Financial Markets Class 12 Most Important Previous Year Questions of Business Studies -

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Adda247 offers Financial Markets Class 12 Most Important Previous Year Questions from Business Studies with solution. You can even download the PDF version of this Financial Marksets question paper and keep it for future practice. Plan an effective exam approach by reviewing frequently asked from the Business Studies chapter over the years. Read the article till last to find solutions.

Financial Markets Class 12 Most Important Previous Year Questions of Business Studies

Financial Markets’s Most Important Previous Year Questions are important for various reasons, including improving exam preparation and confidence. This question and answers helps Boost our confidence in the real exam. One of the most essential benefits of the Class 12 previous year question paper for Financial Markets as it helps to revise important concepts. Increase your ability to answer and solve every question posed in the chapter, regardless of its difficulty level.

Class 12 Financial Markets Previous Year Questions

Financial Markets Sloved PYQs Chapter of Class 12 provides students with assistance in preparing for board exams 2025.
In addition, the Financial Markets Class 12 previous year question paper allows students to practice a variety of questions and receive step-by-step answers to them all. Check the complete previous year question solutions below –

1/ 2 Mark Questions

Q1. Adapting to a change in consumer preference towards online shopping, ‘Fast-Service’ started a grocery delivery app. It is a platform that ensures 10-minute deliveries of groceries. Because of this service, ‘Fast-Service’ earned huge profit within a year. It planned to expand its operations and decided to raise funds by directly issuing its securities to investors.

The market through which ‘Fast-Service’ has decided to raise funds for its expansion is

(a) Money market

(b) Primary market

(d) Both Primary and Secondary markets

S1. Ans. (b)

Q2. Capital Market instruments are riskier both with respect to returns and principal repayment as compared to Money Market instruments.

This highlights the following point of difference between ‘Capital Market’ and Money Market’:

(a) Instruments

(b) Duration

(d) Liquidity.

S2. Ans. (c)

Q3. ‘Gujarat Textiles Ltd.’ needs to raise a fund of ₹ 80 crore. It cannot afford the cost of public issue, so it was decided to allot its equity shares to institutional investors like LIC and some selected investors.

Identify and explain the method of floating new issues used by Gujarat Textiles Ltd.

S3.

Sol. Private placement is the method that is being used by Gujarat Textiles Ltd to raise funds. It is a method of floating new issues where money is raised only from selected individuals and institutions. It is being done in order to reduce mandatory and non-mandatory expenses

Q4. Explain ‘Offer for Sale’ and ‘Rights Issue’ as methods of floatation of new issues in the primary market.

S4.

Sol. Methods of floatation of new issues in the primary market:

(i) Offer for Sale: Under this method, securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stockbrokers. As the intermediaries offer the new securities to the general public, the company is saved from the complexities and formalities of issuing the securities directly to the public.

(ii) Rights issue: ln this method, the existing shareholders are offered the ‘right’ to subscribe to a new issue of shares according to the terms and conditions of the company. The shareholders are offered new shares in proportion to the number of shares they already possess.

Q5. ‘Financial markets are classified on the basis of the maturity of financial instruments traded in them’. Name the market in which the instruments with more than one year maturity are traded. Also state any two features of this market.

S5. In a Capital Market, the instruments with more than one year maturity are traded. A capital market refers to the market that deals in the trading of medium and long-term securities. The instruments traded in the capital market comprises equity and preference shares, debentures, bonds, etc.

The features of the capital market are as follows:

(i) The capital market acts as a platform that links the savers and investors. It directs the savings of the households to their most productive use. In this way, it adds to the growth prospects of an economy.

(ii) It works strictly according to the guidelines and policies issued by the government.

