Class 12 Business Studies Chapter 10 Notes

NCERT Business Studies for Commerce Class 12th is a collection of chapters to improve understanding of all aspects of business and organisation. The tenth chapter in Business Studies for Class 12 gives detailed information on the  Financial Market. Students should not skip or dismiss this chapter; the review materials offered are for the students’ advantage in revising the topics on a daily basis without exerting additional effort. In an attempt to help students, a team of Extramarks experts have created detailed study notes covering all aspects of the Chapter Financial Market. These Business Studies Class 12 Chapter 10 Notes will help the students prepare for the forthcoming board examinations. 

Business Studies Class 12 Notes Chapter 10- Financial Market is written in simple language with point-by-point explanations. Students can access a variety of additional study tools on the Extramarks website in addition to the chapter 10 business studies class 12 notes. Students get access to all materials, including NCERT books, CBSE revision notes, CBSE sample papers, CBSE previous year question papers, and so on.

Key Topics Covered in Class 12 Business Studies Chapter 10 Notes

The key topics covered in Extramarks class 12 Business Studies chapter 10 notes include

FINANCIAL MARKET:

• A financial market enables the production of assets and the trading of securities to provide short, medium, and long-term business financing.
• It facilitates the transfer of cash between savers and investors.s
• It directs cash to the most profitable investment options.
• There are two types of financial markets: Money market and Capital market.

FUNCTIONS OF THE FINANCIAL MARKET

Class 12 Business Studies chapter 10 Notes by Extramarks provide a deep insight into the functions of the financial market.

• Mobilisation of funds and directing them into the most productive applications: A financial market provides the allocative function by connecting savers and investors, mobilising and channelling money to the most effective uses.
• Lowering transaction costs: financial markets give information on traded securities, saving time, effort, and money for both buyers and sellers of financial assets.
• Facilitating price discovery: The interaction between households (funds suppliers) and businesses helps in the establishment of a market price for the traded financial asset.
• Providing liquidity to financial assets: Financial markets allow for the purchase and sale of financial assets, and financial assets may be quickly turned into cash.

CLASSIFICATION OF FINANCIAL MARKET

The maturity of the financial instruments traded in financial markets is used to classify them. If an instrument’s maturity time is shorter than one year, it is traded in the money market. Instruments with a longer maturity, on the other hand, are exchanged in the capital market. Refer to Class 12 Business Studies Chapter 10 Notes curated by subject experts at Extramarks.

MONEY MARKET

This section of class 12 Business Studies chapter 10 notes throws light on the concept of the Money Market. It’s a market that deals in short-term securities with less than a year of maturity. Money market assets can be thought of as highly near replacements for cash. As a result, they’re also known as ‘near money instruments.’ 

Feature of Money Market:

• Financial assets with a maturity duration of less than a year.
• Unsecured, low-risk, and highly liquid short-term products are traded on the financial market.
• Assist in generating funds to satisfy short-term liquidity shortfalls and commitments.
• Banking and other financial entities such as the Reserve Bank of India, commercial banks, non-banking financing businesses, state governments, big enterprises, and mutual funds are among the major participants.

Instruments of the Money Market

Refer to Extramarks Class 12 Business Studies Chapter 10 Notes for a pointwise explanation on the subject.

1. Treasury Bill:

• It is a short-term borrowing instrument used by the Indian government.
• It’s a promissory note with a shorter maturity time than a year.
• It is a highly liquid instrument issued by the Reserve Bank of India on behalf of the federal government.
• It costs a minimum of Rs 25,000 and may be purchased in multiples of that amount.
• This instrument, also known as a Zero-Coupon Bond, is low-risk and provides a guaranteed return.
• Treasury notes have a maturity term ranging from 14 to 364 days.

1. Call Money:

• It’s a money market instrument that commercial banks use to conduct interbank transactions.
• Commercial banks employ these instruments to satisfy their cash reserve requirements, i.e., they borrow from one another to cover any shortfall in funds necessary to maintain the cash reserve ratio through call money.
• It takes fewer than fifteen days to reach maturity.
• The call rate is the amount of interest paid on the call money. This rate varies dramatically from day to day.
• The call rate and money market instruments like commercial papers and certificates of deposit have an inverse connection.
• When the call money rate rises, alternative money market products become more affordable, and demand increases as a result.

