Samacheer Kalvi 12th Commerce Solutions Chapter 4 Introduction to Financial Markets

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Tamilnadu Samacheer Kalvi 12th Commerce Solutions Chapter 4 Introduction to Financial Markets

Students can score good marks in the exam by preparing with Samacheer Kalvi Class 12th Commerce Solutions Chapter 4 Introduction to Financial Markets Questions and Answers. Your efforts can give you good results when you have the best resources. Samacheer Kalvi Class 12th Commerce Solutions Chapter 4 Introduction to Financial Markets is the best resource to learn Commerce. Have the best learning with Chapterwise Tamilnadu State Board Class 12th Commerce Solutions to have the best future ahead.

Samacheer Kalvi 12th Commerce Introduction to Financial Markets Textbook Exercise Questions and Answers

I. Choose the Correct Answer

Question 1.
Financial market facilitates business firms.
(a) To rise funds
(b) To recruit workers
(c) To make more sales
(d) To minimize fund requirement
Answer:
(a) To rise funds

Question 2.
Capital market is a market for
(a) Short Term Finance
(b) Long Term Finance
(c) Long term Finance
(d) Both Short Term and Medium Term Finance
Answer:
(c) Long term Finance

Question 3.
Primary market is also called as _________
(a) Secondary market
(b) Money market
(c) New Issue Market
(d) Indirect Market
Answer:
(c) New Issue Market

Question 4.
Spot Market is a market where the delivery of the financial instrument and payment of Cash occurs ________
(a) Immediately
(b) In the future
(c) Uncertain
(d) After one month
Answer:
(a) Immediately

Question 5.
How many times a security can be sold in a secondary market?
(a) Only one time
(b) Two time
(c) Three times
(d) Multiple times
Answer:
(d) Multiple times

II. Very Short Answer Questions

Question 1.
What are the components of organized sectors?
Answer:

The organised sector consists of:

  • Financial Services
  • Financial Institutions
  • Financial Markets
  • Regulators

Question 2.
Write a note on the financial market.
Answer:
A financial market is an institution or arrangement that facilitates the exchange of financial instruments such as equity shares, preference shares, debentures, deposits and loans, corporate stocks and bonds, government bonds, and more exotic instruments such as options and futures contracts.

Question 3.
What is the equity market?
Answer:
Equity Market is the financial market for trading in Equity Shares of Companies.

Question 4.
What is the debt market?
Answer:

  • It is a Financial Market for trading Debt Instruments.
  • Government Bonds or Securities.
  • Corporate Debentures or Bonds.

Question 5.
How is the price decided in a secondary market?
Answer:

  • The Secondary market provides a signal for capital allocation funds in the economy and allows the determination of the price of the traded financial Asset through the interaction of Demand (Buyers) and Supply (Sellers.)
  • It is known as the Trice discovery process’

III. Short Answer Questions

Question 1.
Give the meaning and definition of financial market.
Answer:
Meaning: A market where Financial Instrument such as Financial Claims Assets, Securities and Traded is known as “Financial Market”

Definition:
“The place where people and organisations want to borrow money are brought together with those having surplus funds is called “Financial Market”. – BRIGHAM EUGENE. F

Question 2.
Differentiate spot market from future market.
Answer:
Spot Market:

Spot market is otherwise called cash market. it is a market where the delivery of the financial instrument and payment of cash occurs immediately, i.e. settlement is completed immediately.

Future Market:

Future market is otherwise called forward market. It is a market where the delivery of asset and payment of cash takes place at a predetermined time frame in future.

Question 3.
Write a note on Secondary Market.
Answer:
The tire place where formerly issued securities (second-hand securities) are traded is known as “Secondary Market”. It has physical existence. Stock Exchange and Over The Counter Exchange of India [OTCEI] are important institutions in the Secondary Market.

Question 4.
Bring out the scope of the financial market in India.
Answer:
The financial market provides financial assistance to individuals, agricultural sectors, industrial sectors, service sectors, financial institutions like banks, insurance sectors, provident funds, and the government as a whole. With the help of the financial market all the above-stated individuals, institutions, and the Government can get their required funds in time. Through the financial market, the institutions get their short-term as well as long-term financial assistance. It leads to overall economic development.

IV. Long Answer Questions

Question 1.
Distinguish between new issue market and secondary market
Answer:

Basis For Comparison New Issue Market Secondary Market
Meaning The marketplace for new shares is called the primary market. (Initial Issues Market) The place where formerly issued securities are traded is known as the Secondary Market. (Resale Market)
Buying Direct Indirect
Financing It supplies funds to budding enterprises and also to existing companies for expansion and diversification. It does not provide funding to companies.
How can securities be sold? Only once Multiple times
Buying and Selling between Company and Investors Investors
Gained person Company Investors
Intermediary Underwriters Brokers
Price Fixed-price Fluctuates depends on the demand and supply forces.
Organizational difference Not rooted to any specific spot or geographical location. It has physical existence.

Question 2.
Enumerate the different kinds of financial markets.
Answer:
On the basis of Type of Financial claim:

  • Debt Market – A market Trading in Debt Instruments. [Debentures]
  • Equity Market – A market Trading in Equity Shares. [Equity Shares]

On the basis of Maturity of Financial claim:

  • Money Market – A market for short – term Financial Claim [Treasury Bills]
  • Capital Market – A market for Long – term Financial claims. [Shares]

On the basis of Time of issue Financial claim:

  • Primary Market – A market for New Issues of Securities. [First Time]
  • Secondary Market – A market for already issued Securities [Resale]

On the basis of Time of delivery of Financial claim:

  • Cash/Spot Market – A market where delivery of instruments and payment of pash occur
    immediately.
  • Future/Forward Market – A market where delivery of instruments and payment of cash not occur immediately, but take place in the future.

