Chapter 12 -Stock Exchange.

Chapter 12, Stock Exchange, hsc, sp, secretarial practice, maharashtra board, full solution,

Chapter 12: Stock Exchange

Select the correct answer from the options given below and rewrite the statement.

1.A stock exchange is where stock brokers and traders can buy and sell ______.

Options

• gold
• securities
• goods

2.The ______ is the first stock exchange to be recognized by the Indian Government under the Securities Contracts (Regulation) Act.

Options

• BSE
• NSE
• OTCEI

3.______ is a dealer in stock exchange who carries on trading of securities in his own name.

Options

• Jobber
• Broker
• Bull

4.A ______ who expects fall in the price of a securities.

Options

• bull
• bear
• jobber

5.The practice of buying and selling within the same trading day before the close of the market on that day is called ______.

Options

• insider trading
• day trading
• auction

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Match the pairs.

Group ‘A’	Group ‘B’
a) SEBI	1) Expects the price of shares rise in future.
b) Day Trading	2) Expects the price of shares fall in future.
c) Bull	3) Buying and selling of securities within the same trading day
d) Bear	4) To protect the interest of investors in securities market.
e) BSE	5) Buying and selling of securities to particular investors.
	6) One of the oldest stock exchange in India.
	7) To protect the interest of companies in securities market.
	8) Buying and selling of securities within a week.
	9) Newest Stock Exchange in India.
	10) One who invests in new issues of securities.

SOLUTION

Group ‘A’	Group ‘B’
a) SEBI	4) To protect the interest of investors in the securities market.
b) Day Trading	3) Buying and selling of securities within the same trading day
c) Bull	1) Expects the price of shares rise in the future.
d) Bear	2) Expects the price of shares fall in the future.
e) BSE	6) One of the oldest stock exchange in India.

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Write a word or a term or a phrase which can substitute the following statement.

1.A specific place where trading of securities is arranged in an organized method.

SOLUTION

A specific place where trading of securities is arranged in an organized method. – Stock exchange/ Share market

2.The first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act.

SOLUTION

The first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. – Bombay Stock Exchange (BSE)

3.A dealer in stock exchange who carries on trading of securities in his own name.

SOLUTION

A dealer in stock exchange who carries on trading of securities in his own name. – Jobber

4.A speculator who expects the price of shares rise in the future.

SOLUTION

A speculator who expects the price of shares rise in the future. – Bull

State whether the following statement is true or false.

1.A stock exchange is a reliable barometer to measure the economic condition of a country.

Options

• True
• False

2.Bombay Stock Exchange is the oldest stock exchange in India.

Options

• True
• False

3.A broker is a dealer in stock exchange who carries on trading of securities in his own name.

Options

• True
• False

4.Bear is a speculator who expects the prices of shares rise in the future.

Options

• True
• False

Complete the sentence.

1.The oldest Stock Exchange in India is the ____________

SOLUTION

The oldest Stock Exchange in India is the Bombay Stock Exchange (BSE).

2.The largest and most modern stock exchange in India is the ____________.

SOLUTION

The largest and most modern stock exchange in India is the National Stock Exchange (NSE).

3.A person who buys or sells shares on behalf of his clients is called as ______.

SOLUTION

A person who buys or sells shares on behalf of his clients is called as broker.

4.A speculator who expects fall in prices of shares ___________.

SOLUTION

A speculator who expects fall in prices of shares bear.

1.Select the correct option from the bracket.

Group ‘A’	Group ‘B’
a) Regulator of capital market	1) _____________
b) ____________	2) Nifty
c) Jobber	3) ____________
d) ____________	4) Oldest Stock Exchange in the world.

(London Stock Exchange, Index of NSE, SEBI, trades in securities in his own name)

SOLUTION

Group ‘A’	Group ‘B’
a) Regulator of capital market	1) SEBI
b) Index of NSE	2) Nifty
c) Jobber	3) Trades securities in his own name
d) London Stock Exchange	4) Oldest Stock Exchange in the world.

