Financial Markets

Previous Years' CBSE Board Questions

10.1 Financial Markets: Concept
LA (5 marks)
1. What is meant by 'Financial Market'? State any four functions of financial
market. (Term-II, 2021-22)
10.2 Money Market: Concept
SA I (3 marks)
2. Currently, the banking sector in the Indian economy is facing lots of problems.
The rates of interest that banks are paying on deposits have sharply decreased; as
a result, banks are able to collect lesser amounts of deposits. Due to the policies
of the Reserve Bank of India, lending rates have also decreased. The automobile
industry is also facing a lot of problems and thus they have also reduced the
prices of cars. This has encouraged people to take car loans from banks as the
interest rates on loans, along with prices of cars in the automobile sector are
declining. Due to this position of tight liquidity, 'The Oberoi Bank Ltd.' decided to
raise funds by issuing an unsecured, short-term instrument which could be
purchased by corporations, companies and individuals.
(a) Identify and explain the money market instrument used by 'The Oberoi Bank
Ltd.' to raise funds.
(b) Also explain the money market instrument used by the banks to maintain
Cash Reserve Ratio. (2020 C)
LA (5 marks)
3. Explain 'Treasury Bill' and 'Call Money' as instruments of 'Money Market'
(Term-II, 2021-22 C)
10.3 Capital Market and Its Types (Primary and Secondary)
MCQ
4. Adapting to a change in consumer preference towards online shopping, 'Fast-
Service' started a grocery delivery app. It is a platform that ensures 10-minute
deliveries of groceries. Because of this service, 'Fast-Service' earned huge profit
within a year. It planned to expand its operations and decided to raise funds by
directly issuing its securities to investors.
The market through which 'Fast-Service' has decided to raise funds for its
expansion is
(a) Money market
(b) Primary market
(c) Secondary market
(d) Both Primary and Secondary markets (2023)
5. Capital Market instruments are riskier both with respect to returns and
principal repayment as compared to Money Market instruments. This highlights
the following point of difference between 'Capital Market' and Money Market':
(a) Instruments
(b) Duration
(c) Safety
(d) Liquidity. (2023)
Read the following paragraph and answer question nos. 6-9 on the basis of the
same:
Mayank Ltd. is a real estate company. Since its establishment, the company
acquired a good market share. With the boom in the Indian economy, the real
estate sector is also witnessing a boom due to lower interest rates on housing
loans and accompanying income-tax concessions. For meeting this increasing
demand, the finance manager of the company suggested to raise ₹ 1,250 crore by
issuing shares and ₹ 750 crore by way of loan from the bank. He was of the
opinion that this will increase per share earnings of the shareholders. The
directors of the company wanted to raise capital more quickly and suggested that
it would be better to allot the securities to some selected individuals. They also
suggested that instead of taking loan from the bank the privilege can be given to
existing shareholders to subscribe to a new issue of shares for ₹ 750 crore.
(2021 C)
6. The method of raising ₹ 1,250 crore suggested by the finance manager is:
(a) Offer for sale
(b) Offer through prospectus
(c) Private placement
(d) e-IPOs.
7. 'The directors of the company wanted to raise capital more quickly and
suggested that it would be better to allot the securities to some selected
individuals. In the above lines the method of floatation of new issues suggested
by the directors is:
(a) Offer for sale
(b) Offer through prospectus
(c) Private placement
(d) e-IPOs.
8. 'They also suggested that instead of taking loan from the bank the privilege can
be given to existing shareholders to subscribe to a new issue of shares for ₹ 750
crore'. The method of floatation of new issues discussed in the above lines is:
(a) Offer for sale
(b) Offer through prospectus
(c) Private placement
(d) Rights issue.
9. The market through which the financial manager and the directors wanted to
collect funds is:
(a) Money Market
(b) Capital Market
(c) Both (a) and (b)
(d) Neither (a) nor (b).
VSA (2 marks)
10. 'Gujarat Textiles Ltd.' needs to raise a fund of ₹ 80 crore. It cannot afford the
cost of public issue, so it was decided to allot its equity shares to institutional
investors like LIC and some selected investors. Identify and explain the method of
