25 extra multiple-choice questions for Capital Market (12th Standard Commerce, Samacheer Kalvi), beyond the ones printed in the textbook — each with the correct option highlighted and a clear, worked explanation. Free to read in English and Tamil.
Q1
Capital market is defined in the lesson as a market for borrowing and lending of
- A. short-term funds required by the Government
- B. long-term capital funds required by business enterprisesCorrect
- C. foreign currencies required by importers
- D. near money required by commercial banks
Explanation. The lesson defines capital market as a market for borrowing and lending of long-term capital funds required by business enterprises. It is an ideal source of external finance for business.
Q2
Who defined capital market as "a complex of institutions investment and practices with established links between the demand for and supply of different types of capital gains"?
- A. Crowther
- B. Arun K. DattaCorrect
- C. Reserve Bank of India
- D. SEBI
Explanation. This definition of capital market is given by Arun K. Datta. It describes the market as a complex of institutions and practices linking the demand for and supply of different types of capital.
Q3
The primary market is also called the
- A. Old Issue Market
- B. Gilt-Edged Market
- C. New Issue MarketCorrect
- D. Over-the-Counter Market
Explanation. The primary market is a market for new issues or new financial claims, so it is also called the New Issue Market. It deals with securities issued to the public for the first time.
Q4
When an existing company offers additional securities first to its existing shareholders on a pre-emptive basis, it is called
- A. Public issue
- B. Rights issueCorrect
- C. Private placement
- D. Factoring
Explanation. In a rights issue, an existing company raising additional capital first offers the securities to its existing shareholders on a pre-emptive basis. A public issue is offered to the general public.
Q5
Selling securities privately to a small group of investors is known as
- A. Private placementCorrect
- B. Public issue
- C. Rights issue
- D. Venture capital
Explanation. Private placement is a way of selling securities privately to a small group of investors. It is one of the three ways, with public issue and rights issue, of raising capital in the primary market.
Q6
Match the following:
A. Public issue - 1. Old securities traded between investors
B. Rights issue - 2. Securities sold to a small group of investors
C. Private placement - 3. Securities sold to the general public
D. Secondary market - 4. Securities offered first to existing shareholders
- A. A-3, B-4, C-2, D-1Correct
- B. A-4, B-3, C-1, D-2
- C. A-3, B-2, C-4, D-1
- D. A-2, B-4, C-3, D-1
Explanation. Public issue is sale to the public, rights issue is an offer to existing shareholders, private placement is sale to a small group, and the secondary market trades securities already issued in the primary market.
Q7
The secondary market covers
- A. development banks and commercial banks only
- B. stock exchange and over-the-counter marketCorrect
- C. rights issue and private placement
- D. commodity market and foreign exchange market
Explanation. The secondary market is the market for old securities previously issued in the primary market. The lesson says it covers both the stock exchange and the over-the-counter market.
Q8
Which of the following statements about the capital market are correct?
1. Its dealings are done through securities like shares and debentures, so it is called the securities market.
2. The price of securities is fixed by the Government.
3. Its participants include individuals, corporates, Government and banks.
4. It is confined to certain specific locations only.
- A. 1 and 2 only
- B. 1 and 3 onlyCorrect
- C. 2 and 4 only
- D. 1, 3 and 4 only
Explanation. Statements 1 and 3 are true. Prices are set by demand and supply, not by the Government, and the capital market is not confined to specific locations, though parts are concentrated in stock exchanges.
Q9
In the evolution of the Indian capital market, the period between 1947 and 1973 marked
- A. the emergence of SEBI as a regulator
- B. the development of infrastructure for the capital marketCorrect
- C. the introduction of credit rating
- D. the setting up of NSDL
Explanation. The period 1947 to 1973 marked the development of infrastructure for the capital market, when a network of development financial institutions such as IFCI, ICICI, IDBI, UTI, SFCs and SIDCs was established.
Q10
During 1980 to 1992, which emerged as a powerful instrument of resource mobilization in the primary market?
- A. Treasury bill
- B. DebentureCorrect
- C. Commercial bill
- D. Certificate of deposit
Explanation. Between 1980 and 1992 the debenture emerged as a powerful instrument of resource mobilization in the primary market. Public sector bonds were introduced and many stock exchanges came into existence.
Q11
Which body emerged as an effective regulator of the primary and secondary markets and protects small investors?
- A. SHCIL
- B. OTCEI
- C. SEBICorrect
- D. NSDL
Explanation. SEBI emerged as an effective regulatory body for the primary and secondary markets and gives a measure of protection to small investors. New financial services such as credit rating were also introduced.
Q12
Assertion (A): The stock exchange enables companies to raise permanent capital.
Reason (R): Investors can sell their securities on the stock exchange whenever they wish, while the permanent capital with the company remains unaffected.
- A. Both A and R are true and R is the correct explanation of ACorrect
- B. Both A and R are true but R is not the correct explanation of A
- C. A is true but R is false
- D. A is false but R is true
Explanation. Investors cannot commit funds permanently but companies need permanent funds. The stock exchange resolves this by letting investors buy or sell securities while the company's capital stays intact, so R explains A.
