Samacheer Kalvi 12th Commerce Solutions Chapter 6 Money Market

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Tamilnadu Samacheer Kalvi 12th Commerce Solutions Chapter 6 Money Market

Students can score good marks in the exam by preparing with Samacheer Kalvi Class 12th Commerce Solutions Chapter 6 Money Market Questions and Answers. Your efforts can give you good results when you have the best resources. Samacheer Kalvi Class 12th Commerce Solutions Chapter 6 Money Market 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 Money Market Textbook Exercise Questions and Answers

I. Choose the Correct Answer:

Question 1.
The money invested in the call money market provides high liquidity with _____
(a) Low Profitability
(b) High Profitability
(c) Limited Profitability
(d) Medium Profitability
Answer:
(a) Low Profitability

Question 2.
A major player in the money market is the _____
(a) Commercial Bank
(b) Reserve Bank of India
(c) State Bank of India
(d) Central Bank
Answer:
(a) Commercial Bank

Question 3.
Money Market provides _____
(a) Medium-term Funds
(b) Short-term Funds
(c) Long-term Funds
(d) Shares
Answer:
(b) Short-term Funds

Question 4.
Money Market Institutions are _____
(a) Investment Houses
(b) Mortgage Banks
(c) Reserve Bank of India
(d) Commercial Banks and Discount Houses
Answer:
(d) Commercial Banks and Discount Houses

Question 5.
Risk in the Money Market is _____
(a) High
(b) Market Risk
(c) Low Credit and Market Risk
(d) Medium Risk
Answer:
(c) Low Credit and Market Risk

Question 6.
Debt Instruments are issued by Corporate Houses are raising short-term financial resources from the money market are called _____
(a) Treasury Bills
(b) Commercial Paper
(c) Certificate of Deposit
(d) Government Securities
Answer:
(b) Commercial Paper

Question 7.
The market for buying and selling of Commercial Bills of Exchange is known as a _____
(a) Commercial Paper Market
(b) Treasury Bill Market
(c) Commercial Bill Market
(d) Capital Market
Answer:
(c) Commercial Bill Market

Question 8.
A marketable document of title to a time deposit for a specified period may be referred to as a _____
(a) Treasury Bill
(b) Certificate of Deposit
(c) Commercial Bill
(d) Government Securities
Answer:
(b) Certificate of Deposit

Question 9.
Treasury Bills commands _____
(a) High Liquidity
(b) Low Liquidity
(c) Medium Liquidity
(d) Limited Liquidity
Answer:
(a) High Liquidity

Question 10.
Government Securities are issued by agencies such as _____
(a) Central Government
(b) State Governments
(c) Semi-government Authorities
(d) All of the above
Answer:
(d) All of the above

II. Very Short Answer Questions

Question 1.
Define the term “Money Market”.
Answer:
“The money market is the collective name given to the various firms and institutions that deal in the various grades of near money”. – CROWTHER

Question 2.
What is the commercial bill market?
Answer:
The Commercial Bill is an instrument drawn by a seller of goods on a buyer of goods. A bill of exchange issued by a commercial organization to raise money for short-term needs. These bills are of 30 days, 60 days, and 90 days maturity.

Question 3.
What is a CD market?
Answer:
Government or Gilt-Edged Securities Market is a market where buying and selling of Gilt-edged securities is known as “Government or Gilt-edged securities market”.

Question 4.
What is Government Securities Market?
Answer:
A market whereby the Government or gilt-edged securities can be bought and sold is called the ‘Government Securities Market’.

Question 5.
What are the Instruments of the Money Market?
Answer:
The purchase of one security against the sale of another security [Exchange] carried out by the RBI in the secondary market (open market operations) is known as “Switching”.

Question 6.
Explain the two oldest money markets.
Answer:

1. Treasury Bills- These are very popular and enjoy a higher degree of liquidity since they are issued by the Government.
2. Commercial Bills- It is an instrument drawn by a seller of goods on a buyer of goods.

Question 7.
What do you mean by Auctioning?
Answer:
A method of trading whereby merchants bid against one another and where the securities are sold to the highest bidder is known as ‘auctioning’.

Question 8.
What do you mean by Switching?
Answer:
The purchase of one security against the sale of another security carried out by the RBI in the secondary market as part of its open market operations is described as ‘Switching’.

