Class 12 Banking Chapter 3 Financial Markets Question answer to each chapter is provided in the list so that you can easily browse through different chapters HS 2nd Year Banking Chapter 3 Financial Markets Notes and select needs one.
SCERT Class 12 Banking Chapter 3 Financial Markets
Also, you can read the SCERT book online in these sections Solutions by Expert Teachers as per SCERT (CBSE) Book guidelines. These solutions are part of SCERT All Subject Solutions. Here we have given Class 12 Banking Chapter 3 Financial Markets Solutions for All Subjects, You can practice these here.
Financial Markets
Chapter: 3
Answer Questions
Q.1. What is primary or new issue market ?
Ans :- The primary or new issued market is the markets through which the new securities, which were not previously available to the investing public, are offered to the investing public for the first time.
Q.2. What is government securities or gilt edged securities market ?
Ans :- Government securities or gilt edged securities market is a market where government securities are traded. In India, government securities both long and short term duration are traded. These securities are sold through the ‘Public Debt Office’ of the R.B.I.
Q.3. What is industrial securities market ?
Ans :- Industrial securities markets is a market where industrial concerns raise their capital or debt by issuing appropriate instruments. It is a market for Industrial securities namely.
(i) Equity shares.
(ii) Preference shares.
(iii) Debenture or bonds.
Q.4. What is call money market ?
Ans :- The call money market refers to the markets for extremely short period loans, say one day to fourteen days.
Q.5. What is collateral loan market ?
Ans :- Collateral loan market refers to a market for loans secured against collateral securities like stocks and bonds. The Collateral is returned to the borrower at the time when he repays the loan. Collateral loans are mostly granted by the commercial bank to private parties in the market and for a short period of a few months.
Q.6. What is a commercial paper ?
Ans :- An unsecured obligation issued by a corporation or bank to finance its that term credit needs such as accounts receivable and inventory. Maturities typically range from 2 to 270 days. Commercial paper is available in a wide range of denomination can be either discounted or interest bearing and usually have a limited secondary market.
Q.7. What is a certificate of deposit (CD) ?
Ans :- Certificate of Deposit or CD refers to money market instruments of relatively short decoration or savings account that pay a fixed rate of interest until a given maturity date.
Q.8. What is commercial bill ?
Ans :- The commercial bill market refers to the market in which the short term papers or bill are bought and sold. The important short terms papers are commercial bills. There are two type of commercial bills
(a) Bills of exchange.
and (b) Treasury bills.
B. Short answer questions : Type-I
Q.9. Write the meaning of Financial Markets.
Ans :- Generally speaking, there is no specific place or location of indicate a financial market. Whenever a financial transactions takes place it is deemed to have taken place in the financial markets. However, financial market can be referred to as those center and arrangement, which facilities buying and selling of financial assets, claims and services.
A ‘Financial Market’ can be defined as the market in which financial assets are created or transferred. These are credit markets which cater the credit needs to individual, ‘Firms and Institutions’.
Q.10. What is Money Market ?
Ans :- The terms Money Market is a market for dealing with financial assets and securities which have a maturity period of up to one year. In other words, it is a markets for purely short terms funds. According to the Reserve Bank of India.
The Money Market is the Centre for dealing in monetary assets of a short-term character. In funds money market, borrower bid the short term surplus investible funds which are at the disposal of financial and other institution and individual. Thus money market meets short term requirements of borrower and provide liquidity to lender it is called a Money Market.
Q.11. What is Capital Market ?
Ans :- The capital market is a market for financial assets, which are have a long or indefinite maturity. Generally, it deals with long-term securities, which have maturity period of above one year.
According to ‘Harbert E. Dougall’, capital markets are complex of institution and mechanism whereby intermediate term funds (loan up to 10 year maturity) and long-term funds (longer maturity) one pooled and made available to business, Government and individual and where instrument that are already outstanding are transferred. Thus, it is called a capital Markets.
Q.12. What is Foreign Exchange Market ?
Ans :- The term ‘Foreign Exchange’ refers to the process of converting home currencies into foreign currencies and vice-versa. The foreign exchange market is the organisational framework within which individual firms, bank and broker buy and sell foreign currencies. However their is no market place as such which can be called a foreign market, Instead it is facilitating or an mechanism through which currencies are traded and exchanged.
Q.13. What is stock exchange ?
Ans :- Stock Exchange is an association of member brokers to regulate and surprise all transaction or dealing in securities and protecting interest of its member with the help of following definition we can explain the same meaning of stock Exchange are :-
According to securities contract (Regulation) Act 1956.
Stock Exchange mean by the body of individual, whether incorporated not, constituted for the purpose of assisting regulating or controlling the business of buying, selling in securities.
Q.14. State any two functions of stock exchange.
Ans :- The two function of Stock Exchange are as follows.
