Who issue treasury bill?
a) SBI
b) RBI
c) BOI
d) UBI
✔ Answer
b) RBI
Other name of zero coupon bond.
a) R-bills
b) T-bills
c) G-bills
d) W-bills
✔ Answer
b) T-bills
When SEBI established as a statutory body?
a) 1978
b) 1995
c) 1988
d) 1992
✔ Answer
d) 1992
When was NSE recognised as Stock Exchange System?
a) Apr 1993
b) Sep 1990
c) Mar 1995
d) Sep 1992
✔ Answer
a) Apr 1993
Assertion (A): Financial market reduce the cost of transaction.
Reason (R): It helps in saving time, efforts and money.
a) (A) is correct and (R) is wrong
b) Both (A) and (R) are incorrect
c) (A) and (R) both are correct and (R) is the correct explanation of (A)
d) (A) is False but (R) is true
✔ Answer
c) (A) and (R) both are correct and (R) is the correct explanation of (A)
Which is not a function of SEBI?
a) Regulatory function
b) Development function
c) Protective function
d) Administrative function
✔ Answer
d) Administrative function
What is share market?
a) An institution which provides a platform for buying and selling of existing securities.
b) An institution which provides only buying of existing securities.
c) An institution which provides only selling of existing securities.
d) None of the above.
✔ Answer
a) An institution which provides a platform for buying and selling of existing securities.
Assertion (A): Financial Market providing liquidity to financial assets.
Reason (R): Financial Markets are classified on the basis of Maturity of financial instruments.
a) (A) is correct and (R) is wrong
b) both (A) and (R) are incorrect
c) both (A) and (R) are correct and (R) is the correct explanation of (A)
d) Both (A) and (R) are correct but (R) is not the correct explanation of (A)
✔ Answer
d) Both (A) and (R) are correct but (R) is not the correct explanation of (A)
What is call money?
a) Short term finance repayable on demand with a maturity period.
b) Long term finance with a maturity period
c) Long term money market
d) None of the above
✔ Answer
a) Short term finance repayable on demand with a maturity period.
Funds raised through commercial paper are used to meet the Floatation Costs. This is __________
a) Capital Market
b) Bridge Financing
c) Money market
d) All of the above
✔ Answer
b) Bridge Financing
Madhusmita's father who was unwell, called her and gave her a gift packet. Madhusmita opened the packet and saw many crumpled share certificates inside. Her father told that they had been left behind by her Late Grandfather. As no trading is now done in physical form, Madhusmita wants to know the process by adopting which she is in a position to deal with these certificates.
(i) Identify and state the process.
(ii) Also give two reasons to Madhusmita.
(iii) Why dealing with shares in physical form had been stopped?
✔ Answer
(i) Dematerialisation – It is a process where securities held by investors in physical form are cancelled and the investor is given an electronic entry or number so that she/he can hold it as an electronic balance in an account.
(ii) Problems with dealing in physical form:
(iii) The shareholders who continue to hold shares and other types of securities of listed companies in physical form even after this date will not be able to lodge the shares for future transfer. They will need to convert them to demat form compulsorily if they wish to effect any transfer.
Explain the instruments of Money Market?
✔ Answer
(i) Treasury bills – A treasury bill is basically an instrument of short term borrowing by the Govt. of India maturing in less than one year. They are also known as zero coupon bonds issued by RBI on behalf of the central Govt. to meet its short term requirements of funds. Treasury bills are available for a minimum amount of Rs. 25,000 and in multiple thereof.
(ii) Commercial paper – It is a short term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short term funds at lower rate of interest than Market rates.
(iii) Call Money – It is a short term finance repayable on demand with maturity period of one day to 15 days, used for inter-bank transactions.
ManasLtd. is a large creditworthy company operating in the Himachal Pradesh valley. It is an export oriented unit, dealing in exclusive embroidered sarees. The flood in the valley have created many problems for the company. Many craftsmen have been dislocated and raw material has been destroyed. The firm is unable to get an uninterrupted supply of raw material and the duration of production cycle also increased. The suppliers of raw material who were earlier selling in credit are asking the company for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company think to take bank loan. As a finance manager of the company name and explain the alternative to bank loan that the company can use to resolve the crisis.
✔ Answer
Commercial Paper – It is a short term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy company to raise short term funds at low cost. The company that generally considered to be financially strong.
What is NSE and write down 3 objectives of NSE?
✔ Answer
NSE is the latest, most modern and technology driven exchange. It was set up by leading financial institution, banks and insurance companies. It was recognised as a stock exchange in Apr 1993.
Objectives of NSE:
- Establishing a nationwide trading facility for all type of securities.
- Enable shorter settlement cycles and book entry settlements.
- Meeting international benchmarks and standards.
Jagannath steel Ltd. is a large and creditworthy company manufacturing steel for Indian market. Now wants to cater to the Asian market and decide to invest new hi-tech machines. Since the investment is large it requires long term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge Floatation cost. For the expenses of Floatation cost the company decides to tap the money market.
