Chapter 10: Financial Market

CASE BASED QUESTIONS

Case-1 Mr. Jamana Prasad was the Chairman of ‘Tip Top Bank’. The bank was earning good profits.
Shareholders were happy as the bank was paying regular dividends. The market price of their
shares was also steadily rising. The bank was about to announce taking over of ‘Seva Bank’. Mr.
Jamana Prasad knew that the share price of ‘Tip Top Bank’ would rise on this announcement.
Being a part of the bank, he was not allowed to buy shares of the bank. He called one of his rich
friends Thakur Baldev Singh and asked him to invest Rs.10 crores in shares of his bank promising
him the capital gains.
As expected the share prices went up by 40% and the market price of Thakur Baldev Singh’s shares was
now Rs.14 crores. He earned a profit of Rs.4 crores. He gave Rs.2 crore to Mr. Mr. Jamana Prasad and kept
Rs. 2 crore with himself. On regular inspection and by conducting enquiries of the brokers involved,
Securities and Exchange Board of India (SEBI) was able to detect this irregularity. The SEBI imposed a heavy
penalty on Mr. Jamana Prasad.
1 1(a) What is the name of malpractice done by Mr. Jamana Prasad is called:
(a)Misleading statement
(b) Manipulations
© Insider trading
(d) Price rigging
2 1(b) Which function was performed by SEBI
(a)Protective Function
(b)Regulatory Function
©Developmental Function
(d)Inspecting Function
3 1© Which financial decision have been mentioned in the above paragraph
(a) Investing Decision
(b) Financing Decision
© Dividend Decision
(d) Both (a) and (b)
Case-2 Read the passage given below and answer the following questions……..
Meca Ltd. A reputed automobile manufacturer needs Rupees ten crores as additional capital to
expand its business. Atul Jalan, the CEO of the company wanted to raise funds through equity. On
the other hand the Finance Manager, Nimi Sahdev said that the public issue may be expensive on
account of various mandatory and non-mandatory expenses. Therefore, it was decided to allot the
securities to institutionalinvestors.
1a. Name the method through which the company decided to raise additional capital.
(i)Private Placement
(ii)Issue thorugh Public Subscrition
(iii)Bonous Issue
(iv)None of the above

Case-3 ABC Ltd. Issued prospectus for the subscription of its shares for Rs. 500 crores in 2008. The issue
was oversubscribed by 20 times. The company issued shares to all the applicants on pro-rata basis.
Later SEBI inspected the prospectus and found some misleading statement about the management
of the company in it. SEBI imposed a penalty of Rs. 5 crores and banned its three executive directors
for dealing in securities market for three years.
3a. Identify the function performed by SEBI in the above case.

(i)Protective Function
(ii)Development Function
(iii)Regulatory Function
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 (iv)None of the above
Case-4 ‘Ganesh Steel Ltd.’ Is a large and credit-worthy company manufacturing steel for the Indian
market. It now wants to cate to the Asian market and decides to invest in new hi-tech machines.
Since the investment is large, it requires long-term finance. It decides to raise funds by issuing
equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of
floatation cost the company decides to tap the money market.
(A)Treasury Bill
(B)Call Money
©Commercial Paper
(D)Certificate of Deposit
Case-5 The Trading Procedure on Stock Exchange has been replaced by on-line screen based electronic
trading system. This is mainly done to eliminate problems like theft, fake/forged transfers, transfer
delays and paper work associated with share certificates or debentures in physical form. This is a
process where securities held by the investor in the physical form are cancelled and the investor is
given an electronic entry or number so that he/she can hold it as an electronic balance in an
account. This has increased the equity cult among the people.
Identify the process discussed in above lines.
(A)Demonetisation
(B)Insider Trading
©Intra Day Trading
(D)Dematerialisation
Case-6 Kajal got 30,00,000 rupees after selling her parental property, which she had got as a gift from her
grandfather. Her brother advised her to invest in securities in the stock market. Kajal was unaware
of the procedure for the same. Her friend introduced her to a stock broker, who was registered with
the NSE. Kajal opened DEMAT account with NSDL and a Bank account in TBI Bank as per the
guidance of broker.
Q1) Which step of trading procedure involved in the sentence ‘Her friend introduced her to a stock
broker’:
(A) Opening DEMAT account
(B) Selection of Broker
© Placing an Order
(D) Settlement
Q2) NSE stands for:
(A) Needs of Stock Exchange
(B) National Savings Enterprises
© National Stock Exchange
(D) National Share Exchange
Q3) Which of the following is a depository?
(A) NSE
(B) TBI

