12th SP Chapter 12 Solutions (Stock Exchange) – Maharashtra Board – Free Solution

12th SP Chapter 12 Solutions

Chapter 12 – Stock Exchange


Q.1 A) Select the correct answer from the options given below and rewrite the statements.

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

a) gold 

b) securities 

c) goods


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

a) BSE 

b) NSE 

c) OTCEI


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

a) Jobber 

b) Broker 

c) Bull


4) A _____ who expects fall in price of a security.

a) bull 

b) bear 

c) jobber


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

a) insider trading 

b) day trading 

c) auction


Q.1 B) 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.


Answers.  

a. 4) To protect the interest of investors in securities market.

b. 3) Buying and selling of securities within the same trading day.

c. 1) Expects the price of shares rise in future.

d. 2) Expects the price of shares fall in future.

e. 6) One of the oldest stock exchange in India.


Q.1 C) Write a word or a term or a phrase that can substitute each of the following statements.

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

Ans: Share Market

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

Ans: Bombay Stock Exchange

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

Ans: Jobber

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

Ans: Bull


Q.1 D) State whether the following statements are true or false.

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

Ans: True

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

Ans: True

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

Ans: False

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

Ans: False


Q.1 E) Complete the sentences.

1) The oldest Stock Exchange in India is the Bomaby Stock Exchange.

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

3) 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 Bear.

Q.1 F) Select the correct option from the bracket.

I)

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)


Answer: 

Group A

Group B

a) Regulator of capital market

1) SEBI

b) Index of NSE

2) Nifty

c) Jobber

3) Trades in securities in his own name

d) London Stock Exchange

4) Oldest Stock Exchange in the world.


Q.1 G) Answer in one sentence.

1) What is Stock Exchange?

Answer: Stock exchange is a specific place where trading of the securities is arranged in an organized manner.

2) Who is Broker?

Answer: He is a member of a stock exchange who is licensed by stock exchange to buy or sell shares on his client’s behalf.

3) Who is Jobber?

Answer: A Jobber is a dealer in stock exchange who carries on trading of securities in his own name.

4) Who is Bull?

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

5) Who is Bear?

Answer: A bear is a speculator who expects fall in the price of a security.

6) Who is Lame Duck?

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

7) What is Trading Ring?

Answer: 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?

Answer: It is the Index of the BSE which represents the increase or decrease in prices of stocks of selected group of companies. Sensitive Index called as Sensex is made up of 30 largest and actively traded stocks of listed companies.

9) What is Rally?

Answer: If the Sensex or Nifty moves in upward direction over a period of 14 to 20 trading sessions, it is called as a Rally. Bulls are active during the market rally.

10) What is Crash?

Answer: If the Sensex or Nifty moves in downward direction, it is called as a crash. Bears are active during this period.

Q.1 H) Correct the underlined word/s and rewrite the following sentences.

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

Answer: Investors 

2) A Broker cannot directly deal with investors.

Answer: Jobber

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

Answer: Bull

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

Answer: Stag 

5) A stock market is an important constituent of money market.

Answer: Capital

Q.2 Explain the following terms/concepts.

1) Stock exchange

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

b) The term securities include equity shares, preference shares, debentures, government securities and bonds, etc. including units of Mutual Funds.

c) Stock markets act as intermediary between investors and borrowers.

d) According to the Securities Contracts (Regulation) Act 1956, the term stock exchange is defined as, “An association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities.”

2) Broker

Answer: a) He is a member of a stock exchange who is licensed by stock exchange to buy or sell shares on his client’s behalf.

b) He is an agent between the investors and Jobber.

c) His income is in the form of commission or brokerage.

3) Jobber

Answer: a) A Jobber is a dealer in stock exchange who carries on trading of securities in his own name.

b) He buys securities as an owner and sells them at a higher price.

c) The profit he makes is his income.

d) He is a professional speculator in the stock exchange. He is not permitted to deal with investors directly.

4) Bull

Answer: a) A Bull is a speculator who expects the price of a share to rise in the future and buys with the hope of selling them at higher prices to earn profit.

b) His views are optimistic.

c) Bulls actions leads to higher prices for securities as there is excess of purchase over sales.

5) Bear

Answer: a) A bear is a speculator who expects a fall in the price of a security.

b) He sells his securities at the prevailing prices to avoid loss as he expects further fall in prices.

c) Bears action leads to lowering the prices of securities as there is excess of sales over purchase.

6) Contract Note

Answer: a) It is a note given by a broker to his client. It will be in a specific form.

b) It validates the transaction. Both the broker and the client will have one copy each immediately after the transaction within 24 hours.

Q.3 Study the following case/situation and express your opinion.

1) 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.

a) BDl bank wants to offer DP services. Whom should they approach for registering as DP ?

Answer: BDI Bank should approach to SEBI for registering as DP.

b) KM Financial wants to offer Debenture Trustee services. Where should they apply for getting registered?

