Q.(a)

Showing the 12 most recent of 31 on this concept.

1. CBSE 2026Set 66/1/11 markMCQ
   Q.Read the following statements – Assertion (A) and Reason (R) : Assertion (A) : Money market instruments have a higher degree of liquidity as compared to capital market securities. Reason (R) : Money market instruments are traded on the stock exchanges. Choose the correct alternative from the alternatives given below : (A) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A). (B) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A). (C) Assertion (A) is true and Reason (R) is false. (D) Assertion (A) is false and Reason (R) is true.

   ›Reveal solutionSolution

   Assertion (A) is true because money market instruments are short-term and highly liquid, but Reason (R) is false because they are traded over-the-counter, not on stock exchanges.

   To understand the given statements, we must first grasp the fundamental distinction between the money market and the capital market within the broader financial system. Financial markets serve as crucial intermediaries, channeling savings from those who have surplus funds to those who need them for investment. They are broadly categorized based on the maturity period of the financial assets traded.

   The money market is a market for short-term funds, typically dealing with financial assets that have a maturity period of up to one year. These instruments are characterized by their high liquidity, meaning they can be easily converted into cash with minimal risk of loss. Examples include Treasury Bills, Commercial Paper, Call Money, Certificates of Deposit, and Commercial Bills. The primary participants in this market are large financial institutions, banks, and the government, dealing in large volumes.

   In contrast, the capital market deals with long-term funds, involving financial assets with a maturity period exceeding one year. This market facilitates the raising of long-term capital by companies and governments. Instruments here include shares, debentures, and bonds. While these securities can also be liquid, their prices are subject to greater fluctuations, and the process of converting them to cash might involve more price risk compared to money market instruments.

   Now, let's evaluate the given statements:

   Assertion (A): "Money market instruments have a higher degree of liquidity as compared to capital market securities."

   This statement is true. Money market instruments are designed for short-term borrowing and lending, and their very nature ensures high liquidity. They are typically issued for short durations (e.g., 91 days, 182 days, 364 days for Treasury Bills) and have a ready market for resale, allowing investors to convert them into cash quickly and with little to no loss in value. Capital market securities, while often tradable, are inherently long-term investments, and their market prices can fluctuate significantly, introducing more risk when converting them to cash before their full maturity.

   Important

   The defining characteristic of money market instruments is their short maturity period and high liquidity, making them close substitutes for money. …

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2. CBSE 2026Set 66/1/11 markMCQ
   Q.‘Certain provisions of the Companies Act place restrictions on payouts as dividend. Such provisions must be adhered to while declaring the dividend.’ The factor affecting dividend decision discussed above is : (A) Access to capital market (B) Contractual constraints (C) Legal constraints (D) Stock market reaction

   ›Reveal solutionSolution

   The question asks which factor affecting dividend decisions is described by the requirement to follow Companies Act provisions. The correct answer is Legal constraints, as the Act imposes mandatory rules on dividend payouts.

   The key here is to distinguish between different constraints that influence a company’s dividend policy. The statement explicitly mentions “provisions of the Companies Act” — that is a direct reference to law. When a company must follow statutory rules to declare dividends, it is facing legal constraints, not market-based or contractual ones.

   Let’s break down the options:

   1. Access to capital market — This refers to a company’s ability to raise funds externally (e.g., through equity or debt). If a company has easy access to capital, it may pay higher dividends because it can fund investments later. But the statement is about legal rules, not market conditions.

   2. Contractual constraints — These arise from agreements with lenders or investors, such as loan covenants that restrict dividend payments to protect creditors. The Companies Act is a statute, not a contract, so this doesn’t fit.

   3. Legal constraints — This is exactly what the description says: the Companies Act places restrictions on dividend payouts. Companies must comply with these legal provisions, such as ensuring dividends are paid only out of profits, after meeting certain conditions. This is a mandatory, external rule. …

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3. CBSE 2026Set 66/2/11 markMCQ
   Q.There are two statements, Assertion (A) and Reason (R). Assertion (A) : The dividend in growth companies is more than that in the non-growth companies. Reason (R) : Companies having good growth opportunities retain more money out of their earnings so as to finance the required investment. Choose the correct alternative from those given below : (A) Assertion (A) is false and Reason (R) is true. (B) Both Assertion (A) and Reason (R) are false. (C) Assertion (A) is true and Reason (R) is false. (D) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).

