B S CLASS 12 QUESTION & ANSWER(CHAP-FINANCIAL MARKET)

  1. What are the security functions of SEBI?

 Ans.The Securities and Exchange Board of India (SEBI) plays a crucial role in ensuring the security and integrity of the securities market in India. Here are the security functions of SEBI elaborated point-wise:

1. **Regulation and Oversight:**

   - SEBI formulates regulations to govern the securities market, ensuring compliance with legal frameworks.

   - It oversees various participants in the market, including stock exchanges, brokers, and other intermediaries.

2. **Investor Protection:**

   - SEBI works to safeguard the interests of investors by promoting fair and transparent practices.

   - It ensures that investors receive accurate and timely information to make informed investment decisions.

3. **Prevention of Insider Trading:**

   - SEBI prohibits insider trading, where individuals with privileged information about a company use it for personal gain in the stock market.

   - It establishes and enforces rules to maintain a level playing field and prevent unfair advantages.

4. **Market Surveillance:**

   - SEBI conducts market surveillance to detect and prevent market manipulation, fraud, and other malpractices.

   - It employs technology and monitoring systems to track unusual trading patterns and activities.

5. **Enforcement of Securities Laws:**

   - SEBI has the authority to investigate and take enforcement actions against entities violating securities laws.

   - It imposes penalties and sanctions to deter fraudulent activities and ensure market integrity.

6. **Development of Market Infrastructure:**

   - SEBI works towards enhancing the efficiency and effectiveness of market infrastructure, including stock exchanges and clearing corporations.

   - It encourages the adoption of advanced technologies for smoother market operations.

7. **Risk Management:**

   - SEBI establishes risk management frameworks to minimize systemic risks in the securities market.

   - It collaborates with market participants to implement measures for risk mitigation.

8. **Promotion of Fair Practices:**

   - SEBI promotes fair competition and ethical practices among market participants.

   - It sets guidelines for corporate governance, disclosure norms, and code of conduct to maintain market integrity.

9. **Education and Awareness:**

   - SEBI conducts investor education programs to enhance financial literacy and awareness.

   - It aims to empower investors with the knowledge needed to make sound investment decisions.

In summary, SEBI's security functions encompass a comprehensive range of activities aimed at maintaining the stability, fairness, and integrity of the securities market in India.

 

 

 2. Briefly discuss the various segments of national stock market.

Ans.1. **Equity Market:**

   - Involves the buying and selling of company stocks.

   - Companies raise capital by issuing shares, and investors trade these shares on the stock exchange.

2. **Debt Market:**

   - Deals with fixed-income securities like bonds and debentures.

   - Investors lend money to the government or corporations in exchange for periodic interest payments.

3. **Derivatives Market:**

   - Involves financial contracts whose value is derived from an underlying asset.

   - Includes options and futures, providing investors a way to hedge risk or speculate on future price movements.

4. **Commodity Market:**

   - Focuses on trading commodities like gold, silver, agricultural products, and energy resources.

   - Important for both producers and consumers to manage price volatility.

5. **Forex (Foreign Exchange) Market:**

   - Involves trading national currencies against each other.

   - Vital for international trade and investment, reflecting global economic conditions.

6. **Initial Public Offering (IPO) Market:**

   - Companies issue shares to the public for the first time.

   - Investors can buy shares directly from the company, allowing it to raise capital for expansion.

7. **Alternative Investment Market:**

   - Includes various investment options beyond traditional stocks and bonds.

   - Examples include real estate investment trusts (REITs) and venture capital.

8. **Spot Market:**

   - Involves the immediate exchange of financial instruments or commodities for cash.

   - Transactions occur "on the spot" and are settled instantly.

9. **Secondary Market:**

   - Investors trade previously issued securities without the involvement of the issuing company.

   - Enhances liquidity by providing a platform for buying and selling existing financial instruments.

10. **Indices Market:**

    - Represents the overall performance of the stock market.

    - Indices like the S&P 500 or Dow Jones Industrial Average track the value of a specific group of stocks.

Understanding these segments helps investors diversify their portfolios and manage risk effectively in the dynamic landscape of the national stock market.

