NCERT Solutions Class 12 Business Studies Chapter 10 Marketing

Marketing explains how firms identify customer needs and create exchanges through product, price, place and promotion.
These NCERT Solutions help students answer Chapter 10 questions on branding, packaging, pricing and promotion mix.

Marketing in Class 12 Business Studies is not limited to selling a product after production. The chapter starts with a wider question: do companies work only in markets, or also within society? It then connects customer needs, market offerings, exchange, marketing management philosophies, product decisions, packaging, labelling, pricing, physical distribution and promotion. NCERT Solutions Class 12 Business Studies Chapter 10 help students write 2026-27 answers using real marketing terms, from customer value to advertising, personal selling, sales promotion and publicity.

Key Takeaways

  • Marketing: It directs goods and services from producers to consumers through exchange.
  • Marketing mix: The four Ps are product, price, place and promotion.
  • Branding: Branding helps identify products and distinguish them from competitors.
  • Promotion mix: Advertising, personal selling, sales promotion and publicity inform and persuade buyers.

NCERT Solutions Class 12 Business Studies Chapter 10 Structure 2026-27

Exercise Section Main Focus Question Count
Very Short Answer Type Branding, packaging, societal marketing and planning 6
Short Answer Type Marketing, product types, labelling, intermediaries and advertising 12
Long Answer Type Marketing concept, marketing mix, pricing, distribution and promotion 8

Very Short Answer Type

These answers follow the NCERT exercise order for Class 12 Business Studies Chapter 10 Marketing. Use exact chapter terms for short-answer responses.

Q1. State any two advantages of branding to marketers of goods and services.

Answer: Branding helps marketers create product identification and product differentiation.

It also supports advertising, customer loyalty and repeat purchase.

A brand name makes the product easier to recognise in a competitive market.

Q2. How does branding help in differential pricing?

Answer: Branding helps differential pricing by creating customer trust and loyalty.

Customers may pay a higher price for a known brand.

A branded product can be priced differently from an unbranded product because buyers associate it with quality and reliability.

Q3. What is the societal concept of marketing?

Answer: The societal marketing concept focuses on customer satisfaction and social welfare.

It says firms should identify customer needs and satisfy them effectively.

At the same time, they should protect long-term consumer and social well-being.

It includes ethical, ecological and social concerns.

Q4. Enlist the advantages of packaging of consumer products.

Answer: Packaging has several advantages.

It protects the product from damage, spoilage and leakage.

It helps product identification.

It makes handling, storage and use easier.

It also supports promotion through colour, design and product information.

Q5. List five shopping products purchased by you or your family during the last few months.

Answer: Five shopping products may include:

  1. Clothes
  2. Shoes
  3. Mobile phone
  4. Furniture
  5. Television

Shopping products are compared on quality, price, style and suitability before purchase.

Q6. A colour TV marketer wants to increase market share from 20% to 50% in three years. He specifies an action programme. Name the marketing function.

Answer: The function is marketing planning.

Marketing planning means preparing action plans to achieve marketing objectives.

Here, the objective is to increase market share from 20% to 50%.

Short Answer Type

Marketing Class 12 questions and answers often test definitions, differences and product-based examples. These answers use the textbook’s marketing terms clearly.

Q1. What is marketing? What functions does it perform in the exchange of goods and services?

Answer: Marketing is a social process through which people obtain goods and services by exchange.

It includes activities before and after production.

Important functions of marketing are:

  1. Gathering and analysing market information
  2. Marketing planning
  3. Product designing and development
  4. Standardisation and grading
  5. Packaging and labelling
  6. Branding
  7. Customer support services
  8. Pricing
  9. Promotion
  10. Physical distribution
  11. Transportation
  12. Storage or warehousing

These functions move goods from producers to consumers and satisfy customer needs.

Q2. Distinguish between product concept and production concept of marketing.

Answer: The production concept focuses on availability and affordability.

The product concept focuses on quality, performance and features.