floating new issues used by Gujarat Textiles Ltd. (Term-II, 2021-22)
SA I (3 marks)
11. Explain 'Offer for Sale' and 'Rights Issue' as methods of floatation of new
issues in the primary market. (Term-11, 2021-22 C)
12. 'Financial markets are classified on the basis of the maturity of financial
instruments traded in them. Name the market in which the instruments with
more than one year maturity are traded. Also state any two features of this
market. (Delhi 2019)
LA (5 marks)
13. Differentiate between 'Capital market' and 'Money market' on the following
basis:
(i) Participants; (ii) Instruments; (iii) Investment outlay;
(iv) Duration and (v) Liquidity. (Delhi 2014, Delhi 2014 C)
OR
Differentiate between 'capital market' and 'money market' on the basis of:
(i) Safety; (ii) Expected return; (iii) Meaning:
(iv) Instruments and (v) Duration (Delhi 2014)
ET (6 marks)
14. Distinguish between Primary market and secondary market. (AI 2015 C)
10.4 Stock Exchange : Functions and Trading Procedure
SA I (3 marks)
15. (i) Name the process of holding securities in an electronic form.
(ii) Name any two participants of Money Market.
(iii) Name the depositories that hold securities in electronic form. (2023)
16. The stock Exchange performs many vital functions in today's commercial
world? Explain any three such functions. (AI 2015)
SA II (4 marks)
17. Stock exchange acts as a regulator of the securities market. It creates a
continuous market where the securities are bought and sold. It gives investors
the chance to disinvest and reinvest. Through this process of disinvestment and
reinvestment, savings get channelised into their most productive investment
avenues. To ensure that the investing public gets a safe and fair deal in the
market, the membership of the stock exchange is well regulated and its dealings
are well defined according to the existing legal framework. It also ensures wider
share of ownership by regulating new issues, better trading practices and taking
effective steps in educating the public about investments. Various functions
performed by the Stock Exchange are discussed in the above para. By quoting
lines from above para, state any four functions of stock exchange. (AI 2019 C)
OR
State any four functions of 'Stock Exchange'. (Delhi 2016, Al 2016)
10.5 Securities and Exchange Board of India (SEBI) - Objectives and Functions
VSA (2 marks)
18. 'Training of intermediaries of the securities market' is a development function
performed by Securities and Exchange Board of India.
State two other development function. (Term-II, 2021-22 C)
SA I (3 marks)
19. State any three protective functions of Securities and Exchange Board of India.
(2023)
20. State any three objectives of Securities and Exchange Board of India.
(2021 C)
21. Mr. Sanjay Nehra was the Chairman of 'Taran Bank. The bank was earning
good profits. Shareholders were happy as the bank was paying regular dividends.
The market price of their share was also steadily rising. The bank was about to
announce taking over of 'Vena Bank. Mr. Sanjay Nehra knew that the share price
of 'Taran Bank' would rise on this announcement. Being a part of the bank, he
was not allowed to buy shares of the bank. He called one of his rich friends Sudhir
and asked him to invest ₹ 5 crores in shares of his bank promising him the capital
gains.
As expected, the share prices went up by 40% and the market price of Sudhir's
shares was now ₹ 7 crores. He earned a profit of 2 crores. He gave ₹ 1 crore to Mr.
Sanjay Nehra and kept ₹ 1 crore with himself. On regular inspection and by
conducting enquiries of the brokers involved, Securities and Exchange Board of
India (SEBI) was able to detect this irregularity. The SEBI imposed a heavy
penalty on Mr. Sanjay Nehra. By quoting the lines from the above para identify
and state any two functions that were performed by SEBI in the above case.
(Delhi 2016, AI 2016)
SA II (4 marks)
22. Keeping in mind the emerging nature of the securities market in India,
Securities and Exchange Board of India was entrusted with the twin task of both
regulation and development of the securities market.
State any two regulatory and two development functions of it.
(2023)
 CBSE Sample Questions
10.2 Money Market and Its Instruments
SA I (3 marks)
1. State any three money market instruments. (2020-21)
10.3 Capital Market and Its Types (Primary and Secondary)
MCQ
2. Match the various terms of Financial Markets Column-l with their respective
Statements in Column-II.

