Business Studies

Class XII

Prepared By :
Rajni Sinha
PGT Commerce
St. Xavier S.S.School
 Chapter 10
Financial Market
+
Financial Management
Combined

Case Study
&
HOTS
 Q1

• 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.
• Identify and state the process.
• Also give two reasons to Supriya why dealing with
shares in physical form had been stopped.
 Q2
• ABC Ltd. issued prospectus for the subscription of its
shares for 500 crores in 2008. The issue was
oversubscribed by 20 times. The company issued shares
to all the applicants on pro-rata basis. Later SEBI
inspected the prospectus and found some misleading
statement about the management of the company in it.
SEBI imposed a penalty of 5 crores and banned its three
executive directors for dealing in securities market for
three years.
• Identify the function and its type performed by SEBI in
the above case.
 Q3.

• `Unicon Securities Pvt. Ltd.' was established to deal in securities. It was

registered as a stock broker with National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE) to trade in securities listed at these
exchanges. It is also a depository participant with CDSL and NSDL. In the
first three years, it developed its business successfully. After that the
composition of Board of Directors changed. Some customers complained
to the customer care centre of the company that shares purchased by
them and for which the payment has been duly made, were not
transferred to their D'mat Accounts by `Unicon securities Pvt. Ltd.'. The
executive of customer care centre promised the aggrieved customers that
their shares will be transferred to their respective D'mat Accounts very
soon. But the company delayed the matter and didn't transfer the shares
of the customers to their D'mat Accounts. This eroded investors'
confidence and multiplied their grievances.
• Identify the step of trading procedure in a stock exchange which has not
been followed by `Unicon Securities Pvt. Ltd.'.
• Name the Apex statutory body of capital market to whom customer can
complain to redress their grievances.
 Q3
• Sudha Ltd. has sold 1 lakh equity shares of 10
each at 12 per share to an investment banker,
who offered them to the public at 20 each.
Identify the method of floation.
 Q4.
• Charu is a chartered accountant in Prakash Ltd.
During the course of meeting with directors she came
to know that as against the previous years, this year
company is going to declare handsome dividend offer.
It is observed that when such news becomes public
then the share-market jumps up. Considering it,
Charu purchased large number of company s shares
before this news reached the public.

• Identify type of malpractice used by Charu.

• Name the authority which regulates such behaviour.
Write any three other functions of this authority.
 Q5.
• A company wants to set up a new branch in Chennai. For
additional capital company is planning to issue equity shares
to public as there is boom period in capital market and public
will prefer to invest in shares.
• While analysing the issue, finance manager found that
floatation costs of the issue would be high and company is
already in liquidity crunch. Company deemed it proper to
depend on money market instruments for about six months.
• Identify the method of flotation of capital, mentioned above.
• Besides above shares issue method, mention two other
methods.
• Use of what kind of instrument will be appropriate for the
money market. Clarify.
 Q6
• The Director of Pico Limited decided to
declare bonus issue of equity shares to the
shareholders in its Annual General Meeting.
Immediately one of the Director purchases
20,000 shares from market @ 30 per share
and sold them @ 100 share as bonus issue
was declared and made capital gain from it.
• Name the practice used by the Director taking
the benefits of internal information
 Q7.