Basis Production Concept Product Concept
Main focus Quantity and low cost Quality and features
Belief Customers prefer available and affordable products Customers prefer superior products
Business effort Improve production and distribution Improve product quality
Profit route Large volume of production Better product quality
Limitation May ignore customer preferences May ignore actual customer needs

Q3. Product is a bundle of utilities. Explain.

Answer: A product gives functional, psychological and social benefits.

A customer buys a product for the satisfaction it provides.

For example, a motorcycle gives transport as a functional benefit.

It may also give prestige as a psychological benefit.

It may provide social acceptance among peers.

So, a product is more than a physical item.

It is a bundle of utilities that satisfies customer needs.

Q4. What are industrial products? How are they different from consumer products?

Answer: Industrial products are used as inputs for producing other goods or services.

Examples include raw materials, machines, tools, engines and lubricants.

Consumer products are bought by final consumers for personal use.

Basis Industrial Products Consumer Products
Use Business or production use Personal or household use
Buyers Manufacturers and business users Final consumers
Demand Derived from consumer demand Direct consumer need
Examples Machines, tools, raw materials Soap, clothes, toothpaste
Buying process More technical and planned Often personal and emotional

Q5. Distinguish between convenience products and shopping products.

Answer: Convenience products are bought frequently with little effort.

Shopping products are compared before purchase.

Basis Convenience Products Shopping Products
Buying effort Least effort Considerable effort
Purchase frequency Frequent Less frequent
Comparison Little comparison Quality, price and style compared
Unit value Usually low Usually higher
Examples Toothpaste, soap, newspaper Clothes, shoes, furniture

Q6. Describe the functions of labelling in marketing.

Answer: Labelling performs several marketing functions.

  1. It describes the product and specifies contents.
  2. It identifies the product or brand.
  3. It helps grade products into categories.
  4. It supports promotion through attractive messages.
  5. It provides information required by law.
  6. It gives details like price, weight, batch number and manufacturing date.

Labels help customers understand and compare products.

Q7. Discuss the role of intermediaries in the distribution of consumer non-durable products.

Answer: Intermediaries help make consumer non-durable products widely available.

These products are bought frequently and need easy access.

Intermediaries perform important roles:

  1. They keep stock near customers.
  2. They break bulk into small quantities.
  3. They provide market information.
  4. They promote goods at retail points.
  5. They help in storage and transportation.
  6. They reduce contact between producers and consumers.
  7. They provide convenience to buyers.

Wholesalers and retailers are important for products like soap, toothpaste and snacks.

Q8. Define advertising. What are its main features?

Answer: Advertising is a paid, impersonal form of communication by an identified sponsor.

It promotes goods, services or ideas.

Main features are:

  1. It is a paid form of communication.
  2. It is impersonal because there is no face-to-face contact.
  3. It has an identified sponsor.
  4. It uses mass media like television, radio, newspapers and magazines.
  5. It reaches many people at one time.
  6. It communicates a standard message.

Advertising is useful for creating awareness and interest.

Q9. Discuss the role of sales promotion as an element of promotion mix.

Answer: Sales promotion uses short-term incentives to encourage immediate purchase.

It supports advertising and personal selling.

Common methods include rebate, discount, refunds, product combinations, gifts, samples, contests and lucky draws.

Sales promotion helps in:

  1. Attracting new customers
  2. Clearing stock
  3. Encouraging trial purchase
  4. Increasing short-term sales
  5. Supporting dealers and retailers
  6. Creating excitement around a product

It is especially useful for quick sales response.

Q10. As marketing manager of a big hotel at a tourist destination, what societal concerns would you face?

Answer: A hotel at a tourist destination must consider social and environmental concerns.

Important concerns include:

  1. Cleanliness around the hotel
  2. Waste disposal
  3. Water conservation
  4. Energy conservation
  5. Respect for local culture
  6. Employment for local people
  7. Safe food and hygiene
  8. Avoiding noise and overcrowding
  9. Support during emergencies
  10. Protection of natural surroundings

Steps may include waste segregation, local hiring, water-saving systems and responsible tourism campaigns.

