24.Capital Market (Part - 3)

Question 1

What is an ADR?

Answer 1

An ADR, or American depositary receipt, is a negotiable certificate issued by a U.S. depositary bank representing shares of a foreign company’s stock.

Question 2

How are ADRs traded?

Answer 2

ADRs are traded on the same stock exchanges in the United States as domestic shares.

Question 3

What is a GDR?

Answer 3

A GDR, or global depository receipt, is a bank certificate representing a foreign company’s share, held by a foreign bank on a global scale.

Question 4

How are GDRs traded?

Answer 4

GDRs are traded as domestic shares among various banks around the world.

Question 5

What is the purpose of an ADR?

Answer 5

The purpose of an ADR is to facilitate the trading of foreign company shares in the United States.

Question 6

What is the purpose of a GDR?

Answer 6

The purpose of a GDR is to enable global trading of foreign company shares across different bank branches worldwide.

Question 7

What are credit rating agencies?

Answer 7

Credit rating agencies are specialized agencies that assign credit ratings to companies based on certain parameters to evaluate their financial health.

Question 8

How do credit rating agencies help investors?

Answer 8

Credit rating agency reports are used by investors to make informed investment decisions, assessing the potential return on investment in a specific country or company.

Question 9

How many credit rating agencies are registered under SEBI in India?

Answer 9

There are six credit rating agencies registered under SEBI in India: CRISIL, ICRA, CARE, SMERA, Fitch India, and Brickwork Ratings.

Question 10

What are derivatives?

Answer 10

Derivatives are financial contracts that derive their value from an underlying asset, such as a commodity or financial instrument.

Question 11

What is the underlying asset in derivative trading?

Answer 11

The underlying asset is the spot price from which derivatives such as futures or options derive their value.

Question 12

What are the two types of contracts in derivative trading?

Answer 12

The two types of contracts in derivative trading are future contracts and options contracts.

Question 13

What is a future contract?

Answer 13

A future contract is a legally binding agreement to buy or sell an underlying security or commodity at a predetermined price on a future date.

Question 14

How is a future contract standardized?

Answer 14

A future contract is standardized in terms of quantity, quality, delivery time, and place for settlement at a future date.

Question 15

What are the obligations of the parties in a future contract?

Answer 15

Both parties in a future contract are obligated to complete the contract at the end of the contract period, either by delivering the cash, stock, or commodity.

Question 16

What is the level of risk in a future contract?

Answer 16

Both parties in a future contract share equal risk.

Question 17

What is an option contract?

Answer 17

An option contract is a type of contract that gives the buyer the right, but not the obligation, to buy (call option) or sell (put option) an underlying asset at a stated price and date.

Question 18

What is the role of the buyer and writer in an option contract?

Answer 18

The buyer of an option pays the premium and acquires the right to exercise the option, while the writer receives the premium and is obligated to buy or sell the underlying asset if the buyer exercises the option.

Question 19

What does the term “option” imply in an option contract?

Answer 19

In an option contract, the buyer or seller has the right to decide whether to conclude the deal at a future date or not.

Question 20

What is the difference between a future contract and an option contract?

Answer 20

Unlike a future contract, the fulfillment of an option contract is not binding on the parties involved. The buyer has the right, but not the obligation, to buy or sell the asset.

Question 21

What are the two types of options?

Answer 21

The two types of options are call options and put options.

Question 22

What is a call option?

Answer 22

A call option provides the buyer with the right, but not the obligation, to buy a specified quantity of the underlying asset at a given price on or before a future date.

Question 23

What is a put option?

Answer 23

A put option provides the buyer with the right, but not the obligation, to sell a specified quantity of the underlying asset at a given price on or before a future date.

Question 24

What do SENSEX and NIFTY represent?

Answer 24

SENSEX represents the Bombay Stock Exchange (BSE) index, while NIFTY represents the National Stock Exchange (NSE) index.

Question 25

What do SENSEX and NIFTY depict?

Answer 25

SENSEX and NIFTY depict the behavior and functioning of the stock market.

Question 26

How are companies included in SENSEX and NIFTY?

Answer 26

Companies are included in SENSEX and NIFTY based on their performance and financial soundness. The indexes include shares of top-performing companies from different sectors.

Question 27

Can a company retain its place in SENSEX or NIFTY indefinitely?

Answer 27

No, the inclusion or removal of a company in SENSEX or NIFTY is based on its performance. Companies may be added or removed from the indexes based on their performance.

Question 28

What is SENSEX?

Answer 28

SENSEX is the national index of the 30 most liquid, blue-chip, and high-profile stocks listed and traded on the Bombay Stock Exchange (BSE). It reflects the mood, behavior, and sensitivity of the stock market.

Question 29

What is the base year for SENSEX?

Answer 29

The base year for SENSEX is 1978-79.

Question 30

What is NIFTY?

Answer 30

NIFTY is the national index of the 50 most liquid, blue-chip, and high-profile stocks listed and traded on the National Stock Exchange (NSE). It reflects the mood, behavior, and sensitivity of the stock market.

Question 31

What is the base year for NIFTY?

Answer 31

The base year for NIFTY is 1995.