[Class 12 Business Studies Solved question Paper, AHSEC, 2018, Assam Board]
BUSINESS STUDIES SOLVED QUESTION PAPERS
AHSEC CLASS 12 BUSINESS STUDIES' 2018
BUSINESS STUDIES
Full Marks: 100
Time: 3 hours
The figures in the margin indicate full marks for the questions.
1. Answer the following questions: 1*10=10
(a) Which function of management ensures work accomplishment according to plan? 1
Ans: Controlling
(b) Give one example of policy adopted by business enterprises? 1
Ans: Example: Different business firms may follow different sales policies as stated below: “We don’t sell on credit”; “It is our policy to deal with wholesalers only.”
(c) Responsibility flows downward. (Indicate whether True or False) 1
Ans: False, Responsibility flows downward
(d) In which year NSE was established? 1
Ans: Established in 1991 but recognised in 1992.
(e) Which technique of scientific management violated the principle of ‘unity of command’? 1
Ans: Functional Foremanship
(f) A decision is taken to raise capital for long term financial needs of a company from certain sources. What is this decision called? 1
Ans: Finance Decision/Capital Structure Decision
(g) What is the other name of New Issue Market? 1
Ans: Primary Market
(h) Which is the most risky capital for a company? 1
Ans: Debt Capital
2. What is strategy? 2
Ans: Strategy: A strategy is a comprehensive plan to achieve the organisational objectives. A strategy is a plan prepared for meeting the challenge posed by the activities of competitors or some other external environmental forces.
3. What is planning premises? 2
Ans: Planning is concerned with the future, which is uncertain. Therefore, the manager is required to make certain assumptions about the future. These assumptions are called premises.
4. Write a short note on ‘return on investment’ as a modern technique of control.
Ans: Return on Investment (ROI): Investment consists of fixed assets and working capital used in business. Profit on the investment is a reward for risk taking. If the ROI is high then the financial performance of a business is good and vice-versa. ROI is a tool to improve financial performance. It helps the business to compare its present performance with that of previous years' performance.
5. Why principles of management are important? 2
Ans: Principles of Management are the statements of fundamental truth which provide guidelines which help management to take decisions and action. They are derived from observation and experimental studies.
6. Distinguish between delegation and decentralisation of authority. 2
Ans: Difference between delegation and decentralisation
Basis
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Delegation of Authority
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Decentralisation
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Meaning/Name
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Sharing of the task with the subordinate and granting authority in a prescribed limit by the superior is Delegation.
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The systematic delegation to the lowest level of management is called decentralization.
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Nature
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It becomes compulsory in all the organizations as the complete task cannot be performed by the superior.
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It becomes compulsory in the large organisations.
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7. Write three limitations of planning. 3
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ALSO READ (AHSEC ASSAM BOARD CLASS 12)
1. AHSEC CLASS 12 BUSINESS STUDIES CHAPTERWISE NOTES
2. AHSEC CLASS 12 BUSINESS STUDIES QUESTION PAPERS (FROM 2012 TILL DATE)
3. AHSEC CLASS 12 BUSINESS STUDIES SOLVED QUESTION PAPERS (FROM 2012 TILL DATE)
4. AHSEC CLASS 12 BUSINESS STUDIES IMPORTANT QUESTIONS
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Ans: Limitations of Planning:
1. Planning does not work in dynamic environment: The business environment is dynamic, nothing is constant. The environment consists of a number of dimensions— economic, political, technological, legal and social dimensions. The organisation has to constantly adapt itself to the changes in business environment. However, it is not always possible to accurately assess future trends in the environment.
2. Planning is a time consuming process: Planning is a time consuming process. It requires collection of information, its analysis and interpretation. These activities may take considerable time.
3. Planning involves huge costs: Planning is an expensive process in terms of money. When plans are drawn up, huge costs are involved in the formulation of plans. If the costs are not justified by the benefits derived from the plan, it may have adverse effect on the enterprise.
8. How does technological environment influence the working of a business? 3
Ans: Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.
9. Briefly explain three principles of directing. 3
Ans: Principles of Directing are given below:
a) Maximum Individual contribution: According to this principle, directing must help every individual employee to contribute his Best towards the achievement of organizational goal.
b) Harmony of objectives: Directing must ensure that the individual goals of employees and that of organization do not conflict with each other. Directing must aim at bringing harmony among them.
c) Follow through: Managers must continuously review whether the instructions are being understood and followed by the employees or not.