III. Short Answer Questions

Question 1.
What are the features of Treasury Bills?
Answer:

1. Finance Bills
2. Issuer
3. Liquidity
4. Monetary management
5. Vital source

Question 2.
Who are the participants of the Money Market?
Answer:

1. Government of different countries
2. Central Banks of different countries
3. Private and Public Banks
4. Mutual Funds Institutions
5. Insurance Companies
6. Non-Banking Financial Institutions
7. RBI and SBI
8. Commercial Banks
9. State Governments
10. Public

Question 3.
Explain the types of Treasury Bills.
Answer:
91 Days Treasury Bills:
91 days Treasury Bills are issued at a fixed discount rate of 4% as well as through auctions.

182 Days Treasury Bill:
The RBI holds both 91 days and 182 days Treasury Bills and they are issued on a tap basis throughout the week.

364 Days Treasury Bills:

•  364 days Bills do not carry any fixed rate.
•  The discount rate on these Bills is quoted in the auction by the participants and accepted by the authorities.
•  Such a rate is called the cut-off rate.

Question 4.
What are the features of a Certificate of Deposit?
Answer:

1. Document of title to time deposit
2. It is unsecured negotiable instruments
3. It is freely transferable by endorsement and delivery
4. It is issued at discount to face value
5. It is repayable on a fixed date without grace days

Question 5.
What are the types of Commercial Bill?
Answer:
Demand and Usance Bills:

•  A Demand Bill is one wherein no specific time of payment is mentioned.
•  So, it should be payable immediately when they are presented to the drawee.

Clean Bill and Documentary Bills:

• Clean Bill – No documents attached.
• Documentary Bill – Documents of title to goods are attached.

Accommodation Bills:
Accommodation Bill – Do not arise out of genuine trade of transactions.

Inland Bill and Foreign Bill:

•  Inland Bill – drawn in India – Payable in India.
•  Foreign Bill – Drawn outside India – Payable in India or outside India.

Indigenous Bill:
Drawn and Acceptance governed by native custom.

IV. Long Answer Questions

Question 1.
Define Money Market and Capital Market. Explain the difference between the Money -Market and Capital Market.
Answer:
(i) Money Market Definition: According to Crowther, “the money market is the collective name given to the various firms and institutions that deal in the various grades of near money.”
(ii) Capital Market Definition: According to Aran K. Datta, a 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 2.
Explain the characteristics of the Money Market.
Answer:
Short-term Funds:
It is a market purely for short-term funds or financial assets called near money.

Maturity Period:
It deals with financial assets having a maturity period of upto one year only.

Sub-markets:

• It is not a single homogeneous market.
•  It comprises several sub-markets.
  • Acceptance Market
  • Bill Market
  • Call Money Market

Wholesale market:

• It is a wholesale market.
• The volume of funds or financial assets traded in the market is very large.

Existence of Secondary Market:
There should be an active secondary market for these instruments.

• Demand and Supply of Funds :
  There should be a large demand and supply of short-term funds.
• It presupposes the existence of a large domestic and foreign trade.

Question 3.
Explain the Instruments of the Money Market.
Answer:
(i) Treasury Bills: Treasury bills are very popular and enjoy a higher degree of liquidity since they are issued by the Government. A Treasury bill is nothing but a promissory note issued for a specified period stated therein. The Government promises to pay the specified amount mentioned therein to the bearer of the instrument on the due date. The period does not exceed a period of one year.

(ii) Certificate of Deposits: Certificate of Deposits are short-term deposit instruments issued by banks and financial institutions to raise large sums of money. The Certificate of Deposit is transferable from one party to another. Due to their negotiable feature, they are also known as negotiable certificates of deposit.

(iii) Commercial Bills: The Commercial Bill is an instrument drawn by a seller of goods on a buyer of goods. It possesses the advantages like self-liquidating in nature, recourse to two parties, knowing exact date of transactions, transparency of transactions, etc.,

Question 4.
Explain the features and types of Commercial Bills.
Answer:
Features:

• Drawer
• Acceptor [Drawer]
• Discounter
• Assessment
• Credit Rating
• Payee
• Endorser
• Maturity

Demand Bills – Demand Bills are payable immediately when they are presented to the drawee. [No specific time].
Clean Bill – No documents attached.
Documentary Bill – Documents of title to goods are attached.
Accommodation Bill – Do not arise out of genuine trade of transactions.
Inland Bill – Drawn in India – payable in India.
Foreign Bill – Drawn outside India – payable in India or outside India.
Indigenous Bill – Drawn and Acceptance governed by native custom.

