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Tamilnadu Samacheer Kalvi 12th Commerce Solutions Chapter 5 Capital Market

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Samacheer Kalvi 12th Commerce Capital Market Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
Capital market do not provide __________
(a) Short term Funds
(b) Debenture Funds
(c) Equity Funds
(d) Long term Funds
Answer:
(a) Short term Funds

Question 2.
When the NSEI was established?
(a) 1990
(b) 1992
(c) 1998
(d) 1997
Answer:
(b) 1992

Question 3.
Primary market is a Market where securities are traded for the __________
(a) First Time
(b) Second Time
(c) Third Time
(d) Several Times
Answer:
(a) First Time

Question 4.
Participants in the capital market includes __________
(a) Individuals
(b) Corporate
(c) Financial Institutions
(d) All of the above
Answer:
(d) All of the above

Question 5.
How many times a security can be sold in a secondary market?
(a) Only one time
(b) Two times
(c) Three times
(d) Multiple times
Answer:
(d) Multiple times

II. Very Short Answer Questions

Question 1.
What is Capital Market?
Answer:
Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, and stocks. The buying/selling is undertaken by participants such as individuals and institutions.

Question 2.
Write a note on OTCEI.
Answer:
The OTCEI was set up by a premier financial institution to allow the trading of securities across the electronic counters throughout the country.

Question 3.
What is Mutual Fund?
Answer:
Financial institutions that provide facilities for channeling savings of Small investors into avenues of productive investments are called ‘Mutual Funds’. A mutual fund company invests the funds pooled from shareholders and gives them the benefit of diversified investment portfolio and a reasonable return.

Question 4.
Who are the participants in a Capital Market?
Answer:
There are many players in the capital market. The participants of the capital market include individuals, corporate sectors, Govt., banks and other financial institutions.

Question 5.
How is price determined in a Capital Market?
Answer:
The price of the securities is determined based on the demand and supply prevailing in the capital market for securities.

III. Short Answer Questions

Question 1.
What are the various kinds of Capital Market? Explain.
Answer:
The capital market is divided into two i.e., primary market and secondary market.

  1. Primary Market: Primary market is a market for new issues or new financial claims.
  2. Secondary Market: Secondary Market may be defined as the market for old securities, in the sense that securities which are previously issued in the primary market are traded here.

Question 2.
Explain any two functions of Capital Market.
Answer:

  1. Savings and Capital Formation: In capital market, various types of securities help to mobilize savings from various sectors of population (Individuals, Corporate, Govt., etc.). The twin features of reasonable return and liquidity in stock exchange are definite incentives to the people to invest in securities. This accelerates the capital formation in the country.
  2. Permanent Capital: The existence of a capital market/stock exchange enables companies to raise permanent capital. The investors cannot commit their funds for a permanent period but companies require funds permanently. The stock exchange resolves this clash of interests by offering an opportunity to investors to buy or sell their securities, while permanent capital with the company remains unaffected.

Question 3.
Write a note on National Clearance and Depository System (NCDS).
Answer:
Under the scripless trading system, settlement of transactions relating to securities takes place through a book entry. The entire scripless trading system comprises the following three segments:

  1. National Trade Comparison and Reporting System which prescribes the terms and conditions of contract for the securities market.
  2. National Clearing System which aims at determining the net cash and stock liability of each broker on a settlement date.
  3. National Depository System which arranges to provide for the transfer of ownership of securities in exchange on payment by book entry on electronic ledgers without any physical movement of transfer deed.

Question 4.
Discuss about evolution and growth of Indian Capital Market.
Answer:
The period between 1947 and 1973 marked the development of infrastructure for capital market. During this period, a network of development financial institutions such as IFCI, ICICI, IDBI and UTI, SFCs and SIDCs were established. These financial institutions strengthened the capital market. During the period between 1980 and 1992, debenture emerged as a powerful instrument of resource mobilization in the primary market.

Question 5.
Explain about Factoring and Venture Capital Institutions.
Answer:
“Factoring” is an arrangement whereby a financial institution provides financial accommodation on the basis of assignment/sale of account receivables. The factoring institutions collect the book debts for and on behalf of its clients. Some of the factoring institutions operating in India are SBI Factors and Commercial Services Private Limited, a subsidiary of State Bank of India and Canbank Factors Limited, a subsidiary of Canara Bank.

Venture capital financing is a form of equity financing designed especially for funding new and innovative project ideas. Venture capital funds bring into force the hi-technology projects which are converted into commercial production.

IV. Long Answer Questions

Question 1.
Discuss the characters of a Capital Market.
Answer:
Following are the nature/characteristic of a capital market:

  1. Securities Market: The dealings in a capital market are done through the securities like
    shares, debentures, etc. The capital market is thus called securities market.
  2. Price: The price of the securities is determined based on the demand and supply prevailing in the capital market for securities.
  3. Participants: There are many players in the capital market. The participants of the capital market include individuals, corporate sectors, Govt., banks and other financial institutions.
  4. Location: Capital market is not confined to certain specific locations, although it is true that parts of the market are concentrated in certain well-known centers known as Stock Exchanges. It has its impact in the overall economy, wherever suppliers and users of capital get together and do business.
  5. Market for Financial Assets: Capital market provides a transaction platform for long term financial assets.

