@ Que, What is the financial market? Ans. According to Anta Roddick states, “Business is not financial science, it’s about trading, buying and selling. It’s about creating a product or service so good that people will pay || for it. : A financial market is a platform or system that allows buyers and sellers to trade financial assets such as stocks, bonds, || currencies, commodities, and derivatives. It is a market place where individuals, businesses, and governments can buy, sell, and exchange financial instruments. Que.What is a function of financial market? Ans.Function of financial market are as follows:- productive uses:-Financial markets serve as a link between Savers and investors. Financial markets direct savers' savings to the most appropriate investment opportunities. 2.Facilitate price discovery:-The price of anything is determined by demand and supply factors. The supply and demand for financial assets and securities in financial markets || influences the price of various financial securities.3, Provide liquidity to financial assets:- Securities can be easily bought and sold in the financial market, so the financial market provides a platform for converting securities into cash. 4. Reduce the cost of transaction:- The financial market offers full details on the price, availability, and cost of various financial securities. As a result, investors and businesses do not have to spend much money to obtain this information because it is widely available in the financial market. Que.Explain the types of financial market. Ans. There are two types of financial market:- Money Market:- The money market is a market for short term funds which deals in monetary assets whose period of ‘maturity is upto one yearBasically it is a source of finance for working capital.it is @ market where low risk, unsecured and short term debt instruments that are highly liquid are issued and actively traded everyday. It has no fixed physical location,but it includes all the institution that deals with short term debts.The major participants in themarket are the Reserve Bank of India (RBI), Commercial Banks, NonBanking Finance Companies, StateGovernments, Large Corporate Houses and Mutual Funds. Features of money market:- I.Market for short term. 2.No fixed geographical location.|| S Each party is capable of communication and delivery. Que. Explain marketing management philosophies. | Ans,_Marketing management philosophies are as follows:- | |Production concept:- Production concept focus on mass production with lowering the cost of production. || 2Product concept:- Product concept focus on making high quality product with interesting features.These companies produce high-quality goods, but they must keep in mind that customers will buy high-quality goods only when they need or want them, | BSelling concept:- According to this concept seller needs to convince the customer to sale whatever the seller have by different types promotional and selling techniques. 4.Marketing concept:- Marketing concept focus on satisfying || the customers wants. They design the product as per the || demand of the customers.Funds raised through commercial paper are used to meet the Hoatation cost. This is known as bridge financing. 4. Commercial Bill:- Bills drawn by one business firm on another is known as trade bills or accommodation bills, These ‘are common instruments used in the purchase and sale of credit. These have a short maturity period of 90 days and can be discounted with the bank even before the maturity period. These are easily transferable negotiable instruments. The bill's drawee pays the bill on the due date. A trade bill is simply an official declaration of debt in which the maker or drawer instructs or directs the payee or drawee to pay within a specified time frame. The drawee accepts the bill and becomes obligated to pay it on the due date. S.Certificate of Deposit:-It is a time deposit or time deposit that can be sold on the secondary market. C.D.s can only be issued by banks. It is a bearer certificate or title document. It is also a negotiable instrument that can be easily transferred. Banks issue certificates of deposit in exchange for deposits held by businesses and institutions. C.D, has a time span ranging from 91 days to one year, These can be issued to individuals, corporations, and businesses during times of tight liquidity, when bank deposit growth is slow but credit demand is high.2. Capital Market;-The term capital market refers to the facilities and institutional arrangements used to raise and invest long-term funds, both debt and equity. A capital market is one in which finance is readily available at a reasonable cost. The existence of a well-functioning capital market facilitates the process of economic development. . EEE "Capital market can be defined as the mechanism which channelizes saving into investment or productive use. The capital market allocates the capital resources amongst alternative uses, It intermediates flow of savings of those who save a port of their income from those who want to invest it in productive assets". Nature or of capit = Link between saver and investment opportunities:- The capital market is an important link in the process of saving and investing. The capital market moves money from savers to risk-taking borrowers. 2. Invests in long-term projects:- Long-term and medium-term funds are available in the capital market. It does not address the issue of channelling savings for less than a year. 3.Utilise intermediaries: Brokers, underwriters, depositories, and other intermediaries are used in the capital market. These intermediaries serve as the working organs of the capital market and are critical components of the capital market.‘4, Determinant of capital formation:- The capital market's activities determine the rate of capital formation in an economy. The capital market provides appealing opportunities to those with excess funds, causing them to invest more and ‘more in the capital market and to be encouraged to save, S. Government rules and regulations:-The capital market is free to operate, but it is governed by government policies. These markets operate within the framework of government rules and regulations, for example, the stock exchange operates under the regulations of SEBI, a government body. An ideal capital market is one:- |, Where finance is available at reasonable cost. 2. Which facilitates economic growth, 3. Where market operations are free, fair, competitive and transparent. 