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Class 12 · Tamil Nadu State Board

Samacheer Kalvi 12th Commerce Chapter 7 Stock Exchange Exercise Solutions

Tamil Nadu Class 12 Commerce Chapter 7 Stock Exchange exercise solutions — functions, features, speculators, BSE, NSE, NIFTY, SENSEX, NSMS, and comparison with capital market.

Updated 12 June 202616 min read

I. Choose the Correct Answer

Q1. The first stock exchange in the world was established in

  • (a) London
  • (b) New York
  • (c) Amsterdam
  • (d) Tokyo
Answer(c) Amsterdam — The Amsterdam Stock Exchange, established in 1602, is considered the world's first stock exchange.

Q2. The number of recognized stock exchanges in India is

  • (a) 20
  • (b) 21
  • (c) 22
  • (d) 23
Answer(b) 21 — There are 21 recognized stock exchanges in India.

Q3. Stock exchange deals with

  • (a) Agricultural products
  • (b) Financial securities
  • (c) Consumer goods
  • (d) Raw materials
Answer(b) Financial securities — A stock exchange is a market for buying and selling financial securities such as shares, debentures, and bonds.

Q4. Only ________ can become members of the stock exchange

  • (a) Any person
  • (b) Listed securities
  • (c) Companies
  • (d) Registered brokers
Answer(b) Listed securities — Only listed securities are traded on the stock exchange. (Note: The question refers to what can be traded, and listed securities is the textbook answer.)

Q5. Broker is a commission agent who deals on behalf of

  • (a) Himself
  • (b) His family
  • (c) For their own transaction
  • (d) Others
Answer(d) Others — A broker is a commission agent who transacts on behalf of others (clients), not for his own transactions.

Q6. A speculator who expects prices to fall is called

  • (a) Bull
  • (b) Bear
  • (c) Stag
  • (d) Lame Duck
Answer(b) Bear — A Bear (Mandiwala) expects share prices to fall and sells shares to buy them back later at a lower price.

Q7. A speculator who expects rise in prices is called

  • (a) Bull
  • (b) Bear
  • (c) Stag
  • (d) Lame Duck
Answer(a) Bull — A Bull (Tejiwala) expects share prices to rise and buys shares to sell later at a profit.

Q8. Bull leads to

  • (a) Decrease in prices
  • (b) Increase in prices
  • (c) No change in prices
  • (d) None of the above
Answer(b) Increase in prices — A bull buys shares expecting prices to rise, and this increased buying activity leads to an increase in prices.

Q9. Stock exchange publishes

  • (a) Daily news
  • (b) Market quotations
  • (c) Company reports
  • (d) Government policies
Answer(b) Market quotations — Stock exchanges publish market quotations showing the prices and volumes of securities traded.

Q10. The apex body of the securities market is

  • (a) RBI
  • (b) Government
  • (c) SEBI
  • (d) BSE
Answer(c) SEBI — The Securities and Exchange Board of India (SEBI) is the apex regulatory body of the securities market.

II. Choose the Correct Answer (Additional MCQs)

Q1. A cautious speculator who applies for new shares and sells them at a premium is called

  • (a) Bull
  • (b) Bear
  • (c) Stag
  • (d) Lame Duck
Answer(c) Stag — A stag is a cautious speculator who applies for shares in new companies and sells them at a premium when trading begins.

Q2. A bear speculator expects

  • (a) Increase in price
  • (b) Decrease in price
  • (c) No change in price
  • (d) None of the above
Answer(b) Decrease in price — A bear expects prices to fall and sells securities to buy back later at a lower price.

Q3. Which of the following is not a foreign stock exchange?

  • (a) London Stock Exchange
  • (b) New York Stock Exchange
  • (c) Bombay Stock Exchange
  • (d) Tokyo Stock Exchange
Answer(c) Bombay Stock Exchange — BSE is an Indian stock exchange, not a foreign one.

Q4. Which of the following is incorrectly matched?

  • (a) Bull — Tejiwala
  • (b) Bear — Mandiwala
  • (c) Bull — Mandiwala
  • (d) Stag — Premium
Answer(c) Bull — Mandiwala is incorrectly matched. Bull is called Tejiwala; Bear is called Mandiwala.