3 Mark/4 Mark Questions

Q6. Currently, the banking sector in the Indian economy is facing lots of problems. The rates of interest that banks are paying on deposits have sharply decreased; as a result, banks are able to collect lesser amounts of deposits. Due to the policies of the Reserve Bank of India, lending rates have also decreased. The automobile industry is also facing a lot of problems and thus they have also reduced the prices of cars. This has encouraged people to take car loans from banks as the interest rates on loans, along with prices of cars in the automobile sector are declining. Due to this position of tight liquidity, ‘The Oberoi Bank Ltd.’ decided to raise funds by issuing an unsecured, short-term instrument which could be purchased by corporation companies and individuals.

(a) Identify and explain the money market instrument used by ‘The Oberoi Bank Ltd.’ to raise funds.

(b) Also explain the money market instrument used by the banks to maintain Cash Reserve Ratio.

S6.

Sol. (a) The money market instrument used by ‘The Oberoi Bank Ltd.’ to raise funds is Certificate of Deposit.

(i) It is an unsecured, negotiable, short-term instruments in bearer form, issued by commercial banks and development financial institutions.

(ii) It can be issued to individuals, corporations and companies during periods of tight liquidity.

(b) The money market instrument used by the banks to maintain Cash Reserve Ratio is Call Money by which banks borrow from each other for a period of one day to fifteen days.

Q7. (i) Name the process of holding securities in an electronic form.

(ii) Name any two participants of Money Market.

(iii) Name the depositories that hold securities in electronic form.

S7. (i) Dematerialisation: The process of holding securities in electronic form is known as dematerialisation.

(ii) Participants of Money Market:

(a) Reserve Bank of India (RBI)

(b) Commercial Banks

(iii) Depositories that hold securities in electronic form:

(a) NSDL (National Securities Depository Limited)

(b) CDSL (Central Depository Services Limited)

Q8. The stock Exchange performs many vital functions in today’s commercial world? Explain any three such functions.

S8. Functions of stock exchange:

(a) Providing liquidity and marketability to existing securities: Stock exchange is a market where securities are sought and sold. This provides liquidity and marketability so already issued securities. It gives investors chance to disinvest and reinvest.

(b) Pricing of securities: A stock exchanges is a mechanism where prices of securities are determined by —the forces of demand and supply. It provides a mechanism of-constant valuation.

(c) Safety of transactions: The membership of a stock exchange is well-regulated. Dealings take place according — the existing legal framework. This ensures safe and fair deals for both buyer and seller of securities.

Q9. Stock exchange acts as a regulator of the securities market. It creates a continuous market where the securities are bought and sold. It gives investors the chance to disinvest and reinvest. Through this process of disinvestment and reinvestment, savings get channelised into their most productive investment avenues. To ensure that the investing public gets a safe and fair deal in the market, the membership of the stock exchange is well regulated and its dealings are well defined according to the existing legal framework. It also ensures wider share of ownership by regulating new issues, better trading practices and taking effective steps in educating the public about investments.

Various functions performed by the Stock Exchange are discussed in the above para. By quoting lines from above para, state any four functions of stock exchange.

S9. The functions performed by the Stock Exchange are is follows:

(i) Provide liquidity and marketability – ‘Stock exchange creates a continuous market where the securities are brought and sold’. It provides a ready platform for the trading of existing securities.

(ii) Spreading Equity Cult – ‘Stock exchange takes “active steps in educating the public about investments’. – encourages wider ownership of securities.

(iii) Facilitates growth and development of the economy – ‘It provides a platform for channelising the savings to the most productive use’. It gives investors the chance to disinvest and reinvest. Through this process of disinvestment and reinvestment, savings get channelised into their most productive investment avenues.

(iv) Ensures safety in transactions – ‘it ensures that investing people gets a safe and a fair deal in the market, the membership of the stock exchange is well regulated and its dealings are well defined according to the existing legal framework’.

Q10. State any three protective functions of Securities and Exchange Board of India.

S10. Protective Functions

(i) Prohibition of fraudulent and unfair trade practices like making misleading statements, manipulations, price rigging etc.

(ii) Controlling insider trading and imposing penalties for such practices.

