Financial Markets Class 12 Important Questions

Financial Markets Class 12 Important Questions
Financial Markets Class 12 Important Questions

A financial market is a place where financial assets like stocks, bonds, and derivatives are bought and sold. Here are the Financial Markets Class 12 Important Questions.

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1-Mark Questions

Q1. What is a financial market?

Ans: A financial market is a marketplace where financial securities such as shares, bonds, and commodities are bought and sold.

Q2. Name the two main types of financial markets.

Ans: The two main types of financial markets are the money market and capital market.

Q3. What is the full form of SEBI?

Ans: SEBI stands for Securities and Exchange Board of India.

Q4. Define a money market.

Ans: A money market is a financial market where short-term financial instruments with a maturity of less than one year are traded.

Q5. What is the main function of the stock exchange?

Ans: The primary function of the stock exchange is to facilitate the buying and selling of securities and provide liquidity to investors.

Q6. What is an IPO?

Ans: IPO stands for Initial Public Offering, which is the process by which a company offers its shares to the public for the first time.

Q7. Name any two money market instruments.

Ans: Treasury Bills and Commercial Papers.

Q8. What is the role of SEBI?

Ans: SEBI regulates and supervises the securities market to protect investors and ensure fair trading practices.

Q9. What is a bond?

Ans: A bond is a fixed-income financial instrument representing a loan made by an investor to a borrower, typically corporate or government.

Q10. What do you mean by secondary market?

Ans: The secondary market is a marketplace where existing securities are traded among investors.

Q11. What is meant by the term ‘Stock Exchange’?

Ans: A stock exchange is an organized marketplace where securities such as stocks and bonds are bought and sold.

Q12. Who regulates the money market in India?

Ans: The Reserve Bank of India (RBI) regulates the money market in India.

Q13. What are treasury bills?

Ans: Treasury bills (T-bills) are short-term government securities with a maturity period of less than one year.

Q14. What is meant by listing of securities?

Ans: Listing of securities refers to the admission of a company’s shares on a stock exchange, allowing them to be traded publicly.

3/4-Mark Questions

Q15. Distinguish between the money market and the capital market.

Ans:

BasisMoney MarketCapital Market
DurationShort-term (less than 1 year)Long-term (more than 1 year)
InstrumentsTreasury bills, commercial papersShares, debentures, bonds
RiskLow riskHigher risk
Regulated ByRBISEBI

Q16. What are the objectives of SEBI?

Ans: The main objectives of SEBI are:

  1. Protect the interests of investors in the securities market.
  2. Regulate and promote fair trading practices.
  3. Prevent fraudulent and unfair trade practices.
  4. Develop the securities market by promoting transparency.

Q17. Explain any three functions of the stock exchange.

Ans: Three important functions of the stock exchange are:

  1. Liquidity and Marketability – It provides a platform for investors to buy and sell securities easily.
  2. Pricing of Securities – Stock exchanges help in determining the prices of securities based on demand and supply.
  3. Ensuring Safety in Transactions – The exchange regulates and monitors trading activities, ensuring investor protection.

Q18. What are the components of the capital market?

Ans: The capital market consists of:

  1. Primary Market – Where new securities are issued (e.g., IPOs).
  2. Secondary Market – Where existing securities are traded among investors.

6-Mark Questions

Q19. Explain the functions of the financial market.

Ans: The financial market performs the following key functions:

  1. Mobilization of Savings – It encourages savings and directs them towards productive investments.
  2. Price Determination – The financial market helps in setting the price of securities based on supply and demand.
  3. Liquidity – Investors can easily buy and sell securities, ensuring liquidity.
  4. Reducing Transaction Costs – It minimizes the cost of transactions through a well-structured system.
  5. Facilitates Economic Growth – By channeling funds to productive sectors, financial markets contribute to overall economic growth.
  6. Risk Management – Investors can diversify their portfolios to reduce risk.

Q20. Discuss the various instruments used in the money market.

Ans: The money market includes the following instruments:

  1. Treasury Bills (T-Bills) – Short-term debt instruments issued by the government with a maturity of less than one year.
  2. Commercial Paper (CP) – Unsecured promissory notes issued by companies for short-term funding.
  3. Certificates of Deposit (CDs) – Time deposits issued by banks with fixed maturity periods.
  4. Call Money – Short-term borrowing between banks to maintain liquidity.
  5. Repurchase Agreements (Repo) – Agreements where banks sell securities with an agreement to repurchase them at a later date.

Q21. What are the key features of the secondary market?

Ans: The secondary market (Stock Exchange) has the following key features:

  1. Provides Liquidity – Investors can buy and sell securities at any time.
  2. Continuous Trading – The market operates daily, ensuring regular trading of securities.
  3. Price Determination – Prices fluctuate based on market conditions, supply, and demand.
  4. Regulated by SEBI – Ensures transparency and fair trading practices.
  5. Encourages Investment – Investors can diversify their portfolios and invest in various securities.
  6. Operates Through Brokers – Trading takes place through registered brokers and online platforms.

Conclusion

Understanding financial markets is essential for Class 12 Business Studies students. This article covers important questions and answers from the chapter, ensuring comprehensive preparation for exams.

By practicing these questions, students can enhance their understanding of concepts and score well in their board exams. The financial market plays a significant role in economic growth, making it an important topic for future business professionals and investors.

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