Class 12 Business Studies - Chapter Financial Markets NCERT Solutions | Explain the recent Capital Market reform
Explain the recent Capital Market reforms in India.
Capital market is a market for medium and long-term funds. This market facilitates the institutional arrangements through which long-term funds, both debt and equity are raised and invested. The capital market consists of development banks, commercial banks and stock exchanges. An ideal capital market is one, where finance is available at a reasonable cost. The process of economic development is facilitated by the existence of a well functioning capital market. There are two types of capital market Primary Market and Secondary Market. Primary market facilitates capital formation in the economy by Channelising public saving into productive investments. And secondary market is also known as the stock market or stock exchange. In this market, securities are not directly issued by the company to investors but it is sold by existing investor to other investors. It provides liquidity and marketability to existing securities.
The history of stock market in India goes back to the end of the eighteenth century when long-term negotiable securities were first issued. In 1850 the Companies Act was introduced for the first time bringing with it the feature of limited liability and generating investor interest in corporate securities. The first stock-exchange in India was set-up in 1875 as The Native Share and Stock Brokers Association in Bombay. Today it is known as the Bombay Stock Exchange (BSE). This was followed by the development of exchanges in Ahmedabad (1894), Calcutta (1908) and Madras (1937). It is interesting to note that stock exchanges were first set up in major centers of trade and commerce.
Until the early 1990s, the Indian secondary market comprised regional stock exchanges with BSE heading the list. After the reforms of 1991, the Indian Secondary market acquired a three tier form. This consists of:
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Regional Stock Exchange: There are 21 Regional Stock Exchange (RSE). The first Regional Stock Exchange was Ahmedabad Stock Exchange (ASE) that came into existence in 1894. Next the Calcutta Stock Exchange (CSE) came into existence in 1908. In early sixties, there were only few recognised RSEs that are Calcutta, Madras, Ahmedabad, Delhi, Hyderabad and Indore. The latest stock exchange is Coimbatore Stock Exchange and Meerut Stock Exchange.
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National Stock Exchange: The National Stock Exchange is the latest, most modern and technology driven exchange. It was incorporated in 1992 and was recognised as a stock exchange in April 1993. It started operations in 1994, with trading on the wholesale debt market segment. The NSE was set up by leading financial institutions, banks, insurance companies and other financial intermediaries.
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Over the Counter Exchange of India (OTCEI): Over The Counter Exchange of India (OTCEI) was incorporated in 1990 under the companies act 1956 and it was recognised as a stock exchange under the Securities Contracts Regulation Act, 1956. It started its operations in the year 1992 and it is modeled along the lines of NASDAQ, which is OTC Exchange in USA. And the objective of OTCEI was to provide easy access to the capital market to the small and medium companies. OTCEI is a fully computerized and single window exchange system.
More Questions From Class 12 Business Studies - Chapter Financial Markets
- Q:-
India’s largest domestic investor Life Insurance Corporation of India has once again come to government’s rescue by subscribing 70% of Hindustan Aeronautics’ ₹4,200-crore initial public offering.
a. Which market is being reflected in the above case?
b. State which method of floatation in the above identified market is being highlighted in the case? (Primary Market)
c. Explain any two other methods of floatation. (Private Placement, Offer through prospectus, offer for sale). - Q:-
Explain the objectives and functions of the SEBI.
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What is the common name for Beneficiary Owner Account, which is to be opened by the investors for trading in securities?
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State any two reasons why investing public can expect a safe and fair deal in the stock market. (Point w.r.t safety of Transactions – Functions of the Stock Exchange).
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Lalita wants to buy shares of Akbar Enterprises, through her broker Kushvinder. She has a Demat Account and a bank account for cash transactions in the securities market. Discuss the subsequent steps involved in the screen-based trading for buying and selling of securities in this case.
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Name the document prepared in the process of online trading of securities that is legally enforceable and helps to settle disputes/claims between the investor and the broker.
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“Money Market is essentially a Market for short term funds.” Discuss.
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State the objective of NSE?
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Name any two details that need to be provided by the investor to the broker while filling a client registration form.
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Distinguish between Capital Market and Money Market.
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