   ›Reveal solutionSolution

   The assertion is false because growth companies typically pay lower dividends, not higher; the reason is true because growth companies do retain more earnings to fund expansion.

   Let’s think about what the question is really asking. It’s testing your understanding of how dividend policy connects to a company’s growth stage. In the world of finance, companies are not all the same — some are young and expanding fast, others are mature and stable. Their dividend behaviour reflects that.

   Assertion (A) says: “The dividend in growth companies is more than that in the non-growth companies.” This sounds plausible at first — after all, if a company is growing, it must be making more profit, so surely it can pay more dividend, right? But that’s not how it works in practice. Growth companies are typically in an expansion phase. They need large amounts of cash to invest in new projects, buy equipment, hire talent, or enter new markets. Paying out a high dividend would drain that cash. So instead, they usually pay little or no dividend. Non-growth companies — often called “mature” or “stable” companies — have fewer investment opportunities. They generate steady profits but don’t need to reinvest as much. So they tend to distribute a larger portion of their earnings as dividends. Therefore, Assertion (A) is false.

   Note

   Think of a fast-growing tech startup versus an old utility company. The startup reinvests every rupee to grow; the utility pays regular dividends because it has nowhere better to put the cash. …

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4. CBSE 2026Set 66/3/11 markMCQ
   Q.________ serves as an intermediary between the investor and the depository who is authorised to maintain the accounts of dematerialised shares. (A) Depository Participant (B) National Securities Depository Limited (C) Central Depository Services Limited (D) Stock Exchange

   ›Reveal solutionSolution

   A Depository Participant acts as the bridge between individual investors and the depository, handling the actual maintenance of demat accounts.

   When shares moved from physical certificates to electronic form—a process called dematerialisation—India needed a robust infrastructure to hold and transfer these digital securities safely. Two depositories were established for this purpose: the National Securities Depository Limited (NSDL) in 1996 and the Central Depository Services Limited (CDSL) in 1999. These depositories function much like banks hold money, except they hold securities in electronic form.

   But here's the practical challenge: a depository cannot directly serve millions of individual investors scattered across the country. Imagine if the Reserve Bank of India had to open a savings account for every citizen personally—it would be impossible. The solution lies in intermediaries.

   This is where Depository Participants come in. They are the authorised agents of the depository—banks, stockbrokers, financial institutions—who have been granted permission to offer depository services to investors. When you want to open a demat account, you don't approach NSDL or CDSL directly; you walk into a bank branch or contact a broker who is registered as a Depository Participant. They maintain your account, process your buy and sell instructions, handle corporate actions like bonus shares or dividends, and keep your holdings updated. …

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5. CBSE 2025Set 66/1/11 markMCQ
   Q.Which of the following is not a protective function of Securities and Exchange Board of India : (A) Prohibition of fraudulent and unfair trade practices. (B) Controlling insider trading and imposing penalties for such practices. (C) Promotion of fair practices and code of conduct in securities market. (D) Undertaking measures to develop the capital markets by adapting a flexible approach.

   ›Reveal solutionSolution

   The Securities and Exchange Board of India (SEBI) performs three broad categories of functions: protective, regulatory, and developmental. The question asks you to identify which of the four listed options does not belong to the protective category.

   To answer this correctly, you first need a clear picture of what SEBI’s protective functions actually aim to do. Think of them as the watchdog’s shield for investors — they are designed to prevent harm, stop exploitation, and ensure that no one in the market cheats or misleads others. Protective functions are essentially about safeguarding the interests of investors by banning unfair practices.

   Now look at the options one by one.

   Option (A) — Prohibition of fraudulent and unfair trade practices — is a textbook protective function. SEBI explicitly works to stop practices like price rigging, misleading statements, and other forms of market manipulation. This is about preventing direct harm to investors.

