NCERT Solutions Class 12 Business Studies Chapter 10

NCERT Solutions Class 12 Business Studies Chapter 10 – Financial Markets

Extramarks NCERT Solutions Class 12 Business Studies Chapter 10 helps students understand every topic covered in the chapter Financial Markets. Students get a thorough understanding of the chapter, and the importance it holds in day-to-day business life. NCERT Solutions Class 12 Business Studies Chapter 10 study material allows students in Class 12 to understand and revise important concepts, definitions, and questions and answers. 

NCERT Solutions Class 12 Business Studies Chapter 10 – Financial Markets are prepared by subject matter academicians 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 NCERT Solutions. Once they register on Extramarks website they can access CBSE revision notes, CBSE sample papers, CBSE Past years’ question papers, and other relevant materials for their Class 12 preparation. 

Key Topics Covered In NCERT Solutions Class 12 Business Studies Chapter 10

Following are the key topics covered in NCERT Solutions Class 12 Business Studies Chapter 10- Financial Markets:

Here’s the detailed information on each subtopic in NCERT Solutions Class 12 Business Studies Chapter 10 Financial Markets.

Financial Market

A financial market is a setting where people buy and sell financial assets.

It helps in the mobilisation of savings and their allocation to the most productive applications. Price discovery and liquidity for financial assets are also aided by financial markets.

FUNCTIONS OF THE FINANCIAL MARKET

NCERT Solutions Class 12 Business Studies Chapter 10 by Extramarks provides 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.

Financial Markets are further classified into Money Market and Capital Market. Get on board with Extramarka and get access to NCERT Solutions Class 12 Business Studies Chapter 10.

Money Market

This section of NCERT Solutions Class 12 Business Studies Chapter 10 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 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.
• Baking 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 Money Market

Short-term funds are monetary assets with a maximum maturity of one year in this context. The following are some of the most frequent money market instruments:

• Treasury Bill: A Treasury Bill is a promissory note that the government uses to borrow money for a limited period of time. They are by far the most popular financial instrument. The Reserve Bank of India auctions and issues them on behalf of the Central Government. T-bills are available for as little as Rs 25,000 and in multiples of that. T-Bills are issued at a lower price than their face value, and the investor receives the face value when they redeem them. The difference between the value at which they are issued and the redemption value is the interest generated on them.
• Call Money: Call money is a form of short-term loan that may be repaid on demand and has a maturity duration of one to fifteen days. Inter-bank transactions are carried out using it. The cash reserve ratio is a requirement for commercial banks to maintain a minimum cash balance. The Reserve Bank of India adjusts the cash reserve ratio on a regular basis, affecting the amount of money commercial banks may lend. Call money is a way for banks to borrow money from one another in order to keep their cash reserve ratios in check. The interest rate given on call money loans is referred to as the call rate. It is a variable rate that varies greatly from day to day and sometimes hour to hour. Other short-term money market products, such as certificates of deposit and commercial paper, have an inverse connection with call rates. As the call rate rises, alternative money market products become less expensive, and demand for them increases.
• Commercial Paper: Commercial paper is a non secured money market asset with a short maturity. It is a negotiable and transferable promissory note with a maturity period ranging from 15 days to one year. In India, they first debuted in 1990. Large, creditworthy firms often issue CPs to generate short-term finance. Large firms see commercial papers as a viable alternative to bank and capital market borrowings. Commercial Papers pay a lower rate of interest than the market rate. Commercial Papers are frequently utilised by firms for bridging finance. To put it another way, the cash needed to cover the floatation cost on long-term capital market borrowings must be raised.
• Certificate of Deposit: Certificates of Deposit are negotiable unsecured time deposits. They are short-term bearer instruments, ranging from one month to more than five years. CDs are a sort of secured investment that is issued to individuals, companies, and businesses by commercial banks and development financial institutions. They’re issued to accommodate credit demand when there’s a scarcity of cash. When a person buys a CD by depositing a certain amount, for example, he receives a certificate that details the deposit’s duration, interest rate, and maturity date. The person is entitled to the principal amount as well as the interest generated on loan at the maturity date.
• Commercial Bill: A commercial bill, also known as a bank bill or a bill of exchange, is a type of financing used to meet a company’s working capital requirements. It’s a negotiable instrument for the short term. Businesses utilise commercial bills to fund credit sales. When a person sells something on credit, for example, the buyer agrees to pay on a specific date in the future. In this situation, the seller generates and offers the buyer a bill of exchange with a set maturity date. When a buyer accepts a bill, it becomes a marketable instrument that may be discounted by a bank.

Get on board with Extramarks and get access to NCERT Solutions Class 12 Business Studies Chapter 10, which will come in handy during your upcoming examination preparation.

Capital Market

The word “capital market” refers to the facilities and institutional arrangements used to raise and invest long-term cash, including debt and equity. It comprises a set of channels through which community savings are made available to industrial and commercial firms, as well as the general public. It puts these savings to the most productive use possible, resulting in economic growth and development. Development banks, commercial banks, and stock exchanges make up the capital market.

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.

TYPES OF CAPITAL MARKET

The primary and secondary markets are the two main components of the capital market.

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.

Difference between Money Market and Capital Market

Stock Exchange and its Functions

Stock exchanges offer a marketplace for existing equities to be bought and sold. Stock exchanges offer a constant market for securities, aid in price discovery, expand share ownership, and allow for speculation. Refer to Extramarks  NCERT Solutions Class 12 Business Studies Chapter 10 for details on the topic of the Stock Exchange. 

