Financial Markets
Very Short Q & A based on NCERT Chapter.
Q1: What is a financial market?
Answer: A financial market is a market for the creation and exchange of financial assets.
Q2: Does Financial contribute in any development?
Answer: Financial markets contribute to economic development.
Q3: Name the two major components of a financial market.
Answer: Money Market and Capital Market
Q4: What are financial assets?
Answer: Financial instruments or securities like shares, debentures, treasury bills etc. are considered to be financial assets.
Q5: What is a money market?
Answer: A money market refers to the market where borrowers and lenders exchange short-term funds to solve their liquidity needs.
Q6: Define flotation cost.
Answer: Expenditure incurred in issuing securities is called flotation cost. Examples are underwriting commission, advertising etc.
Q7: List three advantages of money market instruments.
Answer:
i. low default risk.
ii. maturity under one year
iii. high marketability
Q8: What is zero coupon bond?
Answer: It refers to a financial instrument for which no interest is paid but is issued at a discount redeemable at par. It is a treasury bill, an instrument of short-term borrowing by the Government of India maturing in less than one year.
Q9: What is a capital market?
Answer: It refers to a market for financial investments which are direct or indirect claims to capital. It is a place where long-term funds are mobilised by the corporate undertakings and Government.
Q10: Which is referred as barometer of economy.
Answer: Capital market particularly stock exchange.
Q11: Ramesh's company has paid up capital of Rs 50,000. He wants to list his company in National Stock Exchange. Can he do so?
Answer: No. Because to get listed in NSE, the minimum paid up capital required is Rs. 3 crores.
Q12: Name the two componenets of capital market.
Answer: Primary market and secondary market.
Q13: List any three major objectives of capital market.
Answer:
i. Mobilize resources for investments
ii. Facilitate process of efficient price discovery.
iii. Facilitate buying and selling of securities.
Q14: List two buyers of commercial paper.
Answer: Banks and Insurance companies.
Q15: What is a commercial paper?
Answer: It is a short-term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period.
Q16: What do you mean by Certificate of Deposit (CD)?
Answer: It is a unsecured, negotiable short-term instruments in bearer form, issued by commercial banks and development financial institutions.
Q17: Name two advisory committees set up by SEBI.
Answer:
i. Primary market Advisory committee.
ii. Secondary market advisory committee.
Q18: What is price rigging?
Answer: It is the manipulation of prices of the securities by companies or their agents for their own profits.
Q19: Why secondary market is considered as market for second hand securities?
Answer: It is because in this market existing and second hand securities are sold among investors.
Q20: Name the system where there is electronic book entry form of holding and transferring the securities.
Answer: Dematerialisation.
Q21: What is the Benchmark index of NSE?
Answer: NIFTY (Stock market Index of NSE)
Q22: List the segments of NSEI.
Answer: Wholesale debt market and Capital market segment
Q23: List any three major initiatives taken up by SEBI.
Answer:
i. Control over issue of capital
ii. Depositories Act
iii. Establishment of Regulator
Q24: Name the two depositories operating in India.
Answer: (a) National Securities Depositories Limited (NSDL) and (b) Central Depository Services Limited (CDSL)
Q25: What does NASDAQ stand for?
Answer: It stands for (National Association of Securities Dealers Automated Quotations) the OTC exchange in USA.
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