CH 10

Chapter 10: Financial Market
QN Questions
MULTIPLE CHOICE QUESTIONS
1 Which of the following statements is not true with regard to primary market?
(a) Is also known as the old issues market.
(b) It facilitates the transfer of investible funds from savers to entrepreneurs.
(c) It deals with new securities being issued for the first time.
(d) It facilitates the transfer of investible funds from savers to entrepreneurs
2 Which of the following is not a protective function of stock exchange?
(a) Prohibition of fraudulent and unfair trade practices.
(b) Controlling insider trading.
(c) Regulation of takeover bids by companies.
(d) Promotion of fair practices and code of conduct in securities market.
3 A company can raise capital through the primary market in the form of:
(a) Equity shares
(b) Preference shares
(c) Debentures
(d) All of the above
4 Under this method of floatation in primary market, a subscription is invited from general public to
invest in the securities of a company through the issue of advertisement.
(a) Private placement
(b) Offer through prospectus
(c) Offer for sale
5 Zing Enterprises Limited has sold an entire lot of 10,00,000 equity shares @ ₹90 each to Soft Bank
Private Limited. The bank in turn will offer the shares to general public for subscription @ ₹110 per
share. Identify the method of floatation being described in the given lines.
(a) Private placement
(c) Offer for sale
(d) Rights issue
6 The process of holding shares in electronic form is known as
(a) Demutualisation
(b) Dematerialisation
(c) Speculation
(d) None of the above
7 Identify the correct sequence of steps to be followed in the trading procedure at Stock Exchange:
(a) Opening a trading account and Demat account, Placing an order, Settlement of order, Execution
of order
(b) Settlement of order, Opening a trading account and Demat account, Placing an order, Execution
of order
(c) Opening a trading account and Demat account, Placing an order, Execution of order, Settlement
of order
(d) Placing an order, Opening a trading account and Demat account, Execution of order, Settlement
of order
8 One of the common irregularities noted by the Securities and Exchange Board of India during the
inspection of a stock exchange was that it was dealing with unregistered sub-brokers. Identify the
related function of Securities and Exchange Board of India:
(a) Regulatory function
(b) Protective function
(c) Developmental function
KVS ZIET BHUBANESWAR 26/10/2021 1
9 Ravi’s father has gifted her shares of large Auto Company, with which he had been working. The
securities were in physical form. He already has a bank account and does not possess any other forms
of securities.
He wished to sell the shares and approached a registered broker for the purpose. Mention one
mandatory details which she will have to provide with the broker:
(a) Permanent Account Number (PAN)
(b) Trade confirmation Slip
(c) Contract Note
(d) Unique order code number
10 Neeta has 1000 equity shares of a company. She wants to sell 500 of these shares. Which market
should she approach?
(a) Money Market
(b) Capital Market
(c) Primary Market
(d) Stock Market
11 Which of the following statements is not true with regard to money market?
(a) It involves low market risk.
(b) It is situated at specific locations.
(c) Deals in unsecured and short-term debt instruments.
(d) The instruments traded are highly liquid.
12 Which of the following statements is not true with regard to Commercial paper?
(a) It Is a long-term unsecured promissory note with a fixed maturity period.
(b) It usually has a maturity period of 15 days to one year.
(c) It is sold at a discount and redeemed at par.
(d) Companies use this instrument for bridge financing.
13 Which of the following statements is not true with regard to stock exchange?
(a) It provides a platform for buying and selling of new securities.
(b) It curbs the marketability of the securities.
(c) By providing a ready market, it extends liquidity to the securities.
(d) It provides a platform for buying and selling of old securities
15 Raj Enterprises wishes to invest ₹1,10,000 in treasury bills. What is the maximum number of
treasury bills it can buy with this fund?
(a) 6
(b) 7
(c) 4
(d) 2
16 It is a market for short-term funds which deals in monetary assets whose period of maturity is up to
one year.
(a) Primary market
(b) Secondary market
(c) Capital market
(d) Money market
17 It is an instrument of short-term borrowing by the Government of India maturing in less than one
year.
(a) Commercial bill
(b) Treasury bill
(c) Call money
18 Stock exchanges provide an opportunity to the investors to disinvest and invest. Identify the related
function of the stock exchange.
(a) Providing scope for speculation.
(b) Providing liquidity and marketability to existing securities.
(c) Pricing of security.
(d) Spreading of equity cult.
19 One of the common irregularities noted by the Securities and Exchange Board of India during the
inspection of a stock exchange was that it was dealing with unregistered sub-brokers. Identify the
related function of Securities and Exchange Board of India
(a) Regulatory function
(b) Protective function
(c) Developmental function
20 It acts like a bank and keeps securities in electronic form on behalf of the investor,
(a) Depository Participant
(b) Depository
(c) Stock exchange
(d) Reserve Bank of India
21 Primary and Secondary Markets:
(A) Compete with each other
(B) Complement with each other
(C) Functions independently
(D) Control each other
22 Which of the following is an objective of SEBI?
(A) To regulate stock exchanges and the securities industry
(B) To protect rights and interests of investors
(C) To prevent trading malpractices
(D) To train intermediaries of securities market
23 Which of the following instrument is not dealt in Secondary market?
(A) Call money
(B) Debentures
(C) Preference Shares
(D) Equity Shares
24 ‘Prohibition of unfair trade practices like price rigging’ relates to which function of SEBI?
(A) Regulatory function
(B) Development function
(C) Protective function
(D) None of these
25 Which market deals in sale purchase of existing securities?
(A) Money Market

(B) Capital Market
(C) Primary Market
(D) Secondary Market
26 Secondary Market is also known as:
(A) Money Market
(B) Primary Market
(C) Stock Exchange
(D) Stock Market
27 Which one is Development function of SEBI?
(A) Training of intermediaries of the securities market
(B) Registration of Brokers and Sub-Brokers
(C) Undertaking steps for investors protection
(D) Conducting research and publishing information useful to all market participants.
28 Controlling Insider Trading is a ____________________ function of SEBI.
(A) protective
(B) development
(C) financing
(D) regulatory
29 SEBI stands for
(A) Securities Exchange Bearue of India
(B) Stock Exchange Board of India
(C) Securities and Exchange Board of India
(D) Securities Exchange Board of India
30 To buy or sell the securities in stock market, it is mandatory to have:
(A) Current Account
(B) Fixed Account
(C) Deposit Account
(D) Demat Account
31 Which of the following money market instruments is a short term negotiable, self liquidating
instrument which is used to finance the credit sales of firms?
(a)Commercial bill
(b) Certificate of deposit
( C) Call money
(d) Commercial paper
32 ………………….acts like a bank and keeps securities in electronic form on behalf of the investor.
(a)Depository Participant