10. Explain the role of consumer organisations and NGOs in protecting the interests of consumers. 3
Ans: Functions of Consumer organisation and Non-Government Organisations (NGO):
a) Creating consumer awareness: They publish periodicals brochures journals etc for creating consumer awareness.
b) Encourage the consumer: They encourage and educate the consumer to protect against exploitative, unfair trade practice of the seller.
c) Filing complaints: They file suits, complaints, on behalf of consumer.
d) Focus on consumer problem: They arrange seminars, workshops and conference for the purpose of focusing on problem of consumer.
e) Problem legal assistance: They provide legal assistant for getting legal remedy against the damage caused to consumer.
Or
Why entrepreneurship is regarded as a creative activity? Briefly explain. 3
11. Explain the importance of consumer protection from the point of view of consumers. 3
Ans: Ans: Importance of Consumer Protection from the point of view of consumer:
a) Consumer’s ignorance: Most of the consumers are ignorant about their light and relief’s available to them. So it was essential to create awareness among consumer for their lights.
b) Unorganized consumers: Consumer are not much organized so us to protect their interest. Until their organization become strong and powerful, proper protection has to be provided.
c) Wide Spread Exploitation of Consumer: the balance sheet man through various unfair trades. Practice like loading, black-marketing, adulteration etc.
Or
Briefly explain any three functions of an entrepreneur. 3
12. Explain the techniques of scientific management. 5
Ans: Techniques of Scientific management:
a) Fatigue study: It refers to the duration and frequency of rest intervals to complete a particular job. The rest refreshes the workers. They work again with full energy and stamina. Long working hours, poor working conditions, unsuitable work can also be the causes of fatigue. It should be reduced.
b) Method study: It refers to identify the most suitable, economical way of doing a particular activity. To conduct this study, process chart, operation research technique can be used. The main objective is to minimize the cost of production and maximize the quality of the work.
c) Motion Study: Motion study is designed to eliminate unnecessary motions and to reinforce necessary motions. It is a close observation of analyzing the body movements of the worker performing the job. This study helps in analyzing that if any element of the job can be eliminated or not.
d) Time study: This study helps in determining the time required by an average skill worker to efficiently perform a particular job. Time study helps in determining the standard time for the job. This standard time is then fixed for the workers for performing the job. So, time study is used to measure precisely the time required in doing every element of a job with the purpose of deciding the fair day’s work.
e) Mental Revolution: Taylor emphasized the mutual cooperation between the workers and the management as the human element comprising of worker and management is essentially a very sensitive factor of production. The basic idea behind the mental revolution is to change the mental attitude of the workers and the management towards each other. Mental revolution requires that there should be perfect cooperation and coordination between the efforts of labour and the management.
13. How globalisation has affected business in India? Explain. 5
Ans: Impact of Government Policy Changes on Business and Industry (Significance of liberalisation and globalisation):
a) Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines.
b) More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
c) Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services.
d) Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
e) Threat from MNC Massive entry of multi-nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners
14. What is organisation structure? Write three features of divisional organisation structure. 2+3=5
Ans: Organisational structure can be called as a framework within which managerial and operational tasks are performed by various managers. It specifies the relations between people, work and resources.
When the organisation is large in size and is producing more than one type of product then activities related to one product are grouped under one department. This type of organisation is called divisional structure organisation.
Features:
1. This structure is formed on the basis of product.
2. This type of structure brings product specialisations.
3. It is suitable for multiproducts or diversified firms.
15. Explain five non-financial incentives which motive the employees of an organisation. 5
Ans: Non-financial incentives are:
(a) Job Enrichment: It is a method of motivating employee by making the task to be performed by him more interesting and challenging. The job in itself serves as a source of motivation to the employee and brings out the best in him.
(b) Suggestion System: It is a system where suggestions regarding the work procedure, environments are solicited from employees. This increase their participation & importance in the working of the enterprise and hence motivates them.
(c) Job security: Job Security refers to making the employee feel safe in his job positions. He is not threatened by transfers or removal from service and hence performs to the best of his abilities.
(d) Career advancement: Managers must provide promotional opportunities to employees. Whenever there are promotional opportunities employees improve their skill and efficiency with the hope that they will be promoted to higher level.
(e) Status: By offering higher status or rank in the organisation managers can motivate employees having self-actualization need in them.