• Name the financial instrument which may be used in the

following situations:
• A company needs funds to meet floatation cost in order to
issue equity shares 'in the market.
• The instrument that is issued during the period of tight
liquidity when the deposit growth of bank is slow but
demand for credit is high.
• These are also known as zero coupon bonds and are issued
by RBI on the behalf of central government.
• It is used by one bank having surplus funds to meet the funds
requirements of another bank facing shortage of funds.
 Q8
• Bandhu Limited is a real estate company, which
was formed in 1960. In about 55 years of its
existence, the company has managed to carve out a
niche for itself in this sector. In order to establish
itself in India, the company decided to list its
securities on BSE, in order to raise money through
India market.
• State the functions performed by SEBI that make
investors comfortable and secured in dealing with
Bandhu Ltd.
 Q9.
Identify the markets highlighted in following
statements:
• This market directly contributes to capital market.
• This market deals in instrument whose maturity is upto
one year.
• It deals in medium and long term securities.
• It is also known as Stock Exchange and deals in sale and
purchase of previously issued securities.
• It requires less investment as value of securities is
generally low.
 Q10.
• Dinesh has 100 equity shares of a company.
He wants to sell 500 of these shares, Which
market should be approach?
 Q11
• Why are money market Instruments are
more liquid a compared to capital market
instruments?
 Q12.
• Who issues the Treasury Bill?
 Q13
• Who determines the prices of new IPO?
 Q14
• How is the price of securities determined in
the secondary market?
 Q15
• What is the minimum amount of treasury bill
 Q16
• Bhuvan got a chance to buy shares in the
ratio of 1 : 1 from ABC company. What is this
type of issue called? Explain any other two
ways of issue share under primary market.
 Q17
• What is REPO rate? How can it result in
lowering the rate of interest on loans?
 Q18
• Shares are given in the ratio of 1 : 1. What is
this type of ssue
 Q19
• Who is the borrower of call money
 Q20
• Who provides protection and guidelines to the
investors?
 Q21
• `11' Limited is a real estate company which was
formed in 1950. In about 56 years of its existence
the company has managed out from a niche for
itself in this sector. Lately this sector is witnessing
a boom due to the fact that the Indian economy
is on the rise. The income of middle class are
rising. More people can afford to buy homes for
themselves due to easy availability of loans and
accompanying tax concessions.
 Contd..
• To expand its business in India and abroad the company is
weighing various options to raise money through equity offerings
in India. Whether to tap equity or debt market whether to raise
money from domestic market or international market or
combination of both? Whether to raise the necessary finance
from money market or capital market. It is also planning to list
itself in New York Stock Exchange to raise money through ADR.
To make its offering attractive it is planning to offer lots of
financial plans, products to its stakeholders and investors and
also explain its listing at NSE after complying with the regulations
of SEBI.
• What are the regulations of SEBI that company must comply with
 Q22
• What do you mean by a stock index?
 Q23
• What factors affect the movement of stock
indices?
 Q24
• `Ganesh Steel Ltd.' is a large and creditworthy company
manufacturing steel for the Indian market. It now wants to
cater to the Asian market and decides to invest in new hi-
tech machines. Since the investment is large, it requires
long-term finance. It decides to raise funds by issuing equity
shares. The issue of equity shares involves huge floatation
cost. To meet the expenses of floatation cost the company
decides to tap the money-market.
• Name and explain the money-market instrument the
company can use for the above purpose.
• What is the duration for which the company can get funds
through this instrument?
• State any other purpose for which this instrument can be
used.
 Q25
• A company require Rs 2 crore for inventory,
payment of wages, salaries, maintaining bank
balance, etc.
• Suggest which financial market company may
approach and why?
• State the instruments to raise finance in that
market.
 Q26
• Few years ago, there were many malpractices, unfair
trade practices and frauds and scams were taking place
in Stock Exchange. All these affected investor's
confidence, faith and trust in Stock Exchange. The
Government of India decided to set up a separate body
for this purpose who was given control of stock
exchange. This separated ownership and control of stock
exchange.
• Name the concept which separate the ownership and
control of stock exchange.
• Name the body set up by the government of India to
contract the stock exchange.
• State the objectives of that regulating body.
 Q27.
• A Stock Exchange is a place where financial
assets can be converted into cash. It help in
fixing the market value of securities and helps
to know the economic growth of any country.
• State the functions of state exchange referred
in above para.
• State any other two functions of Stock
Exchange.
 Q28
• Name the financial market used for raising
working capital. Explain instruments of that
market.
 Q29
• Name the financial market used for raising
fixed capital
 Q30
• How conditions in financial market influence
capital structure decision? Explain any other
two factors.
 Q31
• How dividend decision effect stock market
reaction
 Q32
• Every company requires two types of capital, i.e., fixed
capital and working capital. The financial manager has to
estimate the amount of fixed and working capital required
by the company. The finance manager approaches financial
market to arrange these funds. The finance manager makes
sure efficient acquisition of funds, efficient utilisation of
funds and efficient disposal of surplus.
• How does nature of Business affect the requirement of
fixed and working capital?
• State the segment of financial market for fixed capital.
• State the segment of financial market for working capital.
• State the three important decisions mentioned in above
para, also quote the lines for each decision.
 Q33
• A newly established company allotted securities
to some selected institutions as this was a faster
way of raising funds. The company has been
showing remarkable growth. It is earning high
profit and appropriately distributes surplus profit.
• What decisions are taken by the company in
above para.
• Identify the method of floatation adopted by
the company.
 Q34
• On the one hand investor in general view an increase in
dividend as good news and stock prices react positively
to it but on the other hand companies act places certain
restrictions on dividend. To avoid such restrictions the
management of Alpha Ltd. decided to raise funds by
Commercial bill, certificate of deposit, etc.
• Identify the factor affecting dividend decision under
which investor considers an increase in dividend as a
good news.
• Identify the type of financial market through which the
company is planning to raise fund.
Thank you