(a) A-(ii), B-(iii), C-(i) (b) A-(i), B-(iii), C-(ii)

(c) A-(iii), B-(ii), C-(i) (d) A-(i), B-(ii), C-(iii)
(2022-23)
Read the following text and answer questions 3-6 on the basis of the same:
ISQAA SOLAR limited is searching options to raise ₹ 20,000 crore from the
primary market for diversification and modernisation of existing projects. It
hired the services of a renowned financial consultancy firm, DHAN LAXMI PVT.
LTD. for suggesting options for the same DHAN LAXMI PVT. LTD. suggested a list
of options to the Board Directors of the company. It was decided that for the
immediate requirement of ₹ 1500 crore the company will give a privilege to
existing shareholders to subscribe to a new issue of shares according to the terms
and conditions of the company. ₹ 4500 crore would be raised by allotment of
securities to a consortium of financial institutions, instead of inviting
subscription from the public by making a direct appeal to investors to raise
capital. It was further decided to raise capital to the tune of ₹ 6000 crore through
an issuing house. All these options were accepted by the Board of Directors. The
Board further decided to raise ₹ 8000 crore through the online system of the
stock exchange by entering into an agreement with the exchange.
(2020-21)
3. Identify the method of floatation of new issues in the primary market, not
taken up by ISQAA SOLAR LTD.
(a) Offer for sale (b) Rights issue
(c) E-IPO (d) Offer through prospectus
4. " ₹ 4500 crore would be raised by allotment of securities to a consortium of
financial institutions, instead of inviting subscription from the public by making a
direct appeal to investors to raise capital." Identify the method of floatation of
new issues in the primary market being discussed above, which the company has
decided to use.
(a) Offer for sale (b) Private placement
(c) Right Issue (d) Offer through Prospectus
5. Identify the reason which has made the firm raise funds from the institutional
investors.
(a) It helps to raise funds quickly (b) It is not expensive
(c) Both a & b (d) None of the above.
6. How much money was raised by the company through E-IPO's
(a) ₹ 8000 crore (b) ₹ 4500 crore
(c) ₹ 20,000 crore (d) ₹ 6000 crore
VSA (2 marks)
7. 'MYKAA Limited 'is dealing in all types of cosmetic products. It is enjoying
increased demand for its product during the last few years. For the purpose of
expansion, the company needs 100 crore as additional capital. The company
decides to raise funds through equity shares. Chirag Kapoor, the finance manager
of the company recommended that the shares may be sold through issuing
houses or brokers. Identify and explain the method recommended by Mr. Kapoor
through which the company can raise additional funds for expansion purposes.
(Term-II, 2021-22)
10.4 Stock Exchange - Functions and Trading Procedure
MCQ
8. _______________ is a number assigned to each transaction by the stock exchange
and is printed on the contract note.
(a) Client code number (b) Unique order code
(c) Permanent account number (d) Depository participant
number (2022-23)
9. Arrange the steps involved in trading procedure at the stock exchange in
correct sequence:
(i) Settlement of order
(ii) Opening of Demat Account
(iii) Placing of order
(iv) Execution of order
(a) (ii) → (iv) → (iii) → (i) (b) (ii) → (i) → (iii) → (ii)
(c) (iii) → (ii) → (ii) → (i) (d) (ii) → (iii) → (iv) → (i)
(2022-23)
SA I (3 marks)
10. State any three functions performed by the stock exchange.
(2022-23)
10.5 Securities and Exchange Board of India (SEBI) - Objectives and Functions
MCQ
11. Which of the following statement is incorrect?
(a) Providing liquidity to securities is one of the functions of stock exchange.
(b) Process of holding shares in electronic form is known as Dematerialisation.
(c) Securities Exchange Board of India performs the regulatory function of
controlling insider trading and imposing penalties for such practices.
(d) Capital market consists of Commercial banks, Development banks and stock
exchanges (2022-23)
SA I (3 marks)
12. State any three objectives of the Securities Exchange Board of India.
(2022-23)
13. State the development functions of the Securities and Exchange Board of
India. (2020-21)
LA (5 marks)
14. State any five regulatory functions of the Securities and Exchange Board of
India. (Term-II, 2021-22)
 ANSWERS
Previous Years' CBSE Board Questions

1.

