Class 12 Financial Markets Mock Test (CBSE)

Topics in Financial Markets

• Concept of financial market
• Functions of financial market
• Money market and its instruments
• Capital market
• Primary market
• Methods of floatation
• Secondary market
• Stock exchange
• Trading and settlement procedure
• Depository services and demat account
• Securities and Exchange Board of India

Financial Markets practice questions with answers

1. Q1Multiple choice·1 mark
   Which of the following money market instruments is also known as a zero-coupon bond and is issued by the Reserve Bank of India on behalf of the Central Government?

   1. (a)Commercial Paper
   2. (b)Treasury Bill
   3. (c)Certificate of Deposit
   4. (d)Call Money
   Show answer and step marks

   1. Correct option: (b). Treasury Bills are issued by the Reserve Bank of India on behalf of the Central Government to meet short-term requirements of funds and are popularly known as zero-coupon bonds.+1

   Answer: (b)
2. Q2Multiple choice·1 mark
   Which of the following segments of the financial market deals in medium and long-term securities such as equity shares and debentures, having a maturity period of more than one year?

   1. (a)Secondary market
   2. (b)Primary market
   3. (c)Capital market
   4. (d)Money market
   Show answer and step marks

   1. Correct option: (c). The capital market consists of both primary and secondary markets and deals in medium and long-term funds exceeding one year.+1

   Answer: (c)
3. Q3Short answer·3 marks
   Explain any three methods of floatation used by companies to raise funds in the primary market.
   Show answer and step marks

   1. First method, any one of: offer through prospectus: the company invites the general public to subscribe to its shares or debentures by issuing a prospectus; offer for sale: securities are sold first to an intermediary (such as an issuing house or stockbroker) at an agreed price, who then resells them to the public; private placement: securities are allotted to institutional investors and some selected individuals instead of the general public; rights issue: new shares are offered to the existing shareholders in proportion to the shares they already hold; e-IPO: securities are issued to the public through the online system of a stock exchange; or any other valid method of floatation.+1
   2. Second method, a different one from the same list.+1
   3. Third method, a different one from the same list.+1

   Answer: Any three of: offer through prospectus (inviting the public to subscribe through a prospectus); offer for sale (securities sold to an intermediary at an agreed price, who resells them to the public); private placement (allotment to institutional investors and selected individuals); rights issue (new shares offered to existing shareholders in proportion to their holding); e-IPO (issue through the stock exchange's online system).
4. Q4Short answer·3 marks
   State any three functions performed by the secondary market.
   Show answer and step marks

   1. First function, any one of: provides liquidity and marketability to existing securities, as investors can convert them into cash easily; helps in pricing (valuation) of securities through the forces of demand and supply; ensures safety of transactions, as dealings take place within a regulated legal framework; contributes to economic growth by channelling savings into the most productive investments; spreads the equity cult by encouraging the public to invest in securities; provides scope for healthy speculation in a limited and controlled way; or any other valid function of the secondary market.+1
   2. Second function, a different one from the same list.+1
   3. Third function, a different one from the same list.+1

   Answer: Any three of: providing liquidity and marketability to existing securities; pricing of securities through demand and supply; safety of transactions in a regulated framework; contributing to economic growth; spreading the equity cult; providing scope for healthy speculation.

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