 

 3. What do you mean by financial market?  Briefly explain the functioning of financial markets.

Ans. Here's a  detailed explanation of the functioning of financial markets, presented in a point-wise manner:

1. **Definition of Financial Markets:**

   - Financial markets are platforms that facilitate the buying and selling of various financial instruments such as stocks, bonds, currencies, commodities, and derivatives.

   - These markets serve as intermediaries between those who have excess funds (investors) and those who need funds (companies, governments, etc.).

2. **Types of Financial Markets:**

   - **Primary Markets:**

     - New securities are issued in primary markets.

     - Companies raise capital by issuing stocks or bonds to investors.

   - **Secondary Markets:**

     - Existing securities are traded among investors.

     - Prices are determined by supply and demand dynamics.

3. **   - **Investors:**

     - Individuals, institutional investors, and traders who buy and sell financial instruments for various purposes, including investment and speculation.

   - **Financial Institutions:**

     - Banks, brokerage firms, and other intermediaries that facilitate transactions and provide financial services.

4. **Functioning of Financial Markets:**

   - **Price Determination:**

     - Prices of financial instruments are determined by the interaction of supply and demand.

     - Market participants analyze information and use various strategies to make investment decisions.

   - **Information Flow:**

     - Timely and accurate information is crucial for making informed investment decisions.

     - Information is disseminated through news, financial reports, and other channels.

   - **Market Regulation:**

     - Governments and regulatory bodies establish rules and regulations to ensure fair practices and market integrity.

     - Regulatory frameworks aim to prevent fraud, insider trading, and market manipulation.

5. **Financial Instruments:**

   - **Stocks:**

     - Represent ownership in a company.

     - Shareholders may receive dividends and have voting rights.

   - **Bonds:**

     - Debt securities where investors lend money to issuers.

     - Issuers pay periodic interest and return the principal at maturity.

   - **Derivatives:**

     - Financial contracts whose value derives from an underlying asset.

     - Examples include options and futures.

6. **Market Efficiency:**

   - Financial markets aim to be efficient, reflecting all available information in asset prices.

   - Efficient markets contribute to the allocation of capital to its most productive uses.

7. **Global Nature:**

   - Financial markets operate globally, with interconnectedness among different markets.

   - Globalization allows investors to diversify their portfolios and access a wide range of investment opportunities.

8. **Economic Impact:**

   - Financial markets play a crucial role in economic development by facilitating capital formation and investment.

   - The health of financial markets is often considered a barometer of overall economic well-being.

In summary, financial markets serve as vital mechanisms for capital allocation, enabling economic growth and providing opportunities for investors to participate in various financial instruments. The interaction of participants, regulation, and the flow of information are fundamental aspects of their functioning.

 4 .What is money market?  State two characteristics of money market.  Explain in brief about money market instruments

Ans.**Money Market:**

The money market refers to a financial market where short-term borrowing and lending take place among financial institutions and corporations. It deals with instruments that have high liquidity and short maturities, providing a platform for participants to manage their short-term funding needs.

**Characteristics of Money Market:**

1. **High Liquidity:** Money market instruments are highly liquid, allowing participants to quickly buy or sell them with minimal price impact. This liquidity is crucial for meeting short-term financial obligations.

2. **Short-Term Maturity:** Money market instruments have short maturities, usually ranging from overnight to one year. This characteristic makes them suitable for short-term funding and investment needs.

**Money Market Instruments:**

1. **Treasury Bills (T-Bills):** Short-term government securities with maturities ranging from a few days to one year. They are issued at a discount and redeemed at face value, representing the interest earned.

2. **Commercial Paper (CP):** Unsecured, short-term debt issued by corporations to meet immediate funding needs. CP typically has maturities ranging from 1 to 270 days and is issued at a discount.

3. **Certificates of Deposit (CDs):** Time deposits offered by banks with fixed maturities. Investors deposit a specific amount for a predetermined period, and upon maturity, they receive the principal along with interest.

4. **Repurchase Agreements (Repos):** Short-term collateralized loans where one party sells securities to another with an agreement to repurchase them at a later date. Repos are commonly used by financial institutions for short-term funding.