Q5. Find the odd one out

  • (a) Bull
  • (b) Bear
  • (c) Stag
  • (d) Swan
Answer(d) Swan — Bull, Bear, and Stag are types of speculators in the stock exchange. Swan is not a type of speculator.

Q6. Find the odd one out

  • (a) Wall Street
  • (b) Dalal Street
  • (c) Khazimar Street
  • (d) Lombard Street
Answer(c) Khazimar Street — Wall Street (New York), Dalal Street (Mumbai), and Lombard Street (London) are famous financial streets. Khazimar Street is not a recognized financial street name.

Q7. Which of the following statements are correct?

  • (i) Future market is an auction market
  • (ii) Put option gives the right to sell
  • (iii) Call option gives the right to buy
  • (a) i and ii only
  • (b) ii and iii only
  • (c) i and iii only
  • (d) All are correct (i, ii, and iii)
Answer(d) All are correct — (i) Future market is an auction market for future contracts, (ii) Put option gives the holder the right to sell, and (iii) Call option gives the holder the right to buy.

III. Match the Following

Match Q1 — International Stock Exchanges

Column IColumn II
(i)NASDAQ(1)China
(ii)Euronext(2)Toronto, Canada
(iii)TMX Group(3)France/Portugal/Netherlands
(iv)Shenzhen Stock Exchange(4)New York City
Answer
  • (i) — 4: NASDAQ → New York City
  • (ii) — 3: Euronext → France/Portugal/Netherlands
  • (iii) — 2: TMX Group → Toronto, Canada
  • (iv) — 1: Shenzhen Stock Exchange → China

Match Q2 — Speculators

Column IColumn II
(i)Bull(1)Sells shares, expects fall
(ii)Bear(2)Applies for new shares at premium
(iii)Stag(3)Buys shares, expects rise
(iv)Lame Duck(4)Bear who cannot meet commitment
Answer
  • (i) — 3: Bull → Buys shares, expects rise
  • (ii) — 1: Bear → Sells shares, expects fall
  • (iii) — 2: Stag → Applies for new shares at premium
  • (iv) — 4: Lame Duck → Bear who cannot meet commitment

IV. Assertion and Reason

Q1. Assertion (A): A bear expects prices to fall and presses his victim down. Reason (R): A bear sells securities in anticipation of a fall in prices.

  • (a) Both A and R are true, R is the correct explanation of A
  • (b) Both A and R are true, R is not the correct explanation of A
  • (c) A is true but R is false
  • (d) A is false but R is true
Answer(a) Both A and R are true, and R is the correct explanation of A. A bear sells securities expecting prices to fall, which causes downward pressure on prices — hence "presses his victim down."

V. Very Short Answer Questions

Q1. What is a Stock Exchange?

AnswerA stock exchange is an organised market for buying and selling existing securities such as shares, debentures, and bonds under rules and regulations. According to the Indian Securities Contracts (Regulation) Act, 1956, it is "an association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business in buying, selling and dealing in securities."

Q2. Name five Indian stock exchanges.

Answer1. Bombay Stock Exchange (BSE) 2. Bangalore Stock Exchange 3. Madras Stock Exchange 4. Hyderabad Stock Exchange 5. Cochin Stock Exchange

Q3. What is a Remisier?

AnswerA Remisier is an agent of a member of a stock exchange who obtains business for the member's firm and receives a commission (called remisierage) for the business secured. He is not a member of the stock exchange himself.

Q4. What is a Broker?

AnswerA Broker is a commission agent who acts as an intermediary between the buyer and seller of securities. He transacts business on behalf of his clients and charges a commission (brokerage) for his services. He must be a member of the stock exchange.

Q5. Name the types of speculators.

AnswerThe four types of speculators are: 1. Bull (Tejiwala) 2. Bear (Mandiwala) 3. Stag 4. Lame Duck

Q6. What is a recent development in the stock exchange?

AnswerA recent development in the stock exchange is the establishment of Commodity Exchanges, where commodities like gold, silver, agricultural products, and other goods are traded in a regulated manner similar to securities.

Q7. What is a Future Market?

AnswerA Future Market is an auction market where contracts for future delivery of commodities or securities are bought and sold. It allows participants to lock in prices for future transactions, providing a mechanism for hedging against price fluctuations.

Q8. What is an Options Market?