(b) Stock Exchange
(c) Depository
(d) None of these
33 Primary and secondary markets.
(a) Complete with each other
(b) Complement with each other
(c) Function independently
(d) Control each other
34 A company can raise capital through the primary market in the form of
(a) Equity Shares
(b) Preference Shares
(c) Debentures
35 The process of holding shares in electronic form is known as
(a) Demutualisation
(b) Dematerialisation
(c) Speculation
36 Stock Exchange works as a mechanism for valuation of securities through the forces of demand
and supply. Identify the related function performed by the stock exchanges
(a) Providing liquidity and marketability of existing securities
(b) Safety of transaction
(c) Pricing of securities
(d) Spreading of Equity cult
37 It is a market of short-term funds which deals in monetary assets whose period of maturity is up
to one year
(a) Primary Market
(b) Secondary Market
(c) Capital Market
(d) Money Market
38 Suppose an investor purchases a 91 days Treasury bill with the face value of Rs.2,00,000 for
Rs.1,92,000. By holding the bill until the maturity date, the investor receives Rs.2,00,000. What is
the amount of interest received by him?
(a) Rs.8,000

(b) Rs.80,000
(c) Rs.3,92,000
(d) Rs.2,00,000
39 In Right issue, shares are issued to
(a) General public
(b) Existing shareholders
(c) Institutes only
40 The Apex Body Who controls the Capital Market of our country
(a) RBI
(b) SBI
(c) SEBI
41 To meet flotation cost, firms generally issue the following instrument of money market
(a) Call money
(b) Commercial Paper
(c) Certificate of deposit
(d) Treasury Bill
42 ……………is a money market instrument used for interbank transactions
(a) Call money
(b) Commercial paper
(c) Treasury bill
(d) Certificate of deposit
43 After the trade has been executed, the broker issues a contract note to the investor within
(a) 48 hours.
(b) 52 hours.
(c) 12 hours.
(d) 24 hours.
44 Witch of the following refers to allotment of securities by a company to institutional investors and
some selected individuals.
(a) Right issue
(b) Private placement
(c) Offer for sale
(d) Offer through prospectus
45 Clearing and settlement operations of NSE are carried out by

(a) NSDL
(b) NSCCL
(c) SBI
(d) CDSL
46 Which of the following statements is not true with regard to Treasury bills?
(a) Are issued in the form of a promissory note.
(b) They are highly liquid and have assured yield
(c) They carry high risk of default.
(d) They are available for a minimum amount of ₹25,000 and in multiples thereof.
47 Which of the following statements is not true with regard to Commercial paper?
(a) Is a long-term unsecured promissory note with a fixed maturity period.
(b) It usually has a maturity period of 15 days to one year.
(c) It is sold at a discount and redeemed at par.
(d) Companies use this instrument for bridge financing.
48 Which of the following statements is not true with regard to Call money?
(a) It is short-term finance repayable on demand.
(b) Its maturity period ranges from one day to fifteen days.
(c) There is a direct relationship between call rates and other short-term money market instruments.
(d) It is used for inter-bank transactions.
50 ) Raj Enterprises wishes to invest ₹1,10,000 in treasury bills. What is the maximum number of
treasury bills it can buy with this fund?
(a) 6
(b) 7
(c) 4
(d) 2
51 The allocated function is performed by
(a) Financial market
(b) Capital market
(c) Money market
52 ) It is a market for short-term funds which deals in monetary assets whose period of maturity is up
to one year.
(a) Primary market
(c) Capital market
(d) Money market
53 The capital market consists of
(a) Development banks
(b) Commercial banks
(c) Stock exchanges
54 A company can raise capital through the primary market in the form of
(a) Equity shares
(b) Preference shares

(c) Debentures
55 They can be issued to individuals, corporations and companies during periods of tight liquidity
when the deposit growth of banks is slow but the demand for credit is high.
(a) Commercial papers
(b) Call money
(c) Commercial bill
56 -------------------- is a market for short term debt instruments whose period of maturity is upto one year.
(A)Money Market
(B)Capital Market
© Financial Market
(D) Stock market
57 Money market for -----------------term funds.
Short
Long
Medium
fixed
58 ---------------------------is a short term money market instrument through which one bank may borrow money
from another bank to maintain its cash reserve ratio as per the guidelines of RBI.
Call money
Call draft
Demand draft
Cash credit
59 --------------------is used for bridge financing.
Call money
Demand draft
Commercial paper
Trade bill
60 When the trade bill is accepted by a commercial-bank for discounting it is called-----------------------------.
Commercial paper
Call money
Commercial bill
Trade voucher
61 Radha is a large finance company operating in the Kerala. It is an export oriented unit, dealing in exclusive
jute products. The earthquake in the kerala have created many problems for the company. Many craftsmen
and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get
an uninterrupted supply or raw material, and the duration of the production cycle has also increased. To add
to the problems of the organization, the suppliers of raw material who were earlier selling on credit are
asking the company, for advance payment or cash payment on delivery. The company is facing a liquidity
crisis. The CEO of the company feels that taking a bank loan is the only option with the company to meet
its short term shortage of cash. As a finance manager of the company name and explain the alternative to
bank borrowing that the company can use to resolve the crisis.
Commercial paper
Call money
Commercial bill
Trade voucher
62 Which of the following is not the participants of money market?

a)RBI
b)Commercial banks

c)non-banking finance companies
d)Stock market
63 ……………….. bill can be discounted with a bank if the seller requires funds before maturity.
Sales bill
Purchase bill
Vouchers
Commercial bill
64 Which of the following is not the money market instruments?
Call money
Shares
Treasury bill
Commercial paper
65 Maturity period of certificate of deposit is -----------------------
3-12 months
6-12 months
1day – 15 days
1-3 months
66 1) Which market directly contributes for capital formation and increase in capital of firms?
(a) Primary market
(c) Both (a) and (b)
67 1) Only buying of securities takes place in

( a ) Secondary market
( b ) Primary market
( c ) money market
( d ) capital market
68 1) Two major classifications of financial markets are

a) Money market and capital market
b) Primary market and secondary market
c) Debt market and Equity market
d) Whole sales market and retail market
69 1) Instruments with a maturity period of than one year are traded in

a.Money market
b. NSEI
C. Stock exchange
d. Capital market

70 1) Secondary market is also known as
a) Primary Market
b) New Issue Market
c) Financial Market
d)Stock Exchange
71 1) Offer for sale in primary market is

a) sale of securities to intermediaries then to general public.
b) ) sale of securities to institutional investor
c) ) sale of securities electronically
d) ) sale of securities through prospectus
72 1) The new issues market is also known as

a. Money market
b. Primary market
c. Stock exchange
d. Secondary market
73 1) Dinesh has 100 equity shares of a company. He wants to sell 500 of these shares. Which
market should be approach?
a. Secondary market
b. Primary market
c. Financial market.
d. Money market
74 1) Financial market ________ financial assets.
(a) Creates
(b) Exchange
(c) Creates and Exchange
75 1) Which is the major part of financial system?
(a) Financial market
(b) Financial institutions
(c) Financial securities
(d) All of above
76 Mohan Enterprises wishes to invest ₹2,10,000 in treasury bills. What is the maximum number of
treasury bills it can buy with this fund? ( KNOWLWDGE)
(a) 6
(b) 7
(c) 8
(d) 9
77 On this day, the exchange will deliver the share or make payment to the other broker.
(a) Pay-in day (UNDERSTANDING)
(b) Pay-out day
(c) Transaction day
(d) On working days

