Dear Samacheer Kalvi students, here are the Stock Exchange – Class 12 Text Book Solutions (Commerce) for your reference and study.
I. Choose the Correct Answers:
1. ____ is the oldest stock exchange in the world. | |
a) London Stock Exchange | |
b) Bombay Stock Exchange | |
c) National Stock Exchange | |
d) Amsterdam Stock Exchange | |
2. There are _____ stock exchange in the country. | |
a) 21 | |
b) 24 | |
c) 20 | |
d) 25 | |
3. Jobbers transact in a stock exchange | |
a) For their Clients | |
b) For their Own Transactions | |
c) For other Brokers | |
d) For other Members | |
4. A pessimistic speculator is | |
a) Stag | |
b) Bear | |
c) Bull | |
d) Lame Duck | |
5. An optimistic speculator is | |
a) Bull | |
b) Bear | |
c) Stag | |
d) Lame duck |
II. Very Short Answer Questions:
1. What is meant Stock Exchange?
Answer: Stock exchange is an organized market for buying and selling corporate and other securities. Here, securities are purchased and sold as per certain well-defined rules and regulations.
2. Write any 5 Stock Exchanges in India.
Answer: Five stock exchanges in India are:
- The Bombay Stock Exchange
- Bangalore Stock Exchange Ltd.
- The Madras Stock Exchange Ltd.
- The Over The Counter Exchange of India (OTCEI)
- The National Stock Exchange of India (NSE) Ltd.
3. What is meant by Remiser?
Answer: A Remiser acts as an agent of a member of a stock exchange. He obtains business for his principal ie., the member and gets a commission for that service.
4. Who is called a Broker?
Answer: Brokers are commission agents, who act as intermediaries between buyers and sellers of securities. They do not purchase or sell securities on their behalf. They bring together the buyers and sellers and help them in making a deal. Brokers charge a commission from both the parties for their service.
5. What are the types of Speculator?
Answer: Speculators in a stock market are of different types. They carry their names depending on their motive of trading in the stock exchange. They are named after animals as their behavior could be compared best with the behavior of animals. They include bull, bear, stag and lame duck.
III. Short Answer Questions:
1. What are the limitations of Stock exchange? (any 3)
Answer: Three limitations of stock exchange are:
i. Lack of uniformity and control of stock exchanges.
ii. Absence of restriction on the membership of stock exchanges.
iii. Failure to control unhealthy speculation.
2. Explain Bull and Bear.
Answer: Bull: A Bull or Tejiwala is an operator who expects a rise in prices of securities in the future. In anticipation of price rise he purchases shares and other securities at present with the intention to sell at higher prices in future. He is called bull because just like a bull tends to throw his victim up in the air, the bull speculator stimulates the price to rise. He is an optimistic speculator.
Bear: A bear or Mandiwala speculator expects prices to fall in future and sells securities at present with a view to purchase them at lower prices in future. A bear does not have securities at present but sells them at higher prices in anticipation that he will supply them by purchasing at lower prices in future. A bear usually presses its victim down to ground. Similarly the bear speculator tends to force down the prices of securities. A bear is a pessimistic speculator.
3. Explain Stag and Lame Duck.
Answer: Stag: A stag is a cautious speculator in the stock exchange. He applies for shares in new companies and expects to sell them at a premium, if he gets an allotment. He selects those companies whose shares are in more demand and are likely to carry a premium. He sells the shares before being called to pay the allotment money. He is also called a premium hunter.
Lame Duck: When a bear finds it difficult to fulfill his commitment, he is said to be struggling like a lame duck. A bear speculator contracts to sell securities at a later date. On the appointed time he is not able to get the securities as the holders are not willing to part with them. In such situations, he feels cornered. Moreover, the buyer is not willing to carry over the transactions.
IV. Long Answer Questions:
1. Explain the functions of Stock Exchange. (Any 5)
Answer: The functions of a Stock Exchange are:
1. Ready and Continuous Market
Stock Exchange is a market for existing securities. If an investor wants to sell his securities, he can easily and quickly dispose them off on a stock exchange. He can convert his shares into cash and with the same ease he can convert his cash into securities. This easy marketability of securities increases their liquidity and consequently raises their value.
2. Correct Evaluation of Securities
The prices at which securities are bought and sold are recorded and made public. These prices are called market quotations. One can easily evaluate the worth of one’s securities on the basis of these quotations. The lender can easily assess the worth of security offered for loan.
3. Protection to Investors
All dealings in a stock exchange are in accordance with well-defined rules and regulations. For example, brokers cannot charge higher rate of commission for their services. Any malpractice will be severely punished. Thus stock exchange provides reasonable measure of safety and fair dealing in buying and selling of securities.
4. Proper Channelization of Capital
People like to invest in the shares of such companies which yield good profits. The savings of individuals are directed towards promising companies which declare good dividends over a period of time. If not for the stock exchanges, these savings are likely to be wasted on the shares of unprofitable units.
5. Aid to Capital Formation
The publicity which the stock exchange gives to various industrial securities and their prices and the facilities provided by it for their purchase and sale induce people to save and invest. Stock exchanges thus ensure a steady flow of capital into industry, assisting in industrial development.
2. Explain the features of Stock Exchange. (Any 5)
Answer: The features of Stock Exchange are:
1. Association of Persons
A stock exchange is an association of persons or body of individuals which may be registered or unregistered.
2. Recognition from Central Government
Stock exchange is an organised market. It requires recognition from the Central Government.
3. Market for Securities
Stock exchange is a market, where securities of corporate bodies, government and semi-government bodies are bought and sold.
4. Deals in Second Hand Securities
It deals with shares, debentures bonds and such securities already issued by the companies. Since it deals with existing or second hand securities, it is called secondary market.
5. Allows Dealings only in Listed Securities
Stock exchanges maintain an official list of securities that could be purchased and sold on its floor. Securities which do not figure in the official list of stock exchange are called unlisted securities. Such unlisted securities cannot be traded in the stock exchange.
3. Distinguish between Stock Exchange and Commodity Exchange (any 5).
Answer:
Feature | Stock Exchange | Commodity Exchange |
Meaning | Stock Exchange is an organized market for the purchase and sale of industrial and financial security. It is convenient place where trading in securities is conducted in a systematic manner | A commodity exchange is an exchange where commodities are traded. Tradable commodities fall into the following categories: Metals, Energy, Agricultural and Livestock and meat. |
Function | Provides easy marketability | Offers hedging or price insurance services and liquidity to securities. |
Participants | Investors and Speculators | Producers, dealers, traders and a body of speculators |
Articles Traded | Industrial securities such as stocks and bonds and government securities. | Only durable, graded and goods having large volume of trade, price uncertainty and uncontrolled supply. |
Cornering | As seller has to deliver the agreed securities, cornering is easy | Cornering is difficult as the seller has option to deliver standard or other deliverable goods. |
If you have any question or doubts on the topic, please let us know in the comments section.
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