   Option (B) — Controlling insider trading and imposing penalties for such practices — is also a classic protective function. Insider trading (trading based on unpublished price-sensitive information) is one of the most serious threats to market fairness. SEBI’s power to investigate and penalise insiders is a core protective measure.

   Option (C) — Promotion of fair practices and code of conduct in securities market — again falls squarely under protective functions. By laying down a code of conduct for intermediaries (like brokers, sub-brokers, and merchant bankers), SEBI ensures that market participants behave ethically. This protects investors from being misled or mistreated.

   Note

   All three of the above — (A), (B), and (C) — are explicitly listed as protective functions in the NCERT textbook for Class XII Business Studies (Chapter 10: Financial Markets). They form the core of SEBI’s investor-protection mandate. …

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6. CBSE 2025Set 66/1/11 markMCQ
   Q.Statement – I : Regulation of takeover bids by companies is one of the Regulatory functions of Securities and Exchange Board of India. Statement – II : Training of intermediaries of securities market is one of the Development functions of Securities and Exchange Board of India. Choose the correct option from the following : (A) Statement I is correct and Statement II is incorrect. (B) Statement II is correct and Statement I is incorrect. (C) Both Statement I and Statement II are correct. (D) Both Statement I and Statement II are incorrect.

   ›Reveal solutionSolution

   Both statements correctly describe SEBI’s functions: regulating takeover bids is a regulatory function, and training intermediaries is a development function.

   To understand why both statements are correct, we need to step back and look at the three broad categories of functions that the Securities and Exchange Board of India (SEBI) performs. The NCERT textbook on Business Studies for Class XII clearly divides SEBI’s work into regulatory, development, and protective functions. Each category has a distinct purpose, and the two statements in the question fall neatly into two of these categories.

   Statement I says that regulating takeover bids is a regulatory function. This is exactly right. A takeover bid — when one company tries to buy a controlling stake in another — can create chaos in the market if not properly supervised. SEBI’s regulatory role includes framing rules for how such bids are made, disclosed, and executed. The textbook lists “regulation of takeover bids by companies” as a specific regulatory function. So Statement I is correct.

   Statement II says that training intermediaries of the securities market is a development function. Again, this matches the textbook. Intermediaries — stockbrokers, sub-brokers, portfolio managers, and so on — need to be skilled and updated to serve investors well. SEBI’s development functions include promoting education and training for these market participants. The textbook explicitly mentions “training of intermediaries of securities market” under development functions. So Statement II is also correct. …

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7. CBSE 2025Set 66/2/11 markMCQ
   Q.CVX Ltd. was a leading company, manufacturing home appliances like food processors, juicers and mixer grinders. The company was earning good profits and was paying high dividends to its shareholders consistently. The company now decided to manufacture soup-making machines, pop-up toasters and electric irons. The company wanted to enter into emerging markets out of India also. Entering these markets will require additional capital investment which will facilitate in production and distribution infrastructure etc. For this, the management decided to retain money out of their earnings to finance the required investment and distribute smaller dividend to the shareholders. The factor affecting dividend decision which was kept in mind by the management of CVX Ltd. for entering into emerging markets and launching new products was : (A) Amount of Earnings (B) Stability of Earnings (C) Stability of Dividends (D) Growth Opportunities

   ›Reveal solutionSolution

   The management chose to retain earnings for expansion into new markets and products, so the factor affecting their dividend decision was Growth Opportunities — the need to fund future investment rather than pay out high dividends now.

   The question is about dividend decision — one of the key financial decisions a company makes. Dividend decision is about how much of the profit to distribute to shareholders and how much to retain for reinvestment. The factors that influence this decision include the amount of earnings, stability of earnings, stability of dividends, growth opportunities, cash flow position, taxation, and so on.

   Here, CVX Ltd. was already earning good profits and paying high dividends consistently. But now they want to expand — new products (soup-making machines, pop-up toasters, electric irons) and new markets (emerging markets outside India). That expansion needs capital — for production and distribution infrastructure. So the management decided to retain more earnings (i.e., keep the money inside the company) and distribute smaller dividends to shareholders.

