Case Studies on Business Studies Class 12 Chapter 10 Financial Market

FINANCIAL MARKET

1. Name and state the aspect of financial management that enables to foresee the fund requirements both in terms of the quantum and the timing.                 (CBSE 2016)

2. “Stock exchange provides liquidity to investors.” Explain any other three functions of the stock exchange.

3. These days, the development of a country is also judged by its system of transferring finance from the sector where it is in surplus to the sector where it is needed the most. To give strength to the economy, SEBI is undertaking measures to develop the capital market. In addition to this, there is another market in which unsecured and short term debt instruments are actively traded every day. These markets together help the savers and investors in directing the available funds into their most productive investment opportunity.

1. Name the function being performed by the market in the above case.

2. Name the market segment other than the capital market segment in which unsecured and short term debt instruments are traded. Also, give any three points of difference between the two.                                                                            (CBSE 2017)

4. Sika Ltd , a reputed industrial machines manufacturer, needs Rs 20 crores as additional capital to expand the business. Mr Amit Joshi, the CEO of the company wants to raise funds through equity. The finance manager, Mr Narinder Singh, suggested that the shares may be sold to investing public through intermediaries, as the same will be less expensive. Name the method through which the company decided to raise additional capital.

(CBSE 2017)

5. The directors of a company want to modernize its plants and machinery by raising capital through making a public issue of shares. They wish to approach stock exchange while the finance manager prefers to approach a consultant for the new public issue of shares.

Advise the directors whether to approach stock exchange or a consultant for new public issue of shares and why? Also advise about the different methods which the company may adopt for the new public issue of shares.

6. Power Supplier Ltd. is a newly established company. The company needs fixed capital to buy fixed assets like land, building, plant machinery, etc.

1. Name the market from where the company can raise the funds. Also explain any three methods of issuing securities in this market.

7. Mission Coach Ltd. is a large and credit worthy company manufacturing coaches for Indian Railways. It now wants to export these coaches to other countries 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.

1. Name and explain the money market instrument the company can use for the above purpose.

2. What is the duration for which the company can get funds through this instrument?

3. State any other purpose for which this instrument can be used.

(CBSE 2015)

8. South Indian Bank urgently needs Rs.2 crores for a period of 10 days in order to maintain the statutory Cash Reserve Ratio stipulated by RBI.  Name the market where it can get this amount. Also explain the relevant instrument of that market.

9. Name the process by which physical certificates can be converted into electronic certificates.

10. Aditya Khosla, the Managing Director of ‘D.L.W. Ltd’ and Rajesh Puri, the Finance Manager were discussing about avenues of investing the idle funds of the company. Aditya Khosla was of the opinion that money should be invested in the capital market whereas Rajesh Puri, being more conservative, felt that it would be better if the investment was made in the money market. Since the economy was buoyant, the Managing Director convinced Rajesh that they should take advantage of it and invest in the capital market to get good returns. Ultimately it was decided to invest the idle funds in the capital market.

1. What kind of instruments should the company buy?

2. Why is the capital market expected to give a better return in a buoyant economy? State the reason.

3. Why and how safe are the securities in this market as compared to the money market?

(CBSE 2019)

11. An investor wanted to invest Rs 20,000 in treasury bills for a period of 91 days. When he approached the RBI for this purpose he came to know that it was not possible. Identify the reason why the investor could not invest in the treasury bill.

(CBSE 2018)

12. 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.

1. What decisions are taken by the company in above para?

2. Quote the lines related to the above para.

3. Identify the method of floatation adopted by the company.

13. Mr. Vikas Mehra was the chairman of IBM Bank. The bank was earning good profits. Shareholders were happy as the bank was paying regular dividends. The market price of their shares was also steadily rising. The bank was about to announce the taking over of UK Bank. Mr Vikas Mehra knew that the share price of IBM would rise on this announcement. Being a part of the Bank, he was not allowed to buy shares of the bank. He called one of his rich friends Mukand and asked him to invest Rs 4 crores in shares of his bank promising him the capital gains.

As expected after the announcement, the share prices went up by 50% and the market price of Mukand’s shares was now Rs 6 crores. Mukand earned a profit of Rs 2 crores. He gave Rs 1 crore to Vikas Mehra and kept Rs 1 crore with him. On regular inspection and by conducting enquiries of the brokers involved, SEBI was able to detect this irregularity. SEBI imposed a heavy penalty on Vikas Mehra.

Quoting the lines from the above para identify and state any two functions performed by SEBI in the above case.

(CBSE 2016)