AnswerAn Options Market is a segment where securities are bought and sold at a specified price within a specified period. There are two types: Call Options (right to buy) and Put Options (right to sell).

Q9. What is Leverage?

AnswerLeverage refers to the practice of profiting from share price changes without paying the full price of the shares. It allows an investor to control a large position with a relatively small amount of capital.

Q10. What is Hedging?

AnswerHedging is a strategy used to protect against price fluctuations in the market. It involves taking an offsetting position in a related security to minimize the risk of adverse price movements.

Q11. What is SENSEX?

AnswerSENSEX (Sensitivity Index) is the benchmark index of the Bombay Stock Exchange (BSE). It is composed of 30 actively traded stocks and serves as an indicator of market performance.

Q12. What is NIFTY?

AnswerNIFTY (National Stock Exchange Fifty) is the benchmark index of the National Stock Exchange (NSE). It is composed of 50 actively traded stocks and reflects the overall market performance on the NSE.

Q13. What is Dalal Street?

AnswerDalal Street is the area in Mumbai (formerly Bombay) that houses the Bombay Stock Exchange (BSE). It is the Indian equivalent of Wall Street in New York and is the centre of India's financial market activity.

VI. Short Answer Questions

Q1. What are the limitations of the Stock Exchange?

Answer1. Speculation and Gambling: The stock exchange encourages speculative activities which may lead to gambling-like behaviour and market manipulation. 2. Fraudulent Practices: Unfair practices like insider trading, cornering, and rigging can harm genuine investors. 3. Price Fluctuations: Sudden and artificial price fluctuations can create economic instability. 4. Inequality: Only those with sufficient capital can participate, widening the gap between rich and poor. 5. Uncertainty: The market is subject to unpredictable fluctuations, making it risky for small investors.

Q2. Explain the types of speculators.

Answer

1. Bull (Tejiwala): A bull is a speculator who expects share prices to rise. He buys shares at the current price with the intention of selling them at a higher price in the future to make a profit.

2. Bear (Mandiwala): A bear is a speculator who expects share prices to fall. He sells shares at the current price with the intention of buying them back at a lower price later.

3. Stag: A stag is a cautious speculator who applies for shares in new companies with the intention of selling them at a premium when trading begins, without intending to hold them long-term.

4. Lame Duck: A lame duck is a bear speculator who has entered into a commitment to sell shares but is unable to fulfil the commitment due to a sudden rise in prices. He is "lame" because he cannot deliver the shares as promised.


Q3. What is NSMS?

AnswerNSMS stands for National Stock Market System. It was recommended by the Pherwani Committee. The NSMS includes: 1. National Stock Exchange (NSE) 2. Securities Trading Corporation of India (STCI) 3. Stock Holding Corporation of India (SHCIL)

The NSMS aims to create a unified, transparent, and efficient national market for trading securities across India.


Q4. Write a note on NSE.

AnswerThe National Stock Exchange (NSE) was incorporated in 1992 and commenced operations in 1994. Key features: 1. It introduced screen-based online order-driven trading system in India. 2. It provides a nationwide trading facility with equal access to investors across the country. 3. It operates two segments: Capital Market segment and Wholesale Debt Market segment. 4. It established the NSE-50 (NIFTY) index comprising 50 actively traded stocks. 5. It brought transparency and efficiency to the Indian securities market.

VII. Long Answer Questions

Q1. What are the functions of a Stock Exchange?

AnswerThe main functions of a Stock Exchange are:

1. Ready and Continuous Market: The stock exchange provides a ready and continuous market for buying and selling securities. Investors can convert their securities into cash at any time.

2. Correct Evaluation of Securities: The stock exchange helps in determining the correct prices of securities through the forces of demand and supply. The daily price quotations reflect the true worth of securities.

3. Protection to Investors: The stock exchange protects the interests of investors by ensuring fair dealings, regulating trading practices, and preventing fraud and manipulation.

4. Proper Channelisation of Capital: The stock exchange directs the flow of capital from less productive to more productive channels, ensuring optimal allocation of financial resources.

5. Facilities for Speculation: The stock exchange provides facilities for legitimate speculation, which is necessary for market liquidity and price discovery. Without speculation, the market would lack depth and activity.


Q2. What are the features of a Stock Exchange?

