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Old May 3rd, 2014, 12:07 PM
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Would you please provide me the CBSE Class 12 Introduction to Financial Markets-II Exam Previous Years Question Papers???

As per your request here I am sharing the CBSE Class 12 Introduction to Financial Markets-II Exam Previous Years Question Paper:

INTRODUCTION TO FINANCIAL MARKETS – II

Q 1 Define T+2 rolling settlement?
(1 mark)
Answer In the T+2 rolling settlement which is presently followed in the Indian markets, the settlement of the trade takes place with two working days from the trade.

Q 2 What is the role of an Authorised person?
(1 mark)
Answer An Authorised Person may introduce clients to the trading member for which they may receive remuneration / commission / compensation from the trading member and not from the clients.

Q 3 What is a pay-off diagram?
(1 mark)
Answer A pay-off diagram indicates the likely profit / loss that would accrue to a market participant with change in the price of the underlying asset.

Q 4 Name the entities in the trading system of the Futures & Options Segment of the National Stock Exchange (NSE)?
(1 mark)
Answer There are four entities in the trading system. They are : Trading members, clearing members, professional clearing members and participants.

Q 5 What are the different types of collateral deposits acceptable at NSCCL from trading members?
(1 mark)
Answer Collateral deposits acceptable at NSCCL are segregated into Cash and non-Cash component. Cash component means cash, bank guarantee, fixed deposit receipts, T-bills and dated government securities. Non-Cash component means all other forms of collateral deposits like deposit of approved securities.

Q 6 What are the various segments of the National Stock Exchange (NSE) under which are trading member (broker) can be admitted?
(2 mark)
Answer A broker can be admitted to NSE under the following segments (in various combinations) :
1) Wholesale Debt Market segment (WDM segment)
2) Capital Market segment (CM segment)
3) Futures and Options segment (F&O segment)

Q 7 Who is an Underwriter?
(2 mark)
Answer An underwriter is a person who engages in the business of underwriting of an issue of securities of a body corporate, where underwriting means an agreement with or without conditions to subscribe to the securities of a body corporate when the existing shareholders of such a body corporate or the public do not subscribe to the securities offered to them.

Q 8 What is the meaning of Compounding Technique?
(2 mark)
Answer When an amount is compounded by the rate of interest, to determine its future value today it is known as compounding technique. This is applied to determine the future value of a present sum of money.

Q 9 Define a Futures Contract?
(2 mark)
Answer A Futures Contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardised exchange traded contracts.

Q 10 What are the important uses of a stock market index?
(2 mark)
Answer A market index is very important for its use :
1. as a barometer for market behaviour
2. as a benchmark for portfolio performance
3. as an underlying in derivatives trading, such index futures trading
4. in passive fund management, like index funds

Q11 Explain the meaning of Hedging.
(2 mark)
Answer Hedging is a risk management strategy. Investors can use hedging to manage the risk arising out of a fall in the price of an asset by selling the futures contract on that asset. For example an investor holding a stock can sell stock futures (or index futures) in case he perceives a likely fall in the stock price. The loss arising from the fall in the stock price is compensated by the gain made in the futures contract. This is called as hedging.

Q12 Define Regular Lot (RL) Orders?
(3 mark)
Answer The term RL stands for regular lot. An order that has no special condition associated with it is a Regular Lot Order. When a dealer places this order, the system looks for a corresponding regular lot order existing in the market. If it does not find a match at the time it enters the system, the order is stacked in the Regular Lot book as a passive order.

Q13 What is the role of a Clearing Member?
(3 mark)
Answer Clearing Members are responsible for settling trades. Settling the trade involves taking the responsibility of making available the resources required on time, i.e. making available the funds and securities on the settlement day. Settlement day would mean T+2 days. Funds are made available through the clearing banks where the clearing member has his account and securities are made available through the depository participant.

Q 14 List any five qualifications for membership of a recognised stock exchange ?
(3 mark)
Answer A person is eligible to be a member of a recognised stock exchange if:
1) He is of twenty one years of age or more.
2) He is a citizen of India.
3) He has not been adjudged bankrupt or insolvent.
4) He has not compounded with his creditors.
5) He has not been at any time expelled or declared as defaulter by any other stock exchange

Q15 Explain what is meant by Contract Cycle?
(3 mark)
Answer Contract Cycle is the period over which a contract trades. The futures contracts on the NSE have one-month, two-months and three month expiry cycles, which expire on the last Thursday of the month. Thus a January expiration contract expires on the last Thursday of January and February expiration contract ceases trading on the last Thursday of February. On the Friday following the last Thursday, a new contract having a three – month expiry is introduced for trading.

Q16 Explain the role of Corporate Manager and Branch Manager in the corporate hierarchy ?
(3 mark)
Answer
1. Corporate Manager : The term ‘Corporate manager’ is assigned to a user placed at the highest level in a trading firm. Such a user can perform all the functions such as order and trade related activities, receiving reports for all branches of the trading member firm and also all dealers of the firm. The Corporate Manager can also define exposure limits for the branches of the firm.
2. Branch Manager : The branch manager is a term assigned to a user who is placed under the corporate manager. Such a user can perform and view order and trade related activities for all dealers under that branch.

