Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Commerce Guide Pdf Chapter 4 Introduction to Financial Markets Text Book Back Questions and Answers, Notes.
Tamilnadu Samacheer Kalvi 12th Commerce Solutions Chapter 4 Introduction to Financial Markets
12th Commerce Guide Introduction to Financial Markets Text Book Back Questions and Answers
I. Choose the correct answer
Question 1.
Financial market facilitates business firms
a) To rise funds
b) To recruit workers
c) To make more sales
d) To minimize fund requirement
Answer:
a) To rise funds
Question 2.
Capital market is a market for
a) Short Term Finance
c) Long Term Finance
b) Medium Term Finance
d) Both Short Term and Medium Term Finance
Answer:
c) Long Term Finance
Question 3.
Primary market is also called as
a) Secondary market
b) Money market
c) New Issue Market
d) Indirect Market
Answer:
c) New Issue Market
Question 4.
Spot Market is a market where the delivery of the financial instrument and payment of cash occurs
a) Immediately
b) In the future
c) Uncertain
d) After one month
Answer:
a) Immediately
Question 5.
How many times a security can be sold in a secondary market?
a) Only one time
b) Two time
c) Three times
d) Multiple times
Answer:
d) Multiple times
II. Very Short Answer Questions
Question 1.
What are the components of organized sectors?
Answer:
- Regulators
- Financial Institutions
- Financial Markets
- Financial Services
Question 2.
Write a note on the financial market.
Answer:
A market where Financial Instrument such as Financial Claims, Assets, Securities and Traded is known as “Financial Market”
Question 3.
What is a spot Market?
Answer:
- Spot Market is a market where the delivery of the financial instrument and payment of cash occurs immediately.
- (ie) Settlement is completed immediately.
Question 4.
What is debt market?
Answer:
Debt Market is the financial market for trading in Debt instruments (i.e. Government Bonds or Securities, Corporate Debentures or Bonds).
Question 5.
How is the price decided in a secondary market?
Answer:
Financial markets allow for the determination of the price of the traded financial asset through the interaction of buyers and sellers. They provide a signal for. the allocation of funds in the economy, based on the demand and supply, through the mechanism called price discovery processes.
III. Short answer questions.
Question 1.
Give the meaning and definition of the financial market.
Answer:
Meaning: A market wherein financial instruments such as financial claims, assets and securities are traded is known as a financial market’.
Definition: According to Brigham, Eugene F, “The place where people and organizations wanting to borrow money are-brought together with those having surplus funds is called a . financial market.”
Question 2.
Differentiate spot market from future market. DSP K
Answer:
| Basis for difference | Spot Market | Future Market |
| 1 Delivery | Delivery of Financial | Instruments immediately Delivery of Financial Instruments in Future. |
| 2 Settlement | The settlement is completed immediately. | The settlement is completed in the predetermined time frame in the future. |
| 3 Payment | Payment of cash occurs immediately. | Payment of cash occurs in the future. Not immediately. |
| 4 Known as | It is also known as Cash Market. | It is also known as the forwarding Market. |
Question 3.
Write a note on Secondary Market.
Answer:
A Secondary Market is a market for securities that are already issued. Stock Exchange is an important institution in the secondary market.
Question 4.
Bring out the scope of financial market in india. 3-1 BAGS
Answer:
The Financial Market provides short-term and long-term financial assistance to
- Individuals
- Industrial sectors
- Insurance sectors
- Banks [Financial Institutions]
- Agricultural sectors
- Government
- Service sectors
The above-stated individuals, institutions and Government can get the required funds in time.
It leads to overall economic development.
IV. Long Answer Questions.
Question 1.
Distinguish between new issue market and secondary market.
Answer:
| Basis for difference | New Issues Market (NIM) or Primary Market |
Secondary Market |
| 1. Meaning | The place where New Issues of securities are traded. (Initial Issues Market) | The place where formerly issued securities (second-hand securities) are traded (Resale Market) |
| 2. Buying | Buying directly. | Buying indirectly |
| 3. Intermediaries | Underwriters | Brokers |
| 4. Gained persons | Companies | Investors |
| 5. Buying and selling between | Companies and Investors | Investors only. |
| 6. Organised Existence | It has no physical existence | It has physical existence |
| 7. Securities Sold | Only once. | Many times |
Question 2.