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 © DEMAT
(D) NSDL
Q4) Demat Account is for:
(A) keeping securities in digital form
(B) keeping securities in physical form
© Both (A) and (B)
(D) Neither (A) nor (B)
Case-7 Secondary market is a market for exchange of financial assets. It helps to link the savers with the
investors and directs available funds into their most productive investment opportunity. It also
facilitates easy purchase and sale of financial assets through stock exchange. The stock exchange not
only facilitates buying and selling of existing securities but also educates public about how their
investments in the financial market can yield good returns. To promote orderly and healthy growth
of securities market a statutory body is also working.
Q1) Secondary market is a market where:
(A) new financial assets are purchased and sold.
(B) existing financial assets are purchased and sold.
© both new and existing financial assets are purchased and sold.
(D) None of the above.
Q2) ‘Secondary market helps to link the savers with the investors.’ This statement states the function:
(A) Pricing of securities
(B) Ensures safety of transactIons
(C) Mobilization of funds
(D) Provides liquidity to financial assets
Q3) Which statutory body is working in India to promote orderly and healthy growth of securities
market:
(A) BSE
(B) NSE
(C) NABARD
(D) SEBI
Q4) Which of the following is a financial asset traded in secondary market:
(A) Fixed deposit
(B) Debentures
(C) Call Money
(D) T-Bill
Case-8 Texla Ltd. Is a larger credit worthy company manufacturing automobiles for Indian market. It now wants to
cater to the other market and decided to invest in new machines. For this, it requires long term finance. It

KVS ZIET BHUBANESWAR 26/10/2021 3

 decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To
meet the expenses of flotation cost company decides to tap money market.

1 “To meet the expenses of flotation cost the company decides to tap money market “. What is
technically called?
(a) Flotation
(b) Bridge financing
(c) Demateralisation
d. None of these
2 Name the money market instrument the company can use for the above purpose.
(a) Treasury bill
(b) Call money
(c) Commercial paper
d. Certificate of deposit
3 What is the duration for which the company can get funds through this instrument?
(a) 1 day to 15 days
(b) 1 day to 91 days
(c) 15 day to 1 year
d. None of these
4 State any other purpose for which this instrument can be used
(a) It is used to provide short term funds for seasonal and working capital needs of business.
(b) It is used to meet short term requirement of funds for central government
(c) It is used to maintain cash reserve ratio.
(d) It is used to finance the credit sales of the firm

Case-9 Mr. Ram Narayan was the managing Director of V.L.W Ltd. and the finance manager Mr Shyam
were discussing about the avenues of investing the ideal funds of the company .Aditya was one of
the opinion that money should be invested in capital market. Where as Radhey Shyam ,being
more conservative ,feels that it would be better if the investment was made in money market
.Since the economy was buoyant ,the managing Director convinced Radhey Shyam that they
should take advantage of it and invest in capital market to get good returns. Ultimately it was
decided to invest the ideal funds in the capital market .

1 Which of the following sources of long term finance is generally used by a company in the
situation described above?

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 (a) Debt
(b) Equity
(c) Retained earning
d. All of these
2 What kind of instruments should the company buy?
(a) Share ,Debentures and bonds
(b) Commercial paper ,certificate of deposit
(c) Both (a) and (b)
d. Neither (a) nor (b)
3 Why is the capital market expected to give a better return in a buoyant economy?
(a) Securities are held for longer duration.
(b) There is scope of getting capital gains on shares
(c) Both (a) and (b)
d. None of the above
4 Why and how safe are the securities in this market as compared to money market?
(a) Securities in capital markets are riskier with respect to return and principal repayment
(b) Issuing company may fail to perform as promoters may defraud investors.
(c) Both (a) and (b)
d. There is less risk in capital market instruments then money market instruments
Case-10 An investor wants to invest Rs. 20,000 in treasury bills for a period of 91 days .When he
approached the Reserve bank of India for this purpose he came to know that it was not possible
.Identify the reason why the investor could not invest in the Treasury Bill/
(a) Treasury bill can be issued for a minimum amount of Rs. 25,000 and its multiple thereof
(b) Treasury bill can be issued to financial institution only
(c) Treasury bills are Zero coupon Bonds issued by Reserve Bank of India ,which cannot be
issued to individual .
d. All of the above
Case-11 Reshu’s father has gifted her share of a large cement company ,with which he had been working .
The securities were in physical form .She already has a bank account and does not possess any
other forms of securities. She wished to sell the shares and approached a registered broker for
the purpose .Mention one mandatory detail which she will have to provide with the broker
(a) Permanent account number
(b) Trade confirmation slip