Q 17 Explain the meaning of Final Exercise Settlement.
(3 mark)
Answer Final exercise settlement is effected for all open long in-the-money strike options existing at the close of trading hours, on the expiration day of an option contract. All such long positions are exercised and automatically assigned to short positions in option contracts with the same series, on a random basis. The investor who has long in-the-money options on the expiry date will receive the exercise settlement value per unit of the option from the investor who has been assigned the option contract.

Q 18 Please explain the accounting at the time of final settlement for option contracts?
(3 mark)
Answer On exercise of the option, the buyer will recognise premium as an expense and debit the profit and loss account by crediting ‘Equity Index Option Premium Account’ or ‘Equity Stock Option Premium Account’. Apart from the above, the buyer will receive favourable difference, if any, between the final settlement price as on the exercise / expiry date and the strike price, which will be recognised as income. On exercise of the option, the seller will recognise premium as an income and credit the profit and loss account by debiting ‘Equity Index Option Premium Account’ or ‘Equity Stock Option Premium Account’. Apart from the above, the seller will pay the adverse difference, if any, between the final settlement price as on the exercise / expiry date and the strike price. Such payment will be recognised as a loss. As soon as an option gets exercised, margin paid towards such option would be released by the exchange, which should be credited to ‘Equity Index Option Margin Account’ or to ‘Equity Stock Option Margin Account’, as the case may be, and the bank account will be debited.

Q 19 Explain what is a Value at Risk margin?
(4 mark)
Answer Value at Risk (VaR) margin is a margin intended to cover the largest loss that cane be encountered on 99% of the days (99% Value at Risk). For liquid securities, the margin covers one – day losses while for illiquid securities, it covers three – day losses so as to allow the clearing corporation to liquidate the position over three days. This leads to scaling factor of square root of three for illiquid securities. For liquid securities, the VaR margins are based only on the volatility of the security while for other securities, the volatility of the market index is also used in the computation.

Q 20 Explain the contents of the Securities Contracts (Regulation) Rules, 1957?
(4 mark)
Answer Securities Contracts (Regulation) Rules, 1957 contains rules and regulations framed by the Central Government in conformity with the powers so given in the SCRA, 1956.
Some of the rules pertain to ;
• Application for recognition and fees documents and related particulars to be filed along with the application.
• Qualification for membership to a recognised stock exchange
• Contracts between members of recognised stock exchanges
• Nominees of SEBI on the governing bodies of recognised stock exchanges
• Obligation of the governing body to take disciplinary action against a member if so directed by the SEBI.
• Audit of Accounts of members when required by SEBI.
• Books of account and other documents to be maintained and preserved by every stock exchange and by every member of a recognised stock exchange.
• Manner of inquiry in relation to the affairs of the governing body of a recognised stock exchange or the affairs of any member of the stock exchange.
• Submission of Annual Report, periodical returns.
• Requirements with respect to listing of securities on a recognised stock exchange.

Q 21 Explain the Market Inquiry (MI) screen?
(4 mark)
Answer Market Inquiry (MI)
The market inquiry screen can be invoked by using the [F11] key. If a particular contract or security is selected, the details of the selected contract or selected security defaults in the selection screen or else the current position in the market watch defaults. The first line of the screen gives the instrument type, symbol, expiry, contract status, total traded quantity, life time high and life time low. The second line displays the closing price, open price, high price, low price, last traded price and indicator for net change from closing price. The third line displays the last traded quantity, last traded time and the last traded date. The fourth line displays the closing open interest, the opening open interest, day high open interest, day low open interest, current open interest, life time high open interest, life time low open interest and net change from closing open interest. The fifth line display very important information, namely the carrying cost in percentage terms.

Q 22 Explain one Quantity Condition and two Price Conditions that can be attributed to an Order?
(5 mark)
Answer The different Quantity and Price Conditions which can be attributed to an order are :-
Quantity Conditions :
1) Disclosed Quantity (DQ) : An order with a DQ condition allows the Trading Member to disclose only a part of the order quantity to the market. For example, an order of 1000 with a disclosed quantity of 200 will mean that 200 is displayed to the market at a time. After this is traded, another 200 is automatically released, so on until the full order is executed.
Price Conditions :
1) Limit Order : An order that allows the price to be specified while entering the order into the system.
2) Market Order : An order to buy or sell securities at the best price obtainable at the time of entering the order.

Q 23 Explain the Interim exercise settlement for Option contracts?
(5 mark)
Answer Options Contracts on securities are American ones, i.e. the settlement can be done on or before the expiry date. Therefore, interim exercise settlement takes place only for option contracts on securities. An investor would like to exercise his in the money option to earn profits. He can do so at any time during the trading hours, through the trading member. Interim exercise settlement is effected for such options at the close of the trading hours, on the day of exercise. Valid exercised option contracts are assigned to short positions in the option contract with the same series (i.e. having the same underlying, same expiry date and same strike price), on a random basis, at the client level. The CM who has exercised the option receives the exercise settlement value per unit of the option from the CM who has been assigned the option contract. This means that the CM whose client has exercised the option will receive the cash settlement amount from the CM whose client has been assigned the option contract.

Last edited by Aakashd; May 20th, 2019 at 05:23 PM.
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