Question 2.
Briefly explain the functions of capital market.
Answer:

  1. Savings and Capital Formation: In capital market, various types of securities help to mobilize savings from various sectors of population (Individuals, Corporate, Govt., etc.). The twin features of reasonable return and liquidity in stock exchange are definite incentives to the people to invest in securities. This accelerates the capital formation in the country.
  2. Permanent Capital: The existence of a capital market/stock exchange enables companies to raise permanent capital. The investors cannot commit their funds for a permanent period but companies require funds permanently.
  3. Industrial Growth: The stock exchange is a central market through which resources are transferred to the industrial sector of the economy.
  4. Beady and Continuous Market: The stock exchange provides a central convenient place where buyers and sellers can easily purchase and sell securities.
  5. Reliable Guide to Performance: The capital market serves as a reliable guide to the
    performance and financial position of corporate, and thereby promotes efficiency.
  6. Proper Channelization of Funds: The prevailing market price of a security and relative yield are the guiding factors for the people to channelize their funds in a particular company.
  7. Provision of Variety of Services: The financial institutions functioning in the capital market provide a variety of services such as grant of long term and medium term loans to entrepreneurs.
  8. Development of Backward Areas: Capital Markets provide funds for projects in backward areas. This facilitates economic development of backward areas.
  9. Foreign Capital: Capital markets make possible to generate foreign capital. Indian firms are able to generate capital funds from overseas markets by way of bonds and other securities.
  10. Easy Liquidity: With the help of secondary market investors can sell off their holdings and convert them into liquid cash.

Question 3.
Explain the various types of New Financial Institutions.
Answer:

  1. Venture Fund Institutions: Venture capital financing is a form of equity financing designed especially for funding new and innovative project ideas. Venture capital funds bring into force the hi-technology projects which are converted into commercial production.
  2. Mutual Funds: Financial institutions that provide facilities for channeling savings of small investors into avenues of productive investments are called ‘Mutual Funds’.
  3. Factoring Institutions: “Factoring” is an arrangement whereby a financial institution provides financial accommodation on the basis of assignment/sale of account receivables.
  4. Over the Counter Exchange of India (OTCEI): The OTCEI was set up by a premier financial institution to allow the trading of securities across the electronic counters throughout the country.
  5. National Stock Exchange of India Limited (NSEI): NSEI was established in 1992 to function as a model stock exchange. The Exchange aims at providing the advantage of nation-wide electronic screen based “scripless” and “floorless” trading system in securities.
  6. National Clearance and Depository System (NCDS): Under the scripless trading system, settlement of transactions relating to securities takes place through a book entry.
  7. National Securities Depositories Limited: The NSDL was set up in the year 1996 for achieving a time bound dematerialization as well as rematerialization of shares.
  8. Stock Holding Corporation of India Limited (SHCIL): Stock Holding Corporation of India Limited (SHCIL) aims at serving as a central securities depository in respect of transactions on stock exchanges. The Corporation also takes up the administration of clearing functions at a national level.

Samacheer Kalvi 12th Commerce Capital Market Additional Questions and Answers

A. Choose the Correct Answer

Question 1.
The term _________ market refers to the facilities and institutional arrangement through long-term funds.
(a) Capital
(b) Asset
(c) Buyers
(d) Sellers
Answer:
(a) Capital

Question 2.
Capital market otherwise called as _________
(a) Securities market
(b) Share market
(c) Debenture market
(d) Money market
Answer:
(a) Securities market

Question 3.
Which one is matched correctly?

(a) Public issue (i) The most common issue method
(b) Right Issue (ii) Private placement
(c) Secondary market (iii) New issues
(d) Primary market (iv) The market for old securities

Answer:
(a) Public issue (i) The most common issue method

Question 4.
NSEI was established in
(a) 1992
(b) 1991
(c) 1994
(d) 1995
Answer:
(a) 1992

Question 5.
Which one is not matched correctly?

(a) NSDL 1996
(b) NSEI 1992
(c) Factoring Institutions Canbank
(d) Function of Capital market Right issue

Answer:
(d) Function of Capital market – Right issue

Question 6.
Primary market is also called as
(a) Secondary market
(b) Commodity market
(c) Mutual funds
(d) New issues market
Answer:
(d) New issues market

B. Fill in the blanks

1. The expansion of the term FDI is _______
2. Gilt-Edged Market is also known as _______
Answers:
1. Foreign Direct Investment
2. Government Securities Market

II. Very Short Answer Questions

Question 1.
Give examples for Hard commodities?
Answer:
Gold, Oil, Rubber, Iron.

Question 2.
What is the Derivatives market?
Answer:
Derivatives market facilitates the trading in financial instruments such as future contracts and options used to help control financial risk.

Question 3.
What is Commodity market?
Answer:
The commodity market manages the trading in primary products which takes place in about 50 major commodity markets where financial transactions increasingly outstrip physical purchases which are to be delivered.

Question 4.
What are the methods of raising capital in a primary market by a company?
Answer:
There are three ways by which a company may raise capital in a primary market. They are:

  1. Public Issue
  2. Rights Issue
  3. Private Placement

Question 5.
Write a note on Secondary Market.
Answer:
Secondary Market may be defined as the market for old securities. It means that the securities which are previously issued in the primary market are traded here. It is also called as Stock Exchange.

III. Short Answer Questions

Question 1.
Write a note on Foreign Exchange Market.
Answer:
The foreign exchange market abets the foreign exchange trading. It is the largest, most liquid market in the world with an average traded value of more than $5 trillion per day. It includes all of the currencies in the world and any individual, company or country can participate in it.

Question 2.
Explain the term NSEI.
Answer:
NSEI (National Stock Exchange of India Limited) was established in 1992 to function as a model stock exchange. The Exchange aims at providing the advantage of nation-wide electronic screen based “scripless” and “floorless” trading system in securities.

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