(i) Safety of funds :- Stock exchange ensure safety of funds in respect because they have to function under strict rules and regulation and they bye-laws are meant to ensure safety of invested funds.
(ii) Supply of long-term funds :- The security market in stock exchanged are negotiable in character and they are can be transferred from one person to another. So, when a security is transacted from one investor to another, it supplies long-term funds for a company.
C. Short answer questions : Type-II
Q.15. What are the different types of Financial Market ?
Ans :- The different types of financial market are :-
Financial market can be classified into two broad categories are
(i) Money market.
(ii) Capital market.
(i) Money market :- Money market is one of the important part of the financial market. The money market is the market for short term funds. It refers to the institutional arrangements facilitating borrowers into are in need of short term funds. In a money market, funds can be borrowed for a short period varying from a day, a week, a month, 3 to 6 months against different types of instruments, such as bill of exchange banker acceptances, it called near money.
(ii) Capital Market :- The capital market is concerned with long term finance. Every business concern requires long term finance for purchasing fixed assets such as plant and machinery, land and building etc. The capital market meets the long term requirements.
The capital market refers to the institutional arrangements for facilitating the borrowing and lending of long term funds. In the capital market long term securities are exchanged.
Q.16. What are the main sub-markets of financial market ?
Ans :- The main sub-markets of financial market are :
1. Money Market :- Sub markets of money market are :
(a) Call money market.
(b) Collateral loan market.
(c) Acceptance market.
(d) Bill market.
2. Capital Market :- Components of capital market are :
(a) New Issue market.
(b) Stock market.
(c) Financial Institution.
Q.17. Explain the meaning of Non-Bank Financial Institutions with illustration.
Ans :- Non-banking financial intermediaries are such institutions as savings and loan associations life insurance companies, mutual savings banks common trust funds, pension and government lending agencies. These intermediaries poor funds from net savers and lend them to finance expenditures of business firms and local bodies. To obtain funds from net savers, the intermediaries issue and sell indirect securities such as time deposits, common funds stocks, savings and loan shares and insurance policies. They purchase primary securities to lend funds to ultimate borrowers primary securities include government securities mortgages, common and preferred stocks and consumers and other short-terms debts. Thus NBFCs are financial firms that buy one kind of financial assets and sell another.
Q.18. Write a short note on Foreign Exchange Market.
Ans :- According to Dr. Paul Eizing “Foreign Exchange” is the system or process of converting one national currency into another and of transferring money from one country to another.
Foreign exchange Market is an Over the Counter (OTC) market, an OTC is a market without a centralised exchange. There is no signal and organised market, buyer and seller deals through broker with each other. the term, Foreign Exchange refer to process of converting home currencies into foreign currencies and vise-versa thus it is called a foreign Exchange Market.
D. Long answer questions: Type-I
Q.19. Write five features of money market.
Ans :- The money market is the collective name given to the various firms and institution that deals in various grades of near money. The following five feature they are :
(i) Market for short-term funds or financial assets :- It is a market purely for short-term funds or financial assets called near money . It deals with financial assets having a maturity period up to one year only . It deals with only those assets that can be converted into cash readily without loss and with maximum transaction cost.
(ii) Absence of formal place :- Generally transactions are taken place through phone i.e. oral communication. Relevant document and written communication can be exchange subsequently. There are no formal place like stock exchange as it the case of a capital market.Those the market place in the absence of formal place.
(iii) Heterogeneous Market :- It is not a single heterogeneous market. It compresses of security submarket, each specialising in a particular types of financial, e.g. call Money Market, acceptance market and so on.
(iv) Components of the Market :- The component of the Money Market are the Central Bank; Commercials Banks, Non banking financial companies, discount generally play a dominant rate of this market.
(v)Absence of brokers :- Non-Existence of brokers is another feature of Money Market. Transaction have to be conducted without the help of the brokers under this market.
Q.20. Write five features of Capital market.
Ans :- Capital Market consist of series of channels through which the saving of the community are made available for industrial and commercial enterprises and public authorities. An efficient capital Market is a predetermined of economic development. The following five categories are :
(i) Market for long-term finance :- It is a market purity for long-term fund or financial assets. Capital market deals in the reading and borrowing of long-term finance i.e. for more than one year.
(ii) Types and Nature of Credit instruments :- The main instrument used in the capital market are stock, share, debentures, bonds, securities of the government etc. The credit instrument deals in the capital Market are more heterogeneous than the money market.
(iii) Mobilise small saving :- Capital Market create savings from small savers and transfer saving forwards those who can apply the productively to enhance the economy as a whole.
(iv) Existence of Intermediaries :- The different type of intermediaries such as brokers, underwriters, depositories, etc. act as a Working organs of capital market, without the existence of those intermediaries we cannot imagine a parely developed capital markets.
