Students get through the TN Board 12th Commerce Important Questions Chapter 5 Capital Market which is useful for their exam preparation.
TN State Board 12th Commerce Important Questions Chapter 5 Capital Market
Very short answer questions
Question 1.
Define Capital Market.
Answer:
Capital Market can be defined as “a market for borrowing and lending of long-term capital funds required by business enterprises
Question 2.
Mention a few characteristics of the Capital Market.
Answer:
- Securities Market
- .Price
- Participants
- The market for Financial Assets
Question 3.
What are the ways by which a company raises capital in a Primary Market?
Answer:
- Public Issue
- Rights Issue
- Private Placement
Question 4.
What is Commodity Market?
Answer:
The commodity market manages the trading in primary products which takes place in about 50 major commodity markets. Financial transactions increasingly outstrip physical purchases which are to be delivered.
Question 5.
Write a note on Foreign Capital.
Answer:
Capital markets make it possible to generate foreign capital. Indian firms are able to generate Capital Funds from Overseas markets by way of Bonds and other Securities Government has liberalized Foreign Direct Investment (FDI) in the country.
Question 6.
Explain Derivatives Market.
Answer:
The derivatives market facilitates the trading in financial instruments such as futures contracts and options used to help control financial risk. (Stocks, bonds, commodities, currencies, or mortgages).
Question 7.
Define Secondary Market.
Answer:
Secondary Market may be defined as the market for old securities which are previously issued in the primary market are traded here. The trading takes place between investors who follow the original issue in the Primary Market.
Question 8.
What are the services provided by the financial institutions in Capital Market?
Answer:
- Grant of long term and medium-term loans to entrepreneurs
- Provision of Underwriting facilities
- Assistance in promotion of companies
- Participation in Equity Capital.
Question 9.
Explain the term Foreign Exchange Market.
Answer:
The Foreign exchange market abets 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.
Question 10.
What is Public Issue?
Answer:
The most common method of raising capital by new companies is through the sale of securities to the public. It is called Public Issue.
Short answer questions
Question 1.
Write a note on (NSDL) National Securities Depositories Limited.
Answer:
The NSDL was set up in the year 1996 for achieving a time-bound dematerialization as well as rematerialization of shares. The establishment of NSDL is expected to alleviate the problems of post-trade transactions in the secondary market.
Question 2.
Differentiate Hard commodities from soft commodities.
Answer:
| Hard commodities | Soft commodities |
| Hard commodities are raw materials typically mined such as gold, oil, rubber, iron and ore. | Soft commodities are typically grown agricultural primary products such as wheat, cotton, coffee and sugar. |
Question 3.
Briefly explain how to raise capital by a company in a Primary Market.
Answer:
A company that may raise capital in a primary market is
Public Issue: Raising capital by new companies is through the sale of securities to the public. It is called Public Issue.
Rights Issue: When an existing company wants to raise additional capital securities are first offered to be existing shareholders on a pre-emptive basis. It is called a rights issue.
Private Placement: Private Placement is a way of selling securities privately to a small group of investors.
Question 4.
Write a note on the National Stock Exchange of India Limited (NSEI).
Answer:
NSEI was established in 1992 to function as a model stock exchange. The exchange aims at providing the advantage of nationwide electronic screen-based “Scripless” and “floorless” trading system insecurities. The Institution is expected to allow for an efficient and transparent system of securities trading.
Long answer questions
Question 1.
Discuss the Government Securities Market.
Answer:
Government Securities Market is the market for Government and Semi-Government Securities. An important feature of the securities traded in this market is that they are stable in value and are much sought after by banks.
- Guaranteed to return and investments.
- No speculation in securities.
- Predominated by such institutions as LIC, GIC, PFS, and commercial banks.
- The heavy volume of transactions necessitating negotiation of each transaction.
Question 2.
Explain the term Capital Market and how to promote the economic development of a country.
Answer:
The term capital market refers to the facilities and institutional arrangements through which long term funds, both debt and equity are raised and invested. It consists of a series of channels through which savings of the community are made available for industrial and commercial enterprises and for the public in general.