2. (a) The money market instrument used by 'The Oberoi Bank Ltd.' to raise funds
is Certificate of Deposit.
(i) It is an unsecured, negotiable, short-term instruments in bearer form, issued
by commercial banks and development financial institutions.
(ii) It can be issued to individuals, corporations and companies during periods of
tight liquidity.
(b) The money market instrument used by the banks to maintain Cash Reserve
Ratio is Call Money by which banks borrow from each other for a period of one
day to fifteen days.
3. (i) Treasury bills:
(a) A treasury bill is an instrument of short-term borrowing by the Government
of India, maturing in less than one year.
(b) They are issued by the Reserve Bank of India on behalf of the Central
Government to meet its short term requirement of funds.
(c) They are issued in the form of promissory notes and are highly liquid and
have negligible risk of default.
(d) They are issued at a price which is lower than their face value and repaid at
par and are also known as Zero Coupon Bonds.
(e) They are available for a minimum amount of ₹ 25,000/- and in multiples
thereof.
(ii) Call Money:
(a) Call money is a method by which banks borrow from each other to be able to
maintain the cash reserve ratio.
(b) Call money is short term finance repayable on demand, with a maturity
period of one day to fifteen days, used for inter-bank transactions.
(c) The interest rate paid on call money loans known as the call rate is a highly
volatile rate that varies from one day to another day and sometimes even from
one hour to another hour.
4. (b): Primary Market
5. (c): Safety
6. (b): Offer through prospectus
7. (c): Private placement
8. (d): Rights issue
9. (b): Capital Market
10.
11. Methods of floatation of new issues in the primary market:
(i) Offer for Sale: Under this method, securities are not issued directly to the
public but are offered for sale through intermediaries like issuing houses or
stockbrokers.
As the intermediaries offer the new securities to the general public, the company
is saved from the complexities and formalities of issuing the securities directly to
the public.
(ii) Rights issue: In this method, the existing shareholders are offered the 'right'
to subscribe to a new issue of shares according to the terms and conditions of the
company. The shareholders are offered new shares in proportion to the number
of shares they already possess.
12. In a Capital Market, the instruments with more than one year maturity are
traded. A capital market refers to the market that deals in the trading of medium
and long-term securities.
The instruments traded in the capital market comprises equity and preference
shares, debentures, bonds, etc.
The features of the capital market are as follows:
(i) The capital market acts as a platform that links the savers and investors. It
directs the savings of the households to their most productive use. In this way, it
adds to the growth prospects of an economy.
(ii) It works strictly according to the guidelines and policies issued by the
government.
13. Differences between 'Capital Market' and 'Money Market':
14. Differences between primary market and secondary market:

15. (i) Dematerialisation

(ii) RBI, Commercial Banks, Mutual Funds etc.
(iii) NSDL and CDSL
16. Functions of stock exchange:
(a) Providing liquidity and marketability to existing securities: Stock exchange is
a market where securities are bought and sold. This provides liquidity and
marketability to already issued securities. It gives investors chance to disinvest
and reinvest.
(b) Pricing of securities: A stock exchanges are a mechanism where prices of
securities are determined by the forces of demand and supply. It provides a
mechanism of constant valuation.
(c) Safety of transactions: The membership of a stock exchange is well-regulated.
Dealings take place according to the existing legal framework. This ensures safe
and fair deals for both buyer and seller of securities.
17. The functions performed by the Stock Exchange are as follows:
(i) Provide liquidity and marketability - 'Stock exchange creates a continuous
market where the securities are brought and sold. It provides a ready platform
for the trading of existing securities.
(ii) Spreading Equity Cult 'Stock exchange takes effective steps in educating the
public about investments' It encourages wider ownership of securities.
(iii) Facilitates growth and development of the economy - 'It provides a platform
for channelising the savings to the most productive use. It gives investors the
chance to disinvest and reinvest. Through this process of disinvestment and
reinvestment, savings get channelised into their most productive investment
avenues.
(iv) Ensures safety in transactions 'it ensures that investing people gets a safe
and a fair deal in the market, the membership of the stock exchange is well
regulated and its dealings are well defined according to the existing legal
framework.
18. Development functions of Securities and Exchange Board of India are:
(i) Conducting research and publishing information useful to all market
participants.
(ii) Undertaking measures to develop the capital markets by adapting a flexible
approach.
19. Protective Functions
(i) Prohibition of fraudulent and unfair trade practices like making misleading
statements, manipulations, price rigging etc.
(ii) Controlling insider trading and imposing penalties for such practices.
(iii) Undertaking steps for investor protection.
(iv) Promotion of fair practices and code of conduct in securities market.
20. Objectives of SEBI: The overall objective of SEBI is to protect the interests of
investors and to promote the development of, and regulate the securities market.
Its other objectives are:
(i) To regulate stock exchanges and the securities industry to promote their
orderly functioning.
(ii) To protect the rights and interests of investors, particularly individual
investors and to guide and educate them.
(iii) To prevent trading malpractices and achieve a balance between self
regulation by the securities industry and its statutory regulation.
(iv) To regulate and develop a code of conduct and fair practices by
intermediaries like brokers, merchant bankers, etc., with a view to make them
competitive and professional.
21. Functions that are performed by the SEBI are:
(a) Regulatory Functions: "On regular inspection and by conducting enquires of
the brokers involved, SEBI was able to detect the irregularities. Under regulatory
functions, SEBI calls for information by undertaking inspections conducting
audits of stock exchange and intermediaries.
(b) Protective functions: "The SEBI imposed a heavy penalty on Mr. Sanjay Nehra"
which will act as a deterrent to others. Under protective functions, SEBI prohibits
fraudulent and unfair trade practices in the securities market e.g., price rigging,
making misleading statements in prospectus, manipulation of price etc. It
promotes fair practices and code of conduct in securities market.
22. Regulatory Functions
(i) Registration of brokers and sub brokers and other players in the market.
(ii) Registration of collective investment schemes and Mutual Funds.
(iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant
bankers and the business in stock exchanges and any other securities market.
Development Functions
(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market
participants.
(iii) Undertaking measures to develop the capital markets by adapting a flexible
approach.
 CBSE Sample Questions