Answer in one sentence.

1.What is Stock Exchange?

SOLUTION

Stock exchange is a specific place where various types of securities are purchased and sold.

2.Who is Broker?

SOLUTION

A broker is a member of a stock exchange who is licensed by stock exchange to buy or sell securities on his client’s behalf.

3.Who is Jobber?

SOLUTION

A jobber is a dealer in the stock exchange who carries on the trading of securities in his own name.

4.Who is Bull?

SOLUTION

A bull is a speculator who expects the price of shares to rise in the future and buys with the hope of selling them at higher prices to earn a profit.

5.Who is Bear?

SOLUTION

A bear is a speculator who expects the prices of shares to fall in the future and sells his securities at the prevailing prices to avoid loss.

6.Who is Lame Duck?

SOLUTION

A lame duck is a bear broker whose expectations have gone wrong and makes a loss in his dealings.

7.What is Trading Ring?

SOLUTION

The trading or auction of shares takes place on the floor of the stock exchange which is also known as trading ring.

8.What is Sensex?

SOLUTION

Sensex is the index of the BSE which represents the increase or decrease in prices of stocks of a selected group of companies.

9.What is Rally?

SOLUTION

If the Sensex or Nifty moves in an upward direction over a period of 14 to 20 trading sessions, it is called as a rally.

10.What is Crash?

SOLUTION

If the Sensex or Nifty moves in a downward direction, it is called as a crash.

Correct the underlined word and rewrite the following sentence.

1.One of the functions of SEBI is to protect the interest of issuers of securities in the securities market.

SOLUTION

One of the functions of SEBI is to protect the interest of investors in the securities market.

2.A Broker cannot directly deal with investors.

SOLUTION

A jobber cannot directly deal with investors.

3.A Bear expects the prices of shares to rise in future.

SOLUTION

A bull expects the prices of shares to rise in future.

4.A Bull buys new issues of securities from primary market.

SOLUTION

A stag buys new issues of securities from primary market.

5.A stock market is an important constituents of money market.

SOLUTION

A stock market is an important constituents of capital market.

Explain the following term/concept.

1.Stock exchange

SOLUTION

Stock Exchange is a specific place where various securities are bought and sold. The securities include equity shares, preference shares, debentures, government securities and bonds, units of mutual funds, etc. Stock markets act as intermediaries between investors and borrowers and are regulated by SEBI.

2.Broker

SOLUTION

A broker is a member of a stock exchange who is licensed by the stock exchange to buy or sell shares on his client’s behalf. He is an agent between the investors and the jobber. He earns income ins the form of commission or brokerage.

3.Jobber

SOLUTION

A jobber is a dealer in the stock exchange who carries on the trading of securities in his own name. He buys securities as an owner and sells them at a higher price. He is a professional speculator in the stock exchange and is not permitted to deal with investors directly. The profit he makes is his income.

4.Bull

SOLUTION

A bull is a speculator who expects the prices of shares to rise in the future. He buys shares with the hopes of selling them at a higher price in the future with the aim of earning profit. His views are optimistic. The actions of the bulls increase the prices of securities as there is excess of purchases over the sales.

5.Bear

SOLUTION

A bear is a speculator who expects the prices of shares to fall in the future. Hence, he sells his shares at the current prices in order to avoid losses as he expects a further fall in prices. The actions of bears reduce the prices of securities as there is an excess of sales over a purchase.

1.Study the following case/situation and express your opinion.

Mr. Y is a practising Co. Secretary offering advisory services to companies, institutions, etc. on corporate laws including companies Act. He has received few queries from his clients, please assist Mr. Y in answering them.

1. BDl bank wants to offer DP services. Whom should they approach for registering as DP?
2. KM Financial wants to offer Debenture Trustee services. Where should they apply for getting registered?
3. TT Ltd. Co. wants to issue an IPO. Should it get itself registered with SEBI?

