CBSE Important Questions Class 12 Business Studies Chapter 10

Important Questions Class 12 Business Studies Chapter 10

Important Questions for CBSE Class 12 Business Studies Chapter 10 – Financial Markets

Important Questions Class 12 Business Studies Chapter 10 are beneficial for board exam preparation. These questions cover the main topics of Class 12 Business Studies Chapter 10 “Evolution”. Students will understand the marks distribution of Important Questions, terminologies, and concepts of this chapter. Extramarks’ Chapter 10 Class 12 Business Studies Important Questions are prepared by subject matter experts as per the revised CBSE Syllabus

Class 12 Business Studies Chapter 10 Important Questions are presented with step-by-step solutions. The main topics of this chapter include the Objectives of  the NSE, Various Segments of the NSE, the definition of SENSEX and NIFTY, Dematerialisation and Depositors, and the Working of the Demat System. Students can refer to these CBSE questions from the Extramarks’ website.

CBSE Class 12 Business Studies Chapter 10 Important Questions

Study Important Questions for Class 12 Business Studies Chapter – 10 Financial Markets

Here are a few of the important questions from Class 12 Business Studies Chapter 10 for students’ reference. 

Very Short Answer  Questions                                                                                              
(1 or 2 marks)

Q1. State any two money market instruments.

Ans. The two money market instruments are:

  1. a) Treasury Bills – An instrument of short-term borrowing which is issued by the Indian Government that generally matures in less than a year is called a treasury bill.
  2. b) Commercial papers – A short-term unsecured promissory note that is negotiable and transferable through endorsement and delivery following a certain maturity period is known as Commercial paper.

Q2. What are the segments of the National Stock Exchange (NSE)?

Ans. The segments of the National Stock Exchange are

  1. i) Wholesale Debt Market Segment of NSE: This segment renders a trading platform for various steady income securities which includes treasury bills, commercial paper, bonds, central government securities, state development loans, floating rate bonds, zero coupon bonds, index bonds, etc.
  2. ii) Capital Market Segment: This market segment includes primary and secondary markets. Primary capital markets include corporations that carry out an initial public offering through which money is raised and certain investors purchase securities from the issuing company. Whereas secondary markets consist of investment venues that are overseen by a regulatory body like the Securities and Exchange Commission (SEC) in which existing or already-issued securities are traded between investors which also states that the issuing companies are not included in the secondary market.

Short Answer  Questions                                                                                                       
(3 or 4 marks)                                                                                                       

Q1. What is the stock exchange? State any four functions of the Stock Exchange.

Ans. The Securities Contracts (Regulation) Act, of 1956, states that a stock exchange is any body of individuals either incorporated or not, established with the intent of regulating, assisting, or regulating the business of buying and selling or dealing in securities. The four functions of a stock exchange are

  • Price Determination: A stock exchange helps in ascertaining the cost of monetary assets traded in the market. Buyers and sellers of securities interact on this platform and determine security prices with market forces.
  • Security of transaction: In accordance with the prevailing legal framework, membership of a stock exchange is manageable and its dealings are straightforward. This assures that the investing public receives a safe and fair deal.
  • Expansion of equity:  The stock exchange is responsible for ensuring that share ownership is spread extensively by regulating new issues, standardised trading practises and educating individuals about investments by taking reasonable measures.
  • Helps in Economic Development: Exchange of securities takes place regularly on a Stock Exchange. The disinvestment and reinvestment cycle encourages savings and investments. This, in turn, improves capital formation as well as economic growth.

Q2. Write a note on the financial market and its functions. 

Ans:  A market where the making and exchange of financial assets take place is known as the financial market. Financial transactions is the initial issue of shares and debentures by a firm or the purchase and sale of already prevalent financial assets. The functions of a financial market are as follows:

  • Optimum returns on savings: A financial market works as a channel between people who save money and investors for the purpose of transfer of savings. It provides those people who save money with several distinct alternatives for investing their funds and gaining maximum returns. 
  • Discovery of the Price: The price of any financial asset or service is primarily based on the forces of demand and supply in the market. The households are considered as suppliers of funds, whereas, business firms signify demand in financial markets. The interaction between the business firms and households helps in ascertaining a price for the asset as per that particular market.
  • Simplified liquidation of financial assets: The transactions of purchase and sale of financial assets are simplified in financial markets so that financial assets can be liquified to cash as per the need. The mechanism of financial markets has made it quite easier for asset holders to sell their assets whenever needed. 
  • Diminished Transaction Costs: A financial market is a platform where potential buyers and sellers can easily do any transaction by saving on their effort, money, and time. This is possible as financial markets provide reliable information related to the trading of securities.

Q3. What are the protective functions of the Securities and Exchange Board of India (SEBI)?

Ans:   The protective functions of the Securities and Exchange Board of India (SEBI) are as follows:

  • Safety: SEBI takes certain measures to ensure the safety of investors.
  • Code of conduct: SEBI encourages investors and various intermediaries to follow a code of conduct for trade practices. They observe the operations of these intermediaries and give them a competitive environment.
  • Prohibition of certain practices: Certain guidelines are issued for investing in securities. Unfair trade practices such as price rigging, forming misleading statements, etc., are prohibited.
  • Charging penalties: Penalty is charged against any individual who practises insider trading and certain measures are taken by SEBI to curb such practices in accordance with the Companies Act.

 Q4. The director of a newly established company having paid up equity share capital of 25 crores, desires to trade all its shares at Indian Level Stock exchange. Recommend a  name of the stock exchange as a finance manager of the company. State any 3 reasons for your recommendation.