These steps follow the societal marketing concept.

Q11. What information is generally placed on the package of a food product? Design a label.

Answer: A food package usually contains important information.

It includes:

  1. Brand name
  2. Product name
  3. Ingredients
  4. Net weight
  5. Manufacturing date
  6. Expiry date
  7. Maximum retail price
  8. Batch number
  9. Vegetarian or non-vegetarian mark
  10. Manufacturer’s name and address
  11. Nutritional information
  12. Directions for use

Sample label:

Brand: FreshBite
Product: Multigrain Cookies
Net Weight: 250 g
Ingredients: Wheat flour, oats, jaggery, butter, nuts
MRP: Rs. 120
Mfg. Date: April 2026
Best Before: Six months from manufacture
Batch No.: FB0426
Type: Vegetarian
Manufacturer: FreshBite Foods Pvt. Ltd.

Q12. What customer care services would you plan for a new motorcycle brand?

Answer: A motorcycle brand needs strong customer care services.

Important services include:

  1. Free first servicing
  2. Warranty support
  3. Easy spare parts availability
  4. Roadside assistance
  5. Customer complaint helpline
  6. Service reminders
  7. Maintenance guide
  8. Trained service centres
  9. Quick repair support
  10. Feedback collection after service

These services improve satisfaction and repeat purchase.

They also build brand loyalty.

Long Answer Type

Long answers in NCERT Solutions for Class 12 Business Studies Chapter 10 Marketing should connect customer needs with product, price, place and promotion decisions.

Q1. What is marketing concept? How does it help in effective marketing of goods and services?

Answer: Marketing concept focuses on customer needs and satisfaction.

It says a firm can earn profit by identifying customer needs and satisfying them better than competitors.

The marketing concept is based on five pillars:

  1. Choosing a target market
  2. Understanding customer needs and wants
  3. Developing suitable goods or services
  4. Satisfying needs better than competitors
  5. Earning profit through customer satisfaction

It helps effective marketing because all decisions are taken from the customer’s point of view.

The firm decides product features, price, place and promotion according to customer needs.

When customers feel satisfied, repeat purchase increases.

The firm also builds goodwill and long-term customer relationships.

Marketing concept prevents firms from focusing only on production or aggressive selling.

It makes customer value the centre of marketing decisions.

Q2. What is marketing mix? What are its main elements?

Answer: Marketing mix is the combination of marketing tools used to achieve marketing objectives.

It is popularly known as the four Ps of marketing.

These are product, price, place and promotion.

1. Product

Product means goods, services or anything of value offered to the market.

Product decisions include features, quality, design, packaging, labelling and branding.

2. Price

Price is the amount paid by customers to obtain a product.

Pricing decisions include price level, discount, margin and credit terms.

3. Place

Place means making goods available to target customers.

It includes channels of distribution, transportation, warehousing and inventory control.

4. Promotion

Promotion means communicating product features and persuading customers to buy.

It includes advertising, personal selling, sales promotion and publicity.

A strong marketing mix creates customer value and supports business profit.

Q3. How does branding help in creating product differentiation?

Answer: Branding gives a product a distinct identity.

A brand may be a name, term, sign, symbol, design or their combination.

Branding helps customers distinguish one firm’s product from competitors’ products.

For example, a customer can identify a particular toothpaste, soap or pen by brand name.

Branding helps in marketing in many ways:

  1. It supports product identification.
  2. It creates product differentiation.
  3. It builds customer loyalty.
  4. It helps in advertising.
  5. It supports differential pricing.
  6. It makes repeat purchase easier.
  7. It helps launch new products under the same brand.

Branding also helps customers reduce buying risk.

They can choose a known brand instead of comparing every product each time.

Q4. What factors affect price determination of a product or service?

Answer: Price determination depends on several factors.

1. Product Cost

Cost sets the lower limit of price.

The firm must cover fixed cost, variable cost and semi-variable cost in the long run.