78 Who issues a treasury bill? ( KNOWLWDGE)
(a) Any nationalised bank
(b) Any private sector bank
(c) Reserve Bank of India
(d) Cooperative Banks.
79 It serves as an intermediary between the investor and the depository who is authorised to maintain
the accounts of dematerialised shares. ( ANALYSIS)
(a) Depository Participant
(b) Depository
(c) Stock exchange
(d) Broker
80 It is a number assigned to each transaction by the stock exchange and is printed on the contract
note. ( APPLICATION)
(a) PAN number
(b) Unique Order Code
(c) Contract Note
81 Identify the correct sequence of steps to be followed in the trading procedure at Stock Exchange.
( EVALUATION)
(a) Opening a trading account and Demat account, Placing an order, Settlement of order, Execution
of order
(b) Settlement of order, Opening a trading account and Demat account, Placing an order, Execution
of order
(c) Opening a trading account and Demat account, Placing an order, Execution of order, Settlement
of order
(d) Placing an order, Opening a trading account and Demat account, Execution of order, Settlement
of order
82 The mandatory detail that an investor has to provide to the broker at the time of opening a demat
account is ( EVALUATION)
(a) Date of birth and address
(b) PAN number
(c) Residential status (Indian/NRI)
(d) Bank account details.
83 Stock exchanges provide an opportunity to the investors to disinvest and invest. Identify the related
function of the stock exchange. (APPLICATION)
(a) Providing scope for speculation.
(b) Providing liquidity and marketability to existing securities.
(c) Pricing of security.
(d) Spreading of equity cult.

84 Radhey Shyam is holding hundred shares of a company. He has been given a privilege offer to
subscribe to a new issue of shares of the same company in proportion of 3:1 to the number of
shares already possessed by him. Identify the method of floatation being described in the above
case. ( CREATION)
(a) Offer through prospectus
(b) Offer for sale
(c) Rights issue
(d) Private placement
85 DK Enterprises Limited has sold an entire lot of 3,00,000 equity shares @ ₹9 each to Prosperous
Bank Private Limited. The bank intum will offer the shares to general public for subscription @
₹12 per share. Identify the method of floatation being described in the given lines.
(a) Private placement ( CREATION)
(c) Offer for sale
(d) Rights issue
86 Under this method of floatation in primary market, a subscription is invited from general public to
invest in the securities of a company through the issue of advertisement.
(a) Private placement ( UNDERSTANDING)
(c) Offer for sale
87 They can be issued to individuals, corporations and companies during periods of tight liquidity
when the deposit growth of banks is slow but the demand for credit is high.
(a) Commercial papers ( APPLICATION)
(b) Call money
(c) Commercial bill
88 The capital market consists of
(a) Development banks
(b) Commercial banks
(c) Stock exchanges
89 It is used as an alternative to bank borrowing for large and creditworthy companies,
(a) Commercial bill ( UNDERSTANDING)
(b) Commercial papers
(c) Call money
(d) Treasury bills

90 It is a method by which banks borrow from each other to be able to maintain the cash reserve ratio.
( ANALYSIS)
(a) Commercial bill
(b) Commercial papers
(c) Call money
91 When the allocative function is performed well by financial markets, it results into:
(a) The rate of return offered to households would be higher
(b) Scarce resources are allocated to those firms which have the highest productivity for
the economy.
(c) Both a and b
92 The process by which allocation of funds is done by financial markets is called:
(a) financial intermediation.
(b) financial allocation
(c) financialmarketing.
(d) financialdepository.
93 Which of the followings does not come under category of negotiable instruments:
(a) commercial paper
(b) call money
(c) certificate of deposit
(d) commercial bills
94 Financial market performs the following function:
(a) Mobilisation of Savings and Channeling them into the most Productive Uses.
(b) Facilitates price discovery
(c) Provides liquidity to financial assets
d. All of the above
95 The primary market is also known as:
(a) Money market
(b) Financial market
(c) Stock market
d. New issue market
96 Which of the following is not true in case of ‘ certificate of deposit’:
(a) they are unsecured
(b) they are negotiable

(c) they are issued by companies
d. they are money market instruments
97 Treasury bills are also known as Zero Coupon Bonds because:
(a) they are issued at a price which is lower than their face value and repaid at par.
(b) they do not pay interest.
(c) Both a and b
d. None of the above
98 Suraj has 200 shares of ABC Ltd. he is in urgent needs of funds and want to sell his shares. He can
do so in:
(a) Money market
(b) Primary market
(c) Secondary market
d. Both a and b
99 Which of the following statement is false:
(a) Capital market instruments are riskier both with respect to returns and principal repayment.
(b) The investments in capital markets generally yield a higher return for investors than the money
markets.
(c) Investment in the capital market-securities requires a huge financial outlay.
(d) The primary market is also known as the New Issues Market.
100 ‘Radha Industries Ltd.' is wanting to expand its operations. For this it decides to issue shares. It
also decides to offer its existing shareholders the privilege to subscribe to its new issue of shares in
the proportion of 2: 1. This means that for every two shares held by the shareholders, they will be
offered one share. The company can issue new shares in:
(a) Money market
(c) Primary market
d. Both b and c

Answer KEY
MCQ 1-A 2-C 3-D 4-B 5-C 6-B 7-C 8-A 9-A 10-D
11-b 12-a 13-b 14-c 15-c 16-d 17-b 18-b 19-a 20-b
21-B 22-A 23-A 24-C 25-D 26-C 27-A 28-A 29-C 30-D
31-a 32-c 33-b 34-d 35-d 36-c 37-c 38-a 39-b 40-c
41-b 42-a 43-d 44-c 45-b 46-c 47-a 48-c 49- c 50-c
51 d 52 d 53 d 54 d 55 d 56-A 57-A 58-A 59-A 60-C
61-A 62-D 63-D 64-B 65-C 66-a 67-d 68-a 69-a 70-d
71-d 72-b 73-a 74-c 75-d 76-C 77-B 78-C 79-A 80-B
81-C 82-B 83-A 84-C 85-C 86-D 87-D 88-C 89-B 90-C
91-c 92-a 93-b 94-d 95-d 96-c 97-c 98-c 99-c 100-c
PREPARED BY THE PGTs ( COMMERCE ) OF BHUBANESWAR, GUWAHATI, KOLKATA, RANCHI,

SILCHAR AND TINSUKIA REGIONS.