Functions of Stock Exchange

• Provides Liquidity and Marketability: For existing equities, the stock exchange provides a ready-to-trade platform. It offers a continuous market for the selling and purchase of securities, to put it another way. When cash is needed, securities may be quickly changed into cash at a stock exchange. Long-term securities can also be changed to medium and short-term securities on the stock exchange.
• Determination of Prices: The value of the monetary assets exchanged on a stock exchange is determined by the stock exchange. It acts as a platform for buyers and sellers of securities to communicate, aiding in the setting of security prices through the dynamics of demand and supply.
• Fair and Safe Market: The stock exchange is a lawful and well-regulated market. It functions within the confines of the legislative structure that has been established. As a consequence, transactional security and fairness are ensured.
• Facilitates Economic Growth: On a stock exchange, securities are constantly purchased and traded. This constant disinvestment and reinvestment process assists in allocating savings and assets to the most profitable purposes. This increases both capital formation and economic growth.
• Spreading Equity Cult: By regulating concerns and improving trade standards, a stock market may assist in the education of individuals about investing. It promotes and encourages individuals to invest in stocks and bonds.
• Acts as an Economic Barometer: Changes in share prices on a stock market reflect changes in economic conditions. The rise (or decline) in stock values, for example, signifies a boom (or recession).
• Scope for Speculation: For enhanced liquidity and the preservation of demand and supply for securities, it is commonly considered that some level of speculation is essential. The stock market provides for a reasonable and restricted scope of speculation within the boundaries of the law.

To get elaborate insights on the functions of the Stock Exchange, refer to Extramarks NCERT Solutions Class 12 Business Studies Chapter 10.

National Stock Exchange

In 1992,  India’s National Stock Exchange was founded. It commenced operations in 1994 after being founded as a stock exchange in 1993. Major banks, financial institutions, insurance companies, and financial intermediaries established it. NSE was established with the following objectives in mind:

• The NSE aspired to create a single countrywide trading system that would allow all sorts of securities to be traded. This sort of method instills confidence in investors.
• It assured that all investors had equitable and straightforward access to a sufficient communication network throughout the country. It increases the liquidity of the securities. The regional stock market system restricted the persons engaged in the transaction. The NSE, on the other hand, aggregates transactions from throughout the country, boosting the liquidity of the assets.
• The NSE uses an electronic trading system to promote a fair, efficient, and transparent securities market. The NSE’s local terminals provide information on the trading of various securities to everyone. As a result, it contributes to the decrease of trading fraud.
• Shorter settlement cycles and book entry settlements are one of the NSE’s aims.
• The goal of the NSE was to satisfy worldwide stock exchange norms and benchmarks.

Securities and Exchange Board of India

The Securities and Exchange Board of India (SEBI) was founded in 1988 to help the Indian securities market expand healthily and orderly. The overall purpose of SEBI was to safeguard investors while also supporting the growth and regulation of securities market operations.

Objectives of SEBI

The main purpose of SEBI is to safeguard the interests of investors while simultaneously encouraging the growth and regulation of the securities industry. This may be further developed as follows:

• We can ensure that they run smoothly by regulating stock exchanges and the securities business.
• Protecting the rights and interests of investors, primarily individual investors, as well as guiding and educating them.
• To avoid trading malpractices and achieve a balance between self-regulation and legislative control in the securities business.
• To make intermediaries like brokers and merchant bankers more competitive and professional, they must be regulated and adopt a code of conduct and fair procedures.

Functions of SEBI

SEBI was charged with the dual duty of securities market regulation and growth due to the fledgling nature of India’s securities industry. Extramarks NCERT Solutions Class 12 Business Studies Chapter 10 provides notes  on SEBI.

Regulatory functions:

• Brokers, sub-brokers, and other market players must register.
• Mutual funds and collective investment plans must be registered.
• Stockbrokers, portfolio exchanges, and merchant bankers are all subject to regulatory oversight.
• Deceptive and unfair commercial tactics are prohibited.
• Controlling insider trading and hostile takeover bids, as well as enforcing sanctions.
• Inspections, enquiries, and audits of stock exchanges and intermediaries are used to gather information.
• Fees or other charges may be imposed in order to carry out the Act’s objectives.
• Execution and use of such powers as the Government may assign under the Securities Contracts (Regulation) Act 1956.

Development functions:

• Educating potential investors.
• Intermediary education.
• Advocating for a code of conduct and equitable practises for all SROs.
• Conducting research and delivering useful information to all market players.

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NCERT Solutions Class 12 Business Studies Chapter 10 Financial Markets NCERT Solutions 

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By referring to Extramarks NCERT Solutions Class 12 Business Studies Chapter 10, students can easily understand the Nature and Significance of Financial Markets.

Key Features of NCERT Solutions Class 12 Business Studies Chapter 10

Students must study all vital topics in order to do well in the exam. Practising is the best way to beat the exam stress. Hence, NCERT Solutions Class 12 Business Studies Chapter 10 provides detailed answer to all questions. Some of the  compelling  reasons for you  to choose Extramarks are: 

• The topic has been explained clearly by the subject experts at Extramarks to enable the students to get an understanding of the various concepts  in the chapter. 
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