(iii) Undertaking steps for investor protection.

(iv) Promotion of fair practices and code of conduct in securities market.

5 marks/6 Marks

Q11. What is meant by ‘Financial Market’? State any four functions of financial market.

S11. Financial market is a market which facilitates exchange and creation of financial assets.

Four functions of financial market are:-

Mobilisation of savings and channelizing them into productive uses:- These determines that the financial market acts as a link between savers and investors where they allot savings to the firms for their best productive uses.
Facilitates Price discovery:- Depending upon the demand and supply of the financial asset price is being fixed household acts as suppliers and acts as demand.
Providing liquidity: There is enough liquidity to such markets which facilitates the investors to sell and convert it into the cash easily financial assets can be easily converted into cash whenever required.
Reducing the cost of transactions:- Financial market provides various information related to price demand to the investors and the suppliers Due to these it helps in reducing the time and money spent by he both the parties in reaching for various information.

Q12. Explain ‘Treasury Bill’ and Call Money’ as instruments of ‘Money Market’.

S12.

(i) Treasury bills:

(a) A treasury bill is an instrument of short-term borrowing by the Government of India, maturing in less than one year.

(b) They are issued by the Reserve Bank of India on behalf of the Central Government to meet its shortterm requirement of funds.

(d) They are issued at a price which is lower than their face value and repaid at par and are also known as Zero Coupon Bonds.

(e) They are available for a minimum amount of ₹ 25,000/- and in multiples thereof.

(ii) Call Money:

(a) Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio.

(b) Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions.

(c) The interest rate paid on call money loans known as the call rate is a highly volatile rate that varies from one day to another day and sometimes even from one hour to another hour.

Q13. Differentiate between Capital market’ and ‘Money market’ on the following basis:

(i) Participants;

(ii) Instruments;

(iii) Investment outlay;

(iv) Duration and

(v) Liquidity.

S13. Differences between ‘Capital Market’ and ‘Money Market’:

	Basis of difference	Capital Market	Money Market
(i)	Participants	Both individual investors and institutional investors (financial institutions), banks corporate houses etc.,	The participants are Reserve Bank of India, commercial banks, financial institutions, mutual funds and corporate houses.
(ii)	Instruments Traded	The instruments include equity shares, preference shares, bonds, debentures, etc.	The instruments are commercial paper, treasury bills, trade bills, certificate of deposits, etc.
(iii)	Duration of Securities Traded	Medium to long term securities	Short term securities having maximum tenure of one year.
(iv)	Expected Return	Higher return of investment.	Lesser returns.
(v)	Safety	Capital market is more risky.	The instruments of money market are highly secure. Hence, there is very little risk.
(vi)	Liquidity	Securities are liquid and can be easily sold most of the time.	Money market instruments are highly liquid. Discount finance house of India (DFHI) provides a ready market.

Q14. Distinguish between Primary market and secondary market.(AI 2015 C)

S14. Differences between primary market and secondary market:

	Basis of difference	Primary market (New Issue Market)	Secondary Market (Stock Exchange)
(i)	Meaning	There is sale of new securities by companies or further (new issues of securities by existing companies to investors).	There is trading of existing snares only.
(ii)	Sale of securities	Securities are sold by the company to the investors directly (or through an intermediary).	Ownership of existing securities is exchanged between investors. The company is not involved at all.
(iii)	Flow of funds	The flow of funds is from savers to investors, i.e., the primary market directly promotes capital formation.	Enhances encashability (liquidity) of shares, i.e., the secondary market indirectly promotes capital formation.
(iv)	Securities	Only buying of securities takes place in the primary market, securities cannot be sold there.	Both the buying and the selling of securities can take place on the stock exchange.
(v)	Price	Prices are determined and decided by the management of the company or by price discovery mechanism.	Prices are determined by demand and supply for the security.
(vi)	Location	There is no fixed geographical location.	Located at specified places but much of trading takes place through the internet.