I. Choose the Correct Answer
Q1. The financial market enables the borrowers to: Answer: To raise funds
Q2. Capital market provides: Answer: Long Term Finance
Q3. The market where securities are issued for the first time: Answer: New Issue Market (Primary Market)
Q4. In spot market, delivery and payment are made: Answer: Immediately
Q5. Securities in the secondary market can be sold: Answer: Multiple times
II. Choose the Correct Answer (Additional MCQs)
Q1. The organised sector consists of how many components? Answer: Two sectors (Organised and Unorganised)
Q2. Which of the following is a marketable asset? Answer: Marketable Assets — financial instruments that can be traded in the market.
Q3. Which market deals with long-term finance? Answer: Capital Market
Q4. Find the odd one out: Savings mobilisation, Investment, Industrial development, National Growth Answer: National Growth — The first three are functions of the financial market; National Growth is a broader outcome.
Q5. Which is a physical asset? Answer: Residence — A physical asset is tangible property like a house.
Q6. Which is a financial asset? Answer: Hiring — Financial assets are claims on physical assets or contractual rights.
Q7. The market for already issued securities is: Answer: Secondary market
Q8. Find the odd one out: Spot market, Future market, Capital market, Niche Market Answer: Niche Market — It is a marketing concept, not a type of financial market.
Q9. The market where securities are traded: Answer: Securities Market
III. Match the Following
Q1.
| Column I | Column II | ||
|---|---|---|---|
| i | Spot Market | 2 | Settlement immediately |
| ii | Primary Market | 4 | Issued first time |
| iii | Capital Market | 1 | Long term finance |
| iv | Equity Shares | 3 | Equity Market |
Q2.
| Column I | Column II | ||
|---|---|---|---|
| i | Debt Market | 2 | Government Bonds |
| ii | Money Market | 1 | Short term finance |
| iii | Future Market | 4 | Time framed in future |
| iv | Secondary Market | 3 | Stock Exchange |
IV. Assertion and Reason
Q1. Assertion (A): Government needs funds for development activities. Reason (R): Government raises funds by selling financial instruments. Answer: Both A and R are true, and R is the correct explanation of A — The government needs funds and raises them by selling bonds and other financial instruments in the market.
V. Very Short Answers
Q1. What are the components of the organised sector? Answer: The four components of the organised sector are: Regulators, Financial Institutions, Financial Markets, and Financial Services.
Q2. What is a financial market? Answer: A financial market is a place or mechanism where financial instruments such as shares, debentures, and bonds are traded between borrowers and surplus fund holders.
Q3. What is a spot market? Answer: A spot market is a market where delivery of securities and payment are made immediately at the spot.
Q4. What is a debt market? Answer: A debt market is a market for trading in debt instruments such as Government Bonds and Corporate Debentures.
Q5. How is price determined in the secondary market? Answer: Price in the secondary market is determined by demand and supply through a price discovery process.
VI. Short Answers
Q1. Define financial market. Answer: According to Brigham, a financial market is a place where borrowers and surplus fund holders are brought together. It is a mechanism through which financial instruments are traded, enabling the transfer of resources from savers to investors.
Q2. Distinguish between spot market and future market. Answer: In a spot market, delivery of securities and payment are made immediately. In a future market, delivery and payment are settled at a predetermined future date and price. Spot markets deal in current transactions, while future markets deal in contracts for future settlement.
Q3. What is a secondary market? Answer: A secondary market is a market for securities that have already been issued. The stock exchange is the key institution of the secondary market, where previously issued securities are bought and sold among investors.
Q4. What is the scope of financial markets in India? Answer: Financial markets in India provide financial assistance to: (i) Individuals, (ii) Industrial sectors, (iii) Insurance companies, (iv) Banks, (v) Agricultural sector, (vi) Government, (vii) Service sectors.
VII. Long Answers
Q1. Distinguish between New Issue Market (Primary Market) and Secondary Market.
| Basis | New Issue Market (Primary) | Secondary Market |
|---|---|---|
| Meaning | Market where securities are issued for the first time | Market for already issued securities |
| Buying | Directly from the company | Indirectly through stock exchange |
| Intermediaries | Underwriters | Brokers |
| Gained persons | Companies | Investors |
| Sold | Only once | Multiple times |
| Physical existence | No physical existence | Has physical existence (Stock Exchange) |
Q2. Explain the types of financial markets.
Financial markets are classified as follows:
1. By claim type: Debt Market (Government Bonds, Corporate Debentures) and Equity Market (Shares). 2. By maturity: Money Market (short-term finance up to one year) and Capital Market (long-term finance beyond one year). 3. By time of issue: Primary Market (new issues, first-time issuance) and Secondary Market (already issued securities). 4. By delivery timing: Spot Market (immediate delivery and payment) and Future Market (predetermined future date). 5. By organizational structure: Exchange-traded Market (formal stock exchanges) and Over-the-Counter Market (OTC, informal trading).
Q3. Explain the role and functions of financial markets.
Role of Financial Markets
1. Savings mobilisation: Channel savings from households to productive investment. 2. Investment: Provide avenues for surplus fund holders to invest. 3. National Growth: Contribute to GDP growth through capital formation. 4. Entrepreneurship growth: Enable entrepreneurs to raise capital for ventures. 5. Industrial development: Provide long-term funds for industrial expansion.
Functions of Financial Markets
Intermediary Functions:
- Transfer of resources from savers to investors
- Enhancing income through investment returns
- Productive usage of idle funds
- Capital formation for economic growth
- Price determination through demand and supply
- Sale mechanism for financial instruments
- Information dissemination to market participants
Financial Functions:
- Providing borrowers with access to funds
- Providing lenders with earning assets
- Providing liquidity to financial instruments