2. Utility and Demand

Utility and demand set the upper limit of price.

Customers pay only when they feel the product gives enough value.

3. Competition

Competitors’ prices influence price decisions.

In high competition, firms may keep prices lower.

4. Government and Legal Regulations

Government may regulate prices of essential goods.

This protects consumers from unfair pricing.

5. Pricing Objectives

A firm may price for profit, market share, survival or quality leadership.

Each objective affects pricing differently.

6. Marketing Methods Used

Distribution, advertising, packaging, customer service and credit facilities also affect price.

A premium product with strong support services may charge a higher price.

Q5. Explain the major activities involved in physical distribution of products.

Answer: Physical distribution makes goods available at the right place, time and quantity.

It includes movement and storage of goods from producers to customers.

Major activities are:

1. Order Processing

Order processing starts when customers place orders.

A good system ensures quick and accurate order fulfilment.

Delay or wrong quantity may create dissatisfaction.

2. Transportation

Transportation moves goods from production point to selling point.

It is essential because sale cannot happen unless goods reach customers.

3. Warehousing

Warehousing stores goods until customers need them.

It creates time utility and helps maintain regular supply.

4. Inventory Control

Inventory control decides how much stock should be maintained.

Higher stock improves customer service but increases cost.

Lower stock reduces cost but may cause stockouts.

A firm must balance cost and customer satisfaction.

Q6. “Expenditure on advertising is a social waste.” Do you agree?

Answer: Advertising is often criticised as social waste, but this view is only partly correct.

Critics say advertising adds to product cost.

They also say it encourages materialism and confuses buyers.

Some advertisements may make exaggerated claims.

Advertising may also promote inferior products if used irresponsibly.

However, advertising has several benefits.

It informs customers about products, features and prices.

It creates demand and supports large-scale production.

Large-scale production can reduce cost per unit.

Advertising also helps customers compare brands.

It supports product launches and market expansion.

So, advertising is not social waste when it is truthful and responsible.

It becomes harmful only when it misleads buyers or promotes unhealthy consumption.

Q7. Distinguish between advertising and personal selling.

Answer: Advertising and personal selling are both promotion tools.

Advertising uses mass communication.

Personal selling uses direct communication.

Basis Advertising Personal Selling
Nature Impersonal communication Personal communication
Message Standardised message Message can be adjusted
Flexibility Less flexible Highly flexible
Reach Mass reach Limited reach
Cost per person Low High
Feedback Delayed and indirect Immediate and direct
Medium TV, radio, newspapers, magazines Sales staff
Best suited for Consumer goods Industrial products and dealers
Purpose Create awareness and interest Persuade and close sale

Q8. Explain the factors determining the choice of channel of distribution.

Answer: Choice of channel depends on product, company, market and competitive factors.

1. Product-Related Factors

Perishable products need short channels.

Bulky and expensive products also need shorter channels.

Standardised and low-value products can use longer channels.

2. Company-Related Factors

A company with strong financial resources may use direct channels.

A company with limited resources may depend on intermediaries.

3. Market-Related Factors

If buyers are few and concentrated, direct selling is better.

If buyers are many and widely spread, longer channels are useful.

4. Competitive Factors

A firm may follow competitors’ channels.

It may also choose a different channel to create market advantage.

5. Environmental Factors

Economic conditions, legal rules and technology affect channel choice.

Online selling and modern retail have changed distribution decisions.

Business Studies Chapter 10 Marketing NCERT Solutions: Core Concepts

Business Studies Chapter 10 Marketing NCERT Solutions become easier when students separate marketing from selling. Marketing starts with customer needs and continues after sale.

Meaning of Market

In the traditional sense, market means a place where buyers and sellers meet.

In modern marketing, market means actual and potential buyers of a product.

Meaning of Marketing

Marketing covers planning, pricing, promotion and distribution.

It aims to satisfy customer needs through exchange.

Needs and Wants

Needs are basic states of felt deprivation.

Wants are needs shaped by culture, personality and social background.