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 (c) Contract note
d. Unique order code number
Case-12 After completing a course in Online trading Bhavna along with her five school friends started an
investment portal for online trading and investment under the name INVESTMENT GURU PVT.
LTD. to deal in securities. It was Registered as a stock broker with Securities and Exchange Board
of India (SEBI) and also registered with NSE and BSE to trade in securities listed at these exchanges.
It is also a Depository participant with depositories operating in India. The business run successfully.
One day, Bhavna met one of her school friendHarsh after a long time and he urged to make investment in
stock market for higher gains with her company. As a stock broker , apprise him of the steps involved in
the working of trading procedure after that Harsh has opened a DeMat Account as he has already a
savings bank account and placed an order to buy some quantity of equity shares and the order was
executed at an agreed price. Immediately after execution, the broker has issued one Slip, Later on , the
broker forwarded a legally enforceable document to Harsh through e-mail within 24 hours of the
execution of the order . There after he was asked to make a payment of amount with commission. She has
also explained the two phases involved in settlement process of screen based trading i.e. pay-in-day and
pay- out –day.
1 INVESTMENT GURU PVT. LTD. was Registered as a stock broker with Securities and Exchange
Board Of India (SEBI) and also registered with NSE and BSE to trade insecurities listed at these
exchanges. Identify the type function of SEBI, has been followed by
a. Protective function
b. Regulatory function
c. Development function
d. All of above
2 What is a Demat account?
a. Holding money in electronic form
b. Trading account
c. Holding securities in physical form
d. Holding securities in electronic form
3 Who is acting as the depository participant for Harsh?
a. INVESTMENT GURU PVT. LTD.
b. SEBI
c. NSE AND BSE
d. NSDL and CDSL
Case-13 Mission Coach Ltd. is a large creditworthy company that manufactures coaches for
the Indian Railways. It now wants to export these coaches to other countries and
decides to invest in new hi-tech machines. Since the investment is large, it requires
long-term finance. It decides to raise funds by issuing equity shares. The issue of
equity shares involves huge floatation cost. To meet the expenses of floatation cost,
the company decides to tap the money market.
1 Name the money-market instrument the company can use for the above purpose.
a. certificate of deposit c. commercial paper.
b. call money. d. treasury bill
2 what is the duration for which the company can get funds through commercial
paper.
a. 3 to 12 months c. 1 day to 15 days
b. 91 days to 1 year d. 14 to 364 days
3 State any other purpose for which this instrument can be used
a. to meet long term finance
KVS ZIET BHUBANESWAR 26/10/2021 6
 b. to meet short term working capital requirement
c. to maintain the cash liquidity ratio
d. none of the above
Case-14 During navratras, Vikas finalizes a deal to buy a new farmhouse. So, he visits a nearby branch of ‘Paisa
Bank’ top withdraw Rs. 25 lakhs from his account in order to pay the token money to the seller. In the bank
he observes that a large number of customers are present to make cash with drawls, probably because it is
an auspicious time to make purchases. After sometime, he overhears one of the bank staff members telling
his colleague that, “Today ‘Paisa Bank’ is likely to fall short of cash and to make up for the deficit it will
have to approach another bank.”

Q1.
Identify the instrument that ‘Paisa Bank’ will use to meet its short term requirements of funds.
Commercial paper
Call money
Commercial bill
Trade voucher
Q2. Call money is used to maintain ------------------------3
CRR
SLR
Bank rate
Repo rate
Case-15 Xyz LTD.. is a large and creditworthy company that
manufactures aluminium for the Indian market. It now wants to cater to the Asian market and decides to
invest in new hi-tech machines. Since the investment is large, it requires long-term finance. It decides to
raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the
expenses of floatation cost, the company decides to tap the money market.
Q1. Name and explain the money-market instrument the company can use for the above purpose.
Call moeny
Commercial paper
Commercial bill
Trade voucher

Q2. What is the duration for which the company can get funds through this instrument?
from a fortnight to 2 year.
from a fortnight to 3 year.
from a fortnight to 4 year.
from a fortnight to 1 year.
Case-16 1. Incorporated in 1990. Raju Dairy Ltd., is one of the leading manufacturers and
marketers of dairy-based branded foods in India. In the initial years, its operations
were restricted only to collection and distribution of milk. But, over the years it has
gained a reasonable market share by offering a diverse range of dairy based
products including fresh milk, flavored yogurt, ice creams, butter milk, cheese, ghee,
milk powders etc. in order to raise capital to finance its expansion plans. Raju Dairy
Ltd. has decided to approach capital market through a mix of Offer for sale of Rs. 4
crore shares and a public issue of Rs. 2 crore shares.
I. Name the segment of capital market being approached by the company.
a) Secondary Market
b) Money Market
c) Stock Exchange
d) Primary Market