Ans: The stock of the company must be recorded on the Over-The-Counter Exchange of India (OTCEI). The chief characteristics of OTCEl are:

  • All over country listing: Transactions can be carried out with every counter in the country when an individual lists on one exchange.
  • Absolute list of firms: Exclusive companies with an issued capital of 250 crores or greater are listed on the OTCEI.
  • Compulsory registration: On the OTCEI, each investor who does a transaction or more has to get registered as it is mandatory.
  • Safe Transactions: There is a certain level of transparency in transactions as the  investor is there at the time when the transaction is made. The price of purchasing and selling can be seen on the computer screen leading to more safety during the transaction. 

Long Answer Questions                                                                                                              
(5 or 6 Marks)

Q1. Write a note on Treasury Bills.     

Ans: Treasury Bills are issued by the Reserve Bank of India in place of the Indian Central Government. Treasury Bill is also known as Zero Coupon Bonds. They are issued as promissory notes. They are generally utilised to meet the requirements of short-term funding for the Government of India. 

  • The tenure of the treasury Bills usually ranges from 14 to 364 days. Financial institutions like Commercial banks, non-banking financial companies, and others use these bills. 
  • Treasury bills are instruments that are highly liquid. They have secured returns and have a very low rate of default. As RBI has issued these bills, they are considered to be the safest instrument. 
  • The minimum value of the bill is Rs 25,000 and thereafter, in multiples of that value. 
  • These bills are issued at a lower price than their face value and after the maturity period, they can be redeemed at the face value. 
  • The difference between the proceeds gained at the maturity period and the amount paid up for buying the bill displays the interest received by a person. 

The numerous advantages of treasury bills in comparison to other bills, including 

  • As these bills are issued by the government the risk connected to it is negligible. 
  • Treasury bills are considered to be the most liquid instrument as their tenure usually ranges from 91 days and 364 days.
  • The transactions are transparent.

Q2. State the difference between the money market and capital market.

Ans. The difference between the money market and capital market are:

Basis of difference Money Market Capital Market
Participants Institutional participants like banks, financial institutions, RBI, and companies dealing in finance. The participants are retail investors, foreign investors, corporate entities, etc.
Expected Return Generally, lesser returns are expected. Usually, higher returns are expected.
Instruments Short term debt instruments are traded in money markets such as certificates of deposit, commercial paper, treasury bills, etc. Long-term instruments are traded in capital markets like preference shares, debenture, equity shares, and bonds, etc.
Safety Money markets are safer with minimum risk factors. Capital markets are more risky in terms of returns and principal repayment.
Duration The duration of money market instruments is less than a year and  it can also be issued for one day. The duration of capital market instruments is more than the duration of money market instruments as it deals in medium and long term securities.
Liquidity Money market instruments are considered to have a higher degree of liquidity.  Capital markets are considered to have less liquid investments in comparison to money markets.
Investment Outlays As the instruments are quite expensive, huge  financial outlays are needed. Huge financial outlays are not necessary.

Q3. What are the objectives and functions of the SEBI (Securities and Exchange Board of India)?

Ans: In 1988, the Securities and Exchange Board of India (SEBI) was set up by the Indian government to encourage a systematic expansion of the securities market as well as ensure the protection of investors. SEBI has certain objectives that are as follows:

  • Promotion: To encourage the systematic operation of stock exchanges and the securities market by managing them.
  • Security: SEBI’s most important objective is to protect the interests of investors, specifically individual investors. They also secure the rights of the investors along with advising and educating them. 
  • Prohibiting malpractices: They focus on forbidding any trading malpractices and maintaining a balance between the securities industry’s self-regulation and its statutory regulation. 
  • Rules and regulations: To encourage the development and regulation of a code of conduct and fair practices for merchant bankers, brokers, and other financial intermediaries as well as make them more competitive.

Functions of SEBI:

In India, the authority of regulation and growth of the securities market was entrusted to SEBI as a rise in the securities sector was witnessed. 

  • Regulatory Functions

SEBI carries out several regulatory functions:

  • All stakeholders such as brokers, sub-brokers, and other market participants should register.
  • Cumulative investment plans and mutual funds should be registered.
  • Take over bids being regulated.
  • Stakeholders like portfolio exchanges, underwriters, stock bankers, merchant bankers, and businesses in stock exchanges are regulated.
  • The Government of India authorised SEBI with certain power under the Securities Contracts (Regulation) Act 1956 that they perform and exercise on a regular basis.
  • Collection of a fee or other charge for carrying out the purposes of the Act.
  • Regular duties include asking for information by undertaking inspections, performing enquiries, and audits of stock exchanges and intermediaries.

Development Functions:

  • Carrying out research and announcing beneficial information to all market     stakeholders.
  • Looking after the expansion of the capital markets by keeping a flexible approach and taking reasonable measures whenever needed.
  • Training of intermediaries of the securities market.

Protective Functions:

  • Forbidding unfair trade practices such as forming misleading statements, price fixing, manipulations, etc. 
  • Managing and penalising people practising insider trading.
  • Ensuring investor safety by undertaking the necessary steps. 
  • Advocating a code of conduct and fair practices in the securities market.                      

FAQs (Frequently Asked Questions)

1. What are financial markets?

Households and business firms are the two main sectors of the economic system. Households usually save funds whereas business firms invest funds. A financial market connects the savers and the investors by facilitating the exchange of funds between themselves.

2. Why should students of Class 12 refer to extra questions for Class 12 business studies Chapter 10 Solutions?

Class 12 Business Studies Chapter 10 Important Questions will be beneficial for CBSE Class 12 students to score excellent marks in their Class 12 board exams. These notes consist of the important topics from business studies Chapter 10 which will aid the students to get a thorough understanding of the chapter and help them clear their doubts if any.  Class 12 Business Studies Chapter 10 Important Questions are made in accordance with the CBSE Syllabus.