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INDIAN ECONOMY > 22.Capital Market > Flashcards

22.Capital Market Flashcards

1
Q

What are shares?

A

Shares represent units of ownership in a company, and the capital of a company is divided into shares.

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2
Q

Why are shares offered for sale?

A

Shares are offered for sale to raise capital for the company.

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3
Q

What do shareholders receive as a return from the company?

A

Shareholders receive dividends (not interest) as a return from the company.

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4
Q

What do shareholders experience at the time of the sale of shares?

A

Shareholders enjoy or suffer capital gains or losses at the time of the sale of shares.

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5
Q

What is the capital market?

A

The capital market is a market for financial assets that have a long or indefinite maturity period

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6
Q

How can the capital market be divided?

A

The capital market can be divided into two parts: the market for corporate securities and the market for government securities.

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7
Q

Which regulatory body handles the corporate securities market in India?

A

In India, the corporate securities market is handled and governed by SEBI (Securities and Exchange Board of India).

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8
Q

Which regulatory body governs the government securities market in India?

A

In India, the government securities market is governed by RBI (Reserve Bank of India).

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9
Q

What are the two segments of the capital market?

A

The two segments of the capital market are the primary market and the secondary market.

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10
Q

What is the primary market?

A

The primary market is a market in which companies issue new securities.

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11
Q

What is another name for the primary market?

A

The primary market is also called the New issue market.

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12
Q

How do companies raise long-term funds in the primary market?

A

Companies raise long-term funds in the primary market by issuing financial securities.

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13
Q

What does the primary market facilitate?

A

The primary market facilitates capital formation.

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14
Q

Can you provide examples of activities in the primary market?

A

Examples of activities in the primary market include IPOs (Initial Public Offerings) and FPOs (Follow-on Public Offerings).

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15
Q

What are the three ways in which a company can raise capital in the primary market?

A

The three ways in which a company can raise capital in the primary market are:

1.Public Issue, where anyone can purchase shares.
2.Right issue, which involves selling shares to the company’s existing shareholders.
3.Private Placement, which involves selling shares to a select few individuals or entities.

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16
Q

What happens in the Secondary Market?

A

In the Secondary Market, investors buy and sell securities that they already own.

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17
Q

What is another name for the Secondary Market?

A

The Secondary Market is also called the Follow-on market.

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18
Q

What is the face value of a share?

A

The face value of a share is the monetary value stated by the issuer of the share at the time of issuing.

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19
Q

Can you provide an example of the face value of a share?

A

Yes, for example, if a company issues shares worth Rs 5 Crore at Rs. 1 per share, the face value of each share is Rs. 1.

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20
Q

What is the market value of a share?

A

The market value of a share is the current value of each share based on the current valuation of the company.

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21
Q

What is an Initial Public Offering (IPO)?

A

An Initial Public Offering is the process by which a private company offers its shares to the general public to become a publicly-traded company.

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22
Q

What types of companies can go for an IPO?

A

Both new, young companies and old companies can go for an IPO if they decide to be listed on an exchange and offer their shares to the public.

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23
Q

What does a company do after selling its shares through an IPO?

A

After selling the shares, the company needs to fix a date for “Listing” the company in the stock market.

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24
Q

What does it mean when a company’s shares are listed?

A

When a company’s shares are listed, it means that the shares are available in the open market for buying and selling among the shareholders of the company.

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25
Q

How does the value of shares affect shareholders in a company?

A

If the value of the shares of a company falls, shareholders may try to sell those shares at a lower price, and buyers may purchase them at a reduced price.

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26
Q

Who are bull investors?

A

Bull investors are speculators in the stock market who buy stocks with the expectation that their value will rise in the very short term, allowing them to sell the stocks for a quick profit.

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27
Q

What is the objective of bull investors?

A

The objective of bull investors is to take the stock market up by anticipating an increase in share prices in the future.

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28
Q

Who are bear investors?

A

Bear investors are investors who believe that a particular security or the broader market is headed for a decline. They may attempt to profit from a decrease in stock prices.

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29
Q

What is the objective of bear investors?

A

The objective of bear investors is to take the market down by expecting a decrease in share prices in the future and selling shares in the market.

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30
Q

When was the Securities and Exchange Board of India (SEBI) established?

A

SEBI was established on April 12, 1992.

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31
Q

What was the initial status of SEBI?