1. Commercial Paper: 

• It is an unsecured short-term money market product that was first established in India in 1990.
• It is essentially a negotiable and transferable promissory note.
• It has a maturation period that ranges from 15 days to one year.
• These are generally utilised for bridge financing by large, creditworthy enterprises as an alternative to borrowing from banks and the capital market.
• Companies pay a lower interest rate than the market. Commercial papers are used for a variety of purposes, including meeting the flotation cost on long-term capital market borrowings.

1. Commercial Bill:

• It is a short-term form of funding for credit sales by businesses.
• Companies utilise it to fund their working capital requirements.
• It is a movable asset that may be traded.
• A business bill is drawn by a seller (drawer) and given to a buyer (drawee) who accepts it. It becomes a marketable instrument if the buyer accepts it. The seller might discount it with a commercial bank even before the bill matures. This is referred to as bill discounting.

1. Certificate of Deposit:

• These are unsecured, negotiable instruments that are offered in bearer form.
• Commercial banks and financial institutions issue these instruments to people, corporations, and businesses.
• Commercial banks utilise it to satisfy loan demand during instances of limited liquidity.
• These securities have maturities ranging from 91 days to one year.
• These instruments are not authorised to be discounted by banks.

Get on board with Extramarks and get access to class 12 Business Studies chapter 10 notes, which will come in handy during your upcoming examination preparation.

CAPITAL MARKET

This section of class 12 Business Studies chapter 10 notes throws light on the concept of the Capital Market.

• It refers to the market or channel for raising and investing long-term capital, including debt and stock. It consists of channels through which the community’s savings are available to the corporate sector and the general public.
• Development banks, commercial banks, and stock exchanges make up the capital market.
• Shares, debentures, bonds, mutual funds, and public deposits are all examples of capital market instruments.

Feature of Capital Market:

• There is a link between the saving and investing processes.
• Deals with long- and medium-term investments.
• Use a variety of intermediaries.
• This leads to the development of capital.
• It is free to operate, yet it is governed by government rules.

DIFFERENCE BETWEEN CAPITAL MARKET AND MONEY MARKET

To get detailed insights on these differences between capital money and market money, refer to Extramarks class 12 Business Studies chapter 10 notes.

TYPES OF CAPITAL MARKET

The primary and secondary markets are the two main components of the capital market. To get an elaborate explanation on the same, refer to Extramarks Class 12 Business Studies Chapter 10 Notes.

Primary Market:

• Deals with novel securities that have never been issued before.
• Financial institutions, banks, insurance companies, mutual funds, and individuals are among the investors in these markets.
• Funds can be raised for new project development, growth, diversification, modernisation, mergers, and takeovers.

Secondary Market:

• Deals with current or previously owned stocks.
• Existing investors can withdraw their funds, while new ones can enter the market.
• Contributes to capital formation in an indirect way.
• The trading of securities takes place inside SEBI’s regulatory framework.

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Primary Market: Methods of Flotation

1. Offer through prospectus: 

• The primary market is the most common mechanism for public companies to raise capital.
• The public is asked to subscribe through the distribution of a prospectus.
• The prospectus is used to make a direct agreement with investors in order to raise funds. This is done through a newspaper or magazine advertisement.
• The offerings are underwritten, and at least one stock market listing is necessary.
• The prospectus should be written in full accordance with the Companies Act, the Investor Protection Act, and SEBI regulations.

1. Offer for Sale: 

• Intermediaries are used to sell securities.
• Issuing houses and stockbrokers are examples of intermediaries.
• A corporation sells securities to brokers at a predetermined price and subsequently resales them to the general market.
• A business does not have to go through the procedures of offering securities to the general public.

1. Private placement: 

• A company’s distribution of securities to institutional investors and a few chosen people.
• Aids in the faster raising of cash than a public offering.
• There are fewer formalities and obligatory and non-mandatory fees. Therefore it is a cost-effective option.

1. Rights issue:

• Existing shareholders have the option to subscribe to new shares, subject to the company’s terms and conditions.
• Existing shareholders are given the option to purchase additional shares in proportion to their current holdings.

1. E-IPOs:

• The stock market uses an online mechanism to provide capital to the general public.
• A stock exchange agreement is required for a firm to operate. This is referred to as an Initial Public Offering (IPO) (IPO).
• Accepting applications and making orders with the firm is delegated to SEBI-registered brokers.
• The issuer firm appoints the registrar to establish electronic contact with the exchange.
• The issuer business may list its securities on any stock market other than the one where it first sold them.

