Business and Commerce MCQ Questions and Solutions with Explanations | Commerce

Investors in securities are components of organized sector of stock exchange. The organised sector of the capital market comprises all the term-lend­ing financial institutions (or development banks or non-banking financial institutions, like 1DB1, ICICI, etc.), banks with their me­dium-term and their merchant banking divi­sions or subsidiaries, LIC, GIC, UTI and the stock exchanges (an essential component of the capital market).

Stock exchange placing methods is not used for raising capital through the sale of new securities. The companies raise money in the primary market through securities such as shares, debentures, loans and deposits, preference shares etc. Let us take a look the various methods of how new securities are floated in the primary market.

The most common method used for marketing of new securities is direct sale to public through prospectus.

The first stock exchange was set up in India in Bombay. The Bombay Stock Exchange (BSE) is the first and largest securities market in India and was established in 1875 as the Native Share and Stock Brokers' Association.

The stock market in each country now is governed/controlled by the corresponding governing bodies in that country. Ex: SEC (Securities Exchange Commission) for USA , SEBI (Securities & Exchanges Board of India) for India. Earlier Stock Exchanges in India were continued to be regulated directly by the Government of India. In the year 1988 the Government of India constituted SEBI to act as the independent regulator of Stock exchanges, the primary market, Mutual Funds etc. Securities Scam of 1990-91 mastered by the stockbroker Harshad Mehta, exposed by journalist Sucheta Dalal, prompted Government to make SEBI a statutory and autonomous regulatory board with responsibilities, to cover both development & regulation of the market.

A speculator who applies for new share is a stag. An investor or speculator who subscribes to a new issue, expecting the price of the stock to rise immediately upon the start of trading is known as a stag. The sole aim of a stag is to sell the shares soon after allotment to realise a quick profit.

Dealings in stock exchanges can be done by public only through brokers. A stockbroker is a professional who executes buy and sell orders for stocks and other securities on behalf of clients. A stockbroker may also be known as a registered representative, investment adviser or simply, broker.

Members of Bombay stock exchange are unofficially classified into brokers and tarawaniwalas. In India there are two types of members in the Mumbai stock exchange. They are called Brokers and Tarawaniwalas. All this is done unofficially. The Tarawaniwalas act both as jobbers and brokers. A tarawaniwala makes transactions on his behalf like a jobber but he may also act as a broker on behalf of the public.

Speculation in stock exchange means buying and selling securities in the hope of making profile due to change in prices.

Bear speculators expect fall in the prices of securities in the near future. A bear is a pessimistic speculator who expects a sharp fall in the prices of certain securities. He enters into selling contracts in certain securities on a future date. If the price of the security falls as he expects he shall get the price difference.