Question 5.
What are the features of Government Securities?
Answer:
Switching:
The purchase of one security against the sale of another security [Exchange] carried out by the RBI in the secondary market [open market operations] is known as “Switching”.

• Market:
• As each purchase and sale has to be negotiated separately, the Gilt – Edged Market is an Over – The Counter Market.
•  It has two segments namely primary market and secondary market.

Auctioning:

• “Auctioning” is a method of trading bv merchants.
• Whereby merchants bid against one another.
• The securities are sold to the highest bidder.

RBI Special Role:
RBI takes a special and active role in the purchase and sale of these securities as part of its monetary management exercise.

Tax Rebate:

• A striking feature of these securities is that they offer wide-range of Tax incentives to
• This has made these securities very popular for this benefit.

Issue Mechanism:
The Public Debt Office [PDO] of the RBI undertakes to issue Government Securities.

Grooming:
Acquisition of Securities nearing maturity through the stock exchanges by the RBI in order to facilitate redemption is described as “Grooming”.

Samacheer Kalvi 12th Commerce Money Market Additional Questions and Answers

I. A. Choose the Correct Answer

Question 1.
Who Regulates the Money Market?
a) Central Bank
b) Commercial Bank
c) Private Sector Banks
d) NOTA
Answer:
a) Central Bank

Question 2
______ deals with the financial assets and securities whose maturity period does not exceed one year.
(a) Money market
(b) Capital market
(c) Stock exchange
(d) Government bonds
Answer:
(a) Money market

Question 3.
Treasury Bill is an example of ______
(a) Capital market
(b) Money market
(c) Stock exchange
(d) None of these
Answer:
(b) Money market

Question 4
______ is a focal point for Central Bank intervention for influencing liquidity in the company.
(a) Capital market
(b) Money market
(c) Stock exchange
(d) Central Bank
Answer:
(b) Money market

Question 5.
………………….Bills are drawn without accompanying any document.
a) Clean
b) Documentary
c) Inland
d) Foreign
Answer :
a) Clean.

Question 7.
Which one of the following is not correctly matched?
a) Demand Bill – Payable immediately
b) Accommodation Bill – Genuine transaction
c) Indigenous Bill – Native custom
d) Documentary Bills – Railway Receipt
Answer :
b) Accommodation Bill – Genuine transaction

B. Fill in the blanks:

1. A market for the purchase and sale of Treasury Bills is known as _______
2. Bills which are drawn and payable in India on a person who is a resident of India are called _______

Answers:

1. Treasury Bills Market
2. Inland bills

II. Very Short Answer Questions

Question 1.
What is Grooming?
Answer:
Acquisition of securities nearing maturity through the stock exchange by the RBI in order to facilitate redemption is described as “Grooming”.

Question 2.
What are Indigenous Bills?
Answer:
The drawing and acceptance of indigenous bills are governed by native custom or usage of trade.

Question 3.
What are the Instruments of the Money Market?
Answer:

•  Treasury Bills.
•  Money at Call and Short Notice.
•  Commercial Bills and Promissory Notes.
•  Inter-Bank participation certificate.
•  Commercial papers.
•  Certificate of Deposits.
•  Repo Instruments.

Question 4.
Who are the Participants?
Answer:
The participants in the Government securities market include the Government sector comprising Central and State Governments whose holdings represent a governmental transfer of resources.

Question 5.
What is the Wholesale Market?
Answer:
It is a wholesale market and the volume of funds or financial assets traded in the market is very large.

Question 6.
Who will subscribe to a certificate of deposits?
Answer:
Certificates of deposits are subscribed by individuals, corporations, trusts, associations, and NRIs. It is a document of title to a time deposit.

Question 7.
What are the components of the money market?
Answer:
The components of a money market are the Central Bank, Commercial Banks, Non-Banking Financial Companies, Discount Houses, and Acceptance Houses.

III. Short Answer Questions

Question 1.
What are the objectives of the Money Market?
Answer:

• Providing an equilibrium mechanism for ironing out short-term surplus and deficits.
• Providing a focal point for Central Bank intervention for in fluency liquidity in the company.
• Providing access in uses to users of short-term money to meet their requirements at a reasonable price.

Question 2.
Write any three differences between the money market and the capital market.
Answer:

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