Or
Explain the elements of directing. 5
Ans: Four Elements of directing are Supervision, leadership, Motivation and communication:
a) Supervision means instructing, guiding, monitoring and observing the employees while they are performing jobs in the organisation. The word supervision is the combination of two words i.e., super+vision where super means over and above and vision means seeing.
b) Leadership means influencing the behaviour of the people at work towards realising the specified goals. It is the ability to use non-coercive (no force) influence on the motivation, activities and goals of others in order to achieve the objectives of the organisation.
c) Motivation is a process of stimulating people to action to achieve desired goal. It is psychological term. It comes automatically from inside the employees as it is the willingness to do the work.
d) Communication means exchange of messages between two or more persons. These messages could mean idea, opinions, facts, information, instructions and anything that conveys a meaning. These may be conveyed in words, pictures, and actions or gestures.
In the words of Newman, Summer & Warren, “communication is an exchange of facts, ideas, and opinions by two or more persons.”
16. Analyse the relationship between planning and controlling. 5
Ans: The relationship between planning and controlling can be divided into the following two parts.
(i) Interdependence between Planning and Controlling.
(ii) Difference between Planning and Controlling.
(i) Interdependence between Planning and Controlling. Planning is meaningless without controlling and controlling is blind without Planning. Both the aspects of the interdependence of planning and control have been discussed below:
(a) Planning is meaningless without Controlling: if the process of controlling is taken away from management no person working in the enterprise will take it seriously to work according to the plans and consequently, the plans will fail.
(b) Controlling is blind without Planning: Under the system of controlling actual work performance is compared with the standards. Hence, if the standards are not determined there is no justification left for control and the standards are determined under planning.
(ii) Difference between Planning and Controlling: Yes, planning and controlling are incomplete and ineffective without each other but it doesn’t mean that both are not independent. Reasons are:
(a) Planning is looking Ahead whereas Controlling is Looking Back: Plans are always formulated for future and determined the future course of action for the achievement of objectives laid down. On the contrary, controlling is looking back because under it a manager tries to find out, after the work is completed, whether it has been done according to the standards or not.
(b) Planning is the first function and Controlling is the last function of Managerial Process: the managerial process moves in a definite sequence- like planning, organizing, staffing, directing and controlling happens to be the last step.
17. What is publicity? Distinguish between advertising and publicity. 2+3=5
Ans: The activity of providing information about an entity, i.e. a product, an individual or a company to make it popular is known as Publicity. From a marketing perspective, publicity is one component of promotion and marketing.
Difference between advertising and publicity
Basis
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Advertising
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Publicity
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Given by
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It is done by company and its representative.
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It is done by third party.
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Cost
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It is a paid form of communication.
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It is unpaid form of communication.
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Credibility and reliability
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Credibility and reliability is more as compared to publicity.
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Credibility and reliability is less.
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Control
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There is complete control over advertisement.
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There is no control over publicity.
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18. Explain the functions of marketing. 5
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ALSO READ: AHSEC CLASS 12 BUSINESS STUDIES SOLVED QUESTION PAPERS
BUSINESS STUDIES SOLVED QUESTION PAPERS 2012
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Ans: Functions of Marketing / Marketing activities
a) Marketing research : Gathering and analysing marketing information i.e. what the customers want to buy, when they are likely to buy in what quantities do they buy, from where do they buy etc.
b) Marketing planning: Specific plan for increasing the level of production, promotion of the products etc and specify the action programmes to achieve these objectives.
c) Product designing and development; Marketer must take decision like, what-product? Which model / size? Brand name? Packaged? Quality level? So that customer needs are satisfied.
d) Buying & assembling: e.g. car. Raw material like steel, tyres, batteries, seats, stearing wheels etc are bought & then assembled in the form of a complete product.
e) Packing / labeling: designing the package & labeling.
f) Branding: Creating a distinct identity of the product from that of competitors e.g. Videocon washing machine.
Or
Explain five advantages of packaging. 5
Ans: Ans: Packaging: It refers to the group of those activities which are related with the designing and production of the containers in which the product are packet.
Functions of Packaging
1. Product Identification: Packaging help in identification of the product.
2. Product Protection: The main function of the packing is to provide protection to the product from dirt, insect and breakage.
3. Convenience: It provides convenience in carriage, stocking and in consuming.
4. Product Promotion: Packaging simplifies the work of sales promotion.
5. Product Differentiation: Packaging is helpful in creating product differentiation. The colour, material and size of package makes differences in the perception of the buyers about the quality of the product.
