3 Marks Question

Question 13 Marks

"Money market is essentially a market for short-term funds". In the light of this statement, state any three features of money market.

Answer

Features of money market:(i) It is a market for short term funds which deals in monetary assets whose period of maturity is up to one year.(ii) Money market instruments are highly liquid.(iii) Money market instruments are less risky.

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Question 23 Marks

Explain any four functions of financial market.Or"A financial market is for the creation and exchange of financial assets." Explain any two of its functions.

Answer

Four functions of financial market are:(i) Mobilisation of savings and channelling them into the most productive use.(ii) Facilitating price discovery.(iii) Providing liquidity to financial assets.(iv) Reducing the cost of transactions.

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Question 33 Marks

Saqib Ltd. is a large creditworthy company operating in the Kashmir Valley. It is an export oriented unit, dealing in exclusive embroidered shawls. The floods in the Valley have created many problems for the company. Many craftsmen and workers have been dislocated and raw material has been destroyed. The firm is therefore, unable to get an uninterrupted supply of raw material, and the duration of the production cycle has also increased. To add to the problems of the organisation, the suppliers of raw material who were earlier selling on credit are asking the company, for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company feels that taking a bank loan is the only option with the company to meet its short term shortage of cash.As a finance manager of the company, name and explain the alternative to bank borrowing that the company can use to resolve the crisis.

Answer

Commercial Paper: It is a short term unsecured promissory note, negotiable and transferable by endorsement and delivery with a fixed maturity period. It is issued by large and creditworthy companies to raise short term funds at lower rate of interest than market rates. The issuance of commercial paper is an alternative to bank borrowing for large companies that are generally considered to be financially strong.

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Question 43 Marks

Supriya's grandmother who was unwell, called her and gave her a gift packet. Supriya opened the packet and saw many crumpled share certificates inside. Her grandmother told her that they had been left behind by her late grandfather.As no trading is now done in physical form, Supriya wants to know the process by adopting which she is in a position to deal with these certificates.(a) Identify and state the process.(b) Also give two reasons to Supriya why dealing with shares in physical form had been stopped.

Answer

(a) De-materialisation. It is a process where securities held by the investor in physical form are cancelled and the investor gives an electronic entry or number so that she/he can hold it as an electronic balance in an account.(b) Problems with dealing in physical form: (Any two)(i) Theft(ii) Fake/Forged transfers(iii) Transfer delays(iv) Paper work associated with share certificates or debentures held in physical form.

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Question 53 Marks

Explain the capital market reforms in India.

Answer

The first Stock Exchange in India was set up in 1875 as the Native Share and Stock Broker Association in Bombay. Today it is known as Bombay Stock Exchange (BSE). This was followed by development of stock exchange in Ahmedabad (1894), Calcutta (1908) and Madras (1937). It is interesting to note that stock exchanges were first set up in major centers of trade and commerce. Until 1990 there were regional stock exchanges in India. After the reforms of 1991, there are following three types of stock exchanges in India.1. Regional Stock Exchanges.2. National Stock Exchanges.3. Over the Counter Exchange of India.

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Question 63 Marks

"Stock market imparts liquidity to investment". Comment.

Answer

The stock market is a place where securities of companies are bought and sold. Generally the securities are long term and get matured only after a long period of time. These securities can be sold in stock market and can be easily converted into cash. The presence of continued market is an assurance to investors that their investment can be converted into cash as and when required by them.

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Question 73 Marks

"SEBI is the watchdog of security market". Comment.

Answer

SEBI was set up in 1988 to regulate the functions of the securities market and to protect the interest of investors but SEBI was found ineffective in regulating the activities of stock market. It was able to observe and watch only but failed to take corrective measure that is why it was called as watchdog. As a result in May 1992, SEBI was granted legal status. Now it is a body corporate having a separate legal existence and perpetual succession.Now SEBI is considered as a watchdog because it performs the following functions to protect stock exchange dealings.

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Question 83 Marks

"Money market instruments are more liquid than capital market instruments". Comment.

Answer

Money market instruments are considered as more liquid because the time period within which these securities get converted into cash is very short in some cases it is one day only and before the time period also these securities can be discounted easily from banks and discount Finance house (DFH) has been established for discounting the securities of money market.Capital market securities are long term securities and they get liquidity in stock market but in stock market there may not be a buyer for share in the stock market. So liquidity of capital market securities depends upon the demand of these securi

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