Get on board with Extramarks and get access to class 12 Business Studies chapter 10 notes, which will come in handy during your upcoming examination preparation.

Secondary Market: Stock Exchange

Extramarks Class 12 Business Studies Chapter 10 Notes provides neatly curated notes on the topic of the Secondary Market.

• The secondary market (sometimes known as the stock exchange or stock market) is where existing or second-hand securities are traded.
• A stock exchange is a situation where you may purchase and sell stocks.
• In 1850, the Government of India passed the Companies Act, which was the first step toward encouraging investor interest in corporate securities.
• In 1875, the ‘Native Share and Stock Brokers Association’ founded the first stock market in Bombay. Later, it was called the Bombay Stock Exchange (BSE).
• Following that, stock exchanges were established in Ahmedabad, Calcutta, and Madras throughout time.
• Only regional stock exchanges existed in India’s secondary market till the 1990s.
• The Indian Stock Market became a three-tier structure after the 1991 economic reforms, including Regional Stock Exchanges, the National Stock Exchange, and the Over The Counter Exchange of India (OTCEI).

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FUNCTIONS OF STOCK EXCHANGE

Extramarks Class 12 Business Studies Chapter 10 Notes provides an elaborate explanation of the functions of the Stock Exchange. The following are some of the functions of the Stock Exchange:

1. Provides Marketability and Liquidity:

• The stock exchange serves as a marketplace for selling and acquiring existing securities.
• Allows for the quick conversion of securities to cash as needed.
• Allows investors to disinvest and reinvest their money.
• Provides liquidity and marketability to existing securities in the market.

1. Determining Prices:

• Acts as a system for determining the price of securities on a continual basis using the dynamics of supply and demand.
• This appraisal provides crucial information to both buyers and sellers in the market.

1. Safe and Fair Market:

• A  well-regulated and well-defined legislative framework provides a secure and fair market for trading securities.

1. Facilitates Economic growth:

• The stock market assists in channelling savings to the most profitable investment by enabling the selling and purchase of assets.
• Due to this, capital formation and economic growth are boosted.

1. Spreading Equity Cult:

• By regulating new issues, offering investor education, and promoting improved trading procedures, the stock exchange encourages individuals to invest in stocks.

1. Scope for Speculation: 

• The stock exchange performs this job, which requires a certain amount of healthy speculation to sustain the continual process of demand and supply of securities.

To get elaborate insights on the functions of the Stock Exchange, refer to Extramarks class 12 Business Studies chapter 10 notes.

TRADING PROCEDURE FOR THE STOCK EXCHANGE

This section of class 12 Business Studies chapter 10 notes throws light on the trading procedure for the Stock Exchange: 

DEMATERIALISATION

The investor’s physical securities are cancelled, and the investor is given an electronic entry or number that may be used to hold the securities as an electronic balance in an account. Dematerialisation is the process of keeping securities in an electronic format.

DEPOSITORY

• A depository is a computer-based storage system that stores securities in electronic form on behalf of investors.
• Shares in a depository can be deposited, withdrawn, or sold at any moment based on the investor’s instructions.
• It assists in avoiding all of the paperwork associated with share certificates, transfer papers, and other similar documents.
• This technology has aided in improving the speed and efficiency of securities trading and settlement.

NATIONAL STOCK EXCHANGE

In 1992, India’s National Stock Exchange was founded. In 1993, it was designated as a stock exchange, and it began operations in 1994. Financial institutions such as banks, insurance firms, and other financial middlemen created it. Refer to Extramarks Class 12 Business Studies Chapter 10 Notes for insight into the National Stock Exchange.

National Stock Exchange: Objectives

• The NSE aspires to provide a national trading platform for all sorts of securities.
• A functional communication network assures that all investors have equitable access to the securities market.
• It establishes a fair, efficient, and transparent electronic trading system.
• It allows for quicker settlement cycles and book entry settlements in securities trading.
• It makes certain that various operations and activities comply with international stock exchange requirements.

The two main segments of the National Stock Exchange:

1. Wholesale Debt Market Segment:

• It provides a trading platform for fixed-income securities.
• State development loans, corporate debentures, bonds issued by public sector undertakings, commercial papers, central government securities, zero-coupon bonds, and treasury bills, among other securities, are traded.