19. Discuss the functions of management. 8
Ans: Functions/Elements of Management: According to Henry Fayol, in every organization manager perform certain functions to achieve results. These functions are broadly classified under five categories:-
a) Planning: - Planning is a process of making decision about future. It provides direction to enterprise activities. Its work is to decide in advance what is to be done, when and where it is to be done, how it is to be done and by whom. The main functions of planning are Set up goals, Forecasting, Search for alternatives source of action and Budgeting.
b) Organizing: - It is concerned with the arrangement of an organization’s resources – people, material, technology and finances in order to achieve enterprise objective. The main functions of organizing are Job design, Job specification and Authority and responsibility.
c) Staffing: - Staffing is the function of employing suitable personas for the enterprise. It may be defined as an activity where people are recruited, selected, trained, developed, motivated and compensated for manning various positions.
d) Directing: - According to Dale, direction is telling people what to do and seeing that they do it to the best of their ability. Directing is a function of guiding and supervising the activities of sub ordinates. The four main elements of directing are:
1. Leadership: - It is a process of influencing the action of a person or a group to attain desired objectives. The success of an organization depends upon the quality of leadership shown by its managers.
2. Motivation: - It is the process of stimulating people to take desired courses of action. It is to inspire, encourage and impel people to take required action.
3. Communication: - It is a way of reaching other with ideas, facts, and thoughts. Effective communication is important in organization because managers Can achieve very little without it.
e) Controlling: - It is the management function concerned with monitoring employee’s activities, keeping the organization on track towards its goals, and making corrections as required. It include four things:
Ø setting standard of performance;
Ø measuring actual performance;
Ø comparing actual performance against the standard ;
Ø taking corrective actions to ensure goal accomplishment.
Or
What is a level of management? Explain the functions of lower level management. 3+5=8
Ans: The term “Levels of Management’ refers to line of differentiation amongst various managerial positions in an organization. The number of levels in management increases as and when the size of business increases and vice-versa. The levels of management can be categories into three parts:
a) Lower level Management: Low level management is considered as operative management. The first line/operative or low level management includes supervisors, foreman and Inspectors. They are a link between middle level management and workers.
b) Middle level Management: Middle management consists of departmental heads and other executive officers of different departments. They execute the policies framed by the top management. They are a link between the top management and supervisory or lower level of management.
c) Top Level Management: Top management is the 3rd line of management, which consists of Chairman, Directors, Managing Director, General Manager and other top-level executives required to achieve the goals of the enterprise. For example: Mr. Hazarika has retired as the managing director of a manufacturing company. He is said to be working at top level of management.
Functions of Lower level of Management
a) Representing the problems of workers: They represent the workers’ grievances before the middle level management.
b) Looking to safety of workers: Lower level managers provides safe and secure work environment for workers.
c) Control of workers: They assign duties to workers and guide them in handling their jobs efficiently.
d) Helps in controlling wastage of materials: They prevent wastage of materials by negligent workers which helps in reducing cost.
e) Ensuring quality standards by the workers: They try to maintain precise standard of quality and ensure steady flow of output.
20. What is training? Explain any six off-the-job training methods followed by the organisations. 2+6=8
Ans: Training: Training means equipping the employees with the required skill to perform the job. The candidates are sent for training so that they can perform the job in the expected manner. It helps in developing positive attitude of the employees towards the organisation and motivates them to take the initiative.
Off-the-job training: Off-the-job training means training the employees by taking them away from their work position which means employees are given a break from the job and sent for training. This method of training is more suitable for managerial job positions as conferences, seminars are held to train the managers.
Methods of Job Training:
a) Conferences/class room lectures: It is a highly structured way to convey a message or specific information with the help of audio-visual aids formal classroom sessions of training can be made more interesting.
b) Vestibule School: Vestibule school means duplicate model of organization. Generally when the expensive and delicate machineries are involved then employers avoid using on-the-job methods of training. A dummy model of machinery is prepared and instead of using original machinery employees are trained on dummy model.
c) Films: Showing films is also a very effective method in certain cases. Films can give important information on various techniques through demonstrative skill.
d) Case Study: Under this method managers discuss real problems that they have faced and trainees are asked to give their suggestions and alternatives to solve that problem. Case study helps the trainees to decision under real work situation.
e) Computer Modeling: Under this method a computer is programmed to show real problems of job and how to overcome such problems. In this method the employees can learn a lot without incurring much cost.
f) Programmed instructions: Under this method a learning package s prepared to give general instructions and specific skills. This information is broken into sequence of meaningful units.