CASE BASED QUESTIONS
Case-1 Mr. Jamana Prasad was the Chairman of ‘Tip Top Bank’. The bank was earning good profits.
Shareholders were happy as the bank was paying regular dividends. The market price of their
shares was also steadily rising. The bank was about to announce taking over of ‘Seva Bank’. Mr.
Jamana Prasad knew that the share price of ‘Tip Top Bank’ would rise on this announcement.
Being a part of the bank, he was not allowed to buy shares of the bank. He called one of his rich
friends Thakur Baldev Singh and asked him to invest Rs.10 crores in shares of his bank promising
him the capital gains.
As expected the share prices went up by 40% and the market price of Thakur Baldev Singh’s shares was
now Rs.14 crores. He earned a profit of Rs.4 crores. He gave Rs.2 crore to Mr. Mr. Jamana Prasad and kept
Rs. 2 crore with himself. On regular inspection and by conducting enquiries of the brokers involved,
Securities and Exchange Board of India (SEBI) was able to detect this irregularity. The SEBI imposed a heavy
penalty on Mr. Jamana Prasad.
1 1(a) What is the name of malpractice done by Mr. Jamana Prasad is called:
(a)Misleading statement
(b) Manipulations
© Insider trading
(d) Price rigging
2 1(b) Which function was performed by SEBI
(a)Protective Function
(b)Regulatory Function
©Developmental Function
(d)Inspecting Function
3 1© Which financial decision have been mentioned in the above paragraph
(a) Investing Decision
(b) Financing Decision
© Dividend Decision
(d) Both (a) and (b)
Case-2 Read the passage given below and answer the following questions……..
Meca Ltd. A reputed automobile manufacturer needs Rupees ten crores as additional capital to
expand its business. Atul Jalan, the CEO of the company wanted to raise funds through equity. On
the other hand the Finance Manager, Nimi Sahdev said that the public issue may be expensive on
account of various mandatory and non-mandatory expenses. Therefore, it was decided to allot the
securities to institutionalinvestors.
1a. Name the method through which the company decided to raise additional capital.
(i)Private Placement
(ii)Issue thorugh Public Subscrition
(iii)Bonous Issue
(iv)None of the above
Case-3 ABC Ltd. Issued prospectus for the subscription of its shares for Rs. 500 crores in 2008. The issue
was oversubscribed by 20 times. The company issued shares to all the applicants on pro-rata basis.
Later SEBI inspected the prospectus and found some misleading statement about the management
of the company in it. SEBI imposed a penalty of Rs. 5 crores and banned its three executive directors
for dealing in securities market for three years.
3a. Identify the function performed by SEBI in the above case.
(i)Protective Function
(ii)Development Function
(iii)Regulatory Function
(iv)None of the above
Case-4 ‘Ganesh Steel Ltd.’ Is a large and credit-worthy company manufacturing steel for the Indian
market. It now wants to cate to the Asian market and decides to invest in new hi-tech machines.
Since the investment is large, it requires long-term finance. It decides to raise funds by issuing
equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of
floatation cost the company decides to tap the money market.
(A)Treasury Bill
(B)Call Money
©Commercial Paper
(D)Certificate of Deposit
Case-5 The Trading Procedure on Stock Exchange has been replaced by on-line screen based electronic
trading system. This is mainly done to eliminate problems like theft, fake/forged transfers, transfer
delays and paper work associated with share certificates or debentures in physical form. This is a
process where securities held by the investor in the physical form are cancelled and the investor is
given an electronic entry or number so that he/she can hold it as an electronic balance in an
account. This has increased the equity cult among the people.
Identify the process discussed in above lines.
(A)Demonetisation
(B)Insider Trading
©Intra Day Trading
(D)Dematerialisation
Case-6 Kajal got 30,00,000 rupees after selling her parental property, which she had got as a gift from her
grandfather. Her brother advised her to invest in securities in the stock market. Kajal was unaware
of the procedure for the same. Her friend introduced her to a stock broker, who was registered with
the NSE. Kajal opened DEMAT account with NSDL and a Bank account in TBI Bank as per the
guidance of broker.
Q1) Which step of trading procedure involved in the sentence ‘Her friend introduced her to a stock
broker’:
(A) Opening DEMAT account
(B) Selection of Broker
© Placing an Order
(D) Settlement
Q2) NSE stands for:
(A) Needs of Stock Exchange
(B) National Savings Enterprises
© National Stock Exchange
(D) National Share Exchange
Q3) Which of the following is a depository?
(A) NSE
(B) TBI

© DEMAT
(D) NSDL
Q4) Demat Account is for:
(A) keeping securities in digital form
(B) keeping securities in physical form
© Both (A) and (B)
(D) Neither (A) nor (B)
Case-7 Secondary market is a market for exchange of financial assets. It helps to link the savers with the
investors and directs available funds into their most productive investment opportunity. It also
facilitates easy purchase and sale of financial assets through stock exchange. The stock exchange not
only facilitates buying and selling of existing securities but also educates public about how their
investments in the financial market can yield good returns. To promote orderly and healthy growth
of securities market a statutory body is also working.
Q1) Secondary market is a market where:
(A) new financial assets are purchased and sold.
(B) existing financial assets are purchased and sold.
© both new and existing financial assets are purchased and sold.
(D) None of the above.
Q2) ‘Secondary market helps to link the savers with the investors.’ This statement states the function:
(A) Pricing of securities
(B) Ensures safety of transactIons
(C) Mobilization of funds
(D) Provides liquidity to financial assets
Q3) Which statutory body is working in India to promote orderly and healthy growth of securities
market:
(A) BSE
(B) NSE
(C) NABARD
(D) SEBI
Q4) Which of the following is a financial asset traded in secondary market:
(A) Fixed deposit
(B) Debentures
(C) Call Money
(D) T-Bill
Case-8 Texla Ltd. Is a larger credit worthy company manufacturing automobiles for Indian market. It now wants to
cater to the other market and decided to invest in new machines. For this, it requires long term finance. It

decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To
meet the expenses of flotation cost company decides to tap money market.
1 “To meet the expenses of flotation cost the company decides to tap money market “. What is
technically called?
(a) Flotation
(b) Bridge financing
(c) Demateralisation
d. None of these
2 Name the money market instrument the company can use for the above purpose.
(a) Treasury bill
(b) Call money
(c) Commercial paper
d. Certificate of deposit
3 What is the duration for which the company can get funds through this instrument?
(a) 1 day to 15 days
(b) 1 day to 91 days
(c) 15 day to 1 year
d. None of these
4 State any other purpose for which this instrument can be used
(a) It is used to provide short term funds for seasonal and working capital needs of business.
(b) It is used to meet short term requirement of funds for central government
(c) It is used to maintain cash reserve ratio.
(d) It is used to finance the credit sales of the firm
Case-9 Mr. Ram Narayan was the managing Director of V.L.W Ltd. and the finance manager Mr Shyam
were discussing about the avenues of investing the ideal funds of the company .Aditya was one of
the opinion that money should be invested in capital market. Where as Radhey Shyam ,being
more conservative ,feels that it would be better if the investment was made in money market
.Since the economy was buoyant ,the managing Director convinced Radhey Shyam that they
should take advantage of it and invest in capital market to get good returns. Ultimately it was
decided to invest the ideal funds in the capital market .
1 Which of the following sources of long term finance is generally used by a company in the
situation described above?