1. Capital Market Segment:

• The NSE’s retail government securities sector trades equity shares, preference shares, debentures, exchange-traded funds, and retail government securities.

To get elaborate insights about the National Stock Exchange, refer to Extramarks class 12 Business Studies chapter 10 notes.

SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Board of India (SEBI) was created in 1988 with the primary goal of facilitating the securities market’s orderly and healthy expansion. It strives to safeguard investors while also encouraging the growth and regulation of securities market operations. SEBI was given statutory character on January 30, 1992, by an ordinance that has since been restored by the Securities and Exchange Board of India Act, 1992. Refer to Class 12 Business Studies Chapter 10 Notes by Extramarks to get an in-depth explanation of the topic.

Objectives of SEBI

• Code of Conduct: SEBI has established a code of conduct for different intermediaries, such as brokers and merchant bankers. It monitors these intermediaries’ operations and provides them with a competitive and professional environment.
• Regulation: To guarantee orderly operation, SEBI controls the functions of the stock exchange and securities market.
• Prevention: One of SEBI’s main goals is to prevent malpractices such as insider trading, rule violations, and non-compliance with the Companies Act. It encourages enterprises to self-regulate in addition to establishing formal statutory requirements.
• Protection: SEBI works to safeguard investors’ rights and interests while also attempting to assist and educate them.

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SEBI carries out the following three major functions in order to attain the goals mentioned above:

1. Regulatory functions: 

• SEBI is in charge of registering numerous brokers, sub-brokers, agents, and other market participants. SEBI is also in charge of registering collective mutual funds and mutual funds.
• Stockbrokers, underwriters, merchant bankers, and other market intermediaries are all subject to SEBI’s scrutiny. It establishes guidelines for the operation of intermediaries. In addition, the SEBI regulates corporate takeover offers. It also investigates and examines the stock exchange and intermediaries on a regular basis.
• SEBI collects fees and other charges to carry out the Act’s objectives.
• SEBI is responsible for certain legislative tasks given by the Government of India under the Securities Contracts (Regulation) Act, 1956.

1. Development functions:

• SEBI offers training and development programmes for securities market intermediaries. This contributes to the securities market’s steady expansion.
• SEBI conducts research on a variety of essential aspects of the securities market and subsequently publishes the findings in publications. SEBI reports assist investors and other market participants in making investment decisions.
• SEBI has taken a liberal approach to the securities market’s varied operations. For example, it has legalised Internet trading and initial public offerings (IPOs). This promotes the growth of the capital market.

1. Protective functions:

• The Securities and Exchange Board of India (SEBI) monitors a variety of activities and transactions in the securities market. Its goal is to make it illegal to engage in deceptive or unfair business activities.
• Occasionally, a firm employee disseminates critical information about the company. Such a release of information might have a negative impact on the company’s stock price. Insider trading is the term for this type of activity. SEBI monitors such acts and, where necessary, imposes fines.
• SEBI aims to promote ethical business practices. It establishes a set of guidelines for intermediaries. SEBI also takes a number of initiatives to safeguard investors.

Class 12 Business Studies Chapter 10 Notes: Exercises and Answer Solutions

Class 12 Business Studies Chapter 10 Notes are available at the Extramarks website, wherein subject experts have prepared these notes as per the CBSE syllabus. Register online with Extramarks to clear all the doubts and get access to all exercises and answer solutions. 

A list of detailed solutions for all the questions is given below:

• Very Short Answer type Questions and Solution- 5 Questions
• Short Answer type Questions and Solution- 7 Questions
• Long Answer Type Questions and Solutions- 5 Questions

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CBSE revision notes

CBSE sample papers

CBSE previous year question papers

CBSE extra questions

Class 12 Business Studies Chapter 10 Notes: NCERT Exemplar Class 12 Business Studies

Students can use the answers to the NCERT Exemplar Class 12 Business Studies questions to help them prepare for their final examinations. These sample questions are a little more complex, and they cover a wide variety of subjects covered in each chapter of the business studies course of Class 12. We offer Exemplar questions, problems, and solutions for class 12 business studies at Extramarks.

Students will thoroughly learn the ideas discussed in each chapter by practising this NCERT Exemplar for Business Studies class 12 problem. Each of the questions in these resources is relevant to the CSBE Class 12 curriculum. Our professionals offer the most effective solutions to the problems that students face. All the notes are based on the NCERT question pattern.