4. Must provide sufficient information to investors. S. Must allocate capital productively.Types oF capital market:- There are two types of capital markets:- 1. Primary Markets-The primary market is also known as the new issues market. It deals with new securities being issued for the first time The essential function of a primary market is to facilitate the transfer of investible funds from savers to entrepreneurs seeking to establish new enterprises or to expand existing ones through the issue of securities for the first time. Methods of Floatation of Securities in Primary market:- Offer through Prospectus:- It involves inviting subscription from the public through issue of prospectus. A prospectus makes a direct appeal to investors to raise capital through an advertisement in newspapers and magazines. 2. Offer for Sale:-This method involves offering securities for sale through middlemen like issuing houses or stock brokers rather than directly issuing them to the general public. In this case, @ company sells securities to brokers at an agreed-upon price in order for them to resell the securities to the general investing public. B.Private Placements:-A private placement is when a company distributes securities to institutional investors and a select group of people. It facilitates faster capital raising than a public offering.4. Rights Issue:- It refers to the issue in which new shares are offered to the existing shareholders in proportion to the ‘number of shares they already owned. S.e-IPOs:- It is a method of issuing securities through an online system of stock exchange. A company proposing to issue capital to the public through the online system of the stock exchange has to enter into an agreement with the stock exchange. This is called an e-initial public offer. SEBI’s registered brokers have to be appointed for the purpose of accepting applications and placing orders with the company. 2.Scondary Market:-The secondary market is also known as the stock market or stock exchange.It is a market for the purchase and sale of existing securities. It helps existing investors to disinvest and fresh investors to enter the market. It also provides liquidity and marketability to existing securities, It also contributes to economic growth by channelising funds towards the most productive investments through the process of disinvestment and reinvestment.Securities are traded, cleared and settled within the regulatory framework prescribed by SEBI. Que.What is @ Stock exchange? ‘Ans.A stock exchange is a marketplace where buyers and sellers can exchange stocks and other securities. It serves as a marketplace for companies to raise capital by issuing and selling shares to investors, as well as for investors to buy and sell those shares among themselves.A stock exchange's primary function is to facilitate the transparent and regulated buying and selling of stocks and securities. It acts as a go-betweenfor buyers and sellers, ensuring fair and orderly trading. Que. Explain the Function of the stock exchange/secondary market. The functions of the stock exchange/secondary market are as follows:- Economic barometer:- A stock exchange is an accurate ‘measure of a country’s economic health. Every major change in the country and economy is reflected in share prices. The rise or fall in share prices indicates the economy's boom or recession cycle. The stock exchange is also known as an economic pulse or an economic mirror because it reflects a country’s economic conditions. 2. Pricing of securities:-The stock market helps in the valuation of securities based on demand and supply factors. Securities of profitable and growing companies are valued higher because there is a greater demand for such securities. Securities valuation is helpful for investors, governments, and creditors. Investors can learn the value of their investment, creditors can assess creditworthiness, and the government may impose taxes on the value of securities. 3.Safety of transaction:- Only listed securities are traded in the stock market, and stock exchange authorities include componies' names in the trade list only after verifying the company's soundness. Companies that are listed are also subject to strict regulations and rules. This ensures the security of stock exchange transactions.4, Contributes to economic growth:-Securities of various Companies are bought and sold on the stock exchange, This process of disinvestment and reinvestment aids in the selection of the most productive investment proposals, resulting in capital Formation and economic growth, S. Spreading of equity cult:- By regulating new issues, improving trading practices, and educating the public about investment, the stock exchange encourages people to invest in ownership securities. 6. Providing scope for speculation:- To ensure liquidity and supply of securities, the stock exchange allows for healthy securities speculation. 