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Case-17 2. Ketan won a cash prize of Rs. 20,000 in the National level Robotics Competition. On
the advise of his father, he visits a nearby bank to open a Fixed deposit account in
his name with the prize money. His sister Suhasini accompanied him to the bank. On
reaching the bank, he notice big banners which are placed within the premises
containing information about the various arrangements through which corporates
may raise their capital through the bank. Being a finance graduate, Suhasini explains
to Ketan that banks play the role of the financial intermediary by helping in the
process of channelizing the savings of the households into the most profitable
business ventures.
1 Name another financial intermediary that helps in the process of channelizing the savings of
the households into the most productive use.
a) Financial Market
b) Capital Market
c) Money Market
d) Primary Market

Case-18 Identify the function of Securities and Exchange Board of India being promoted in each of the
following cases: ( ALAYSIS)

(a) Sebi has introduced new rules which will prevent the outgoing promoters from
continuing to excercise their control on the company directly or indirectly.
i. Regulatory function
ii. Developmental function
iii. Protective functions
iv. All of the above
(b) Consolidation or mergers in the Indian mutual fund industry may not happen
after SEBI (Securities and Exchange Board of India) directed recategorisation of schemes whereby
there will be one investment scheme per category to avoid confusion in the minds of the investing
public.

i. Regulatory function
ii. Developmental function
iii. Protective functions
iv. None of the above
(c) SEBI has emphasised that there should be some uniformity in the remuneration rates for
financial intermediaries so that arbitrage opportunities are reduced and investors can take a proper
decision.
i. Regulatory function
ii. Developmental function
iii. Protective functions
iv. All of the above
(d) SEBI has imposed a total penalty of $ 2.5 crore on 10 individuals for indulging in
manipulative trading in the shares of a company.
I. Regulatory function
ii. Developmental function
iii. Protective functions
iv. None of the above

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Case-19
2. Three companies – Rallis Tech Ltd., Satyam Healthcare Ltd, and Aster Ltd. - have
received markets regulator SEBI’s approval to proceed approval to proceed with its initial
public offerings. (APPLICATION)
(i) Rallis Tech Ltd.will through a prospectus , open its issue for public subscription for 3 days with
effect from 2nd March 2019.
(ii) Satyam Healthcare Ltd. Will sell its entire issue to Xelp Brokers Limited.@ $7 per share who
will further offer it for subscription to general public @ $9 per share.
(iii) Aster Ltd.plans to allot its entire issue of securities to an institutional investor
(a) Identify the method of floatation in primary market being adopted by the Rallis Tech Ltd.
i. Issue through Prospectus
ii.Private placement
iii. Offer for sale
iv. Rights issue
(b) Identify the method of floatation in primary market being adopted by the Satyam health care
Ltd.
i. Issue through Prospectus
ii.Private placement
iii. Offer for sale
iv. Rights issue.
(c ) Identify the method of floatation in primary market being adopted by the Satyam health care
Ltd.
i. Issue through Prospectus
ii. Private placement
iii. Offer for sale
iv. Rights issue.
(d) Identify the method of floatation in primary market which is not being adopted by these
companies.
i. Issue through Prospectus
ii. Private placement
iii. Offer for sale
iv. Rights issue.

Case-20 2. This is the heading of a news clipping in one of the leading newspaper . “A sharp fall in the
stock prices over past one week has wiped off Rupees 40 lakh crore of investor wealth.”. The
Government has instructed the regulatory body to look into it and take appropriate measures to
protect the investor. ( UNDERSTANDING)
(i) Identify the segment of capital market being referred to in the above lines.
a). Money market
b) Primary market
c ) Secondary Market
d ) New Issue market
(ii) There will be an affect of this news on the other segment of capital market , name the market ?
a). Money market
b) Primary market
c ) Secondary Market
d ) Stock Exchange
(iii) Name the regulatory body who looks after protecting the interest of Investors.
a). SBI
b) RBI
c ) SEBI
d ) NABARD
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 (iv) In which year was the regulatory body established.
a). 1991
b) 1992
c ) 1892
d ) 1988
Case 21 3. In the case of irregularity in trading SEBI found that Mr.Lalit purchased 8 lakh shares of
‘Trent Ltd.’from the unit trust of India (UTI) on 23rd February 2018.This purchase was made
barely two weeks prior to a public announcement for a proposed merger of Trent Ltd.with KFL
Ltd.
Upon investigation, SEBI found that ,at time of the purchase of shares of Trent Ltd, from UTI
,Mr.Lalit had an access to this ‘information about merger, as a director of the company . However,
he retired from that post in a week’s time after that. SEBI has taken steps to educate investors and
ensure training of intermediaries in securities market. ( CREATION)