Enumerate the different kinds of financial markets.
Answer:
Financial Markets can be classified in different ways.
(A) On the Basis of Type of Financial Claim
- Debt Market is the financial market for trading in Debt instruments (i.e. Government Bonds or Securities, Corporate Debentures or Bonds).
- Equity Market is the financial market for trading in Equity Shares of Companies.
(B) On the Basis of Maturity of Financial Claim
- Money Market is the market for short-term financial claim (usually one year or less) E.g. Treasury Bills, Commercial Paper, Certificates of Deposit.
- Capital Market is the market for long-term financial claim more than a year E.g. Shares, Debentures.
(C) On the Basis of Time of Issue of Financial Claim
- Primary Market is a term used to include all the institutions that are involved in the sale of securities for the first time by the issuers (companies). Here the money from investors goes directly to the issuers.
- A secondary market is a market for securities that are already issued. Stock Exchange is an important institution in the secondary market.
(D) On the Basis of Timing of Delivery of Financial Claim
- Cash/Spot Market is a market where the delivery of the financial instrument and payment of cash occurs immediately, i.e. settlement is completed immediately.
- Forward or Futures Market is a market where the delivery of assets and payment of cash takes place at a pre-determined time frame in the future.
(E) On the Basis of the Organizational Structure of the Financial Market
- Exchange-Traded Market is a centralized organization (stock exchange) with standardized procedures.
- Over-the-Counter Market is a decentralized market (outside the stock exchange), with customized procedures.
Question 3.
Discuss the role of the financial market.
Answer:
Savings mobilisation: Obtaining funds from the savers or surplus units such as
- Individuals
- Industrial sectors
- Insurance sectors
- Banks
- Agricultural sector
- Government
- Service sector
is an important role played by the financial market.
Investment:
- Financial markets play a Key Role
- In arranging investment of funds collected in those units which are in need of the same.
National Growth:
- Flow of Funds for productive purposes and
- Flow of surplus Funds to deficit units.
- It leads to over all economic growth.
Growth of Entrepreneurship:
Financial Market provides financial assistance for the development of Entrepreneurs.
Industrial Development:
- It helps an accelerated growth of Industries, Economic Development of a country.
- It helps to raise the standard of living and society’s well being.
Question 4.
What are the functions of Financial Markets? (IF – STEP – BEL)
Answer:
(I) Intermediary Functions:
- Transfer of Resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers.
- Enhancing Income: Financial markets allow lenders to earn interest/dividends on their surplus investible funds and thus contributing to the enhancement of the individual and the national income.
- Productive Usage: Financial markets allow for the productive use of the funds borrowed and thus enhancing the income and the gross national production.
- Capital Formation: Financial markets provide a channel through which new savings flow to aid the capital formation of a country.
- Price Determination: Financial markets allow for the determination of the price of, the traded financial asset through the interaction of buyers and sellers.
- Sale. Mechanism: Financial market provides a mechanism for selling a financial asset by an investor so as to offer the benefits of marketability and liquidity of such assets.
- Information: The activities of the participants in the financial market result in the generation and the consequent dissemination of information to the various segments of the markets, so as to reduce the cost of the transaction of financial assets.
(II) Financial Functions:
- Providing the borrowers with funds so as to enable them to carry out their investment plans.
- Providing the lenders with earning assets so as to enable them to earn wealth by deploying the assets in productive ventures.
- Providing liquidity in the market so as to facilitate the trading of funds.
12th Commerce Guide Introduction to Financial Markets Additional Important Questions and Answers
I. Choose the correct answer.
Question 1.
The Indian financial system can be broadly classified into the ______ sector.
(a) Two
(b) Three
(c) One
(d) Four
Answer:
(a) Two
Question 2.
…………………. Assets are those which can be easily transferred from one person to another.
a) Marketable
b) Non-Marketable
c) Tangible
d) Fixed
Answer:
a) Marketable
Question 3.
…………….. Market is for a long-term financial claim.
a) Money Market
b) Capital Market
c) Future Market
d) Spot Market
Answer:
b) Capital Market
Question 4.
Find the odd one out.