Q13
According to the lesson, the liberalised Foreign Direct Investment (FDI) brings into the country foreign capital and also
- A. foreign technologyCorrect
- B. foreign currency notes
- C. foreign tax benefits
- D. foreign stock exchanges
Explanation. Under the function Foreign Capital, the lesson says liberalised FDI brings in not only foreign capital but also foreign technology, which is important for the economic development of the country.
Q14
Venture capital financing is a form of
- A. debt financing for old projects
- B. equity financing for new and innovative project ideasCorrect
- C. short-term financing through treasury bills
- D. financing against account receivables
Explanation. Venture capital financing is a form of equity financing designed especially for funding new and innovative project ideas. Venture funds bring high-technology projects into commercial production.
Q15
An arrangement whereby a financial institution provides financial accommodation on the basis of assignment or sale of account receivables is called
- A. Mutual fund
- B. FactoringCorrect
- C. Private placement
- D. Rights issue
Explanation. Factoring is an arrangement in which a financial institution provides finance on the basis of assignment or sale of account receivables. Factoring institutions collect book debts for and on behalf of their clients.
Q16
Canbank Factors Limited, a factoring institution operating in India, is a subsidiary of
- A. State Bank of India
- B. Canara BankCorrect
- C. IDBI
- D. LIC
Explanation. The lesson names two factoring institutions: SBI Factors and Commercial Services Private Limited, a subsidiary of State Bank of India, and Canbank Factors Limited, a subsidiary of Canara Bank.
Q17
Financial institutions that channel the savings of small investors into productive investments and give them a diversified portfolio are called
- A. Factoring institutions
- B. Mutual fundsCorrect
- C. Venture fund institutions
- D. Depositories
Explanation. Mutual funds channel the savings of small investors into productive investments, giving them a diversified portfolio and reasonable return. LIC, UTI, SBI and Canara Bank carry on mutual fund business.
Q18
The National Securities Depositories Limited (NSDL) was set up in the year
- A. 1992
- B. 1996Correct
- C. 1990
- D. 1998
Explanation. NSDL was set up in 1996 to achieve time-bound dematerialization and rematerialization of shares and to ease post-trade problems in the secondary market.
Q19
Pick the odd one out. The scripless trading system of the National Clearance and Depository System (NCDS) comprises:
- A. National Trade Comparison and Reporting System
- B. National Clearing System
- C. National Depository System
- D. National Credit Rating SystemCorrect
Explanation. The NCDS scripless trading system has three segments: the National Trade Comparison and Reporting System, the National Clearing System and the National Depository System. Credit rating is not one of them.
Q20
Which institution aims at serving as a central securities depository for transactions on stock exchanges and administers clearing functions at a national level?
- A. OTCEI
- B. SHCILCorrect
- C. NSEI
- D. SIDBI
Explanation. The Stock Holding Corporation of India Limited (SHCIL) aims to serve as a central securities depository for stock exchange transactions and also takes up the administration of clearing functions at a national level.
Q21
The foreign exchange market, the largest and most liquid market in the world, has an average traded value of more than
- A. $1 trillion per day
- B. $5 trillion per dayCorrect
- C. $5 billion per day
- D. $50 trillion per year
Explanation. The lesson describes the foreign exchange market as the largest, most liquid market in the world, with an average traded value of more than $5 trillion per day, open to any individual, company or country.
Q22
Which of the following is a soft commodity?
- A. Gold
- B. Oil
- C. CoffeeCorrect
- D. Iron
Explanation. Soft commodities are grown agricultural primary products such as wheat, cotton, coffee and sugar. Hard commodities are raw materials typically mined, such as gold, oil, rubber and iron ore.
Q23
The Gilt-Edged Market is the market for
- A. new issues of private companies
- B. Government and semi-Government securitiesCorrect
- C. hard and soft commodities
- D. futures and options
Explanation. The Gilt-Edged Market, also called the Government Securities market, deals in Government and semi-Government securities. They are stable in value, give guaranteed returns and are much sought after by banks.
Q24
Financial instruments such as futures contracts and options, whose value is derived from an underlying asset, are traded in the
- A. Commodity market
- B. Derivatives marketCorrect
- C. Gilt-edged market
- D. Primary market
Explanation. The derivatives market trades futures contracts and options used to control financial risk. These instruments derive their value from an underlying asset such as stocks, bonds, commodities, currencies or mortgages.
Q25
The prevailing market price of a security and its relative yield guide people to channel their funds into a particular company, ensuring effective use of funds in the public interest. Which function of the capital market is this?
- A. Ready and Continuous Market
- B. Proper Channelization of FundsCorrect
- C. Reliable Guide to Performance
- D. Easy Liquidity
Explanation. Under Proper Channelization of Funds, the market price and relative yield of a security guide people to invest in a particular company, which ensures effective utilisation of funds in the public interest.