SOLUTION

1. For registering as a depository participant (DP), BDI bank has to approach the Securities and Exchange Board of India (SEBI)
2. KM Financial should apply to SEBI for getting registered.
3. SEBI issues rules and regulations to be followed by issuers of securities. Thus, TT Ltd. Co. has to get itself registered with SEBI as it wants to issue an IPO.

2.Study the following case/situation and express your opinion.

Mr. P has a recently got his B.Sc. degree. He has enrolled for a course in securities market. As a new student of this subject, he has few queries as follows :

1. Does a Company need to be listed on a stock exchange to sell its securities through the stock exchange.
2. What is the term used for referring to a stock exchange’s ability to reflect the economic conditions of a country?
3. What is the term which refers to the functions of the stock exchange as a provider of a ready market for sale and purchase of security?

SOLUTION

1. Yes, a company needs to be listed on a stock exchange to sell its securities through the stock exchange.
2. ‘Economic mirror’ is the term used for referring to a stock exchange’s ability to reflect the economic conditions of a country
3. ‘Liquidity’ is the term which refers to the functions of the stock exchange as a provider of a ready market for sale and purchase of the security.

Distinguish between the following.

1.Jobber and Broker.

SOLUTION

Points	Jobber	Broker
(1) Meaning	Jobber is one who buys and sells securities in his own name.	Broker is an agent who deals in buying and selling of securities on behalf of his client.
(2) Nature of Trading	A jobber carries out trading activities only with the broker.	A broker carries out trading activities with the jobber on behalf of his investors.
(3) Restrictions on Dealings	A jobber is prohibited to directly buy or sell securities in the stock exchange. Also, he cannot directly deal with the investors.	A broker acts as a link between the jobber and the investors. He trades i.e. buys and sells securities on behalf of its investors.
(4) Agent	A jobber is a special mercantile agent.	A broker is a general mercantile agent.
(5) Form of Consideration	A jobber gets consideration in the form of profit.	A broker gets consideration in the form of commission or brokerage.

Answer in brief.

1.State the functions of SEBI.

SOLUTION

SEBI was set up with the objective of promoting the securities market, protecting the interest of the investors in the securities market, and to regulate the securities market. SEBI issues rules and regulations to be followed by the issuers of securities, the market intermediaries, and the investors. It is a regulator of all the Stock exchanges in India.

The various functions of SEBI are –

1. To protect the interest of investors in the securities market.
2. To promote the development of securities markets.
3. To regulate the business in stock exchanges and any other securities market.
4. To register and regulate the working of stockbrokers, sub-brokers, share transfer agents, bankers to an issue, trustee of trust deeds, registrars to an issue, merchants bankers, underwriters, and such other intermediaries who may be associated with the securities market.
5. To register and regulate the working of the Depositories, Depository Participants, Custodians of securities, foreign institutional investors, credit rating agencies.
6. To register and regulate the working of venture capital funds and collective investment schemes including mutual funds.
7. To promote and regulate self-regulatory organizations.
8. To prohibit fraudulent and unfair trade practices relating to securities markets.
9. To promote investors’ education and training of intermediaries of the securities market.
10. To prohibit insider trading in securities.

2.State any four features of Stock Exchange.

SOLUTION

The important features of the Stock Exchange are as follows:

1. The market for securities:
   Stock Exchange is a market where all types of corporate securities and securities of government and semi-government bodies are traded.
2. Second-hand securities:
   The securities that are traded on the stock exchange are those securities that are already issued by the companies. In other words, second-hand securities are bought and sold among the investors in a stock exchange.
3. Listed securities:
   Only the securities that are listed on the stock exchange can be traded on a stock exchange. The companies that are listed on the stock exchange have to strictly comply with the rules laid down by the exchange.
4. Organised and Regulated Market:
   All companies listed on the stock exchange have to comply with the guidelines of SEBI. Companies will also have to function as per the rules and regulations laid by the stock exchange.
5. Specific Location:
   The stock exchange is a specific physical place where brokers and intermediaries meet to trade in securities. Today, all trading is done electronically on a stock exchange.
6. Trading only through members:
   In a stock exchange, securities can be traded only by the members of the exchange on their own behalf or through authorized brokers.