Market Offering

A market offering is a complete offer of a product or service.

It includes features, quality, price and availability.

Customer Value

Customer value means the benefit a customer expects from a product.

A buyer compares value with cost before purchase.

Exchange Mechanism

Exchange is the essence of marketing.

It needs at least two parties, something of value and freedom to accept or reject.

Marketing Mix Class 12 Business Studies: Product, Price, Place and Promotion

Marketing mix class 12 business studies questions require clear understanding of the four Ps. Each element must work with the others.

Element Meaning Key Decisions
Product Goods or services offered for sale Quality, design, packaging, labelling, branding
Price Money paid by buyer Price level, margins, discounts, credit terms
Place Product availability Channels, warehousing, transport, inventory
Promotion Communication with buyers Advertising, personal selling, sales promotion, publicity

Product Decisions

Product decisions cover quality, features, size, design and after-sales service.

They also include branding, packaging and labelling.

Price Decisions

Price decisions affect demand and profit.

They must consider cost, competition, utility and company objectives.

Place Decisions

Place decisions make products available to customers.

They include channels, transportation, storage and inventory control.

Promotion Decisions

Promotion decisions inform and persuade customers.

They use advertising, personal selling, sales promotion and publicity.

Branding Packaging and Labelling Class 12: Product Identity and Information

Branding packaging and labelling class 12 questions often appear as short answers. These three decisions help buyers identify, compare and trust products.

Branding

Branding gives a product a name, sign, symbol or design.

It differentiates the product from competitors.

Good Brand Name

A good brand name should be short and easy to remember.

It should suggest benefits, be distinctive and be legally protectable.

Packaging

Packaging means designing and producing the product container or wrapper.

It protects the product and helps promotion.

Levels of Packaging

Primary packaging is the immediate container.

Secondary packaging gives extra protection.

Transportation packaging helps storage and movement.

Labelling

Labelling gives product information.

It may include contents, use, price, batch number and legal details.

Promotion Mix Class 12 Business Studies: Communication Tools

Promotion mix class 12 business studies covers the tools used to inform and persuade buyers. A firm chooses the mix according to market, product and budget.

Advertising

Advertising is paid and impersonal communication by an identified sponsor.

It has mass reach and uses media like television, radio and newspapers.

Personal Selling

Personal selling is oral presentation in conversation with prospective buyers.

It gives direct feedback and helps in complex buying decisions.

Sales Promotion

Sales promotion gives short-term incentives.

Examples include discounts, samples, refunds, gifts and lucky draws.

Publicity

Publicity is non-paid, non-personal communication through an independent source.

It can build credibility but remains outside firm control.

Public Relations

Public relations manages the organisation’s image among stakeholders.

It includes press relations, product publicity, corporate communication, lobbying and counselling.

Class 12 Business Studies Important Links

Resource Link
CBSE Important Questions Class 12 Business Studies Chapter 1 CBSE Important Questions Class 12 Business Studies Chapter 1
Important Questions Class 12 Business Studies Important Questions Class 12 Business Studies
CBSE Important Questions Class 12 CBSE Important Questions Class 12
CBSE Class 12 Business Studies Revision Notes CBSE Class 12 Business Studies Revision Notes
CBSE Class 12 Business Studies Chapter 1 Notes CBSE Class 12 Business Studies Chapter 1 Notes
CBSE Class 12 Business Studies Syllabus CBSE Class 12 Business Studies Syllabus
CBSE Sample Papers for Class 12 Business Studies CBSE Sample Papers for Class 12 Business Studies
CBSE Business Studies Question Paper Class 12 CBSE Business Studies Question Paper Class 12

Q.1 What is a Treasury Bill?

Ans. Treasury bill is the short term instrument which the Central Government issues to the financial institutions or the general public in order to meet its short term financial needs. Its maturity period cannot be more than a year. It is issued by the RBI on behalf of the government.

Q.2 Name the segments of the National Stock Exchange (NSE).