AnswerThe main features of a Stock Exchange are:

1. Market for Securities: A stock exchange is an organized market where securities such as shares, debentures, and bonds are bought and sold.

2. Association of Persons: A stock exchange is an association of persons (members/brokers) who come together to conduct trading in securities.

3. Deals in Second-hand Securities: The stock exchange deals in existing (second-hand) securities that have already been issued in the primary market.

4. Regulates Trade: The stock exchange regulates the trading of securities through rules, regulations, and bye-laws to ensure fair and transparent dealings.

5. Only Listed Securities: Only securities that are listed on the stock exchange can be traded. Unlisted securities cannot be bought or sold on the exchange.

6. Specific Location: A stock exchange operates from a specific location. For example, BSE operates from Dalal Street, Mumbai.


Q3. What are the benefits of a Stock Exchange?

AnswerThe benefits of a Stock Exchange can be classified as follows:

Benefits to the Community: 1. Provides a platform for investment and channelizes savings into productive channels. 2. Reflects the general economic condition of the country. 3. Facilitates capital formation for economic development.

Benefits to the Company: 1. Helps companies raise capital by providing a market for their securities. 2. Enhances the reputation and goodwill of listed companies. 3. Enables better valuation of the company through market-determined prices.

Benefits to Investors: 1. Liquidity: Investors can convert their securities into cash at any time. 2. Safety: The regulated environment protects investors from fraud. 3. Fair Price: Prices are determined by demand and supply, ensuring fair valuation. 4. Knowledge: Regular price quotations and market information help investors make informed decisions.


Q4. Compare Money Market and Capital Market.

Answer
BasisMoney MarketCapital Market
MeaningMarket for short-term funds (up to 1 year)Market for long-term funds (more than 1 year)
RegulatorRegulated by Central Bank (RBI)Regulated by Central Bank (RBI) and SEBI
UnderwritingNo underwriting facilityUnderwriting facility available
RiskLow credit and market riskHigh credit and market risk
Secondary MarketLess active secondary marketActive and well-organised secondary market
LiquidityHigh liquidityLow liquidity
DurationShort-term (up to 1 year)Long-term (more than 1 year)
InstrumentsT-Bills, Commercial Bills, CDs, Call MoneyShares, Debentures, Bonds
ReturnLow returnHigh return
ParticipantsBanks, RBI, Discount HousesPublic, Financial Institutions, Stock Exchanges

Common Mistakes to Avoid

1. Confusing Bull and Bear: Bull (Tejiwala) = expects prices to RISE (buys). Bear (Mandiwala) = expects prices to FALL (sells). Remember: Bull charges UP, Bear swipes DOWN.

2. Stock Exchange vs. Primary Market: Stock exchange is part of the SECONDARY market — it deals in existing/already-issued securities, not new issues. The primary market is for new issues.

3. Broker vs. Remisier: A broker is a MEMBER of the stock exchange who transacts on behalf of clients. A remisier is NOT a member — he is an agent who gets business for a member and earns commission.

4. Lame Duck is NOT a separate category: A lame duck is simply a bear who cannot fulfil his commitment. It is a situation a bear finds himself in, not a distinct type of speculator.

5. Stag vs. Bull: A stag deals with NEW issues (applies for shares in new companies), while a bull deals with existing shares expecting prices to rise.


Exam Checklist

  • [ ] Can you define a Stock Exchange and name its key functions?
  • [ ] Can you list and explain the features of a Stock Exchange (6 features)?
  • [ ] Can you differentiate Bull, Bear, Stag, and Lame Duck?
  • [ ] Can you list the benefits of a Stock Exchange (Community, Company, Investors)?
  • [ ] Can you compare Money Market and Capital Market in a table?
  • [ ] Can you explain NSMS and NSE?
  • [ ] Can you define SENSEX, NIFTY, Dalal Street, Leverage, and Hedging?
  • [ ] Can you explain the difference between Broker and Remisier?
  • [ ] Can you list the limitations of a Stock Exchange?
  • [ ] Do you know the first stock exchange (Amsterdam, 1602) and the number of Indian stock exchanges (21)?

Frequently Asked Questions

A stock exchange is an organised market for buying and selling existing securities such as shares, debentures, and bonds under rules and regulations.
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