1. Money market instruments are:

(i) Treasury Bill: It is basically an instrument of short-term borrowing by the
Government of India maturing in less than one year.
(ii) Commercial paper: It is a short-term unsecured promissory note, negotiable
and transferable by endorsement and delivery with a fixed maturity period.
(iii) Call money: It is short term finance repayable on demand, with a maturity
period of one day to fifteen days used for inter bank transactions.
2. (a): A - (ii), B - (iii), C - (i)
3. (d): Offer through prospectus
4. (b): Private placements
5. (c) Both (a) and (b)
6. (a): ₹ 8000 crore
7. Offer for Sale: Under this method, securities are not issued directly to the
public but are offered for sale through intermediaries like issuing houses or stock
brokers. In this case, a company sells securities embolic at an agreed price to
brokers who, in turn, resell them to the investing public.
8. (b): Unique order code
9. (d): (ii), (iii), (iv), (i)
10. Following are the functions of stock exchange:
(i) Providing liquidity and marketability to existing securities.
(ii) Pricing of securities on the stock exchange is determined by the forces of
demand and supply.
(iii) Safety of transaction is ensured as membership of a stock exchange is well
regulated and its dealings are well defined.
(iv) Contributes to economic growth through the process of disinvestment and
reinvestment.
(v) Spreading of equity cult by ensuring wider ownership by way of regulating
new issues.
(vi) Providing scope for speculation by ensuring speculative provisions of law for
it to take place in a restricted and controlled manner.
11. (c): Securities Exchange Board of India performs the regulatory function of
controlling insider trading and imposing penalties for such practices.
12. Following are the objectives of SEBI:
(a) To regulate stock exchanges and the securities industry to promote their
orderly functioning.
(b) To protect the rights and interests of investors, particularly individual
investors and to guide and educate them.
(c) To prevent trading malpractices and achieve a balance between self
regulation by the securities industry and its statutory regulation.
(d) To regulate and develop a code of conduct and fair practices by
intermediaries like brokers, merchant bankers etc., with a view to making them
competitive and professional.
13. Development Functions of Securities and Exchange Board of India:
(i) Training of intermediaries of the securities market.
(ii) Conducting research and publishing information useful to all market
participants.
(iii) Undertaking measures to develop the capital markets by adapting a flexible
approach.
14. Regulatory functions of Securities and Exchange Board of India:
(i) Registration of brokers and sub-brokers and other players in the market.
(ii) Registration of collective investment schemes and Mutual Funds.
(iii) Regulation of stock brokers, portfolio exchanges, underwriters and merchant
bankers and the business in stock exchanges and any other securities market.
(iv) Regulation of takeover bids by companies.
(v) Calling for information by under-taking inspections, conducting enquiries and
audits of stock exchanges and intermediaries.