This page contains the NCERT Business Studies class 12 chapter 10 Financial Markets from Part 2 Business Finance and Marketing. You can find the solutions for the chapter 10 of NCERT class 12 Business Studies, for the Short Answer Questions, Long Answer Questions and Projects/Assignments Questions in this page. So is the case if you are looking for NCERT class 12 Business Studies related topic Financial Markets question and answers.
Very Short Answer Type
Question 1
1. What is a Treasury Bill?
Answer 1
A Treasury Bill (T-Bill) is a money market instrument issued by the government for raising short-term funds (less than one year).
Question 2
2. Name the segments of the National Stock Exchange (NSE).
Answer 2
1.
Capital Market Segment (CM)
2.
Wholesale Debt Market Segment (WDM)
3.
Futures and Options Segment (F&O)
Question 3
3. State any two reasons why investing public can expect a safe and fair deal in the stock market. (Point w.r.t safety of transactions – Functions of the Stock Exchange).
Answer 3
1.
Transparent trading: In screen-based trading, investors can see market prices in real time.
2.
Regulation by SEBI: SEBI protects investors and prevents fraudulent and unfair trade practices.
Question 4
4. What is the common name for Beneficiary Owner Account, which is to be opened by the investors for trading in securities?
Answer 4
The common name is Demat Account (BO account).
Question 5
5. Name any two details that need to be provided by the investor to the broker while filling a client registration form.
Answer 5
•
PAN number (mandatory)
•
Bank account details
Short Answer Type
Question 1
1. What are the functions of Financial Market?
Answer 1
1.
Mobilisation and channelising savings into productive uses.
2.
Price discovery of financial assets.
3.
Providing liquidity to financial assets.
Question 2
2. “Money Market is essentially a Market for short term funds.” Discuss.
Answer 2
•
Money market deals with short-term funds.
•
It deals in monetary assets with maturity period of less than one year.
•
Its instruments include treasury bills, commercial paper, call money, certificate of deposit, commercial bills, participation certificates, and money market mutual funds.
Question 3
3. Distinguish between Capital Market and Money Market.
Answer 3
Basis
Money Market
Capital Market
Meaning
Market for short-term funds and monetary assets.
Market for long-term funds.
Time Period / Maturity
Deals in assets with maturity less than one year.
Deals in funds for a longer period (generally more than one year).
Main Instruments
Treasury bills, commercial paper, call money, certificate of deposit, commercial bills, participation certificates, and money market mutual funds.
Securities such as shares and debentures.
Key Segments
Mainly money market instruments used for short-term needs.
Has two parts: Primary Market (new securities) and Secondary Market (existing securities).
Basic Purpose
To meet short-term requirements of borrowers.
To meet long-term capital requirements of business and government.
Question 4
4. What are the functions of the Stock Exchange?
Answer 4
The functions of the stock exchange are:
1.
Providing Liquidity and Marketability to Existing Securities: A stock exchange provides a ready market for buying and selling existing securities. This makes securities liquid (easy to convert into cash) and more marketable.
2.
Pricing of Securities: A stock exchange helps in pricing of securities through the interaction of demand and supply. The price is decided in an open market, so it becomes a fair market price.
3.
Safety of Transaction: A stock exchange ensures safety of transactions because trading is done under rules and regulations. It reduces chances of fraud and makes dealings safer for investors.
4.
Contributes to Economic Growth: Stock exchange contributes to economic growth by encouraging savings and channelising funds into productive investments. This supports business expansion and development.
5.
Spreading of Equity Cult: Stock exchange spreads equity cult by educating investors, creating awareness, and encouraging people to invest in shares, which increases participation in the stock market.
6.
Providing Scope for Speculation: Stock exchange provides scope for speculation, where people buy and sell securities to earn profit from changes in prices.
Question 5
5. What are the objectives of SEBI?
Answer 5
The objectives of SEBI are:
1.
To Regulate Stock Exchanges and the Securities Industry: SEBI regulates stock exchanges and the securities market so that it works in an orderly and proper manner.
2.
To Protect the Rights and Interests of Investors: SEBI works for investor protection by providing guidance and ensuring that investors get accurate information for safer decisions.
3.
To Prevent Trading Malpractices: SEBI tries to stop unfair activities like fraud and manipulation in the stock market. It balances self-regulation with statutory regulation.
4.
To Develop and Regulate a Code of Conduct and Fair Practices by Intermediaries: SEBI sets rules and code of conduct for intermediaries like brokers and merchant bankers so that fair practices are followed.