The capital market directs these savings into their most productive use leading to the growth and development of the economy. The capital market consists of development banks, commercial banks, and stock exchanges. An ideal capital market is one where finance is available at reasonable cost capital market forms an important core of a country’s financial system.
Multiple-choice questions
1. It directs savings into their most productive use leading to the development of the economy:
(a) Money Market
(b) Capital Market
(c) Stock Exchange
(d) None
Answer:
(b) Capital Market
2. Capital Market is one where finance is available at:
(a) Low Cost
(b) High Cost
(c) Reasonable Cost
(d) All the above
Answer:
(c) Reasonable Cost
3. Capital Market offers an ideal source of:
(a) Internal Finance
(b) External Finance
(c) Short term Finance
(d) None
Answer:
(b) External Finance
4. Primary Market facilitates:
(a) Capital formation
(b) Trade
(c) Price
(d) Funds
Answer:
(a) Capital formation
5. Selling securities privately to a small group of investors:
(a) Capital Formation
(b) Public issue
(c) Private placement
(d) None
Answer:
(c) Private placement
6. Sale of securities to the public is known as:
(a) Rights issue
(b) Public issue
(c) Capital formation
(d) Liquidity
Answer:
(b) Public issue
7. Securities are first offered to the existing shareholders on a pre-emptive basis. It is called:
(a) Rights issue
(b) Public Issue
(c) Both (a) and (b)
(d) None
Answer:
(a) Rights issue
8. The significance of Capital Market help to:
(a) Mobilize savings
(b) To raise permanent capital
(c) Stimulates Industrial growth
(d) All the above
Answer:
(d) All the above
9. In which type of Market covers both the stock exchange and over-the-counter market:
(a) Secondary Market
(b) Primary Market
(c) Both (a) and (b)
(d) None
Answer:
(a) Secondary Market
10. It is the central market through which resources are transferred to the Industrial Sector of the economy:
(a) Stock Exchange
(b) Financial Institution
(c) Corporate
(d) Commodity Market
Answer:
(a) Stock Exchange
11. In which place is convenient where Buyers and Sellers can easily purchase and sell securities?
(a) Capital Market
(b) Stock Exchange
(c) Money Market
(d) None
Answer:
(b) Stock Exchange
12. The Capital Market is also called:
(a) Securities Market
(b) Foreign Market
(c) Commodity Market
(d) Factoring
Answer:
(a) Securities Market
13. How to determine the price of the securities in the Capital Market:
(a) Demand and Supply
(b) Savings
(c) Investment
(d) Risk
Answer:
(a) Demand and Supply
14. Which type of funds to provide for development in Backward and Rural areas?
(a) Long term
(b) Short term
(c) Equity
(d) None
Answer:
(a) Long term
15. Capital Market makes it possible to generate the following:
(a) Foreign Capital
(b) Foreign technology
(c) Foreign Direct Investment
(d) All the above
Answer:
(d) All the above
16. Investors can sell their securities and convert them into liquid cash:
(a) Secondary Market
(b) Money Market
(c) Both (a) and (b)
(d) None
Answer:
(a) Secondary Market
17. Which type of funding brings into force the hi-technology projects?
(a) Venture Fund Institutions
(b) Mutual Funds
(c) Public Sector Bonds
(d) None
Answer:
(a) Venture Fund Institutions
18. Channeling savings of small investors into productive investment are called as:
(a) Mutual Fund
(b) Equity
(c) Bond
(d) Stocks
Answer:
(a) Mutual Fund
19. Institutions that collect the book debts for and on behalf of their clients is known as:
(a) Factoring
(b) Equity
(c) Bond
(d) Trade
Answer:
(a) Factoring
20. The Largest, most liquid market in the world is:
(a) Commodity Market
(b) Foreign Exchange Market
(c) Govt Securities Market
(d) Derivatives Market
Answer:
(b) Foreign Exchange Market