12th Commerce Guide Chapter 7: STOCK EXCHANGE - Reduced syllabus 2021 - Book back Questions and answer

I. Very Short Answer Questions: ( 2 Mark Questions)

1. What is meant Stock Exchange?

•  Stock Exchange is an organized market for the purchase and sale of industrial and financial security.
•  Stock Exchange (also called Stock Market or Share Market) is one of the important constituents of Capital market.
•  It is an investment intermediary and facilitates economic and industrial development of a country.

2. Define Stock Exchange.

• According to Husband and Dockerary, "Stock exchanges are privately organized markets which are used to facilitate trading in securities."

3. Write any 5 Stock Exchanges in India.

•  The Bombay Stock Exchange
•  The National Stock Exchange of India (NSE) Ltd.
•  The Coimbatore Stock Exchange Ltd.
•  The Madras Stock Exchange Ltd
•  Bangalore Stock Exchange Ltd.

4. What is meant by Remisier?

• He acts as an agent of a member of a stock exchange. He obtains business for his principal ie., the member and gets a commission for that service.

5. Who is called a Broker?

•  Brokers are commission agents, who act as intermediaries between buyers and sellers of securities.
•  They do not purchase or sell securities on their behalf. They bring together the buyers and sellers and help them in making a deal. 
•  Brokers charge a commission from both the parties for their service.

6. What are the types of Speculator?

•  Bull
•  Bear
•  Stag
•  Lame Duck

12th Commerce Guide Reduced syllabus 2021 based 

II. Short Answer Questions: ( 3 Mark Questions)

1. What are the limitations of Stock exchange?

• i. Lack of uniformity and control of stock exchanges.
• ii. Absence of restriction on the membership of stock exchanges.
• iii. Failure to control unhealthy speculation.
• iv. Allowing more than one charge in the place.
• v. No proper regulation of listing of securities on the stock exchange

2. Explain Bull and Bear.

Bull:

•  A Bull or Tejiwala is an operator who expects a rise in prices of securities in the future.
•  The bull speculator stimulates the price to rise. He is an optimistic speculator.
•  In anticipation of price rise he makes purchases of shares at present and other securities with the intention to sell at higher prices in future

Bear:

•  A bear or Mandiwala speculator expects prices to fall in future and sells securities at present with a view to purchase them at lower prices in future.
•  The bear speculator tends to force down the prices of securities. A bear is a pessimistic speculator.

3. Explain Stag and Lame Duck.

Stag:

•  A stag is a cautious speculator in the stock exchange. He applies for shares in new companies and expects to sell them at a premium, if he gets an allotment. 
•  He selects those companies whose shares are in more demand and are likely to carry a premium. 
•  He sells the shares before being called to pay the allotment money. He is also called a premium hunter.

Lame Duck:

•  When a bear finds it difficult to fulfill his commitment, he is said to be struggling like a lame duck.
•  A bear speculator contracts to sell securities at a later date. On the appointed time he is not able to get the securities as the holders are not willing to part with them. 
•  In such situations, he feels concerned. Moreover, the buyer is not willing to carry over the transactions.

12th Commerce Guide Reduced syllabus 2021 based 

III. Long Answer Questions:

1. Explain the functions of Stock Exchange. (Any 5)

i) Ready and Continuous Market

• Stock Exchange is, in fact, a market for existing securities. If an investor wants to sell his securities, he can easily and quickly dispose them off on a stock exchange.

ii). Protection to Investors

• All dealings in a stock exchange are in accordance with well-defined rules and regulations. For example, brokers cannot charge higher rate of commission for their services. Any malpractice will be severely punished.

iii). Aid to Capital Formation

• Stock exchanges thus ensure a steady flow of capital into industry and assists industrial development.

iv). Correct Evaluation of Securities

• The prices at which securities are bought and sold are recorded and made public. 
• These prices are called “market quotations”.

v). Facilities for Speculation

• Speculation is an integral part of stock exchange operations. As a result of speculation, demand for and supply of securities are equalized. Similarly, price movements are rendered smoothly.

vi). Clearing House of Business Information

• stock exchange publish every year books detailing the financial position of companies. Thus, it gives vital information to the investing public for deciding on investment.

12th Commerce Guide Reduced syllabus 2021 based 

2. Explain the features of Stock Exchange. (Any 5)

i). Market for Securities

• Stock exchange is a market, where securities of corporate bodies, government and semi-government bodies are bought and sold.

ii). Deals in Second Hand Securities

• It deals with shares, debentures bonds and such securities already issued by the companies. In short, it deals with existing or second hand securities and hence it is called secondary market.

iii). Association of Persons

• A stock exchange is an association of persons or body of individuals which may be registered or unregistered.

iv). Recognition from Central Government

• Stock exchange is an organised market. It requires recognition from the Central Government.

v). Working as per Rules

• Buying and selling transactions in securities at the stock exchange are governed by the rules and regulations of stock exchange as well as SEBI Guidelines.
•  No deviation from the rules and guidelines is allowed in any case.

vi). Regulates Trade in Securities

• Stock exchange does not buy or sell any securities on its own account. It merely provides the necessary infrastructure and facilities for trade in securities to its members and brokers who trade in securities.

3. Explain the Benefits of Stock Exchange.

A. Benefits to the Community

i. Economic Development

• It accelerates the economic development by ensuring steady flow of savings into productive purposes.

ii. Fund Raising Platform

• It enables the well-managed, profit-making companies to raise limitless funds by fresh issue of shares from time to time.

iii. Capital Formation

• It encourages capital formation.

iv. Fund Raiser for Government

• It enables Government to raise funds for undertaking projects through sale of securities on the stock exchange. Thus stock exchange serves as a platform for raising public debt.

B. Benefits to the Company

i. Enhances Goodwill or Reputation

• Companies whose shares are quoted on a stock exchange enjoy greater goodwill and credit standing.

ii. Wide Market

• There is a wide and ready market for such securities.

iii. Raises huge funds

• Stock Exchange can raise huge funds easily by issue of shares and debentures.

iv. Increases bargaining strength

• Companies whose shares rise in the stock exchange command higher bargaining power in the event of further expansion, merger or amalgamation.

C. Benefits to Investors

i. Liquidity

• Stock exchange helps an investors to convert his shares into cash quickly and thus increases the liquidity of his investments.

ii. Investor protection

• The stock exchange safeguards, investor’s interest and ensures fair dealing by strictly enforcing its rules and regulations.

iii. Assessing real worth of security

• An investor can easily assess the real worth of securities in his hands, as market quotations are published daily in the newspapers and in websites.

iv. Mechanism to trade security

• Stock Exchange provides a mechanism by which purchase and sale of listed securities take place in a matter of few minutes.