5. **Money Market Mutual Funds (MMMFs):** Mutual funds that invest in short-term, low-risk instruments like T-Bills and CP. They allow investors to participate in the money market with a relatively low investment amount.

6. **Commercial Bills:** Short-term debt instruments issued by businesses to meet their financing needs. Commercial bills are similar to T-Bills but are issued by private entities.

7. **Banker's Acceptance (BA):** A short-term debt instrument that is guaranteed by a bank. It is often used in international trade transactions, with the bank providing a payment guarantee.

In summary, the money market serves as a crucial component of the financial system, providing a platform for short-term borrowing and lending through various instruments characterized by high liquidity and short maturities

Song -Roz Roz ankhon tale

 

Non-profit accounts emphasize transparency, fiscal responsibility in income, expenditure, and balance sheets.

 ##When preparing income and expenditure accounts and balance sheets, a non-profit organization should focus on:##

1. **Accurate Financial Records:**

   Ensure precise recording of all financial transactions to provide a reliable basis for preparing the accounts.

2. **Compliance with Accounting Standards:**

   Adhere to applicable accounting standards to maintain consistency and comparability in financial reporting.

3. **Revenue Recognition:**

   Properly recognize and classify various revenue sources, including grants, donations, and program-related income, in accordance with accounting principles.

4. **Expense Allocation:**

   Allocate expenses accurately between program services, administration, and fundraising to reflect the true cost structure.

5. **Transparency:**

   Emphasize transparency by clearly disclosing accounting policies, significant transactions, and any potential conflicts of interest in financial statements.

6. **Fund Accounting:**

   Employ fund accounting to segregate resources for specific purposes, enhancing accountability and tracking the use of restricted funds.

7. **Asset Valuation:**

   Ensure that assets are valued appropriately, whether they are tangible (property, equipment) or intangible (intellectual property, goodwill).

8. **Liability Recognition:**

   Recognize and disclose all liabilities, such as outstanding debts, grants payable, and other obligations, accurately.

9. **Reserve and Surplus Policies:**

   Establish clear policies for reserves and surplus, ensuring proper allocation and utilization of funds to support the organization's mission.

10. **Financial Controls:**

    Implement internal controls to safeguard assets, prevent fraud, and maintain the integrity of financial information.

11. **Comparative Analysis:**

    Include comparative figures from previous periods to facilitate analysis of financial performance and trends.

12. **Audited Financial Statements:**

    Consider having financial statements audited by an independent auditor for added credibility and assurance.

By paying attention to these factors, a non-profit organization can produce meaningful and reliable financial statements that demonstrate financial stewardship and accountability.

EXPLORING GOURIPUR KALIMANDIR:A DIVINE OASIS IN KOLKATA

 

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🏰 Step into the sacred realm of this ancient temple, where devotion meets miracles. Discover the history that dates back to 1950, when the first pujas were conducted, and witness the divine rituals performed daily, including the unique blessings for new cars and vehicles. 🚗✨

🌙 Dive into the mystical atmosphere of the temple, adorned with two sanctum sanctorums. Explore the intricacies of the sanctum where the Mother sits on a throne embellished with pure silver. 🌺

🌈 Join us during the annual Kali Puja day, a spectacle where Rajveshe Maa dons pure gold ornaments at midnight. Immerse yourself in the festive fervor and witness the idol adorned in exquisite garbs on special pooja days. 🎉

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📅 Don't miss the vibrant scenes on Tuesdays, Saturdays, and special festival days when the temple comes alive with devotees and positive energy. 🤗✨

Join us in this spiritual exploration of Gauripur Kalimandir, where faith, tradition, and community converge in a divine celebration. Hit the like button, subscribe, and ring the notification bell to stay tuned for more enriching journeys! 🙌🔔 #GouripurKalimandir #KolkataTemples #DivineJourney#SBSIRCommerce

B S FINANCIAL MANAGEMENT CHAPTER QUESTION WITH ANSWER

 You are the financial manager of the organization.  Management asked you to decide the dividend policy.  What issues would you consider?