(a) Debt
(b) Equity
(c) Retained earning
d. All of these
2 What kind of instruments should the company buy?
(a) Share ,Debentures and bonds
(b) Commercial paper ,certificate of deposit
d. Neither (a) nor (b)
3 Why is the capital market expected to give a better return in a buoyant economy?
(a) Securities are held for longer duration.
(b) There is scope of getting capital gains on shares
d. None of the above
4 Why and how safe are the securities in this market as compared to money market?
(a) Securities in capital markets are riskier with respect to return and principal repayment
(b) Issuing company may fail to perform as promoters may defraud investors.
d. There is less risk in capital market instruments then money market instruments
Case-10 An investor wants to invest Rs. 20,000 in treasury bills for a period of 91 days .When he
approached the Reserve bank of India for this purpose he came to know that it was not possible
.Identify the reason why the investor could not invest in the Treasury Bill/
(a) Treasury bill can be issued for a minimum amount of Rs. 25,000 and its multiple thereof
(b) Treasury bill can be issued to financial institution only
(c) Treasury bills are Zero coupon Bonds issued by Reserve Bank of India ,which cannot be
issued to individual .
d. All of the above
Case-11 Reshu’s father has gifted her share of a large cement company ,with which he had been working .
The securities were in physical form .She already has a bank account and does not possess any
other forms of securities. She wished to sell the shares and approached a registered broker for
the purpose .Mention one mandatory detail which she will have to provide with the broker
(a) Permanent account number
(b) Trade confirmation slip

(c) Contract note
d. Unique order code number
Case-12 After completing a course in Online trading Bhavna along with her five school friends started an
investment portal for online trading and investment under the name INVESTMENT GURU PVT.
LTD. to deal in securities. It was Registered as a stock broker with Securities and Exchange Board
of India (SEBI) and also registered with NSE and BSE to trade in securities listed at these exchanges.
It is also a Depository participant with depositories operating in India. The business run successfully.
One day, Bhavna met one of her school friendHarsh after a long time and he urged to make investment in
stock market for higher gains with her company. As a stock broker , apprise him of the steps involved in
the working of trading procedure after that Harsh has opened a DeMat Account as he has already a
savings bank account and placed an order to buy some quantity of equity shares and the order was
executed at an agreed price. Immediately after execution, the broker has issued one Slip, Later on , the
broker forwarded a legally enforceable document to Harsh through e-mail within 24 hours of the
execution of the order . There after he was asked to make a payment of amount with commission. She has
also explained the two phases involved in settlement process of screen based trading i.e. pay-in-day and
pay- out –day.
1 INVESTMENT GURU PVT. LTD. was Registered as a stock broker with Securities and Exchange
Board Of India (SEBI) and also registered with NSE and BSE to trade insecurities listed at these
exchanges. Identify the type function of SEBI, has been followed by
a. Protective function
b. Regulatory function
c. Development function
d. All of above
2 What is a Demat account?
a. Holding money in electronic form
b. Trading account
c. Holding securities in physical form
d. Holding securities in electronic form
3 Who is acting as the depository participant for Harsh?
a. INVESTMENT GURU PVT. LTD.
b. SEBI
c. NSE AND BSE
d. NSDL and CDSL
Case-13 Mission Coach Ltd. is a large creditworthy company that manufactures coaches for
the Indian Railways. It now wants to export these coaches to other countries and
decides to invest in new hi-tech machines. Since the investment is large, it requires
long-term finance. It decides to raise funds by issuing equity shares. The issue of
equity shares involves huge floatation cost. To meet the expenses of floatation cost,
the company decides to tap the money market.
1 Name the money-market instrument the company can use for the above purpose.
a. certificate of deposit c. commercial paper.
b. call money. d. treasury bill
2 what is the duration for which the company can get funds through commercial
paper.
a. 3 to 12 months c. 1 day to 15 days
b. 91 days to 1 year d. 14 to 364 days
3 State any other purpose for which this instrument can be used
a. to meet long term finance
b. to meet short term working capital requirement
c. to maintain the cash liquidity ratio
d. none of the above
Case-14 During navratras, Vikas finalizes a deal to buy a new farmhouse. So, he visits a nearby branch of ‘Paisa
Bank’ top withdraw Rs. 25 lakhs from his account in order to pay the token money to the seller. In the bank
he observes that a large number of customers are present to make cash with drawls, probably because it is
an auspicious time to make purchases. After sometime, he overhears one of the bank staff members telling
his colleague that, “Today ‘Paisa Bank’ is likely to fall short of cash and to make up for the deficit it will
have to approach another bank.”
Q1.
Identify the instrument that ‘Paisa Bank’ will use to meet its short term requirements of funds.
Commercial paper
Call money
Commercial bill
Trade voucher
Q2. Call money is used to maintain ------------------------3
CRR
SLR
Bank rate
Repo rate
Case-15 Xyz LTD.. is a large and creditworthy company that
manufactures aluminium for the Indian market. It now wants to cater to the Asian market and decides to
invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to
raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the
expenses of floatation cost, the company decides to tap the money market.
Q1. Name and explain the money-market instrument the company can use for the above purpose.
Call moeny
Commercial paper
Commercial bill
Trade voucher
Q2. What is the duration for which the company can get funds through this instrument?
from a fortnight to 2 year.
Case-16 1. Incorporated in 1990. Raju Dairy Ltd., is one of the leading manufacturers and
marketers of dairy-based branded foods in India. In the initial years, its operations
were restricted only to collection and distribution of milk. But, over the years it has
gained a reasonable market share by offering a diverse range of dairy based
products including fresh milk, flavored yogurt, ice creams, butter milk, cheese, ghee,
milk powders etc. in order to raise capital to finance its expansion plans. Raju Dairy
Ltd. has decided to approach capital market through a mix of Offer for sale of Rs. 4
crore shares and a public issue of Rs. 2 crore shares.
I. Name the segment of capital market being approached by the company.
a) Secondary Market
b) Money Market
c) Stock Exchange
d) Primary Market

Case-17 2. Ketan won a cash prize of Rs. 20,000 in the National level Robotics Competition. On
the advise of his father, he visits a nearby bank to open a Fixed deposit account in
his name with the prize money. His sister Suhasini accompanied him to the bank. On
reaching the bank, he notice big banners which are placed within the premises
containing information about the various arrangements through which corporates
may raise their capital through the bank. Being a finance graduate, Suhasini explains
to Ketan that banks play the role of the financial intermediary by helping in the
process of channelizing the savings of the households into the most profitable
business ventures.
1 Name another financial intermediary that helps in the process of channelizing the savings of
the households into the most productive use.
a) Financial Market
b) Capital Market
c) Money Market
d) Primary Market
Case-18 Identify the function of Securities and Exchange Board of India being promoted in each of the
following cases: ( ALAYSIS)
(a) Sebi has introduced new rules which will prevent the outgoing promoters from
continuing to excercise their control on the company directly or indirectly.
i. Regulatory function
ii. Developmental function
iii. Protective functions
iv. All of the above
(b) Consolidation or mergers in the Indian mutual fund industry may not happen
after SEBI (Securities and Exchange Board of India) directed recategorisation of schemes whereby
there will be one investment scheme per category to avoid confusion in the minds of the investing
public.
iv. None of the above
(c) SEBI has emphasised that there should be some uniformity in the remuneration rates for
financial intermediaries so that arbitrage opportunities are reduced and investors can take a proper
decision.
iv. All of the above
(d) SEBI has imposed a total penalty of $ 2.5 crore on 10 individuals for indulging in
manipulative trading in the shares of a company.
I. Regulatory function
iv. None of the above