Or
Explain the importance of staffing. Distinguish between recruitment and selection. 5+3=8
Ans: Meaning: It is the process of management which is concerned with obtaining and maintaining a satisfactory and satisfied work force. It involves finding the right person for the right job having the right qualification, doing the right job at the right time.
In the words of French Wendell, “Staffing or Human resource management is the recruitment, selection, utilisation and motivation of human resource of the organisation”.
Need and Importance of Staffing:
1. Obtaining competent personnel: Proper staffing helps in discovering and obtaining competent personnel for various jobs.
2. Higher performance: Proper staffing ensures higher performance by putting right person on the right job.
3. Continuous survival and growth: Proper staffing ensures continuous survival and growth of the enterprise, research & development, innovation.
4. Optimum utilization of human resources: Proper staffing helps to ensure optimum utilization of human resources. It prevents underutilisation of personnel and high labour costs. At the same time, it avoids disruption of work.
5. Improve job satisfaction: Proper staffing improves job satisfaction and morale of employee through objective assessment and fair rewarding of their contribution.
Difference between Recruitment and Selection
Basis
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Recruitment
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Selection
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a) Meaning
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It is the process of searching and Motivating candidates to apply for Job.
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It is that process of staffing which rejects the unsuitable candidates and choose the suitable candidates.
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b) Purpose
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The basic purpose is to create a large pool of applicants for the jobs.
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The basic purpose is to eliminate as many candidates as possible until the most suitable candidates get finalized.
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c) Scope
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Recruitment is restricted to the extent of receipt of application.
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Selection includes sorting of the candidates.
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d) Positive /Negative process
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Recruitment is a positive process. As more and more applicant are sought to be attracted.
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Selection is a negative process as more applicants are rejected than selected.
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e) Criteria
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It gives freedom to applicants. Any one is free to apply.
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It gives very little freedom to applicants. Applicants must meet the selection criteria.
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21. Explain the importance and objectives of financial planning. 5+3=8
Financial Planning is the process of estimating the capital required and determining its composition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. In simple words, it refers to determination of firm’s financial objectives, financial policies and financial procedure.
Objectives of Financial Planning: Financial planning is done to achieve the following two objectives:
1. To ensure availability of funds whenever these are required: The main objective of financial planning is that sufficient fund should be available in the company for different purposes. It ensures timely availability of finance.
2. To see that firm does not raise resources unnecessarily: Excess funding is as bad as inadequate or shortage of funds. If there is surplus money, financial planning must invest it in the best possible manner.
Importance and functions of Financial Planning
Financial Planning is required to avoid shortage or surplus of finance. It is important because:
a) It facilitates collection of optimum funds: The financial planning estimates the precise requirement of funds which means to avoid wastage and over-capitalisation situation.
b) Basis for financial control: Financial planning helps in setting up standard performance and thereafter it is compared with the actual performance. The deviations, if any are analysed, Causes found out and corrective action is taken.
c) Link between investment and financing decisions: Financial planning helps in deciding debt/equity ratio and by deciding where to invest this fund. It creates a link between both the decisions.
d) Helps in investing finance in right projects: Financial plan suggests how the funds are to be allocated for various purposes by comparing various investments proposals. Selecting right projects is the key of success for any organisation.
e) Helps in coordination of various business activities: It helps in coordinating the various business activities such as sales, purchases, production, finance etc.
Or
Distinguish between fixed and working capital. Explain the factors that determine the amount of fixed capital needs. 3+5=8
Ans: The difference between fixed capital and working capital is as follows:
a) Purpose: Fixed capital is used to buy fixed assets like land and building whereas Working capital is used to carry out day to day operations.
b) Assets included: Fixed capital consists of land, building, tools, machines etc. whereas Working capital consists of cash, marketable securities, accounts receivable, stock etc.
c) Time period: Fixed capital includes long term financial decisions whereas Working capital includes short term financing decisions.
d) Activities: Fixed capital is mainly required for operational activities whereas Working capital is required for trading activities.
e) Calculation: Fixed capital is calculated by deducting long term liabilities from total fixed assets whereas working capital is calculated by deducting current liabilities from current assets.