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Justify the following statement.

1.The Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India.

SOLUTION

1. SEBI was set up with the objective of promoting the securities market, protecting the interest of the investors in the securities market, and to regulate the securities market.
2. SEBI issues rules and regulations which are to be followed by the issuers of securities, the intermediaries, and the investors.
3. It is the regulator of all stock exchanges in India.
4. SEBI also registers and regulates the working of stockbrokers, sub-brokers, share transfer agents, bankers to an issue, trustee of trust deeds, registrars to an issue, merchants, bankers, underwriters, venture capital funds, mutual funds, depositories, and other such intermediaries who may be associated with securities market.
5. Thus, the Securities and Exchange Board of India (SEBI) is the regulator for the securities market in India.

2.Stock exchanges work for the growth of the Indian economy.

SOLUTION

1. The stock exchange is a place where various types of securities are purchased and sold.
2. Securities of various companies are traded on the stock exchange.
3. Investors invest in those companies which give good return on investment.
4. Hence, companies also try to invest in the most productive investment projects so as to give good return on investors’ money.
5. This leads to capital formation and economic growth.
6. Thus, stock exchanges work for the growth of the Indian economy.

3.Explain the functions of Stock Exchange.

SOLUTION

1. Mobilisation of Savings: Stock markets are organised and regulated market which protects the interests of the investors. This encourages small and big investors to invest in securities through the stock exchange. It thus provides a ready market for buying and selling securities.
2. Capital formation: Investors in securities are attracted due to good returns on investments and capital appreciation. This attracts more investors to invest through the stock exchange. Corporates too can easily raise funds by offering various types of securities to meet the needs of different types of investors. Thus Stock exchange serves as a tool for capital formation.
3. Pricing of Securities: The stock market helps to value the securities on the basis of demand and supply factors. The securities of profitable and growth-oriented companies are valued higher as there is more demand for such securities. The valuation of securities is useful for investors, government, and creditors. The investors can know the market value of their investment. The creditors can estimate the credit worthiness of a company.
4. Economic Barometer: A stock exchange is a reliable barometer to measure the economic condition of a country. Every major change in the country and economy is reflected in the prices of shares. The rise or fall in the share prices indicates the boom or recession cycle of the economy. The stock exchange is also known as a pulse of the economy or economic mirror as it reflects the economic conditions of a country.
5. Protecting Interest of Investors: Stock exchange protects the interest of investors. In the stock market, only the listed securities are traded. The stock exchange allows listing only after verifying the soundness of the company. The companies which are listed have to operate within the strict rules and regulations laid down by the stock exchange. This ensures the safety of dealing through the stock exchange.
6. Liquidity: The main function of the stock market is to provide a ready market for the sale and purchase of securities. The presence of the stock market gives assurance to investors that their investment can be converted into cash whenever they want. Investors can invest in long-term investment projects without any hesitation, as because of the stock exchange they can convert the long-term investment into short-term and medium-term or even liquidate their investments whenever they want.
7. Better Allocation of Capital: The shares of profit-making companies are quoted at higher prices and are actively traded so such companies can easily raise fresh capital from the stock market. The prices of securities traded in the exchange indicate the opportunities for investments. So stock exchange facilitates the allocation of investors’ funds to productive and profitable channels.
8. Contributes to Economic Growth: In the stock exchange, securities of various companies are bought and sold. Investors invest in companies which give a good return on investments. Hence companies, too, try to invest in the most productive investment projects. This leads to the capital formation as well as economic growth.
9. Providing Scope for Speculation: To ensure liquidity and demand or supply of securities the stock exchange permits healthy speculation of securities.
10. Promotes the Habit of Savings and Investment: The stock market offers attractive opportunities for investment in various securities. These attractive opportunities encourage people to save more and invest in securities of the corporate sector rather than investing in unproductive assets such as gold, silver, etc.

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