(v) Pervasiveness of Markets :- Capital Market consist of different sub-markets are widely spread and present everywhere. These market are market for industrial securities market, mortgages market for guarantee etc.
Q.21. Write a brief note about the composition of Money Market.
Ans :- The money market is not a single homogeneous market. It consist of a number of sub-market, which collectively constitute the money market. The following are the main sub-market of a money market are:
(i) Call Money Market :- The call Money Market refer to the market for extremely short period loans, say one day to fourteen days. These loans are repayable on demand at the option of either the render or the borrower. Generally under this market loans are given to broker and dealers in this stock exchange.
(ii) Collateral loan Market :- Collateral loan market refer to a market for loan secured against Collateral securities like stock and bonds. The Collateral is return to the borrower the time when he repays the loan.
(iii) Commercial Bill Market :- Commercial bill market deals in commercial bill issued by the firm engaged in business. This market specialised in the sell and product and purchase of different types of short-term bills. From the operation point of view, the bills market can be classified into following :
(a) Discount Market :- Discount market refer to the market where financial intermediaries like commercial both discount trade short-term genuine trade bills.
(b) Acceptance Market :- The acceptance market refer to the markets where financial intermediaries accept short-term genuine trade bills. All trade bill cannot be discounted easily, because the parties to the bill may not be financially sound.
(iv) Treasury Bill Market :- Just like commercial bills which represent commercial dept. Treasury bills represent short-term borrowings of the Government . Treasury bills markets refer to the market where treasury bills are brought and sold. Treasury bills are very popular and enjoy a higher degree of liquidity since the Government issue them.
(v) Market for certificate of Deposit and commercial paper :- This market deals with the certificate of deposit and commercial paper. In India, the RBI introduces these two instrument in March 1989 in order to wind the range of money market instrument and give investors greater flexibility in the deployment of their short-term surplus funds.
Q.22. Mention five differences between the money market and capital market.
Ans :- The differences between Money Market and Capital Market are as follows :
Money Market :
1. It is a market for short-term loanable for a period of not exceeding one year.
2. This market supplies fund for financing current business operation working capital requirement of industries and short period requirement of the Government.
3. The instrument that are dealt in a market are bill of exchange, treasury bill, commercial papers, certificate of deposit etc.
4. The central bank and commercial bank are the major institution in the money markets.
5. Transaction have to be conducted without the helps of brokers.
Capital Market :
1. It is a market for long-term loanable funds exceedings a period of one year.
2. This market supplies fund for financing the fixed capital requirement of trade and commerce as well as the long term requirement of the Government.
3. This market deals in instrument like shares, debentures, government bonds etc.
4. Development banks and Insurance companies play a dominant role in the capital market.
5. Transaction have to be conducted only through authorised dealers.
Q.23. Discuss the features of non-bank financial Institutions of India.
Ans :- The features of non-banking financial of India are :
Provide Liquidity :- Non-Banking Financial Institutions provide liquidity when they convert an assets into cash easily and quickly without loss of value in terms of money.
Reduce Risks :- When the non-banking financial intermediaries convert dept into credit, they reduce the risk to the climate lender. First they create liabilities on themselves by selling indirect securities to the lenders. Then they buy primary securities from borrowers of funds.
Mobilising Savings :- NBFCs raise fund
in the capital market and supply credit to investors. Expert financial services provided by them have been attracting larger share of public savings. Such services include easy liquidity, safety of principal and ready divisibility of savings into directs security of different values.
Investment of Funds :- NBFIs exists because they want to earn profit, by investing the mobilised savings different financial intermediaries follow different investment policies. For instance, mortgages and insurance companies invest in bonds and securities.
Economies of Scales :- NBFIs reap an number of economics of specialisation and scale in mobilising savings and making investment. It would be costly and cumbersome for individual savers to lend their funds to individual borrowers.
Q.24. Discuss about the Institutions participating in the Indian Money Market.
Ans :- The following are the major institution of the money market.
(i) Commercial banks :- Commercial banks are the most important constitution of the money market. These banks use their short term surplus funds to grant short term loans to the money market.
(ii) Central banks :- The central banks is the apex monetary institution and plays a vital role in the money market. The central bank is the lender of the last resort, banker to the government, bankers bank and controller of the money market.
(iii) Acceptance house :- Acceptance houses and bill brokers are the important institution of the money market. These houses specialised in the acceptance of trade bill commercial bills on behalf of their customers.
(iv) Non Bank Financial institution :- Various types of non bank financial institutions such as insurance companies and other business corporations having short period surplus funds also operate in the money market.
E. Long answer questions : Type-II
Q.25. What are the different types of financial market ? Discuss the features of Indian money market.
Ans :- Financial market can be classified into board categories.
(i) Money market.
(ii) Capital market.
