Dear Class 12 Samacheer Kalvi students, here are the Introduction To Financial Markets Text Book Solutions for your reference and study.
Click here for Commerce Text Book Solutions Lessons 1-28
I. Choose the Correct Answers:
1. Financial market facilitates business firms to: | |
a. Raise funds | |
b. Recruit workers | |
c. Make more sales | |
d. Minimize fund requirement | |
2. Capital market is a market for: | |
a. Short-term Finance | |
b. Medium-term Finance | |
c. Long-term Finance | |
d. Both Short-term and Medium-term Finance | |
3. Primary market is also called as: | |
a. Secondary market | |
b. Money market | |
c. New Issue Market | |
d. Indirect Market | |
4. Spot Market is a market where the delivery of the financial instrument and payment of cash occurs: | |
a. Immediately | |
b. In the future | |
c. Uncertain | |
d. After one month | |
5. How many times a security can be sold in a secondary market? | |
a. Only one time | |
b. Two times | |
c. Three times | |
d. Multiple times |
II. Very Short Answer Questions:
1. What are the components of organized sectors?
Answer: The components of the organised sector are Regulators, Financial Institutions, Financial Markets, and Financial Services.
2. What is Spot Market?
Answer: A Spot Market is a market where the delivery of the financial instrument and payment of cash occurs immediately. i.e. settlement is completed immediately.
3. What is Debt Market?
Answer: A Debt Market is the financial market for trading in Debt Instrument (i.e. Government Bonds or Securities, Corporate Debentures or Bonds).
4. How is price decided in a Secondary Market?
Answer: In the secondary markets, price of the traded financial asset is determined through the interaction of buyers and sellers. They provide a signal for the allocation of funds in the economy. This is based on demand and supply, through the mechanism called price discovery processes.
III. Short Answer Questions:
1. Give the meaning of Financial Market.
Answer:
A market wherein financial instruments such as financial claims, assets and securities are traded is known as a ‘financial market’.
According to Brigham, Eugene F, “The place where people and organizations wanting to borrow money are brought together with those having surplus funds is called a financial market.”
2. Write a note on Secondary Market.
Answer: Secondary Market is the market for securities that are already issued. Stock Exchange is an important institution in the secondary market.
3. Bring out the scope of Financial Market in India.
Answer: The financial market provides financial assistance to individuals, agricultural sectors, industrial sectors, service sectors, financial institutions like banks, insurance sectors, provident funds and the government as a whole. With the help of the financial market all the above stated individuals, institutions and the Government can get their required funds in time. Through the financial market the institutions get their short term as well as long term financial assistance. It leads to the overall economic development.
IV. Long Answer Questions:
1. Distinguish between New issue market and Secondary Market. (any 5)
Answer:
Feature | New Issue Market | Secondary Market |
Meaning | The market place for new shares is called primary market. | The place where formerly issued securities are traded is known as Secondary Market. |
Buying | Direct | Indirect |
How can securities be sold? | Only once | Multiple times |
Buying and Selling between | Company and Investors | Investors |
Price | Fixed price | Fluctuates, depends on the demand and supply force |
2. Enumerate the different types of Financial Markets. (any 5)
Answers: Financial Markets can be classified in different ways. They are as follows:
a. On the Basis of Type of Financial Claim
- (i) Debt Market
- (ii) Equity Market
b. On the Basis of Maturity of Financial Claim
- (i) Money Market
- (ii) Capital Market
c. On the Basis of Time of Issue of Financial Claim
- (i) Primary Market
- (ii) Secondary Market
d. On the Basis of Timing of Delivery of Financial Claim
- (i) Cash/Spot Market
- (ii) Forward or Futures Market
e. On the Basis of the Organizational Structure of the Financial Market
- (i) Exchange Traded Market
- (ii) Over–the–Counter Market
3. Discuss the role of Financial Market.
One of the important requisites for the accelerated development of an economy is the existence of a dynamic and resilient financial market. A financial market is of great use for a country as it helps the economy in the following manner:
(i) Savings Mobilization
Obtaining funds from the savers or ‘surplus’ units such as household individuals, business firms, public sector units, Government is an important role played by financial markets.
(ii) Investment
Financial market plays a key role in arranging the investment of funds thus collected, in those units which are in need of the same.
(iii) National Growth
Financial markets contribute to a nation’s growth by ensuring an unfettered flow of surplus funds to deficit units. Flow of funds for productive purposes is also made possible. It leads to overall economic growth.
(iv) Entrepreneurship Growth
Financial markets contribute to the development of the entrepreneurial class by making available the necessary financial resources.
(v) Industrial Development
The different components of financial markets help an accelerated growth of industrial and economic development of a country and thus contributing to raising the standard of living and the society’s well-being.
If you have any questions on this topic, please let us know in the comments section.
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