange.
Due to increasing demand for electric vehicles, the company now plans to set up a new production unit. To finance this expansion, the management decided to raise fresh capital by issuing debentures to the public for the first time.
(a) Identify the market in which the company’s existing securities are being traded.
(b) Name the market through which the company wants to raise its capital for its new business.
(c) Distinguish between the markets identified in (a) and (b) above on the basis of any two points.
(b) Name the market through which the company wants to raise its capital for its new business.
(c) Distinguish between the markets identified in (a) and (b) above on the basis of any two points.
(a) Secondary Market.
(b) Primary Market.
(c) Differences:
1. Price Determination: In Primary market, prices are determined by management. In Secondary market, prices are determined by demand and supply forces.
2. Participants: In Primary market, trading is between the company and investors. In Secondary market, trading is only between investors.
(b) Primary Market.
(c) Differences:
1. Price Determination: In Primary market, prices are determined by management. In Secondary market, prices are determined by demand and supply forces.
2. Participants: In Primary market, trading is between the company and investors. In Secondary market, trading is only between investors.
CASE 4 (Rohan / BrightStyle)
Rohan is the owner of BrightStyle Garments Ltd., a company that manufactures fashionable clothing. The company planned to expand its production capacity by setting up a new factory and purchasing modern machines. For this purpose, Rohan decided to raise long-term funds by issuing shares to the public so that the company could finance its expansion project.
At the same time, the company sometimes faces temporary shortage of funds to purchase raw materials and pay wages during peak production seasons. To meet these short-term financial needs, the Finance Manager suggested investing surplus funds and arranging short-term borrowings through instruments such as treasury bills and commercial papers which mature within a short period.
(a) Identify the two financial markets discussed in the above case.
(b) Which market will help the company raise long-term funds for expansion?
(c) State any two differences between the markets identified in part (a).
(b) Which market will help the company raise long-term funds for expansion?
(c) State any two differences between the markets identified in part (a).
(a) Capital Market and Money Market.
(b) Capital Market.
(c) Differences:
1. Duration: Money market deals in short-term funds (up to 1 year), whereas Capital market deals in medium and long-term funds.
2. Instruments: Money market instruments include Treasury bills, Commercial paper, etc. Capital market instruments include Equity shares, Debentures, etc.
(b) Capital Market.
(c) Differences:
1. Duration: Money market deals in short-term funds (up to 1 year), whereas Capital market deals in medium and long-term funds.
2. Instruments: Money market instruments include Treasury bills, Commercial paper, etc. Capital market instruments include Equity shares, Debentures, etc.
CASE 5 (Meena / UrbanRide)
Meena runs a company named UrbanRide Motors that manufactures electric bicycles. The company wanted to introduce a new production line and therefore planned to raise large funds by issuing debentures to investors for several years. Meena believed that this would help the company finance its long-term expansion plans.
However, during certain months the company also has temporary surplus cash which is not required immediately. The Finance Manager suggested that instead of keeping the money idle, the company could invest it in short-term instruments such as certificates of deposit issued by banks, which would mature within a few months and provide safe returns.
(a) Identify the financial market used for long-term financing in the above case.
(b) Identify the financial market where short-term instruments like certificates of deposit are traded.
(c) State any two points of distinction between the two markets identified above.
(b) Identify the financial market where short-term instruments like certificates of deposit are traded.
(c) State any two points of distinction between the two markets identified above.
(a) Capital Market.
(b) Money Market.
(c) Distinction points:
1. Liquidity: Money market securities enjoy higher liquidity compared to capital market securities.
2. Safety/Risk: Money market instruments are generally safer with minimal default risk, whereas capital market instruments carry a higher degree of risk.
(b) Money Market.
(c) Distinction points:
1. Liquidity: Money market securities enjoy higher liquidity compared to capital market securities.
2. Safety/Risk: Money market instruments are generally safer with minimal default risk, whereas capital market instruments carry a higher degree of risk.
© 2026-27 Business Studies Master | Authored by Rathin Kumar Bardhan
No comments:
Post a Comment