Question 6
6. State the objective of NSE.
Answer 6
The main objective of the National Stock Exchange (NSE) is to provide online/screen-based trading through a nationwide network, so that trading becomes accessible from anywhere in the country using trading terminals.
It also brings trading centres across the country onto one single trading platform, making buying and selling of securities easier and more uniform.
Question 7
7. Name the document prepared in the process of online trading of securities that is legally enforceable and helps to settle disputes/claims between the investor and the broker.
Answer 7
The document is the Contract Note. It is legally enforceable and helps settle disputes between investor and broker.
Long Answer Type
Question 1
1. Explain the various Money Market instruments.
Answer 1
Money Market deals in short-term funds (maturity less than one year) and includes instruments like treasury bills, commercial paper, call money, certificate of deposit, commercial bills, participation certificates and money market mutual funds.
Also, the chapter mentions that money market instruments are short-term debt instruments such as T-bills, trade bills, commercial paper and certificates of deposit.
(a)
Treasury Bills (T-bills)
•
These are short-term debt instruments used in the money market.
•
They are used for meeting short-term fund needs (since money market is for short-term funds).
(b)
Commercial Paper
•
A short-term debt instrument used in the money market.
•
It helps in short-term borrowing (because money market itself is for short-term funds).
(c)
Call Money
•
It is included as a money market instrument and is used for very short period funds (as money market maturity can be up to one year and may even be for a single day).
(d)
Certificate of Deposit (CD)
•
It is listed as a money market instrument, and it is a short-term debt instrument used in the money market.
(e)
Commercial Bills / Trade Bills
•
The chapter mentions trade bills as money market instruments (short-term debt instruments).
(f)
Participation Certificates
•
Included in the list of money market instruments.
(g)
Money Market Mutual Funds (MMMFs)
•
Included in the list of money market instruments.
Question 2
2. Explain the recent Capital Market reforms in India.
Answer 2
The chapter shows that capital market operations have become more technology-driven, transparent, and faster in settlement, mainly through:
(a)
Screen-based trading / On-line trading
Now, screen-based trading or on-line trading is the only way to buy or sell shares. Key improvements highlighted:
•
A single trading platform where all trading centres are brought onto one platform (stock exchange on computer).
•
Trading is done electronically and is accessible widely through terminals.
(b)
Rolling settlement and faster settlement (T+2)
•
The settlement cycle is on T+2 day on a rolling settlement basis (w.e.f. 1 April 2003).
•
Pay-in and pay-out happen in a structured way, and settlement is completed on T+2.
(c)
Dematerialisation (Demat) and Depositories
•
All trading is now done through computer terminals, and settlement happens through electronic book entry form.
•
Holding securities in electronic form is called dematerialisation, and investors need a demat account with a depository.
•
IPOs are issued in demat form and a very large part of turnover is settled in demat form.
(d)
Better documentation and investor protection during trading
•
Broker issues a Contract Note (legally enforceable) with full details of trade and charges.
•
A Unique Order Code is given to each transaction.
Question 3
3. Explain the objectives and functions of the SEBI.
Answer 3
Objectives of SEBI
The overall objective of SEBI is:
•
To protect the interests of investors, and
•
To promote the development of, and regulate, the securities market.
This is elaborated as:
1.
Regulate stock exchanges and the securities industry for orderly functioning.
2.
Protect rights and interests of investors and guide/educate them.
3.
Prevent trading malpractices and balance self-regulation and statutory regulation.
4.
Regulate and develop code of conduct and fair practices by intermediaries (brokers, merchant bankers, etc.).
Functions of SEBI
SEBI performs Regulatory, Development, and Protective functions.
(A)
Regulatory Functions
•
Registration of brokers, sub-brokers and other players.
•
Registration of collective investment schemes and mutual funds.
•
Regulation of stock brokers, underwriters, merchant bankers, etc.
•
Regulation of takeover bids and inspections/audits of exchanges/intermediaries.
(B)
Development Functions
•
Training of intermediaries.
•
Research and publishing useful information.
•
Measures to develop capital markets with a flexible approach.
(C)
Protective Functions
•
Prohibit fraudulent and unfair trade practices (misleading statements, manipulation, price rigging, etc.).
•
Control insider trading and impose penalties.
•
Steps for investor protection and promotion of fair practices/code of conduct.
Question 4
4. India’s largest domestic investor Life Insurance Corporation of India has once again come to government’s rescue by subscribing 70% of Hindustan Aeronautics’ ₹ 4,200-crore initial public offering.
a.