   The key question: which factor drove this decision? It wasn't that earnings were low or unstable — in fact, earnings were good and stable. It wasn't about maintaining a stable dividend record — they deliberately reduced dividends. The driving force was the opportunity to grow the business. When a company sees profitable investment opportunities (new products, new geographies), it often retains earnings to fund that growth rather than paying them out. This is a classic case of the Growth Opportunities factor.

   Let's walk through the options:

   1. Amount of Earnings — The company had good earnings, but that alone doesn't explain why they reduced dividends. High earnings could just as easily support high dividends. The amount of earnings is a necessary condition, not the deciding factor here.

   2. Stability of Earnings — Earnings were stable (they were paying high dividends consistently). Stable earnings usually encourage stable or growing dividends, not a cut. So this doesn't fit. …

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8. CBSE 2025Set ANNUAL1 markMCQ
   Q.The determinant of bonus decision is (A) Amount of profit (B) Liquidity of funds (C) Age of the company (D) All of these

   ›Reveal solutionSolution

   Factors affecting the dividend decision include the amount of profit earned, the liquidity of funds available for payout, and the age/stability of the company, so the answer is all of these.

   • Amount of profit — higher and stable earnings support higher dividends.
   • Liquidity of funds — a dividend is a cash outflow, so adequate cash must be available even if profits are high. …

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9. CBSE 2024Set 66/1/11 markMCQ
   Q.Statement I: A financial market facilitates the transfer of savings from savers to investors. Statement II: It gives savers the choice of different investments and helps to channelise surplus funds into the most productive use. Choose the correct option from the following: (A) Statement I is true and Statement II is false. (B) Statement II is true and Statement I is false. (C) Both the Statements are true. (D) Both the Statements are false.

   ›Reveal solutionSolution

   Financial markets are essential for an economy as they efficiently connect those with surplus funds (savers) to those who need funds for investment, offering diverse options and ensuring capital is directed towards productive uses. Both statements accurately describe these core functions.

   Financial markets are the backbone of any modern economy, acting as a crucial intermediary between different economic agents. To understand the given statements, we must first grasp the fundamental purpose of these markets: to facilitate the efficient allocation of capital.

   Imagine an economy without financial markets. People with extra money would have limited ways to put it to work, and businesses needing money to expand or innovate would struggle to find it. Financial markets solve this problem by creating a structured environment where funds can flow from those who have them to those who need them, thereby promoting economic growth and development.

   1. Analyzing Statement I: "A financial market facilitates the transfer of savings from savers to investors."

      This statement describes the primary function of a financial market. Savers, typically households or individuals, have surplus funds that they do not intend to spend immediately. Investors, typically businesses or entrepreneurs, require funds to undertake productive activities like building factories, developing new products, or expanding operations. Financial markets provide the mechanisms (such as banks, stock exchanges, bond markets) through which these savings can be collected from numerous small savers and then channeled to investors who can put them to productive use. Without this transfer, savings would lie idle, and investment opportunities would be missed, hindering economic progress. Therefore, Statement I is true.

   2. Analyzing Statement II: "It gives savers the choice of different investments and helps to channelise surplus funds into the most productive use."

      This statement highlights two important aspects of financial markets.

      • Choice of different investments: Financial markets offer a wide array of financial instruments, such as stocks, bonds, mutual funds, and various derivatives. This diversity allows savers to choose investments that align with their risk tolerance, return expectations, and liquidity needs. A saver can choose to invest in a low-risk government bond or a higher-risk equity, depending on their preference. …

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10. CBSE 2024Set 66/1/11 markMCQ
    Q.Choose the incorrect statement from the following about functions of a Stock Exchange: (A) Provides liquidity and marketability to new securities (B) Ensures safety of transactions (C) Contributes to economic growth (D) Provides scope for speculation

    ›Reveal solutionSolution

    Stock exchanges deal with existing securities in the secondary market, not new issues. The incorrect statement is (A) — liquidity and marketability are provided to existing securities, not new ones.

    Understanding the Role of Stock Exchanges

    A stock exchange operates as a secondary market where securities that have already been issued change hands between investors. This distinction between primary and secondary markets is fundamental to understanding what exchanges actually do.