Ans. National stock exchange: It started operations in 1994, with trading on the wholesale debt market segment. The NSE was setup by leading financial institutions, banks, insurance companies and other financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange.

Q.3 State any two reasons why investing public can expect a safe and fair deal in the stock market. (Point w.r.t safety of Transactions – Functions of the Stock Exchange).

Ans. The membership of a stock exchange is well-regulated and its dealings are well defined according to the existing legal framework.

This ensures that the investing public gets a safe and fair deal on the market.

Q.4 What is the common name for Beneficiary Owner Account, which is to be opened by the investors for trading in securities?

Ans. A beneficial owner is a person who enjoys the benefits of ownership even though title to some of property is in another name.

The investor has to give details of his demat account and instruct his depository participant to take delivery of securities directly in his beneficial owner account.

Q.5 Name any two details that need to be provided by the investor to the broker while filling a client registration form.

Ans. While filling a client registration form, the details provided by the investors to the broker are:

  • PAN Number
  • Date of birth and address
  • Bank account details
  • Depository account details
  • Client code number in the client registration form.

Q.6 What are the functions of Financial Market?

Ans. Functions of financial markets are:

Mobilisation of Savings: It gives savers the choice of different investments and thus helps to channelise surplus funds into the most productive use.

Facilitate Price Discovery: In the financial market, the households are suppliers of funds and business firms represent the demand. The interaction between them helps to establish a price for the financial asset which is being traded in that particular market.

Provide Liquidity to Financial Assets: Financial markets facilitate easy purchase and sale of financial assets. In doing so they provide liquidity to financial assets, so that they can be easily converted into cash whenever required.

Reduce the Cost of Transaction: Financial markets provide valuable information about securities helps to save time, effort and money.

Q.7 “Money Market is essentially a Market for short term funds.” Discuss.

Ans. Money market is a market which deals in monetary assets whose period of maturity is up to 1 year. This makes these assets highly liquid.

Thus, money market helps in raising short term funds, for meeting temporary shortages in cash and also for temporary deployment of excess funds available, for earning returns.

Important money market instruments are:

  • Call money
  • Treasury Bills
  • Commercial Papers
  • Certificate of Deposit
  • Commercial Bills

Q.8 Distinguish between Capital Market and Money Market.

Ans. Difference between Capital Market and Money Market:

Basis

Capital Market

Money Market

Meaning

The market dealing in the long term funds is known as capital market.

The market dealing in short term funds is known as money market.

Amount of Investment expenditure

Not huge as value of securities is less

Huge as instruments are expensive

Major Participants

Companies, stock exchanges, commercial banks, financial institutions, retail investors, etc

RBI, Commercial banks, non-banking finance companies, mutual funds, etc

Securities traded

Equity shares, debentures, bonds, etc

Treasury bills, commercial bills commercial paper, call money, etc

Safety

Risky in terms of both capital invested & returns thereon

Much safer, since for short period & issued by banks, government etc.

Rate of interest

Rate of interest in this market is generally higher

Rate of interest is generally low

Q.9 What are the functions of the Stock Exchange?

Ans. The functions of a stock exchange are:

Providing liquidity and marketability of securities – Stock exchange creates continuous market for buying and selling of securities by giving chance to investors for investing and disinvesting their securities.

Pricing of securities – Stock exchange is a mechanism of constant valuation through which the prices of the securities are determined. The share prices are determined by the forces of demand and supply.

Safety of transactions – Stock exchange ensures fair and safe deal on the market as only listed companies can trade their securities through this.

Contributes to Economic Growth – Stock exchange helps investors in investing and reinvesting their savings. This helps in channelising the savings in productive use which in turns lead to capital formation and economic growth.

Spreading of equity cult – Stock exchange ensures wider share ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investment.

Q.10 What are the objectives of SEBI?