(i) Money market :- Money market is one of the important part of the financial market. The money market is the market for short term funds. It refers to the institutional arrangements facilitating borrowers who are in need of short term funds. In a money market funds can be borrowed for a short period varying from a day, a week, a month, 3 to 6 months against different types of instruments, such as bill of exchange, banker acceptance etc. Called near money market.
(ii) Capital market :- The capital market is concerned with long term finance. Every business concern long term finance for purchasing fixed assets such as plant and machinery land and building etc. The capital market meets the long term requirement.
The capital market refers meets to the institutional arrangements for facilitating the borrowing and lending of long term funds. In the capital market long term securities are exchanged.
Q.26. Highlight the role of Non-Banking Financial Intermediaries.
Ans :- NBFCs have been performing a vital function is economic development by mobilised saving and making investment advancing loans, providing equipment leasing and their purchase facilities. Thus, it is a heterogeneous group of financial institution other than commercial banks. Role played by the NBFIs can be summarised as follows :
(i) Act as a financial intermediary :- NBFIs act as financial intermediaries by transferring fund from one person to another, i.e. from the saver to the investor. Financial intermediation is economical as well as efficient than that by the judicial wealth owners in view of law of large number and economic of scale in portfolio management.
(ii) Promote and Mobilise saving :- NBFIs play on important role in promoting saving in the country. These institution provide in a wide range financial asset as a store of value and make available expert financial saving services to the saver. Asset may provide are easily storable, more liquid and less risky. NBFIs provide highly efficient mechanism you mobilising saving a depository and contractual intermediaries.
(iii) Investment of funds :- Under different investment policies NBFIs invest their funds which they are gathered from the small saver. In the process they earn a marginal amount of profit.
(iv) Beneficial to the saver or lenders :- It reduces NBFIs provide different benefit to the sever as well as lenders. It reduces risk of saver, the deposit of lender are insured by regulatory agencies, thereby provide security to leader. It provide sufficient liquidity on their secondary securities to the creditors.
(v) Beneficial to the borrower :- NBFIs provide large amount of fund according to the need of borrowers with greater certainty at all time. The rate of interest is also lower than others.
(vi) Benefits to the Economy :- NBFIs play a very important role in the implementation of national monetary policy, which is very much essential for the economic development. NBFIs promote production, capital formation and economic growth by encouraging saving, mobilize saving and allocating them efficiently among various sector of the economy. NBFIs having about a balance between the demand and supply of funds from surplus units to deficit units.
Moreover, financial institution are the indicators of development of the economy. Thus we cannot imagine a developed economy without the rare of WBFIs.
Q.27. Write eight functions of Stock Exchange.
Ans :- The stock exchange play an important role in making a country economically strong. The following are the eight functions they are :
(i) Liquidity and Marketability of securities :- Stock exchange provide liquidity to securities since securities can be converted into cash at any time according to the need of the investor by setting them at a listed prices. If facilitates buying and selling of securities by providing continues marketability to the investors in respect of securities field.
(ii) Safety of funds :- Stock-Exchange ensure safety of funds invested because they have of function under strict rules and regulations and they follows meant to ensure safety of investible of funds.
(iii) Supply of long-term funds :- The securities marketed in stock exchange are negotiable in character and they can be transferred from one person to others. So, when a security is transacted from one investor to another, if supplies (one-term funds for a company.
(iv) Flow of capital to profitable ventures :- The profitability and popularity of companies are reflected in stock prices. The prices indicates the relations profitability and performance of companies. Hence, a large flow of capital added to profitable venture.
(v) Motivation for improved performance :- The performance of a company is visible in the eyes of public through stock-exchanged prices quotations. This public exposure make a company conscious of its status in the market and it acts as a motivation to improve its performance furthers.
(vi) Promotion of Investment :- Though capital formation stock-exchange mobilise the saving of the public and thus it promotes investment.
(vii) Marketability of new issue :- A stock-exchange helps in the marketing of new issue also. The share of new concern is registered of stock exchange and existing companies also sell their shares through broker etc at exchange.
(viii) Miscellaneous Services :- Stock-Exchange supplies securities of different kinds with different maturities and yields. It enables the investors to diversity their risks by a under portfolio of investment. It guides the investor in choosing securities by supplying the daily quotation of listed securities.
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Class 12 Banking Chapter 3 Financial Markets Question answer to each chapter is provided in the list so that you can easily browse through different chapters HS 2nd Year Banking Chapter 3 Financial Markets Notes and select needs one.
SCERT Class 12 Banking Chapter 3 Financial Markets
Also, you can read the SCERT book online in these sections Solutions by Expert Teachers as per SCERT (CBSE) Book guidelines. These solutions are part of SCERT All Subject Solutions. Here we have given Class 12 Banking Chapter 3 Financial Markets Solutions for All Subjects, You can practice these here.
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