Case-19
2. Three companies – Rallis Tech Ltd., Satyam Healthcare Ltd, and Aster Ltd. - have
received markets regulator SEBI’s approval to proceed approval to proceed with its initial
public offerings. (APPLICATION)
(i) Rallis Tech Ltd.will through a prospectus , open its issue for public subscription for 3 days with
effect from 2nd March 2019.
(ii) Satyam Healthcare Ltd. Will sell its entire issue to Xelp Brokers Limited.@ $7 per share who
will further offer it for subscription to general public @ $9 per share.
(iii) Aster Ltd.plans to allot its entire issue of securities to an institutional investor
(a) Identify the method of floatation in primary market being adopted by the Rallis Tech Ltd.
i. Issue through Prospectus
ii.Private placement
iii. Offer for sale
iv. Rights issue
(b) Identify the method of floatation in primary market being adopted by the Satyam health care
Ltd.
ii.Private placement
iii. Offer for sale
iv. Rights issue.
(c ) Identify the method of floatation in primary market being adopted by the Satyam health care
Ltd.
ii. Private placement
iii. Offer for sale
iv. Rights issue.
(d) Identify the method of floatation in primary market which is not being adopted by these
companies.
ii. Private placement
iii. Offer for sale
iv. Rights issue.
Case-20 2. This is the heading of a news clipping in one of the leading newspaper . “A sharp fall in the
stock prices over past one week has wiped off Rupees 40 lakh crore of investor wealth.”. The
Government has instructed the regulatory body to look into it and take appropriate measures to
protect the investor. ( UNDERSTANDING)
(i) Identify the segment of capital market being referred to in the above lines.
a). Money market
b) Primary market
c ) Secondary Market
d ) New Issue market
(ii) There will be an affect of this news on the other segment of capital market , name the market ?
a). Money market
b) Primary market
c ) Secondary Market
d ) Stock Exchange
(iii) Name the regulatory body who looks after protecting the interest of Investors.
a). SBI
b) RBI
c ) SEBI
d ) NABARD
(iv) In which year was the regulatory body established.
a). 1991
b) 1992
c ) 1892
d ) 1988
Case 21 3. In the case of irregularity in trading SEBI found that Mr.Lalit purchased 8 lakh shares of
‘Trent Ltd.’from the unit trust of India (UTI) on 23rd February 2018.This purchase was made
barely two weeks prior to a public announcement for a proposed merger of Trent Ltd.with KFL
Ltd.
Upon investigation, SEBI found that ,at time of the purchase of shares of Trent Ltd, from UTI
,Mr.Lalit had an access to this ‘information about merger, as a director of the company . However,
he retired from that post in a week’s time after that. SEBI has taken steps to educate investors and
ensure training of intermediaries in securities market. ( CREATION)
(i) Identify the type of function performed by SEBI in the above case.
a. Regulatory function
b. Developmental function
c. Protective functions
d. All of the above
(ii) Mr. Lalit was involved in
a. Price rigging
b. Insider Trading
c. Speculation
d. All of the above
(iii) The steps taken to educate investors falls under which function of SEBI.
d. All of the above
(iv) The steps taken to training intermediaries falls under which function of SEBI
d. All of the above
Case-22 Mrsubhash is chairman of Gaina bank limited. Due to festive season, demand for credit is high but
deposits are low as rate of interest has come down and public is willing to invest in financial
market instead of depositing its funds into the banks. At the same time the Reserve Bank of India
increases cash reserve ratio for the banks. Due to all these reasons Gaina bank limited is likely to
fall short of cash and to make up for the deficit and maintain its cash reserve ratio, it will have to
approach another bank.

1. Identify the instrument that Gaina bank will use to meet its short term requirements from
another bank:
(a) Certificate of deposits
(b) Treasury bill
(c) Commercial paper
(d) Call money
2. Instrument identified in question no. 1 is traded in which of the following markets:
(a) Capital market
(b) Money market
(c) Primary market
(d) Secondary market
3. What is the duration for which the bank can get funds through this instrument?
(c) 15 days to 1 year
(d) None of these
4. Rate of interest on the above identified instrument is called:
(a) Call rate
(b) Bank rate
(c) Repo rate
(d) Interest rate
23 Star Ltd. is a large credit-worthy company manufacturing cement for the north easterner Indian
market. It now wants to cater to the other market and decided to set up new manufacturing plants.
For this, it requires long-term finance. Its directors have decided to raise funds by issuing equity
shares. The issue of equity shares involves huge floatation cost in terms of brokerage, underwriting
commission and advertising etc. To meet the expenses of floatation cost the company decides to
tap the money market.
1. "To meet the expenses of floatation cost the company decides to tap the money market." What is
this technically called:
(a) Flotation
(b) Bridge Financing
(c) Dematerialisation
(d) None of these

2. Name the money market instrument the company can use for the above purpose.
(a) Treasury Bill
(b) Call Money
(c) Commercial Paper
(d) Certificate of Deposit
3. What is the duration for which the company can get funds through this instrument?
(c) 15 days to 1 year
(d) None of these
4. State any other purpose for which this instrument can be used.
(a) It is used to provide short term funds for seasonal and working capital needs of the business.
(b) It is used to meet short-term requirements of funds of the Central Government.
(c) It is used to maintain the cash reserve ratio.
(d) It is used to finance the credit sales of firms.

ANSWER KEY
CBQ 1 1-C 2-A 3-D
CBQ-2 1-i
CBQ-3 1-i
CBQ-3 1-C
CBQ-4 1-C
CBQ-5 1-D
CBQ-6 1-B 2-C 3-D 4-A
CBQ-7 1-B 2-C 3-D 4-B
CBQ-8 1-b 2-c 3-c 4-a
CBQ-9 1-b 2-a 3-c 4-c
CBQ-10 1-a
CBQ -11 1-a
CBQ -12 1-b 2-a 3-a
CBQ -13 1-c 2-a 3-d
CBQ-14 1-A 2-A
CBQ-15 1-B 2-D
CBQ-16 1- d
CBQ-17 1 -a
CBQ-18 a- i b- i c-iii d-iv
CBQ-19 a-i b-iii c-ii d-iv
CBQ-20 i-a ii-b ii-c iv-b
CBQ-21 i-a ii-b ii-c iv-b
CBQ-22 1-d 2-b 3-a 4-a
CBQ-23 1-b 2-c 3-b 4-a

TRUE- FALSE QUESTIONS
1 Private Placement helps to raise capital more quickly than a public issue (True/False)
2 Rights Issue is a privilege given to existing shareholders to subscribe to a new issue of shares
according to the terms and conditions of the company. (True/False)
3 SEBI was established by the Government of India in the year 1992 (True/False)
4 All investor in the security market are Active investors. (True/False)
5 It is mandatory to have PAN number for getting Dmat account.(True/False)
6 Money Market is a market where old securities are bought and sold.
7 The main purpose of SEBI was to increase business of stock exchange
8 Call money and Certificate of Deposits are the short term document dealt in money market.
9 Right issue means to issue new shares to old shareholders.
10 Secondary market is closely related with new issue of securities.
11 Commercial paper is used for Bridge Financing.
12 Only buying of securities take place in secondary market.
13 The settlement cycle for secondary market transactions is on T+2 day on rolling settlement basis,
w.e.f. 1st April, 2003.
14 Controlling unfair trade practices is an objective of SEBI.
15 The process of holding securities in an electronic form is called Dematerialisation.
16 The term money market refers to facilities and institutional arrangements through which long
term funds; both debt and equity are raised and invested. (True /False)
17 Primary market is also referred to as the new issue market. (True /False)
18 In India National securities Depository Limited (NSDL) acts as depository participants. (True
/False)
19 The depository participant serves as an intermediary between the investor and the Depository.
(True /False)
20 Secondary market is a market for the trading of the old /existing securities of the companies.
(True /False)
21 Treasury Bills carry high risk of default. (True /False)
22 A right issue is a method used by company to issues securities to institutional investors and some
selected individuals (True /False)
23 Capital market is a branch of money market (True /False)
24 Commercial bill and treasury bill are same (True /False)
25 The interest paid on call money is called call rate (True /False)
26 The financial market refers to the market where goods are created and exchanged. (TRUE/FALSE)
27 The financial markets facilitate the sale purchase of financial asset.
( TRUE/FALSE)
28 The treasury bills can be purchased for Rs 25000 or in its multiples.
( TRUE/FALSE)
29 The commercial papers can be issued for 15 days to 3 months.
( TRUE/FALSE)
30 The companies which cannot bear the expenditure of public issue , use the method of private placements.
( TRUE/FALSE )
31 Increase in the call rate makes the other short term sources of
funds dearer. ( True/False)
32 Call Money is an important part of money market where day-to-day surplus funds of banks and
other financial institutions are dealt with.(TRUE/FALSE)