Ans. The objectives of SEBI are:

  • To regulate stock exchanges through framing of rules and regulations and code of conduct to regulate intermediaries such as brokers, bankers, underwriters, etc.
  • To keep a check on the activities of the brokers and other middlemen in order to regulate any unfair trade practices in the capital market.
  • To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
  • To prevent trading malpractices and achieve a balance between self regulation by the securities industry and its statutory regulation.
  • To regulate and develop a code of conduct and fair practices by intermediaries like brokers, merchant bankers etc., with a view to making them competitive and professional.

Q.11 State the objective of NSE?

Ans. NSE was set up with the following objectives:

  • Providing a fair, efficient and transparent securities market using electronic trading system.
  • Establishing a nationwide trading facility for all types of securities.
  • Enabling shorter settlement cycles and book entry settlements.
  • Meeting international benchmarks and standards.
  • Ensuring equal access to investors all over the country through an appropriate communication network.

Q.12 Name the document prepared in the process of online trading of securities that is legally enforceable and helps to settle disputes/claims between the investor and the broker.

Ans. Contract note prepared in the process of online trading of securities that is legally enforceable and helps to settle disputes/claims between the investor and the broker.

This is an important document as it is legally enforceable. A unique order number is assigned to each transaction by the stock exchange and is printed on the contract note.

Q.13 Explain the various Money Market instruments.

Ans. Call Money: Call money is short term finance repayable on demand with a maturity period of one day to fifteen days, used for inter bank transactions. It is a method by which banks borrow from each other to maintain the cash reserve ratio. Cash reserve ratio is the minimum cash balance which banks have to maintain. The interest rate paid on call money loans is known as the call rate.

Treasury Bill: Treasury bill is the short term instrument which the Central Government issues to the financial institutions or the general public in order to meet its short term financial needs. Its maturity period cannot be more than a year. It is issued by the RBI on behalf of the government.

Commercial Paper: Commercial papers are those unsecured promissory notes which are issued by reputed companies. Their buyers are banks, insurance companies, unit trust and firms. The minimum face value of a commercial paper is five lakh rupees. It is used to meet the demand of a short term seasonal need and requirement of working capital.

Certificate of Deposit: refers to a time deposit or fixed deposit which can be sold in the secondary market. Only a bank can issue Certificate of Deposit.

Commercial Bill: A commercial bill is a bill of exchange used to finance the working capital requirements of business firms.

Q.14 Explain the recent Capital Market reforms in India.

Ans. Capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested. It can be divided into two parts: a. Primary Market and b. Secondary market. First stock exchange was set up in India in 1875 that was later named as Bombay Stock Exchange. After the reforms of 1991, Stock market in India acquired three tier systems: Regional stock exchange, national stock exchange and OTCEI.

Regional stock exchange: First regional stock exchange was set up in Ahmadabad. Later on stock exchanges were set up in Calcutta, Madras, Delhi, Hyderabad and Indore. Currently there are 22 regional stock exchanges.

National stock exchange: It started operations in 1994, with trading on the wholesale debt market segment. The NSE was setup by leading financial institutions, banks, insurance companies and other financial intermediaries. It is managed by professionals, who do not directly or indirectly trade on the exchange.

Over the counter exchange of India: It was set-up to provide small and medium companies an access to the capital market for raising finance in a cost effective manner. It is defined as a place where buyers seek sellers and vice-versa and then attempt to arrange terms and conditions for purchase/sale acceptable to both the parties.

Q.15 Explain the objectives and functions of the SEBI.

Ans. SEBI was set up in 1988 to regulate the functions of the securities market with a view to promote their orderly and healthy development, to provide adequate protection to investors and thus, create an environment to facilitate mobilisation of adequate resources through the securities market.

Objectives of SEBI:

  • To regulate stock exchanges through framing of rules and regulations and code of conduct to regulate intermediaries such as brokers, bankers, underwriters, etc.
  • To keep a check on the activities of the brokers and other middlemen in order to regulate any unfair trade practices in the capital market.
  • To protect the rights and interests of investors, particularly individual investors and to guide and educate them.
  • To prevent trading malpractices and achieve a balance between self regulation by the securities industry and its statutory regulation.
  • To regulate and develop a code of conduct and fair practices by intermediaries like brokers,
  • merchant bankers etc., with a view to making them competitive and professional.