2. Availability of funds:-The stock market's primary function is to provide a ready market for the sale and purchase of securities. The presence of a stock exchange market ensures investors that their investments can be converted into cash at any time. Investors can invest in long-term investment projects without hesitation because the stock exchange allows them to convert long-term investments into short- and medium-term investments. B.Better allocation of capital:- Profitable companies’ shares are listed at higher prices and actively traded, allowing them to easily raise new capital from the stock market. The general public is hesitates to invest in the securities of companies that are losing money. As a result, the stock exchange facilitates the allocation of investor funds to profitable channels.3. allocation of capital:-Profitable companies’ shares are listed at higher prices and actively traded, allowing them to || easily raise new capital from the stock market. The general || public is hesitant to invest in the securities of companies that are losing money. As a result, the stock exchange facilitates | the allocation of investor funds to profitable channels. | 9. Promotes the habits of savings and investment:- The stock market provides interesting investment opportunities in a || variety of securities. These interesting possibilities encourage people to save more and invest in corporate securities rather || than unproductive assets such as gold, silver, and so on. || Que.Explain Trading procedure on stock exchange. Ans.Companies must have their securities listed in the stock || exchange before they can sell them through the stock exchange. Only when stock exchange authorities are satisfied |_with the company's financial soundness and other aspects is | its name included in listed securities. Steps in the trading and procedure are as follows:- | LSelection of Broker:- In order to trade on a Stock Exchange first a broker is selected who should be a member of stock exchange as they can only trade on the stock exchange. 2.Opening demat account with depository:- To hold and transfer securities in demat form, the investor must open a ‘demat' it refer to an account which an Indian citizen must open with the depository participant (banks or stock brokers) to trade in listed securities in electronic form of account witha depository participant (DP). He will also need to open a bank account in order to conduct cash transactions in the securities market, 3. Placing the order:- The investor then places a buy or sell order with the broker. The number of shares to be purchased or sold, as well as the price at which they should be purchased or sold, must be specified clearly. The broker will then proceed with the transaction at the mentioned price or the best available price. 4.Match the share and best price:- The broker then will 90 online and connect to the main stock exchange and match the share and best price available, S.Executing order:- When the shares can be bought or sold at the specified price, the information is communicated to the broker's terminal, and the order is executed electronically. The investor will receive a trade confirmation slip from the broker. 6.lssue of contract note:- After the trade is completed, the broker issues a Contract Note within 24 hours. This note includes information such as the number of shares purchased or sold, the price, the date and time of the transaction, and the brokerage fees. This is an important document because it is legally binding and can help in the resolution of disputes/claims between the investor and the broker. The stock exchange allocates each transaction a Unique Order Code number, which is printed on the contract note.2. Delivery of share and making payment:- The investor must now deliver the shares sold or pay cash for the shares purchased. This should be done as soon as the contract note is received or before the day on which the broker is required to ‘make @ payment or deliver shares to the exchange. This is known as the pay-in day. 8. Settlement cyele:- Cash is paid or securities are delivered on the pay-in day, which is before the T+2 day because the transaction must be settled and finalized on the T+2 day. With effect from | April 2003, the settlement cycle is T+2 days on an ongoing settlement basis. 4.The exchange will deliver the share or make payment to the other broker on the T+2 day. This is known as the pay-out day. Because he has already received payment from the exchange, the broker is required to pay the investor within 24 hours of the payout day. 10,The broker can deliver shares in demat form to the Investor's demat account. The investor must provide his demat account information and instruct his depository participant to take delivery of securities directly into his beneficial owner account.Que. What are Dematerialization and depositories? Ans, Dematerialization is the process by which securities held in physical form by an investor are canceled and the investor is given an electronic entry or number to hold as an electronic balance in the account, In summary, dematerialization refers to the ownership of securities in electronic Form. Benefits of Dematerialisation 1 Holding shares in demat form is very convenient as it is just like a bank account. Physical shares can be converted into electronic form or even electronic form can be converted back to physical certificate, ie, Dematerialisation, 2. These demat securities can even be pledged or mortgaged to get loans. 3. There is no danger of loss, theft or Forgery of share certificates. 4 Reduces paper work. S, It is broker's responsibility to credit the correct number of shares in the investor's account. 6, Securities of different companies can be held in a single demat account.Que, Explain the working of the Demat Account. ‘Ans. The working of the Demat Account are as follows:- 1. Before opening a demat account with depositories the investor has to select a DP, i.e., Depository participant. DP is the agent of the Depository.DP may be a bank, broker, or financial service company. 2, Filling of an account opening form, along with PAN card details, photograph, etc. 3, The physical share certificates to be given to DP along with a request form for dematerialisation. 4 If shares are applied in 1PO, then simple details of demat ‘Ale and DP to be given, allotment would automatically be credited to demat account. S If shares are to be sold through broker, the DP must be instructed to debit the account with the number of shares sold, &. The broker then gives instructions to his DP for delivery of the shares to the stock exchange. 2. The broker than receives the payment and pays the person for the shares sold. 8. All these transactions are to be completed, within 2 days, ie, delivery of shares. Payment received from buyers as settlement period is T+2 days since April 2003.2. Depository:- Depository, like a bank, keeps securities in electronic form on behalf of the owner. Investor. A securities account can be opened in the depository, all shares can be deposited, they can be withdrawn/sold at any time, and instructions to deliver or receive shares on behalf of the investor. Features of the depository are: 1, Depository is an institution which holds securities such as shares, debentures, etc. 2. Depository interacts with the investors through agents called Depository Participants (DPs). 