(i) Identify the type of function performed by SEBI in the above case.
a. Regulatory function
b. Developmental function
c. Protective functions
d. All of the above

(ii) Mr. Lalit was involved in

a. Price rigging
b. Insider Trading
c. Speculation
d. All of the above

(iii) The steps taken to educate investors falls under which function of SEBI.
a. Regulatory function
b. Developmental function
c. Protective functions
d. All of the above
(iv) The steps taken to training intermediaries falls under which function of SEBI

a. Regulatory function
b. Developmental function
c. Protective functions
d. All of the above

Case-22 Mrsubhash is chairman of Gaina bank limited. Due to festive season, demand for credit is high but
deposits are low as rate of interest has come down and public is willing to invest in financial
market instead of depositing its funds into the banks. At the same time the Reserve Bank of India
increases cash reserve ratio for the banks. Due to all these reasons Gaina bank limited is likely to
fall short of cash and to make up for the deficit and maintain its cash reserve ratio, it will have to
approach another bank.

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 1. Identify the instrument that Gaina bank will use to meet its short term requirements from
another bank:
(a) Certificate of deposits
(b) Treasury bill
(c) Commercial paper
(d) Call money
2. Instrument identified in question no. 1 is traded in which of the following markets:
(a) Capital market
(b) Money market
(c) Primary market
(d) Secondary market
3. What is the duration for which the bank can get funds through this instrument?
(a) 1 day to 15 days
(b) 1 day to 91 days
(c) 15 days to 1 year
(d) None of these
4. Rate of interest on the above identified instrument is called:
(a) Call rate
(b) Bank rate
(c) Repo rate
(d) Interest rate
23 Star Ltd. is a large credit-worthy company manufacturing cement for the north easterner Indian
market. It now wants to cater to the other market and decided to set up new manufacturing plants.
For this, it requires long-term finance. Its directors have decided to raise funds by issuing equity
shares. The issue of equity shares involves huge floatation cost in terms of brokerage, underwriting
commission and advertising etc. To meet the expenses of floatation cost the company decides to
tap the money market.
1. "To meet the expenses of floatation cost the company decides to tap the money market." What is
this technically called:
(a) Flotation
(b) Bridge Financing
(c) Dematerialisation
(d) None of these

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2. Name the money market instrument the company can use for the above purpose.
(a) Treasury Bill
(b) Call Money
(c) Commercial Paper
(d) Certificate of Deposit

3. What is the duration for which the company can get funds through this instrument?
(a) 1 day to 15 days
(b) 1 day to 91 days
(c) 15 days to 1 year
(d) None of these

4. State any other purpose for which this instrument can be used.
(a) It is used to provide short term funds for seasonal and working capital needs of the business.
(b) It is used to meet short-term requirements of funds of the Central Government.
(c) It is used to maintain the cash reserve ratio.
(d) It is used to finance the credit sales of firms.

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 ANSWER KEY
CBQ 1 1-C 2-A 3-D
CBQ-2 1-i
CBQ-3 1-i
CBQ-3 1-C
CBQ-4 1-C
CBQ-5 1-D
CBQ-6 1-B 2-C 3-D 4-A
CBQ-7 1-B 2-C 3-D 4-B
CBQ-8 1-b 2-c 3-c 4-a
CBQ-9 1-b 2-a 3-c 4-c
CBQ-10 1-a
CBQ -11 1-a
CBQ -12 1-b 2-a 3-a
CBQ -13 1-c 2-a 3-d
CBQ-14 1-A 2-A
CBQ-15 1-B 2-D
CBQ-16 1- d
CBQ-17 1 -a
CBQ-18 a- i b- i c-iii d-iv
CBQ-19 a-i b-iii c-ii d-iv
CBQ-20 i-a ii-b ii-c iv-b
CBQ-21 i-a ii-b ii-c iv-b
CBQ-22 1-d 2-b 3-a 4-a
CBQ-23 1-b 2-c 3-b 4-a

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