Functions of SEBI:

Protective Functions.

  • To prohibit fraudulent and unfair trade practices in the securities market.
  • To prohibit insider.
  • To educate investors.
  • To promote fair practices and code of conduct in securities market.

Developmental Functions:

  • To promote training of intermediaries of the securities market.
  • To develop capital markets by adapting a flexible approach.

Regulatory functions:

  • SEBI has framed rules and regulations and code of conduct to regulate the intermediaries such as brokers, bankers, underwriters etc.
  • Controlling insider trading and takeover bids.
  • It registers the working of mutual funds.
  • It conducts inquiries and audit of stock exchange.
  • Prohibition of fraudulent and unfair trade practices.

Q.16 India’s largest domestic investor life Insurance Corporation of India has once again come to government’s rescue by subscribing 70% of Hindustan Aeronautics’ ₹4,200-crore initial public offering.

a. Which market is being reflected in the above case?

b. State which method of floatation in the above identified market is being highlighted in the case? (Primary Market)

c. Explain any two other methods of floatation. (Private Placement, Offer through prospectus, offer for sale).

Ans.

a)

Primary market is being reflected in the above case. It is a market for creation and exchange of financial assets. It helps in mobilisation and channelizing the savings into most productive uses.

These markets also helps in price discovery and provide liquidity to financial assets.

b)

Right issue method of floatation is identified in this case.

This is a privilege given to existing shareholders to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered the right to buy new shares in proportion to the number of shares they already possess.

c)

The other method of flotation is ‘Private Placement’.

Private placement is the allotment of securities by a company to institutional investors and some selected individuals. It helps to raise capital more quickly than a public issue.

Offer for Sale: Under this method, securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers. In this case a company sells securities enables at an agreed price to brokers who, in turn, resell them to the investing public.

Q.17 lalita wants to buy shares of Akbar Enterprises, through her broker kushvinder. She has a Demat Account and a bank account for cash transactions in the securities market. Discuss the subsequent steps involved in the screen-based trading for buying and selling of securities in this case.

Ans. The following steps are involved in the screen-based trading for buying and selling of securities:

Step 1: If an investor wishes to buy or sell any security he/she has to first approach a registered broker or sub-broker and enter into an agreement with him. The investor has to sign a broker-client agreement and client registration form before placing an order to buy or sell securities.

Step 2: The investor has to open a demat account or beneficial owner account with a DP for holding and transferring securities in the demat form.

Step 3: The investor than places an order with the broker to buy or sell shares.

Step 4: The broker than will go on-line and connect to the main stock exchange board and match the share and best price avialble.

Step 5: When the shares can be bought or sold at the price mentioned. It will be communicated to the broker’s terminal and the order will be executed electronically.

Step 6: After the trade has been executed, within 24 hours the broker issues a contract note. This note contains details of the number of shares bought/sold, the price and the brokerage charges.

Step 7: Now the investor has to deliver the shares sold or pay cash for the shares bought.

Step 8: Cash is paid or securities are delivered on pay-in-day, which is before the T+2 day as the deal has to be settled and finalised.

Step 9- On the T+2 day, the exchange will deliver the share or make payment to the other broker. This is called Pay-out-day.

Step 10: The broker can make delivery of shares in demat form directly to the investor’s demat account.

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FAQs (Frequently Asked Questions)

Marketing is the process of identifying customer needs and satisfying them through exchange. It includes product planning, pricing, promotion and distribution.

The 4 Ps are product, price, place and promotion. They help a firm create, price, distribute and communicate its market offering.

Marketing focuses on customer needs and satisfaction. Selling focuses mainly on converting goods or services into cash through promotion and persuasion.

Branding helps identify and differentiate a product. It builds customer loyalty, supports advertising and allows differential pricing.

Promotion mix is the combination of advertising, personal selling, sales promotion and publicity. Firms use it to inform and persuade customers.