Ans. When tasked with deciding the dividend policy as the financial manager, it involves a thorough analysis of various factors to make informed decisions that align with the organization's overall goals. Here's an elaboration on key considerations:

Financial Health: Assessing the company's financial stability is paramount. This includes reviewing balance sheets, income statements, and financial ratios. A company should ideally have sufficient retained earnings and positive net income before committing to regular dividend payments.

Profitability: Examining the company's profitability over time is crucial. Consistent profits provide a reliable source for dividend payments. It's essential to evaluate both current and historical profitability trends.

Cash Flow: Dividends are typically paid from cash, not accounting profits. Analyzing the cash flow statement helps ensure that the company generates enough cash to cover dividends without compromising its operational needs and growth opportunities.

Future Capital Requirements: Assessing the organization's future capital needs is vital. If substantial investments or projects are on the horizon, retaining earnings might be favored over distributing them as dividends.

Industry Norms: Understanding dividend practices within the industry provides context. Some sectors prefer higher dividends, while others reinvest more in growth. Aligning with industry standards can impact how the company is perceived by investors.

Shareholder Expectations: Considering the preferences and expectations of shareholders is important. Different investors may have varying preferences—some may prioritize dividends for income, while others may seek capital appreciation. Striking a balance that satisfies diverse shareholder expectations is key.

Economic Conditions: Economic factors such as inflation, interest rates, and overall economic stability can influence dividend decisions. Unfavorable economic conditions may lead to a more conservative dividend policy.

Tax Implications: Understanding the tax consequences of dividends for both the company and shareholders is essential. Tax policies can impact the attractiveness of dividends as a form of return for investors.

Growth Strategy: Aligning the dividend policy with the company's growth strategy is crucial. High-growth companies might prefer reinvesting earnings to fund expansion, while mature companies may focus more on distributing profits to shareholders.

Legal and Regulatory Considerations: Complying with legal requirements and regulatory guidelines is imperative. The financial manager must be aware of any restrictions or regulations that govern dividend payments.

By comprehensively evaluating these factors, the financial manager can make well-informed decisions that contribute to the organization's financial sustainability and align with the expectations of both investors and the management team.

5.What is fixed capital and working capital?  Write the difference between fixed capital and working capital.

Ans.Fixed Capital vs. Working Capital: Key Differences

Fixed capital and working capital are two crucial components of a business's financial health, but they serve distinct purposes and exhibit different characteristics. Here's a breakdown of their key differences:

1.Nature:

Fixed capital: Represents long-term investments in assets used for production, like machinery, buildings, and land. These assets are relatively fixed in form and not easily converted into cash in the short term.

Working capital: Represents the short-term funds required to operate the business on a daily basis. This includes current assets like inventory, accounts receivable, and cash. Working capital is readily convertible into cash within a year.

2.Time Horizon:

Fixed capital: Has a long-term impact on the business's production capacity and overall efficiency. Its effects on profitability are realized over several years.

Working capital: Has a short-term impact on the business's liquidity and operational efficiency. Its management is crucial for smooth day-to-day functioning and timely payment of debts.

Impact:

Fixed capital: Determines the scale and scope of a business's operations. Investing in the right fixed assets is crucial for long-term growth and competitiveness.

Working capital: Ensures the smooth flow of production and sales. Insufficient working capital can lead to operational disruptions, payment delays, and ultimately, financial distress.

Management:

Fixed capital: Requires careful planning and long-term financial forecasts. Decisions related to fixed capital investments are strategic and involve significant risk.

Working capital: Requires efficient day-to-day management and monitoring. Techniques like inventory control and accounts receivable collection are used to optimize working capital levels.

In a nutshell:

Fixed capital is like the foundation of a house, providing long-term stability and capacity.

Working capital is like the water and electricity that keep the house running smoothly on a daily basis.

Both fixed and working capital are essential for a business's success. Maintaining a healthy balance between the two is crucial for optimizing long-term growth and short-term operational efficiency.

I hope this explanation clarifies the key differences between fixed and working capital!

6.What is capital structure?  What is capital planning?  Write the difference between capital structure and capital planning.