On the basis of Organisational Structure:

  • Exchange-Traded Market – It is a centralized organization with standardized procedures.
  • Over the counter Market – It is a decentralized organization with customized procedures.

Question 3.
Discuss the role of the financial market.
Answer:

  1. Savings Mobilization: Obtaining funds from the savers or ‘surplus’ units such as household individuals, business firms, public sector units, Government is an important role played by financial markets.
  2. Investment: Financial market plays a key role in arranging the investment of funds thus collected, in those units which are in need of the same.
  3. National Growth: Financial markets contribute to a nation’s growth by ensuring an ’ unfettered flow of surplus funds to deficit units. The flow of funds for productive purposes is also made possible. It leads to overall economic growth.
  4. Entrepreneurship Growth: Financial markets contribute to the development of the entrepreneurial class by making available the necessary financial resources.
  5. Industrial Development: The different components of financial markets help an accelerated growth of industrial and economic development of a country and thus contributing to raising the standard of living and the society’s well-being.

Question 4.
What are the functions of Financial Markets?
Answer:
Functions:
(a) Intermediary Functions
(b) Financial Functions

(a) Intermediary Functions: [STEP]

  • Sales Mechanism: It Provides a mechanism for selling financial assets, to offer benefits of marketability and liquidity of such assets.
  • Transfer of Resources: Financial markets facilitate to transfer of real economic resources from lenders to ultimate borrowers.
  • Enhancing Income: It enhances the income of individuals and National income by allowing to earn Interest and Dividend on their investible funds.
  • Productive Usage: It allows for the productive use of the funds borrowed and thus enhancing the income and the gross national production.

(b) Financial Funcitons: (BEL)

  • Borrowers: Providing funds to the borrowers so as to enable them to carry out their investment
    plans.
  • Earning Assets: Providing the lenders with earning assets so as to enable them to earn wealth, (iv) Liquidity: Providing Liquidity in the market so as to facilitate Trading of Funds.

Question 5.
Discuss the various types of financial markets,
Discuss the various types of financial assets,
Answer:
Financial assets can be classified differently under different circumstances. One such classification is:

  1. Marketable assets
  2. Non-marketable assets

Marketable Assets: Marketable assets are those which can be easily transferred from one person to another without much hindrance. Example: Shares of Listed Companies, Government Securities, Bonds of Public Sector Undertakings etc.
Non-Marketable Assets: On the other hand, if the assets cannot be transferred easily, they come under this category. Example: Bank Deposits, Provident Funds, Pension Funds, National Savings Certificates, Insurance Policies etc.

Samacheer Kalvi 12th Commerce Introduction to Financial Markets Additional Questions and Answers

I.A. Choose the Correct Answer

Question 1.
……………….. market has physical existence.
a) Primary
b) Secondary
c) Cash
d) Forward
Answer:
b) Secondary

Question 2.
Indian organised financial system consists of ______
(a) Two
(b) Four
(c) Three
(d) six
Answer:
(b) Four

Question 3.
Which one is matched correctly?

(a) On the basis of financial claim (i) Money market
(b) On the basis of maturity of financial claim (ii) Capital market
(c) On the basis of time of issue of financial claim (iii) Debt market
(d) On the basis of timing of delivery of financial claim (iv) Equity market

Answer:
(c) On the basis of time of issue of financial claim (iii) Debt market

Question 4.
…………………. Assets are those which cannot be easily transferred from one person to another.
a) Marketable
b) Non-Marketable
c) Current
d) Non-current
Answer:
b) Non-Marketable

Question 5.
Assertion (A): The market for securities that are already issued.
Reason (R): Stock exchange is an important institution in the secondary market.
(a) (A) is True
(b) (R) is true
(c) Both are true
(d) (A) is correct but (R) is not
Answer:
(c) Both are true

Question 6.
Find the odd one out.
Debt instruments in the debt market are ______
(a) Government Bonds
(b) Corporate debentures
(c) Equity Shares
(d) Government securities
Answer:
(c) Equity Shares

Question 7.
Which one of the following is not correctly matched?
a) Financial Asset – For hiring purpose
b) Physical Asset – For residence Purpose
c) Marketable Asset – Can be transferred
d) Non-Marketable Asset – Government Securities
Answer:
d) Non-Marketable Asset – Government Securities

B. Fill in the blanks

Question 1.
Over-the-counter market is a ______ market.
Answer:
Decentralised

II. Very Short Answer Questions

Question 1.
What is the equity market?
Answer:
It is a Financial Market for trading Equity shares of the companies.

Question 2.
What do you mean by the capital market?
Answer:
Capital Market is the market for long-term financial claim more than a year e.g. Shared, Debentures.

Question 3.
What is the primary market?
Answer:
Primary Market is a term used to include all the institutions that are involved in the sale of ‘ securities for the first time by the issuers (companies). Here the money from investors goes directly to the issuers.

Question 4.
What are the markets on the basis of the organizational structure of the financial market?
Answer:

  1. Exchange-Traded market
  2. Over-the-Counter Market

Question 5.
What are the markets on the basis of the time of issue of financial claim?
Answer:

  1. Primary market
  2. Secondary market

Question 6.
Define Capital market.
Answer:
According to Arun K. Datta, the capital market may be defined as “a complex of institutions investment and practices with established links between the demand for and supply of different types of capital gains”

Question 7.
What are the components of unorganized sectors?
Answer:
The Indian financial system can be broadly classified into organised and unorganized sectors. The unorganized sector consists of money lenders, indigenous bankers, etc.

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