(a) Debt market
(b) Capital market
(c) Secondary market
(d) National Growth
Answer:
(d) National Growth
Question 5.
The building is bought for residence purpose, it becomes……………… Asset.
a) Financial
b) Fixed
c) Physical
d) NOTA
Answer:
c) Physical
Question 6.
The building is bought for hiring purpose, it becomes …………….. Asset.
a) Financial
b) Tangible
c) Physical
d) All of these
Answer:
a) Financial
Question 7.
The stock exchange is an important institution in the ______ market.
(a) secondary
(b) primary
(c) capital
(d) money
Answer:
(a) secondary
Question 8.
Pick the odd one out:
a) Debt Market
b) NIM
c) Equity Market
d) Niche Market
Answer:
d) Niche Market
Question 9.
Stock Exchange Market is also called …………….
a) Spot Market
b) Local market
c) Securities Market
d) National Market
Answer:
c) Securities Market
II. Match the following
Question 1.
Match List-I with List-II.
| List-I | List-II |
| i. Spot Market | 1. Long term finance |
| ii. Primary Market | 2. Settlement immediately |
| iii. Capital Market | 3. Equity Market |
| iv. Equity Shares | 4. Issued the first time |
a) i-2, ii-4, iii-1, iv-3
b) i-2, ii-3i iii-4, iv-1
c) i-4, ii-3, iii-2, iv-1
d) i-1, ii-2, iii-3, iv-4
Answer:
a) i-2, ii-4, iii-1, iv-3
2. Match List I with List II
| List-I | List-II |
| i. Debt Market | 1. Short term finance |
| ii. Money Market | 2. Government Bonds |
| iii. Future Market | 3. Stock Exchange |
| iv. Secondary Market | 4. Time framed in future |
a) i-4, ii-3, iii-2, iv-1
b) i-2, ii-1, iii-4, iv-3
c) i-3, ii-4, iii-3, iv-1
b) i-2, ii-1, iii-4, iv-3
d) i-1, ii-3, iii-2, iv-4
Answer:
b) i-2, ii-1, iii-4, iv-3
III. Assertion and Reason
Question 1.
Assertion (A): Government needs funds to provide goods and services to the people.
Reason (R): Government to raise the needed fund by selling different instruments.
a) (A) and (R) are True. (R) is the correct explanation of (A)
b) (A) and (R) are False. (R) is the correct explanation of (A)
c) (A) is True (R) is False.
d) (A) is False (R) is True.
Answer:
a) (A) and (R) are true. (R) is the correct explanation of (A)
IV. Short Answer Questions.
Question 1.
What is the money market?
Answer:
Money Market is the market for short-term financial claims (usually one year or less) e.g. Treasury Bills, Commercial Paper, Certificates of Deposit.
Question 2.
Explain the classification of Financial Assets.
Answer:
(a) Marketable Assets:
- Marketable Assets are those which can be easily transferred from one person to another without much hindrance.
- (e.g) shares of – Listed Companies – Government Bonds.
(b) Non- Marketable Assets:
- Non-marketable Assets are those which can not be easily transferred from one person to another person.
- (e.g) Bank Deposits – PF – LIC Policies.
V. Long Answer Questions.
Question 1.
Discuss the various types of Financial markets.
Answer:
On the basis of Type of Financial claim:
- Debt Market – A market Trading in Debt Instruments. [Debentures]
- Equity Market – A market Trading in Equity Shares. [Equity Shares]
On the basis of Maturity of Financial claim:
- Money Market – A market for short – term Financial Claim [Treasury Bills]
- Capital Market – A market for Long – term Financial claims. [Shares]
On the basis of Time of issue Financial claim:
- Primary Market – A market for New Issues of Securities. [First Time]
- Secondary Market – A market for already issued Securities [Resale]
On the basis of Time of delivery of Financial claim:
- Cash/Spot Market – A market where delivery of instruments and payment of cash occurs
immediately. - Future/Forward Market – A market where delivery of instruments and payment of cash not
occur immediately, but take place in the future.
On the basis of Organisational Structure:
- Exchange-Traded Market – It is a centralized organization with standardized procedures.
- Over counter Market – It is a decentralized organization with customized procedures.