FINANCIAL MARKETS
CLASS – 12TH
Date: 13/07/2023
Q.1. The directors of a company want to modernise its plants and machinery by making a public issue of shares. They
wish to approach stock exchange, while the finance prefers to approach a consultant for the new public issue of
shares. Advise the directors whether to approach stock exchange or a consultant the new public issue of shares.
Advise the directors whether to approach stock exchange or a consultant for new adopt for the new public issue
of shares.
Q.2. Why was the need for establishment of Securities and Exchange Board of India (SEBI) felt? Explain the role of SEBI
to fulfill this need.
Q.3. Saqib Ltd. Is a large credit worthy company operating in the Kashmir Valley. It is an export oriented unit, dealing
in exclusive embroidered shawls. The floods in the Valley 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 of 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.
Q.4. “All securities can be traded in the stock exchange.” Do you agree?
Q.5. Varunical Ltd., a reputed truck manufacturing company, rupees twenty crores as additional capital to expand its
business. Mr. Alind Jindal, the CEO of the company, wants to raise funds through equity. The Finance Manager,
Mr. Nikhil Sachdeva, suggests that the existing shareholders be offered the privilege to subscribe to new issue of
shares as per the terms and conditions of the company which was agreed by Mr. Alind Jindal. Name the method
through which the company decided to raise additional capital.
Q.6. Sika Ltd., a reputed industrial machines manufacturer, needs rupees twenty crores as additional capital to expand
the business. Mr. Amit Joshi, the Chief Executive Officer (CEO) of the company wants to raise funds through
equity. The Finance Manager, Mr. Narinder Singh, suggested that the shares may be sold to investing public
through intermediaries, as the same will be less expensive. Name the method through which the company
decided to raise additional capital.
Q.7. Why do money market instruments are more liquid as compared to capital market instrument?
Q.8. “Securities and Exchange Board of India (SEBI) is the watchdog of stock market.” Comment.
Q.9. ABC Ltd. Issued prospectus for the subscription of its shares for Rs 500 croes 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. Identify the function and its type perfmormed by SEBI in above case.
Q.10. Due to various malpractices and exploitation of investors in the securities market, the Indian Government
established a separate regulatory body to protect the investors and to develop and regulate the securities market.
(i) Identify the regulatory body set up by the government.
(ii) Discuss its various objectives.
Q.11. “Unicon Securities Pvt. Ltd’ was established to deal in securities. It was registered as a stock broker with National
Stock Exchange (NSE) and Bombay Stock Exchange (BSE) to trade in securities listed at these exchange. It is also a
depository participant with CDSL and NSDL. In the first three years, it developed its business successfully. After
that, the composition of Board of Directors changed. Some customers complained to the customer care centre of
the company that shares purchased by them and for which the payment has been duly made, were not
transferred to their D’mat Accounts by ‘Unicon Securities Pvt. Ltd.’ The executive of customer care centre
promised the aggrieved customers that their shares will be transferred to their respective D’mat Accounts very
soon. But the company delayed the matter and didn’t transfer the shares of the customers to their D’mat
Accounts. This eroded investor’s confidence and multiplied their grievances.
(a) Identify the step of trading procedure in a stock exchange which has not been followed by ‘Unicon Securities
Pvt. Ltd’.
(b) Name the Apex statutory body of capital market to whom customer can complain to redress their grievances.
(d) Write two values not followed by Unicon Security Pvt. Ltd.
Q.12. “Primary Market directly contributes to capital formation, whereas, secondary market does so indirectionly.” Do
you agree?
Q.13. Financial market is a market for creation an exchange of financial assets. It helps to link 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 the 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.
(a) State two functions performed by financial market in the above case.
(b) Explain two more functions of the stock exchange, other than those stated in the above case.
Q.14. State the first four steps which are involved in the screen-based trading for buying and selling of securities in the
secondary market.
Q.15. Radhika got 10,00,000 rupees after selling her parental property, which she had got as a gift from her
grandmother. Her friend advised her to invest in securities in the stock market. Radhika was unaware of the
procedure for the same. Her friend introduced her to a stock broker, who was registered with the National Stock
Exchange. Radhika approached the broker. The broker guided her to open a DEMAT account with a Depository, as
well as a Bank account. Radhika opened a Bank account and DEMAT account with Exin Bank.
(a) Identify the steps in the trading procedure for buying and selling of securities which have been discussed
above.
(b) State the next four steps of the trading procedure.
Q.16. Meca Ltd., a reputed automobile manufacturer, needs Rupees Ten Crores as additional capital to expand its
business. Autl 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 institutional investors. Name the
method through which the company decided to raise additional capital..
Q.17. ‘Vani Oil Refinery’ is a large company engaged in processing crude oil and refining it into more useful products
like Petroleum, Kerosene, LPG, etc. It has build good reputation over the years. It has been consistently earning
profits and paying regular dividend to its shareholders. It needs additional working capital immediately to finance
a project. It expects to return this amount after seven to eight months. Ashish Batra, the Finance Manager of the
company does not want to get into procedural requirements of securing finance from a Commercial Bank. Suggest
how the company can raise the required finance for meeting its additional working capital requirements.
Q.18. Sherya Ltd. Is a large credit-worthy company manufacturing automobiles for the 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 floatation cost the company decides to tap the money market.
(a) Name and discuss the money market instrument the company can use for the above purpose.
(b) What is the duration for which the company can get funds through this instrument?
(c) State any other purpose for which this instrument can be use.
Q.19. ‘Foods India Ltd.’ Is a company engaged in the production of packaged juice since 2010. Over this period, a large
number of competitors have entered the market and are putting a tough challenge to ‘Foods India Ltd’. To face
this challenge and to increase its market share, the company has decided to replace the old machinery with an
estimated cost of Rs 100 crores. To raise the finance, the company decided to issue 9% debentures. The Finance
department of the company has estimated that the cost issuing the 9% debentures will be Rs 10,00,000. The
company wants to meet its floatation cost.
(a) Explain the instrument that the company may issue for this purpose.
(b) In which type of financial market, is the instrument explained in (a) above traded? Also explain how sate the
instruments are in this market.
Q.20. Aditya Khosla, the Managing Director of ‘D.L.W. Ltd’. And Rajesh Puri, the Finance Manger were discussing about
avenues of investing the idle funds of the company. Aditya Khosla was of the opinion that money should be
invested in the capital market. Whereas, Rajesh Puri, being more conservative, felt that it would be better if the
investment was made in the money market. Since the economy was buoyant, the Managing Director convinced
Rajesh that they should take advantage of it and invest in the capital market to get good returns. Ultimately, it
was decided to invest the idle funds in the capital market.
(a) What kind of instruments should the company buy?
(b) Why is the capital market expected to give better return in a buoyant economy? State the reason.
(c) Why and how safe are the securities in this market as compared to the money market?