Which market is being reflected in the above case?
b.
State which method of floatation in the above identified market is being highlighted in the case? (Primary Market)
c.
Explain any two other methods of floatation. (Private Placement, Offer through prospectus, offer for sale).
Answer 4
(a)
Market reflected
This case reflects the Primary Market (New Issue Market) because it is about an Initial Public Offering (IPO), i.e., new securities being issued for the first time.
(b)
Method of floatation highlighted
The method highlighted is Offer through Prospectus (IPO / Public Offer) because the statement clearly says it is an initial public offering (a public issue in the primary market).
(c)
Any two other methods of floatation
Two other methods mentioned in the question are:
1.
Private Placement: Securities are allotted to a selected group of investors (not offered to the general public).
2.
Offer for Sale: Securities are offered to the public through an intermediary, and then made available for public purchase.
(These method names are explicitly given in the exercise as “other methods of floatation”.)
Question 5
5. Lalita wants to buy shares of Akbar Enterprises, through her broker Kushvinder. She has a Demat Account and a bank account for cash transactions in the securities market. Discuss the subsequent steps involved in the screen-based trading for buying and selling of securities in this case.
Answer 5
Since screen-based trading is the only way to buy/sell shares, the steps are:
Step 1:
Broker registration + agreement
Lalita first approaches a registered broker and signs:
•
Broker-client agreement
•
Client registration form
She also provides details like PAN, address, bank and depository details, etc.
Step 2:
Demat (BO) account + bank account
She must have a demat/beneficial owner (BO) account with a depository participant (DP) and a bank account for cash transactions.
Step 3:
Place order to buy shares
She places an order with the broker and clearly tells:
•
Number of shares
•
Price
Step 4:
Order confirmation + matching on exchange
The broker issues an order confirmation slip and goes online to connect with the stock exchange and match the best price.
Step 5:
Trade execution + trade confirmation
Once the price matches, the order is executed electronically and the broker issues a trade confirmation slip.
Step 6:
Contract Note (legally enforceable)
Within 24 hours, broker issues a Contract Note with:
•
Number of shares, price, date/time, brokerage, etc.
It is legally enforceable and helps settle disputes.
Step 7:
Pay-in day
Now Lalita pays cash for the shares bought (pay-in).
Step 8:
Settlement on T+2 (rolling settlement)
Settlement is completed on T+2 rolling settlement basis.
Step 9:
Pay-out day + credit in demat account
On T+2, the exchange makes pay-out, and then shares can be delivered directly in Lalita’s demat account by giving demat details and instructing the DP.
ℹ️Note: Note that the latest settlement is happening on T+1 basis.
Project Work
Question 1
1. Study the website of Bombay Stock Exchange, i.e., www.bseindia.com and compile information which you find useful. Discuss it in your class and find out how it can help you should you decide to invest in the stock market. Prepare a report on your findings with the help of your teacher.
Answer 1
PROJECT WORK REPORT – 1
Study of Bombay Stock Exchange as an Investor
Subject: Business Studies (Class XII)
Chapter 10: – Financial Markets
Topic: Stock Exchange Website Study (BSE)
Cover Page (for your notebook / file)
•
Title: Report on BSE Website Study (for Investing in Stock Market)
•
Prepared by:
•
Class/Section:
•
Roll No.:
•
School:
•
Teacher:
•
Session:
1.
Objective of the Activity
To study the official website of the Bombay Stock Exchange (BSE) and compile useful information, and understand how it helps an investor in the stock market.
2.
Sources of Information (used in this report)
•
NCERT Business Studies (Financial Markets).
•
Official BSE website pages (for live market data and notices/circulars). (BSE India)
3.
Key Information Found on the BSE Website
(A)
Live Market Data and Share Prices
The BSE website provides live stock/share prices, real-time market updates, and market information which helps investors track current prices before placing a buy/sell decision. (BSE India)
(B)
BSE Indices (Example: SENSEX)
The BSE site provides indices information. This matches the idea from our chapter that SENSEX is the benchmark index of BSE and it is used as an important indicator of the Indian stock market.
(C)
Results
The BSE website includes company news and results, which is helpful because an investor should look at reliable information and disclosures before investing. (BSE India)
(D)
Notices & Circulars
The website has a section for Notices & Circulars. This is useful because it contains official exchange updates, schedules, and important instructions that affect trading and settlement. (m.bseindia.com)
4.