3._DPs can offer services only after obtaining a certificate from SEBI. 4, Investors have to open depository account with any DP called demat account. S$. Depository with the help of DPs controls electronic transfer of securities and settlement of transactions. &, Depository can hypothecate dematerialised securities against bank loan. 2, Depository issues receipt of bonus shares in electronic form. 8, Depository offers nomination facility of demat account.Que. What are the stock exchange indices? ‘Ans. Stock Exchange Indices are as follows:- LSensex:-This is the Bombay Stock Exchange Index. It is calculated by taking the prices of 30 stocks across the key sector of BSE. 2.Nifty:- This is a National Stock Exchange Index. It is calculated by taking prices of 50% key stocks listed in NSEI. Que.What is Demutualisation? Ans.Demutualisation refers to the separation of stock exchange ‘ownership and control from member trading rights. Demutualisation reduces the possibility of brokers using the stock exchange for personal gain.Demutualisation is the first step. Previously, intermediaries, such as brokers, owned, controlled, and managed stock exchanges. Brokers’ ownership and management of the stock exchange frequently resulted in conflicts of interest between brokers and their clients. To address this issue, the government demutualized the stock exchange. Que.What is SEBI? SEBI is stand for the Securities and Exchange Board of India. It is the Indian securities market's regulatory body. 1S a lependent statutory body with the mission of overseeing the operation of the securities market, protecting investors' interests, and promoting the development of the Indian securities market.Que. What is the objective of SEBI? ‘Ans, The objective of SEB) are as follows:- 1, To regulate the activities of the stock exchange. 2. To protect the rights of investors and ensuring safety to their investment. 3. To prevent fraudulent and malpractices by having balance between self regulation of business and its statutory regulations. 4. To regulate and develop a code of conduct for intermediaries such as brokers, underwriters, etc. Que.Explain the function of SEBI. Ans.There are three function which is med by SEB: 1.Protective function;- SEBI's (Securities and Exchange Board of India) protective function refers to its role in protecting the interests of investors in the securities market, SEBI implements a variety of policies and regulations to protect investors from fraudulent activities, unfair trade practises, and market manipulation.The protective function of SEB! are as follows:- 1. Check price ragging:-Price rigging is the manipulation of securities prices with the primary goal of inflating or depressing the market price of securities. SEBI prohibits such conduct because it has the potential to defraud and cheat investors. 2./t prohibits insider trading:-Any person associated with the company, such as directors, promoters, and so on, is considered an insider. These insiders have access to sensitive information that influences the prices of securities. This information is not available to the general public, but insiders obtain it by working within the company, and if they use it to profit, it is known as insider trading. SEBI strictly monitors insider purchases of company securities and takes strict action against insider trading. 3.SEBI prohibits fraudulent and unfair trade practices:-SEB! prohibits companies from making misleading statements that are likely to induce the sale or purchase of securities by anyone else. 4.SEBI undertakes steps to educate investors so that they are able to evaluate the securities of various companies and select the most profitable securities, S.SEBI promotes fair practices and code of conduct in security market by taking following step :- a,SEBI has issued guidelines to protect the interest of debenture-holders wherein companies cannot change terms inB,SEBI is empowered to investigate cases of insider trading and has provisions for stiff fines and imprisonment. €.SEBI has stopped the practice of making preferential allotment of shares unrelated to market prices. 2. Developmental Function:-SEBI's (Securities and Exchange Board of India) development function refers to its role in promoting the development and growth of India's securities market, SEB| implements a variety of initiatives and policies to improve market efficiency, investor participation, transparency, and liquidity. Developmental functions are performed by SEBI are as follows:- LSEBI promotes training of intermediaries of the securities market. 2.SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way: @.SEBI has permitted internet trading through registered stock brokers. b.SEBI has made underwriting optional to reduce the cost of issue. ¢.Even initial public offer of primary market is permitted through stock exchange.3. Regulatory Function:-SEBI establishes regulations and guidelines to govern various market participants, such as stock exchanges, brokers, intermediaries, and other market entities. lt monitors their activities to ensure regulatory compliance and takes action against any violations. The regulatory function of SEBI are as follows:- LSEBI has framed rules and regulations and a code of conduct to regulate the intermediaries such as merchant bankers, brokers, underwriters, etc. 2.SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustees, merchant bankers and all those who are associated with stock exchange in any manner. B,SEBI registers and regulates the working of mutual funds, etc. 4,SEBI regulates takeover of the companies. S.SEBI conducts inquiries and audit of stock exchanges. S.These intermediaries have been brought under the regulatory purview and private placement has been made more restrictive.