    When a company raises fresh capital by issuing shares to the public for the first time (IPO) or through subsequent offerings, that happens in the primary market. The stock exchange's role begins after these securities have been issued — it provides a platform where investors can buy and sell these existing securities among themselves.

    Let's examine each statement:

    1. Statement (A): "Provides liquidity and marketability to new securities"

    The word "new" makes this incorrect. Stock exchanges provide liquidity and marketability to existing or already-issued securities, not new ones. When you buy shares on the NSE or BSE, you're buying from another investor who already owns them, not from the company issuing fresh shares. The exchange ensures you can convert your holdings into cash quickly (liquidity) and that there's an active market where buyers and sellers can transact (marketability) — but this applies to securities already in circulation.

    2. Statement (B): "Ensures safety of transactions"

    This is correct. Stock exchanges implement multiple safeguards: they regulate member brokers, enforce settlement guarantees through clearing corporations, maintain surveillance systems to detect manipulation, and provide investor protection mechanisms. The entire regulatory framework — margin requirements, circuit breakers, delivery-versus-payment systems — exists to make transactions safe and reliable.

    3. Statement (C): "Contributes to economic growth" …

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11. CBSE 2024Set 66/2/11 markMCQ
    Q.___________ is the process of holding securities in an electronic form. (A) Rolling Settlement (B) Registration (C) Dematerialization (D) Depository

    ›Reveal solutionSolution

    Dematerialization converts physical share certificates into electronic records held in a depository account. The answer is (C).

    When you buy shares, you become part-owner of a company. Historically, this ownership was proven by physical certificates—actual paper documents you'd store in a locker. But paper has problems: it can be stolen, forged, damaged, or lost. Transferring ownership meant physically handing over certificates, getting them verified, and waiting weeks for the process to complete.

    Dematerialization solves this by converting those physical certificates into electronic entries in your account, much like how money in your bank account exists as a digital record rather than cash in a vault. The term literally means "removing the material form."

    Let me clarify what each option actually means:

    1. Dematerialization is the conversion process itself. When you open a demat account and submit your physical share certificates to a Depository Participant (DP), those certificates are destroyed and replaced with electronic credits in your account. The shares still represent the same ownership—just in digital form.

    2. Depository is the institution that holds these electronic securities. In India, we have two: NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited). Think of them as giant digital vaults.

    3. Registration refers to the formal recording of ownership with the company's registrar. This happens whether shares are physical or electronic, so it's not specific to the electronic form. …

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12. CBSE 2024Set 66/2/11 markMCQ
    Q.Financial market allocates or directs funds available for investment into the most productive investment opportunity. In doing so, it performs the ___________ function. (A) Creative (B) Exchange (C) Allocative (D) Productive

    ›Reveal solutionSolution

    When a financial market channels available funds toward the most productive investment opportunities, it performs the allocative function — ensuring capital flows where it generates the highest returns and economic value.

    Financial markets exist to bridge the gap between those who have surplus funds (savers) and those who need funds (borrowers or entrepreneurs). But they do far more than simply connect these two groups. One of their most critical roles is to ensure that money doesn't sit idle or flow into wasteful ventures — instead, it must find its way to the opportunities that promise the best returns and contribute most effectively to economic growth.

    This process of directing funds toward their most productive use is what we call the allocative function. Think of it this way: at any given moment, countless businesses, projects, and ventures are competing for capital. A financial market acts as a sorting mechanism. Through price signals — interest rates, stock prices, bond yields — it evaluates risk and return, and channels funds accordingly. A promising tech startup, a infrastructure project, or a manufacturing expansion that shows strong potential will attract investment more easily than a poorly conceived venture. The market "allocates" scarce capital to where it can do the most good.

    The allocative function is distinct from other roles the market plays:

    • Exchange function refers to the market's role as a platform where securities and financial instruments can be bought and sold — providing liquidity and ease of transaction.
    • Creative function (sometimes called the mobilization function) involves pooling small savings from many individuals and converting them into large investable funds. …

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