Fixed capital refers to the capital which is used for the purchase of fixed assets, such as land, building, machinery etc. Managing fixed capital is related to investment decision and it is also called capital budgeting. The capital budgeting decision affects the growth and profitability of the company.
Following factors are to be considered before determining its requirement:
1. Scale of operations: There is a direct link between the scale of business and fixed capital. Larger business needs more fixed capital as compared to the small organizations.
2. Nature of Business: If a firm is a manufacturing fir, it requires to purchase fixed assets for the production process. It needs investment in fixed assets, so require more fixed capital. Similarly if it is a Trading firm where the finished goods are only traded i.e. purchased and sold, it needs less fixed capital.
3. Choice of technique: The Manufacturing firm using the modern, latest technology machines has to invest more funds in the fixed assets, so they require more fixed capital. On the other hand, firms using the traditional method of production where the task is performed manually by the labourers, it requires less fixed capital.
4. Diversification: There are few firms and organizations who deal in a single product. These investments in fixed assets is low, whereas the firms dealing in number of products (Diversification) requires more investment in purchasing different fixed assets, it requires more fixed capital.
5. Financing alternatives: If the manufacturing firm actually buys the assets and blocks huge funds in the fixed assets, it requires more fixed capital.
22. What is SEBI? Discuss its functions. 2+6=8
Ans: The Securities and Exchange Board of India (SEBI) is a regulatory body under the government of India that regulates the securities market. Ans: It was established in 1988 but was given statutory status in 1992. Its head office is located in Mumbai.
Functions of SEBI are divided into three categories:
A. Regulatory Functions of SEBI:
a) To check unfair trade practices such as to supply misleading statement to the public, price rigging.
b) To check insider trading in securities. Insider trading means the buying and selling of the securities by those persons (Directors, promoters) who have some secret information of the company and wish to take advantage of it. It hurts the interest of the common man.
c) To provide education to the investors so as to protect them from being exploited by unfair means: or unhealthy activities of the intermediaries.
d) To promote code of conduct relating to the security market (for the companies, stock exchange and intermediaries)
e) To regulate takeover bids of companies.
B. Development functions of SEBI: These functions are performed by the SEBI to promote and develop activities in stock exchange and increase the business in stock exchange. Under developmental categories following functions are performed by SEBI:
(i) SEBI promotes training of intermediaries of the securities market.
(ii) SEBI tries to promote activities of stock exchange by adopting flexible and adoptable approach in following way:
(a) SEBI has permitted internet trading through registered stock brokers.
(b) SEBI has made underwriting optional to reduce the cost of issue.
(c) Even initial public offer of primary market is permitted through stock exchange.
C. Protective functions of SEBI
a) It checks price rigging.
b) It prohibits insider trading.
c) It prohibits fraudulent and unfair trade practices.
d) It educates investors.
Or
Distinguish between money market and capital market. Explain the features of money market. 3+5=8
Ans: Difference between capital market and money market
Basis of Distinction
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Capital Market
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Money Market
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1) Meaning
|
The market dealing in long-term funds is known as capital market.
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The market dealing in short-term funds in known as money market.
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2) Constituents
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These include new issue market, stock market, stock brokers and intermediaries.
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These include call money market, bill market and discounting market.
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3) Participants
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Individual and institutional investors operate in the capital market.
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Only the institutional investors operate in the money market.
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4) Amount of funds
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Capital market arranges large amount of funds.
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Money market arranges comparatively small amount of funds.
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5) Instruments
|
The instruments in the capital market include shares debentures bonds etc.
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Trade bills T-bills, certificate of deposits; commercial papers etc. are the instruments of money market.
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Features of Money Market:
a) Market for short term: It is a market for short term funds. Call money, notice money, repos, term money, treasury bills, commercial bills, certificate of deposits, commercial papers are the instruments of money market.
b) Participants: It constitutes all organisations and institutions which deal with short term debts such as banks, RBI, mutual funds etc. Only the institutional investors operate in the money market. Individuals investors are not allowed to participate in money market.
c) No fixed geographical area: It has no fixed geographical location. Activities in the money market tend to concentrate in some centre, which serves a region or an area.
d) Risk and return: Investments in money market are safe as funds are invested in the instruments issued by commercial banks and highly rated companies. But the the yield on investments is comparatively lower as compared to capital market.
e) Liquidity: The instruments of money market have very high degree of liquidity. Investments can be liquidated as and when necessary.
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