A

Initially, SEBI was established as a non-statutory body.

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32
Q

When did SEBI receive statutory status?

A

SEBI received statutory status through the Securities and Exchange Board of India Act, 1992.

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33
Q

When did the provisions of the Securities and Exchange Board of India Act, 1992 come into force?

A

The provisions of the Securities and Exchange Board of India Act, 1992 came into force on January 30, 1992.

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34
Q

What is the objective of SEBI?

A

The objective of SEBI is to protect the interests of investors in securities and to promote and regulate the securities market.

35
Q

What is the structure of SEBI?

A

The SEBI Board consists of a Chairman and several other whole-time and part-time members.

36
Q

What are the powers and functions of SEBI?

A

SEBI is a quasi-legislative and quasi-judicial body with the power to draft regulations, conduct inquiries, pass rulings, and impose penalties. It functions to fulfill the requirements of issuers, investors, and intermediaries.

37
Q

What is the authority of the SEBI Chairman?

A

The SEBI Chairman has the authority to order “search and seizure operations” as necessary.

38
Q

What information can the SEBI Board seek during investigations?

A

The SEBI Board can seek information, such as telephone call data records, from any persons or entities regarding securities transactions being investigated.

39
Q

What functions does SEBI perform regarding venture capital funds and collective investment schemes?

A

SEBI performs the function of registration and regulation of the working of venture capital funds and collective investment schemes, including mutual funds.

40
Q

What does SEBI regulate?

A

SEBI regulates the capital market and promotes and regulates self-regulatory organizations. It also prohibits fraudulent and unfair trade practices related to securities markets.

41
Q

What is equity?

A

Equity refers to the amount of capital invested or owned by the owner of a company. It is also the amount of capital an individual acquires after the company acquires dividends or profits.

42
Q

What is a share?

A

A share is a unit of ownership in a company or a financial asset. In a company, the total equity capital is divided into equal units of small denominations, each called a share.

43
Q

How is the total equity capital of a company divided?

A

The total equity capital of a company is divided into equal units of small denominations, each called a share. For example, if the total equity capital is Rs 1,00,000 and each share is Rs 10, there would be 1,00,000 equity shares of Rs 10 each.

44
Q

What is the purpose of companies issuing shares?

A

Companies need finance for their investment and other needs. They can source it from their own reserves (profits), borrow, or raise share capital by issuing shares.

45
Q

Who are shareholders?

A

Investors who hold shares of a company are known as shareholders.

46
Q

Who is a promoter?

A

The person who starts the company is called the promoter. The promoter retains the majority of shares and sells the rest to the public.

47
Q

What are preference shares?

A

Preference shares, also known as preferred stocks, allow preference shareholders to receive dividends announced by the company before ordinary shareholders.

48
Q

How do preference shares differ from equity shares?

A

Preference shares have certain preferences over equity shares, such as the right to receive dividends before ordinary shareholders and the priority in payment during winding up of the company.

49
Q

What is the order of dividend payout for preference shareholders?

A

If a company decides to pay dividends to its shareholders, preference shareholders are the first to receive dividend payouts from the company.

50
Q

How are preference shares redeemed?

A

Preference shares must be redeemed within 20 years of their issuance. These are called redeemable preference shares.

51
Q

Are irredeemable preference shares allowed in India?

A

According to the Companies Act, 2013 in India, companies cannot issue irredeemable preference shares. Preference shares must be redeemed within the specified timeframe.

52
Q

What is a debenture?

A

A debenture is a capital market instrument used to raise medium or long-term funds from the public. It acknowledges a debt and is issued by a company in the form of a certificate.

53
Q

What information is typically included in a debenture?

A

A debenture usually includes details such as the amount and date of repayment of the loan, the rate of interest, and the date of interest payment.

54
Q

What are the types of debentures based on security?

A

Debentures can be either secured, backed by the assets of the company, or unsecured.

55
Q

Are debentures transferable?

A

Yes, debentures are generally freely transferable by the debenture holder.

56
Q

Do debenture holders have voting rights in general meetings?

A

Debenture holders do not have voting rights in the company’s general meetings of shareholders. However, they may have separate meetings or votes on specific matters, such as changes to the rights attached to the debentures.

57
Q

How is the interest paid to debenture holders treated in a company’s financial statements?

A

The interest paid to debenture holders is recorded as a charge against the company’s profit in its financial statements.

