INTRODUCTION TO THE SECURITIES MARKET

What is the primary function of financial markets in the economy?

To maximize profits for businesses
To allocate surplus funds to households
To facilitate the transfer and allocation of financial resources
To regulate the activities of banks and financial institutions

What role do intermediaries like banks and mutual funds play in the financial markets?

They provide surplus funds to users.
They facilitate the transfer of funds.
They regulate the financial markets.
They invest in stocks and bonds.

What is the significance of financial markets providing liquidity and exit options?

To increase borrowing costs for users
To discourage savers from lending
To enable participants to review their funding decisions
To limit access to funds for businesses

Who are the users of funds in the financial markets?

Only businesses
Only governments
Only households
Businesses, governments, and households

How do securities markets contribute to the economy’s savings and investments?

By discouraging savings and investments
By constraining savers and investors individually
By maximizing individual abilities to save and invest
By decoupling savings from investments and enhancing both

What are the two main segments of the securities market?

Primary market and secondary market
Stock market and commodity market
Forex market and derivatives market
Equity market and bond market

What is the primary function of the primary market?

Providing liquidity to existing securities
Trading and settlement of securities
Raising capital from investors through new issues
Facilitating trading between two investors

In the secondary market, who is involved in the direct transaction?

Issuers and investors
Stockbrokers and investors
Clearing corporations and issuers
Merchant bankers and stock exchanges

What is the primary function of the Over-The-Counter (OTC) market?

Providing a platform for primary issuances
Guaranteeing settlement of trades
Informal negotiation and bilateral settlement
Facilitating Initial Public Offers (IPOs)

Which entity acts as a counterparty and guarantees settlement in the exchange-traded market?

Clearing corporation
Stockbroker
Depository participant
Issuer of securities

What is the term used for raising capital in the primary market through the issuance of new shares to existing shareholders at a particular price?

Initial Public Offer (IPO)
Follow on Public Offer (FPO)
Bonus issue/stock split
None of these

What are the key players in the primary market, as mentioned in the article?

Stock exchanges and clearing corporations
Stock brokers and individual investors
Issuers, merchant bankers, and mutual funds
Foreign Portfolio Investors (FPIs) and lawyers

What are some examples of money market instruments?

Stocks and bonds
Real estate properties
Negotiable certificates of deposit (CDs) and commercial papers
Mutual funds and exchange-traded funds (ETFs)

In the equity/cash markets, what do equity shareholders collectively represent?

Creditors of the company
Employees of the company
Fractional ownership in the company
Bondholders of the company

What is the primary characteristic of non-convertible debentures (NCDs)?

They can be converted into equity shares of the same company.
They are secured by tangible assets.
They are fully convertible into equity shares.
They have a feature of conversion.

What is the main difference between regular mutual funds and Exchange Traded Funds (ETFs)?

ETFs are actively managed, while regular mutual funds are passively managed.
ETFs try to outperform their corresponding index, while regular mutual funds replicate the index.
ETFs are not traded on stock exchanges.
Regular mutual funds trade like common stocks on stock exchanges.

What is the primary function of Indian Depository Receipts (IDRs)?

To facilitate trading of Indian stocks in foreign markets
To enable Indian companies to raise capital in foreign currency
To allow foreign companies to directly list on Indian stock exchanges
To provide Indian investors access to foreign stocks

What is a derivative in the financial market?

A physical commodity like gold or silver
A contract between two or more parties whose value is derived from an underlying asset
An equity shares in a company
A currency exchange rate

Which of the following is NOT an example of an underlying asset for derivatives?

Stocks
Commodities
Currencies
Mutual funds

What is the primary characteristic of a forward contract?

It is traded on an exchange.
It is a promise to deliver an asset in the future at a predetermined price.
It is standardized and has a fixed expiration date.
It is primarily used for currency trading.

How do options differ from futures contracts?

Options give the buyer the right to buy or sell an asset, while futures contracts require the buyer to buy or sell.
Options are not standardized, while futures contracts are.
Options have no expiration date, while futures contracts have a fixed expiration date.
Options are always traded on an exchange, while futures contracts can be traded over-the-counter (OTC).

Where are currency derivatives such as USD-INR futures traded in India?

On the stock exchange
In the commodity market
In the interest rate market
In the currency derivatives segment

What is the primary method of settlement for currency derivatives in India?

Physical delivery of currency
Physical delivery of gold
Cash settlement in Indian Rupees (INR)
Electronic transfer of securities

How are interest rate futures and options settled in India?

Through physical delivery of government securities
Through cash settlement in INR
Through physical delivery of gold
Through electronic transfer of stocks

What is the purpose of commodity derivatives in the financial market?

To facilitate trading of commodities such as gold, silver, and energy
To encourage physical delivery of commodities
To replace physical commodities with financial instruments
To trade in foreign currencies

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