33 When a trade bill is accepted (discounting of bills) by a commercial bank, it is known as
commercial bill. (TRUE/FALSE)
34 TBills are not issued by RBI on behalf of Central Government. (TRUE/FALSE)
35 Money market instruments do not enjoy high degree of liquidity (TRUE/FALSE)
36 Is the statement true that the price in the primary market is determined by the forces of demand
and supply?
37 The capital market is generally much safer with a minimum risk of default
38 The money market is classified into primary and secondary market
39 Secondary market helps existing investors to invest and fresh investors to enter the market.
40 Only buying of securities take place in the primary market, securities cannot be sold there.
41 Stock exchange is also known as secondary market. ( KNOWLEDGE)
(a) True. (b) false.
42 SEBI is the regulatory body of stock exchange. ( UNDERSTANDING)
(a) True. (b) false
43 Training of intermediaries is a protective function of SEBI. (EVALUATION)
44 Stock exchange provides liquidity in securities market . ( UNDERSTANDING)
(a) True. (b) false
45 Capital market deals in shares and debentures. ( EVALUATION)
46 Zero coupon bonds are also known as treasury bills. ( APPLICATION)
47 Private placement refers to issue of securities to selected individual. ( EVALUATION)
48 Money market helps in meeting the working capital requirement of companies. ( EVALUATION)
49 Capital market helps in meeting the fixed capital requirement of enterprise.( EVALUATION)
(a) True. (b) false
50 Call money is also known as Inter bank call money market. ( UNDEDRSTANDING)
51 Commercial bill and commercial paper are same.
52 In the financial market, business firms are the suppliers of funds.
53 The investment in capital markets generally yields a higher return for investors than the money
markets.
54 Secondary market is a market for the trading of the old/existing securities of the companies.
55 Sudha Enterprises wishes to invest Rs.2,10,000 in treasury bills. The maximum number of treasury
bills he can buy with this fund is 21.

Answer KEY
True/False 1-T 2-T 3-T 4-F 5-T 6-F 7-F 8-T 9-T 10-F
11-T 12-F 13-T 14-F 15-T 16-F 17-T 18-F 19-T 20-T
21-F 22-F 23-F 24-F 25-T 26-f 27-T 28-T 29-F 30-T
31-T 32-T 33-T 34-F 35-F 36-F 37-F 38-F 39-T 40-T
41-T 42-T 43-F 44-T 45-T 46-T 47-T 48-T 49-T 50-T
51-F 52-F 53-T 54-T 55-F


ASSERTION REASON TYPE QUESTIONS
1 Assertion: Private placement is the allotment of securities by a company to institutional investors
and some selected individuals.
Reason: Institutional investors resell these securities to the investing public.
(A) Both Assertion and reason are true and reason is correct explanation of assertion.
(B) Assertion and reason both are true but reason is not the correct explanation of assertion.
(C) Assertion is true, reason is false.
(D) Assertion is false, reason is true.
2 Assertion: Right is a privilege given to existing shareholders to subscribe to a new Issue of shares
according to the terms and conditions of the company.
Reason: The shareholders are offered the ‘right’ to buy new shares In proportion to the number of
shares they already possess.
3 Assertion: The depository participant (DP) serves as an intermediary between the investor and the
Depositor who is authorised to maintain the accounts of dematerialized shares.
Reason: In India, there are two depositories. National Securities Depositories Limited (NSDL) &
The Central Depository Services Limited (CDSL)
4 Assertion: Registration of brokers and sub- brokers and other players in the market.
Reason: This is Protective function of Securities and exchange board of India
Registration of brokers and sub- brokers and other players in the market.
5 Assertion: The process of holding securities in an electronic form is called dematerialization.
Reason: Dematerialization is mainly done to eliminate problems like theft, fake/forged transfers,
transfer delays and paperwork associated with share certificates or debentures held In physical form.
Registration of brokers and sub- brokers and other players in the market.
6 ASSERTION (A): Money market is more secure in comparison of Capital Market.
REASONING(R): Money Market deals in short term securities which have a maturity period less
than one year.
(A)Both Assertion and reason are true and reason is correct explanation of assertion.
7 ASSERTION (A): Stock Exchange increase confidence of investors as it increase liquidity in
securities.

REASONING(R): Stock Exchange consist of Money Market as well as Capital Market.
(A)Both Assertion and reason are true and reason is correct explanation of assertion.
8 Assertion: Training of intermediaries of the securities market is conducted by SEBI.
Reason: Training leads to development of the stock exchange, so it falls under development
function.
9 Assertion: SEBI is empowered to regulate the working of financial intermediaries.
Reason: SEBI aims to protect the interests of investors.
10 Assertion: NSDL is one of the depository participants in India.
Reason: Stock Exchange serves as an intermediary between the investor and the Depository.
11 Assertion: To open a demat account, PAN is not compulsory.
Reason: PAN stands for Permanent Account Number.
Read the following statements –Assertion (A) and Reason (R) Choose one of the correct
alternatives given below :
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
(c) Assertion (A) is true but Reason ( R) is false

(d) Assertion (A) is true but Reason ( R) is true
Give the answer of question no 12 to 17

12 Assertion (A) Financial market is a market for creation and exchange of financial assets.
Reason ( R) It helps to link savers with the investors and direct available funds into most
productive channels
13 Assertion (A) Government needs short term finance for different projects from money market.
Reason (R) Treasury bills are issued by Reserve Bank of India on behalf of Government of India.
14 Assertion (A) A company is planning to issue equity shares to public as there is boom period in
capital market.
Reason (R) Public prefers to invest in shares during boom period.
15 Assertion (A) For selling securities one has to select broker.
Reason (R) Buying and selling of securities can only be done through registered broker who are
member of stock exchange
16 Assertion (A) Sensex is the Mumbai Stock Exchange Index.
Reason (R ) Nifty is a National Stock Exchange Index
17 Assertion (A) A stock exchange is a reliable barometer to measure the economic condition of a
country.
Reason (R ) Every major change in country and economy is reflected in the prices of shares
18
Direction: In the question given below are two statements labelled at Assertion (A)
and Reason (R). In the context of the two statements, which one of the following is
correct?
Assertion (A): Screen-based trading system cuts down on time, cost and risk of
error as well as on the chances of fraud.
Reason (R): Screen-based trading system electronically matches the buyer and
seller in an order-driven system.
A .Both A and R are true and R is the correct explanation of A
B .Both A and R are true, but R is not the correct explanation of A C .A is true, but R is
false
D .A is false, but R is true
19 Assertion (A): The objective of SEBI is to maintain a balance between statutory
regulations and self regulation.
Reason (R): The objective of the Primary Market Advisory Committee is to
advise SEBI on issues related to the development of primary market in India.
A Both A and R are true and R is the correct explanation of A
B. Both A and R are true, but R is not the correct explanation of A C.A is true, but R is
false