Ans.Capital structure refers to the mix of a company's long-term debt, short-term debt, and equity used to finance its operations and investments. It represents how a company chooses to fund its activities by combining various sources of capital.

On the other hand, capital planning involves the process of determining the optimal capital expenditures and investments that a company should undertake to achieve its financial goals. It focuses on allocating financial resources efficiently to support the organization's strategic objectives.

The key difference lies in their focus: capital structure deals with the composition of financing sources (debt vs. equity), while capital planning is concerned with deciding how to allocate funds for specific projects and investments to maximize returns

Capital Structure:

Definition: Capital structure refers to the combination of a company's debt and equity used to finance its operations and investments.

Components: It involves determining the proportion of long-term debt, short-term debt, and equity that constitute a firm's total capital.

Capital Planning:

Definition: Capital planning is the process of strategically allocating financial resources to specific projects and investments.

Objective: It aims to ensure that a company invests its capital in projects that align with its goals and generate optimal returns.

Differences:

Focus:

Capital Structure: Focuses on the composition of a company's financing sources—how much comes from debt and how much from equity.

Capital Planning: Concentrates on deciding where to allocate funds, prioritizing projects or investments.

Nature:

Capital Structure: Deals with the overall financial structure of the company.

Capital Planning: Deals with the specific allocation of funds for various projects.

Decision-Making:

Capital Structure: Involves decisions about the mix of debt and equity to achieve an optimal financing structure.

Capital Planning: Involves decisions about which projects or investments to undertake to achieve strategic objectives.

Timing:

Capital Structure: Typically a more constant aspect that may change less frequently.

Capital Planning: Dynamic and involves ongoing decisions based on the company's evolving strategic needs.

In summary, while capital structure deals with the overall financing composition of a company, capital planning is about making specific, dynamic decisions on how to allocate funds for various projects to achieve strategic goals.

7. What do you mean by business?  What factors affect capital structure?

Ans.Business refers to the organized efforts and activities of individuals to produce, sell, or buy goods and services with the aim of making a profit.

.The term "business" can have a broad meaning, depending on the context. Here are some common interpretations:

1. Commercial activity: This refers to the buying and selling of goods or services for profit. This encompasses a wide range of activities, from small retail stores to large multinational corporations.

2. Organization: A business can also refer to a specific organization engaged in commercial activity. This could be a company, partnership, sole proprietorship, or any other legal entity that operates to generate revenue.

3. Industry: Sometimes, "business" refers to a specific sector of the economy, such as the technology business, the healthcare business, or the retail business. This refers to the collection of companies and organizations operating within that particular sector.

Now, regarding factors affecting capital structure:

Capital structure refers to the mix of debt and equity financing a company uses to fund its operations. Several factors influence this mix, including:

1. Cost of capital: Businesses aim to minimize their overall cost of capital, which is the average rate of return they pay on their debt and equity. Generally, debt is cheaper than equity, but it also carries more risk. Companies need to balance their desire for cheap debt with the need to maintain a healthy debt-to-equity ratio.

2. Business risk: The riskiness of a company's business model also affects its capital structure. Riskier businesses may have difficulty accessing cheap debt and may need to rely more on equity financing.

3. Growth prospects: Companies with high growth potential may be able to take on more debt, as their future earnings potential can help offset the risk of the debt.

4. Industry norms: Different industries have different capital structures. For example, public utilities tend to have high debt-to-equity ratios due to the stability of their cash flow.

5. Tax considerations: Certain tax benefits may be associated with using debt or equity financing. Businesses need to consider these tax implications when making capital structure decisions.

6. Ownership structure: The ownership structure of a company can also influence its capital structure. Family-owned businesses may be more conservative in their use of debt, while publicly traded companies may be more willing to take on debt to maximize shareholder returns.

These are just some of the key factors that affect capital structure. Ultimately, the optimal capital structure for a company will depend on its unique circumstances and its long-term goals.

Maintaining a healthy balance between fixed and working capital is crucial for any business. Having sufficient working capital ensures smooth operations, while adequate fixed capital supports long-term growth and production.