(i) Name and explain the money market instruments the company can use for the above purpose.
(ii) What is the duration for which the company can get funds through this instrument?
(iii) State any other purpose for which this instrument can be used.
✔ Answer
(i) Commercial Paper – It is an instrument issued by large and creditworthy companies to raise short term funds at lower rates of interest than Market rates. It is an unsecured, negotiable promissory note with a fixed maturity period.
(ii) 15 days to 1 year.
(iii) It can also be used for seasonal and working capital needs.
Write down 4 objectives of SEBI?
✔ Answer
The overall objective of SEBI is to protect the interest of investors and to promote the development and regulate the securities markets. These are elaborated as follows:
- To regulate stock exchanges and the securities industry to promote their orderly functioning.
- To protect the rights and interest of investors to guide and educate them.
- To prevent trading malpractices and achieve a balance between self-regulation and statutory regulation.
- To regulate and develop a code of conduct and fair practices by intermediaries.
A company require Rs. 5 crore for inventory, payment of wages, salaries, maintaining bank balance etc.
(i) Suggest which financial market company may approach and why?
(ii) State the instrument to raise finance in that market.
✔ Answer
(i) Money market is the market from where it can raise money to fulfill its requirement. The reason is company require money for working capital i.e. maximum for one year and market for short term is money market.
(ii) The instruments to raise money in money market are:
- Call money
- Treasury bill
- Commercial bill
- Commercial paper
- Certificate of deposit
Explain the meaning and functions of a Stock Exchange?
✔ Answer
Meaning: According to Securities Contracts Regulation Act 1956, stock exchange means any body of individuals whether incorporated or not, regulating or controlling the business of buying and selling in securities.
Functions:
- Providing liquidity and marketability to existing securities – It is the creation of a continuous market where securities are bought and sold. This provides both liquidity and easy marketability to already existing securities in the market.
- Pricing of securities – A stock exchange is mechanism of constant valuation through which the prices of securities are determined. Such a valuation provides instant information to both buyers and sellers in the market.
- Safety of transaction – The membership of a stock exchange is well regulated and its dealings are well defined according to the existing legal framework.
- Contribution to economic growth – A stock exchange is a market in which existing securities are resold and traded. This leads to capital formation and economic growth.
- Spreading of equity cult – The stock exchange can play a vital role in ensuring wider share ownership by regulating new issues, trading practices and taking effective steps about investments.
- Providing scope for speculation – The stock exchange provides sufficient scope within the provisions of law for speculative activity in a restricted and controlled manner. A certain degree of healthy speculation is necessary to ensure liquidity and price continuity.
Arpita is a professor in a reputed business institute while explaining the procedure of Stock Exchange trading, she shared with her student that many years back she had bought 100 shares of a leading automobile company. As per the settlement procedure she paid for the shares and received the share certificates in physical form. When she had sent those certificates to the company to get them endorsed in her name, she was informed by the company that those certificates were duplicate. Therefore, in order to protect the investors from such malpractices, now we only screen-based trading is done and Dematerialisation is compulsory.
(i) What is screen based trading?
(ii) Give the meaning of Dematerialisation. State any 2 advantages.
✔ Answer
(i) Screen based trading – Form of trading that uses modern telecommunication and computer technology to combine information transmission with trading in financial markets.
(ii) Dematerialisation – It offers flexibility along with security. Holding share certificates in physical format carried risks like certificate forgery and loss of important share certificates.
Two advantages:
- The risks pertaining to physical certificates like loss, theft, forgery and damage are eliminated completely with a DEMAT account. The lack of paper work enables quicker transactions and higher efficiency in trading.
- A DEMAT account holder can buy or sell any amount of shares.
What are the methods of Floatation in primary market?
✔ Answer
Following are the various methods through which floating of new issues can be done.
(i) Offer through prospectus – A prospectus is published as advertisements in newspaper, magazines etc. It provides such information as the purpose for which the fund is being raised, company's background and future prospect etc. Such information helps the public and the investors to know about the company as well as the potential risk and the earnings involved.
(ii) Offer through sale – Under this method the company doesn't issue securities directly to the public rather they are issued through intermediaries at the face value to investing public.
(iii) Private placement – The securities are sold only to some selected individuals and big institutional investors rather than to the public. This method saves the company from various mandatory or non-mandatory expenses such as cost of manager fees, commission, underwriter fees etc.
(iv) Rights issue – This is a privilege given to the existing shareholders to subscribe a new issue of shares according to the terms and condition of the company. The shareholders are offered the "RIGHT" to buy new shares.
(v) e-IPOs – It is a system of issuing securities through online system. This is called Initial Public Offer (IPO). Company appoints brokers for accepting applications and placing orders. Company can apply to get listed in any stock market except from which it has already offered securities.