Answer: KM Financial which wants to offer Debenture Trustee services should apply to SEBI for getting registered.

c) TT Ltd. Co. wants to issue an IPO. Should it get itself registered with SEBI?

Answer: Yes, TT Ltd. Co. who wants to issue an IPO should get itself registered with SEBI.

2) Mr. P has 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 :

a) Does a Company need to be listed on a stock exchange to sell its securities through the stock exchange.

Answer:Yes, a Company need to be listed on a stock exchange to sell its securities through the stock exchange.

b) What is the term used for referring to a stock exchange’s ability to reflect the economic conditions of a country?  

Answer: The term Economic Barometer used for referring to a stock exchange’s ability to reflect the economic conditions of a country.

c) What is the term which refers to the functions of stock exchange as a provider of ready market for sale and purchase of security?

Answer: The term Liquidity refers to the functions of stock exchange as a provider of ready market for sale and purchase of security.


Q.4 Distinguish between the following.

1) Jobber and Broker.


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.


Q.5 Answer in brief.

1) State the functions of SEBI.

Answer: 

The Securities and Exchange Board of India (SEBI) is the regulator of the capital markets in India. The SEBI was established in 1992 under the Securities and Exchange Board of India Act, 1992 It has its headquarters in Mumbai and has many regional and local offices all over India.

Functions of SEBI 

SEBI was set up with the objective of promoting the securities market, protecting the interest of the investors in 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 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 stock brokers, 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 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 practice relating to securities markets.

  9. To promote investors’ education and training of intermediaries of securities market.

  10. To prohibit insider trading in securities.


2. State any four features of Stock Exchange.

Answer: Stock exchange is a specific place where various types of securities are purchased and sold. The term securities include equity shares, preference shares, debentures, government securities and bonds, etc. including units of Mutual Funds.

Features of Stock Exchange

1) Market for Securities: Stock exchange is a place where all types of corporate securities as well as securities of government and semi-government bodies are traded.

2) Second Hand Securities: Securities traded in Stock exchange are those securities which are already issued by the companies. In other words, second hand securities are bought and sold among investors in a stock exchange.

3) Listed Securities: Only securities that are listed with the stock exchange can be traded on a stock exchange. Listing of securities helps in protecting the interest of investors as companies have to strictly comply with the rules laid down by the stock exchange.

4) Organised and Regulated Market: All Listed Companies have to comply with the guidelines of SEBI. Companies will also have to function as per the rules and regulations laid down by the Stock exchange.

5) Specific Location: Stock exchange is a specific physical place where securities are traded. It is a market place where brokers and intermediaries meet to conduct dealings in securities. Today, all trading is done electronically on a stock exchange.

6) Trading only through Members: Securities in a Stock exchange can be traded only by the members of the exchange on their own behalf or through authorised brokers.


Q.6 Justify the following statements.

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

Answer:

a) The Securities and Exchange Board of India (SEBI) is the regulator of the capital markets in India.The SEBI was established in 1992 under the Securities and Exchange Board of India Act, 1992.

b) SEBI was set up with the objective of promoting the securities market, protecting the interest of the investors in securities market and to regulate the securities market.

c) 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.

d) SEBI also regulate the working of venture capital funds and collective investment schemes including mutual funds.

e) 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.

Answer: 

a) Stock markets are organised and regulated market which protects the interests of the investors.

b) In stock exchange, securities of various companies are bought and sold.

c) Investors invest in companies which give good return on investments.

d) Hence companies, too, try to invest in most productive investment projects.

e) This leads to capital formation as well as economic growth.

f) Hence, Stock exchanges work for the growth of the Indian economy


Q.7 Answer the following

1) Explain the functions of Stock Exchange.

Answer: 

According to the Securities Contracts (Regulation) Act 1956, the term stock exchange is defined as, “An association, organization or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling of business in buying, selling and dealing in securities.”

Functions of Stock Exchange

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 creditworthiness 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 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. Stock exchange is also known as a pulse of 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 stock market only the listed securities are traded. Stock exchange allows listing only after verifying the soundness of company. The companies which are listed have to operate within the strict rules and regulations laid down by the stock exchange. This ensures safety of dealing through stock exchange.

6) Liquidity: The main function of stock market is to provide ready market for sale and purchase of securities. The presence of stock market gives assurance to investors that their investment can be converted into cash whenever they want. The investors can invest in long term investment projects without any hesitation, as because of stock exchange they can convert 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 stock market. The prices of securities traded in the exchange indicates the opportunities for investments. So stock exchange facilitates allocation of investors fund to productive and profitable channels.

8) Contributes to Economic Growth: In stock exchange, securities of various companies are bought and sold. Investors invest in companies that give good returns on investments. Hence companies, too, try to invest in most productive investment projects. This leads to 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 of investment in various securities. These attractive opportunities encourage people to save more and invest in securities of corporate sector rather than investing in unproductive assets such gold, silver,

.

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