Tag: meaning and functions of capital market

Questions Related to meaning and functions of capital market

A stock market index is a barometer of market behavior.

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. True

  2. False

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Correct Option: A
Explanation:

A stock market index is a barometer of market behavior. Stock market index can be defined as a measure or indicator which shows how the market mechanism works for securities. It is computed from the prices of selected stocks from the market.

The shares of companies are dealt in.

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. Stock market

  2. Foreign exchange market

  3. Bullion market

  4. Commodity market

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Correct Option: A

Long-term borrowing is undertaken in.

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. Money market

  2. Capital market

  3. Bullion market

  4. Foreign exchange market

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Correct Option: B

The number of approved stock exchanges in India in 2018 is________.

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. 14

  2. 21

  3. 18

  4. 15

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Correct Option: A

According to traditional approach the average cost of capital ________________________________.

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. Remains constant up to a degree of leverage and rise sharply thereafter with even increase in leverage

  2. Rises constantly with increase in leverage

  3. Decreases up to a certain point, remains unchanged for moderate increase in leverage and rises beyond a certain point

  4. Decreases at an increasing rate with increase in leverage

  5. Increase up to certain point remains constant for moderate decrease in leverage and decreases beyond a certain point.

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Correct Option: C
Explanation:

According to the traditional approach the average cost of capital K$ _0$ as a consequence of a behaviour of K$ _e$ and K$ _d$, decreases up to a certain point remains more or less unchanged for moderate increases in leverage thereafter and rises beyond a certain point.

Money market arranges for ____________ and capital market provides for ____________ funds. 

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. long-term, short-term

  2. long-term, short to medium-term

  3. short-term, medium to long-term

  4. medium-term, short to long-term

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Correct Option: C
Explanation:

The financial market is a platform where investors deal in financial instruments. Money market and capital market are part of the financial market.

In the money market, extremely liquid financial instruments are traded, i.e. monetary instruments of short expiry are dealt with.
On the the other hand, the capital market is for medium to long term finance.

The __________ market is also known as the new issues market, which deals with new securities being issued for the first time.

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. capital

  2. money

  3. primary

  4. secondary

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Correct Option: C
Explanation:

The primary market is also known as the new issues market, which deals with new securities being issued for the first time.  Primary market directly contributes in capital formation because in primary market company goes directly to investors and utilize the funds for investment purpose. Primary market does not include finance in the form of loan from financial institutions.

Which of the following is/are a method of flotation in the primary market?

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. Offer through prospectus

  2. Offer for sale

  3. Private placement

  4. All of the above

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Correct Option: D
Explanation:

There are various methods of floating new issues in the primary market. They are:

  • Offer through Prospectus involves inviting subscription from the public through issue of prospectus.
  • Offer for Sale: Under this method securities are not issued directly to the public but are offered for sale through intermediaries like issuing houses or stock brokers.
  • Private Placement: Private placement is the allotment of securities by a company to institutional investors and some selected individuals.

We read in the newspaper that the foreign direct investment are preferred over the capital inflow. In this context, please consider the following.
  Which statement is more suitable for this statement ?

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. FDI brings in latest technology

  2. FDI does not involve large outflow

  3. FDI improves efficiency of the economy

  4. None of the above

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Correct Option: A
Explanation:

We read in the newspaper that the foreign direct investment are preferred over the capital inflow. In this context, FDI brings in latest technology is the more suitable for this statement. Foreign Direct Investment plays a crucial role in growth dynamics of an economy.It serves the interest of the foreign investors as well as look after the long-term financial interest of the investors.

'If you want to gauge economic status of a country, analyse the status of its capital market'. This statement is pertaining to ________.

business organisation stock exchange meaning and functions of capital market capital markets listing of securities, stock market players

  1. monetary policy

  2. capital policy

  3. stock exchange

  4. None of the above

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Correct Option: C
Explanation:

'If you want to gauge economic status of a country, analyze the status of its capital market'. This statement is pertaining to stock exchange.Stock exchange has a provision to list the securities for trading. This is a service given to corporate sector. Stock exchange leads to capital formation as prices of securities with a variable return continue to increase over a long term Stock exchange provides services like, wide dissemination of prices of securities.