How This Website Can Help Me If I Decide to Invest
a.
Better price awareness (price discovery): By checking live prices and index movement, I can understand the current market situation.
b.
More confidence as an investor: The chapter says the stock exchange works as an organised market for buying and selling securities, and transparent information helps investors.
c.
Knowing official updates: Notices/circulars help me avoid confusion and follow correct market rules (m.bseindia.com)
d.
Tracking market trend using SENSEX: If SENSEX rises, it indicates the market is doing well and investors expect better earnings from companies (as explained in the chapter).
5.
Conclusion
The BSE website is useful for investors because it provides live market information, indices like SENSEX, company updates, and official information that helps an investor take more informed and safer decisions while investing.
Bibliography (write this at the end of your report)
•
NCERT Business Studies (Class XII), Chapter 10: Financial Markets.
•
BSE official website (market data and notices/circulars pages). (BSE India)
Question 2
2. Prepare a report on the role of SEBI in regulating the Indian stock market. You can get this information on its website namely www.sebi.gov.in. Do you think something else should be done to increase the number of investors in the stock market?
Answer 2
PROJECT WORK REPORT – 2
Role of Securities and Exchange Board of India in Regulating the Indian Stock Market + Suggestions to Increase Investors
Subject: Business Studies (Class XII)
Chapter: 10 – Financial Markets
Topic: SEBI’s role and investor participation
Cover Page (for your notebook / file)
•
Title: Report on Role of SEBI in Regulating Stock Market and Investor Participation
•
Prepared by:
•
Class/Section:
•
Roll No.:
•
School:
•
Teacher:
•
Session:
1.
Objective of the Activity
To prepare a report on the role of SEBI in regulating the Indian stock market and suggest steps to increase the number of investors.
2.
Sources of Information (used in this report)
•
NCERT Business Studies Class XII, Chapter 10 (Financial Markets). SEBI investor information pages and SCORES portal pages. (scores.sebi.gov.in)
3.
(from the Chapter)
The chapter explains that the capital market grew a lot, and many malpractices took place like rigging of prices, unofficial premium on new issues, violation of rules, delay in delivery of shares, etc. This reduced investor confidence and increased grievances. Therefore, the Government decided to set up SEBI as a separate regulatory body.
4.
Purpose and Role of SEBI (from the Chapter)
SEBI’s purpose is to create an environment for efficient mobilisation and allocation of resources through securities markets to meet the needs of:
•
Issuers,
•
Investors, and
•
Intermediaries.
For investors, SEBI focuses on protection of rights and interests through adequate, accurate and authentic information and continuous disclosure.
5.
Objectives of SEBI (from the Chapter)
SEBI’s overall objective is to protect investors, promote development, and regulate the securities market. It includes:
a.
Regulating stock exchanges and securities industry for orderly functioning.
b.
Protecting investors and educating them about their rights and responsibilities.
c.
Preventing trading malpractices, ensuring proper regulation, and enforcing a code of conduct and fair practices for intermediaries.
6.
What I Found on SCORES
SEBI provides SCORES (SEBI Complaint Redress System) which is an online grievance redress system where investors can lodge complaints against listed companies, registered intermediaries, and market infrastructure institutions. (scores.sebi.gov.in)
Also, the SCORES site clearly mentions that the older SCORES portal was closed and the new version is active now. (scores.sebi.gov.in)
This is helpful because it increases investor confidence that complaints can be registered and tracked on an official platform. (SEBI Investor)
7.
What Else Can Be Done to Increase the Number of Investors?
Yes, a few more steps can help:
a.
More investor education (simple and practical): SEBI already has the objective to guide and educate investors. More awareness programs (especially for first-time investors) will increase confidence.
b.
Stronger and faster grievance handling: Platforms like SCORES are useful. If complaint handling is faster and more visible, more people will trust the market. (scores.sebi.gov.in)
c.
Promote transparency and disclosures: The chapter clearly says investor protection needs accurate and authentic disclosure. This should be strongly followed and made easy to understand for small investors too.
8.
Conclusion
SEBI plays a major role in making the securities market fair, transparent and safer by regulating the market, preventing malpractices, and protecting investors. With more education and strong grievance redressal, the number of investors can increase.
Bibliography (write this at the end of your report)
•
NCERT Business Studies (Class XII), Chapter 10: Financial Markets
•
SEBI SCORES portal and FAQs (official). (scores.sebi.gov.in)
•
SEBI investor information page on SCORES (official). (SEBI Investor)