D.A is false, but R is true
20 Assertion (A): The returns on Treasury Bills are not that attractive.
Reason (R): They are zero-risk instruments.
A. Both A and R are true and R is the correct explanation of A
B. Both A and R are true, but R is not the correct explanation of A
C.A is true, but R is false

D.A is false, but R is true
21 Assertion (A): Controlling insider trading and imposing penalties for such
practices is a protective function of SEBI.
Reason (R): Registration of collective investment schemes and Mutual Funds
is a development function of SEBI.
A .Both A and R are true and R is the correct explanation of A
B. Both A and R are true, but R is not the correct explanation of A C. .A is true, but R
is false
D .A is false, but R is true
22 Assertion (A): Treasury Bills are issued by Central Government.
Reason (R): Treasury Bills are one of the safest money market instruments.
A. Both A and R are true and R is the correct explanation of A
B. Both A and R are true, but R is not the correct explanation of A
C .A is true, but R is false

D. A is false, but R is true
23 (Assertion)Call money is a method by which banks borrow mutually to maintain CRR (Cash Reserve Ratio)
(Reasoning)CRR is the minimum balance a commercial bank should maintain with RBI.
24 (Assertion) Certificate of deposit is short term instrument in bearer form, issued by commercial banks and
financial institutions to individuals, corporations and companies.
(Reasoning) it has maturity period 3 months to 12 months.
.
25 (Assertion)Money market is the market for short term funds.
(Reasoning)Short term funds are meant for a period of more than one year.

26 Assertion (A) : Foreign exchange management and control is undertaken by commercial banks.
Reasoning (R) : RBI has to maintain the official rate of exchange of rupee and ensure its stability.
27 (A)Treasury bills are issued by RBI on behalf of Central Government.

(B) It has Maturity more than one year.
28 1) Assertion (A):- Financial Market act as a link between Savers and borrowers.
Reason ( R) : Financial Market transfers money from those who have surplus money to
those who are in need of investment.
(a) Both A and R are true. R is the correct explanation of A
(b) Both A and R are true, but R is not the correct explanation of A
(c) A is correct, but R is incorrect
(d) A is incorrect, but R is correct
29 1) Assertion (A): Households are the Surplus unit in the financial Market.
Reason (R): Households keep their surplus money in the form of savings in banks.
30 1) Assertion(A) : Price of anything depends on the demand and supply factors.

Reason (R) : Demand and supply of financial securities in financial market helps in
deciding the price of the securities.

31 1) Assertion (A): Financial Market provides liquidity to financial assets.
Reason (R): Financial market provides a platform to convert the securities into cash.
32 1) Assertion (A): Primary market is where new securities are issued.

Reason (R): Stock Exchange is an organization established for assisting, regulating and
controlling of buying and selling in securities.

33 Assertion: The process of holding securities in electronic form is dematerialisation.
Reason: It eliminates the various kinds of risks associated with trading in securities. ( ANALYSIS)
(a) Both Assertion (A) and Reason (R) are true.
(b) Both Assertion (A) and Reason (R) are false.
(c) Assertion (A) is true and Reason (R) is false.
(d) Assertion (A) is false and Reason (R) is true.
34 Assertion: Primary market is also reformed to as new issue market. ( UNDERSTANDING)

Reason: It provides a platform for trading of existing securities.
35 Assertion: Money Market is a market for short from funds. ( KNOWLEDGE)

Reason : They facilated moblisation of large amount of money for short duration.
36 Assertion: Capital market is a market for medium and long term funds. ( APPLICATION)
Reason: The securities in capital market are less risky and have low rate of return.
37 Assertion: Financial market is a market which helps in exchange and creation of financial Assets.
( EVALUATION)
Reason: Both money market and capital market are part of financial market.
38 Assertion: Offer for sale is one of method of floatation of securities in primary market.
Reason: In this method securities are issued to general public with the help of an intermediary
called broker. ( UNDERSTANDING)
39 Assertion: the money market is called ‘money market’ because instruments traded in it are close
substitute of money.
Reason: The money market is a market for short term funds which deals in monetary assets whose
period is upto one year.
40 Assertion: Certificates of deposit (CD) are unsecured, negotiable instruments in bearer form, issued
by commercial banks and development financial institutions.
Reason: Certificates of deposit are capital market instruments as their maturity period is more than
one year.
41 Assertion: capital market refers to facilities and institutional arrangements through which long-
term funds, both debt and equity are raised and invested.
Reason: Capital Market can be divided into two parts: a. Primary Market b. Secondary Market

42 Assertion: the process by which allocation of funds is done is called financial marketing.
Reason: allocation of funds can be done: via banks or via financial markets
43 Assertion: financial market provides higher rate of returns to households.
Reason: financial market allocates funds available for investments into their most productive
investment opportunity.
ANSWER KEY
ARQ 1-C 2-A 3-B 4-C 5-A 6-A 7-B 8-A 9-B 10-C
11-D 12-a 13-a 14-a 15-a 16-b 17-a 18-A 19-B 20-C
21-A 22-D 23-A 24-A 25-C 26-A 27-C 28-a 29-a 30-a
31-a 32-b 33-a 34-c 35-a 36-c 37-a 38-a 39 -A 40-C
41-B 42-D 43-A


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Chapter 10: Financial Market

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62 Which of the following is not the participants of money market?

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(b) Secondary market

(c) Both (a) and (b)

(d) None of the above

67 1) Only buying of securities takes place in

68 1) Two major classifications of financial markets are

b) Primary market and secondary market

c) Debt market and Equity market

d) Whole sales market and retail market

69 1) Instruments with a maturity period of than one year are traded in

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71 1) Offer for sale in primary market is

72 1) The new issues market is also known as

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PREPARED BY THE PGTs ( COMMERCE ) OF BHUBANESWAR, GUWAHATI, KOLKATA, RANCHI,

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(ii) Mr. Lalit was involved in

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PREPARED BY THE PGTs ( COMMERCE ) OF BHUBANESWAR, GUWAHATI, KOLKATA, RANCHI,

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Give the answer of question no 12 to 17

A .Both A and R are true and R is the correct explanation of A

A Both A and R are true and R is the correct explanation of A

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A. Both A and R are true and R is the correct explanation of A

B. Both A and R are true, but R is not the correct explanation of A

C.A is true, but R is false

A .Both A and R are true and R is the correct explanation of A

A. Both A and R are true and R is the correct explanation of A

B. Both A and R are true, but R is not the correct explanation of A

C .A is true, but R is false

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27 (A)Treasury bills are issued by RBI on behalf of Central Government.

(a) Both A and R are true. R is the correct explanation of A

(c) A is correct, but R is incorrect