58
Q

What is the difference between shareholders and debenture holders?

A

Shareholders are owners of the company and actively participate in decision-making, while debenture holders are creditors who cannot participate in the decision-making process.

59
Q

What do shareholders receive from the company?

A

Shareholders are entitled to receive dividends, which represent a share in the company’s profits.

60
Q

What do debenture holders receive from the company?

A

Debenture holders are entitled to receive interest on the amount they have lent to the company.

61
Q

Are shareholders involved in the decision-making process of the company?

A

Yes, shareholders actively participate in the decision-making process of the company.

62
Q

Are debenture holders involved in the decision-making process of the company?

A

No, debenture holders cannot participate in the decision-making process of the company.

63
Q

Is a company obligated to pay dividends to shareholders?

A

No, a company may choose not to pay dividends to its shareholders, even if it generates profits.

64
Q

Is a company obligated to pay interest to debenture holders?

A

Yes, a company is obligated to pay interest to its debenture holders, regardless of whether it generates profits or not.

65
Q

What is the Badla system in the stock market?

A

The Badla system refers to carrying forward transactions from one settlement period to the next without effective delivery, and it involves the broker taking an extra amount from the buyer to earn additional commission.

66
Q

When is the Badla system permitted, and at what price?

A

The Badla system is permitted in certain securities and is done at the making-up price, typically the closing price of the last day of settlement.

67
Q

Can you provide examples of cases related to the Badla system?

A

The Harshad Mehta case and the Chetan Parekh case are examples of cases associated with the Badla system.

68
Q

What is dematerialization?

A

Dematerialization is the practice of converting physical share certificates into electronic form, eliminating the need for physical documentation.

69
Q

What happens during the process of dematerialization?

A

During dematerialization, the physical certificates of an investor are converted into an equivalent number of securities in electronic form and credited into the owner’s account with their depository participant.

70
Q

What is a depository in the context of the stock market?

A

A depository is an organization that holds securities (such as shares, debentures, bonds, etc.) of investors in electronic form at the request of the investors through a registered depository participant.

71
Q

What services does a depository provide?

A

A depository provides services related to transactions in securities and holds the securities of investors in electronic form.

72
Q

How many depositories are there in India, and what are their names?

A

There are two depositories in India: National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).

73
Q

Who are the promoters of NSDL and CDSL?

A

NSDL was promoted by IDBI, UTI, and NSE, while CDSL was promoted by BSE, SBI, BOI, and BOB.

74
Q

How do investors interact with depositories?

A

Investors do not directly interact with depositories. Instead, they interact with Depository Participants (DPs), who act as intermediaries between the investors and the depositories.

75
Q

What is the role of a Depository Participant (DP)?

A

Depository Participants (DPs) are intermediaries that facilitate the interaction between investors and depositories. They provide services such as maintaining demat accounts and facilitating the electronic transfer of securities.

76
Q

What is Rolling Settlement?

A

Rolling Settlement is a system introduced by SEBI in 2001 as a replacement for the Badla system.

77
Q

What was the initial settlement timeline under the Rolling Settlement system?

A

Initially, the settlement timeline was T+5, which means the transaction day plus five additional days.

78
Q

How has the settlement timeline changed over time?

A

The settlement timeline has evolved over time. It was later reduced to T+2, and currently, it is T+1, which means the transaction day plus one additional working day.

79
Q

What is the key feature of Rolling Settlement?

A

The key feature of the Rolling Settlement system is that a share transaction must be completed and accounts closed within the transaction day and one working day. Carry forward of transactions is not allowed.

80
Q

What is a Demat Account?

A

A Demat Account refers to a paperless trading account where shares are held in electronic form instead of physical share certificates.

81
Q

Who is responsible for opening a Demat Account?

A

The investor, whether a buyer or seller of shares, is responsible for opening a Demat Account with a depository.

82
Q

What are the two depositories in India?

A

The two depositories in India are NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited).

83
Q

What is the role of a Depository Participant (DP)?

A

A Depository Participant (DP) is a stockbroker or a bank through whom the investor opens a Demat Account and carries out transactions.

84
Q

What information is required to open a Demat Account?

A

To open a Demat Account, the investor needs to provide the name of the depository and the Depository Participant (DP) with whom they have an account.

INDIAN ECONOMY (35 decks)

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