Chapter 32: Capital Markets and Stock Exchanges (JAIIB - MODULE D)
1. In the primary market, securities are issued for the first time. Which of the following is an example of a primary market transaction?
A. An Initial Public Offering (IPO) by a company
B. Trading of shares between two investors on NSE
C. Buying government bonds from another investor
D. Selling shares already listed on BSE
IPOs represent new issues of securities by companies to the public, which happens in the primary market.
2. Which of the following best describes the role of the secondary market?
A. Provides fresh capital to companies
B. Helps government in raising fiscal deficit financing
C. Provides liquidity to investors by enabling trading of existing securities
D. Facilitates only debt instruments trading
The secondary market allows buying and selling of already issued securities, providing liquidity to investors.
3. A company wants to issue additional shares to existing shareholders in proportion to their holdings. This process is called:
A. Private placement
B. IPO
C. Offer for sale
D. Rights issue
Rights issue gives existing shareholders the right to buy additional shares in proportion to their current holdings.
4. Which was the first stock exchange recognized in India under the Securities Contracts (Regulation) Act, 1956?
A. National Stock Exchange (NSE)
B. Bombay Stock Exchange (BSE)
C. Calcutta Stock Exchange
D. Delhi Stock Exchange
The Bombay Stock Exchange (BSE), established in 1875, was the first recognized stock exchange under the SCRA, 1956.
5. NSE introduced screen-based trading in 1994. The main advantage of this system was:
A. Higher brokerage for traders
B. Restricting access to metropolitan cities only
C. Transparency and nationwide access to trading
D. Elimination of retail investors
Screen-based electronic trading introduced by NSE enhanced transparency, efficiency, and nationwide accessibility.
6. Case Study: An investor buys shares of Infosys Ltd. from another investor through NSE. Which market is this transaction taking place in?
A. Secondary market
B. Primary market
C. Private placement
D. Over-the-counter market
Since the shares were already issued and are being traded between investors, this is a secondary market transaction.
7. Which of the following is NOT typically traded in the secondary market?
A. Equity shares
B. Corporate bonds
C. Government securities
D. Initial Public Offerings (IPOs)
IPOs are issued in the primary market, not traded in the secondary market. Once listed, the shares are then traded in the secondary market.
8. Debentures traded in the secondary market are generally considered as:
A. Equity instruments
B. Debt instruments
C. Hybrid instruments
D. Derivatives
Debentures are debt instruments acknowledging the company's liability to pay interest and repay principal, and can be traded in the secondary market.
9. Which of the following secondary market products derives its value from an underlying asset?
A. Preference shares
B. Debentures
C. Derivatives
D. Government securities
Derivatives like futures and options derive their value from an underlying asset such as equity, commodity, or currency.
10. Case Study: An investor purchases a futures contract on NIFTY. Which category of secondary market product does this belong to?
A. Derivatives
B. Debt instruments
C. Equity shares
D. Mutual funds
Futures contracts fall under the category of derivatives, which are traded in the secondary market on exchanges like NSE.
11. Which of the following instruments provides fixed returns and is actively traded in the secondary market?
A. Equity shares
B. Warrants
C. Derivatives
D. Government securities
Government securities are debt instruments issued by the government, offer fixed returns, and are actively traded in the secondary market.
12. Exchange Traded Funds (ETFs), when traded on stock exchanges, combine features of:
A. Bonds and derivatives
B. Mutual funds and shares
C. Debentures and warrants
D. Equity and government securities
ETFs are pooled investment funds like mutual funds but are traded on stock exchanges like shares, offering liquidity and diversification.
13. As per SEBI regulations, what is the minimum credit rating required for a company to issue corporate debt securities to the public?
A. BBB-
B. B+
C. Investment grade or above
D. AAA only
SEBI mandates that corporate debt securities offered to the public must have an investment-grade rating or higher from a recognized credit rating agency.
14. Which of the following is a mandatory requirement under SEBI regulations for listed corporate bonds?
A. Appointment of a merchant banker
B. Appointment of a Debenture Trustee
C. Mandatory convertible feature
D. Issued only through private placement
SEBI requires appointment of a Debenture Trustee to safeguard investors’ interests in case of corporate bond issues.
15. As per SEBI guidelines, the disclosure document for issuance of corporate debt securities must include:
A. Financial statements, risk factors, and credit rating details
B. Only company’s dividend history
C. Only the market price of existing shares
D. No disclosure is required
SEBI mandates full disclosures in the offer document, including audited financials, risk factors, objects of the issue, and credit ratings.
16. SEBI requires listed companies issuing debt securities to create a Debenture Redemption Reserve (DRR). What is its purpose?
A. To provide dividends to shareholders
B. To pay SEBI regulatory fees
C. To fund expansion projects
D. To safeguard repayment of debenture holders
DRR is created to ensure companies set aside funds for repayment of debenture holders at maturity, enhancing investor protection.
17. Case Study: A company issues listed non-convertible debentures (NCDs). As per SEBI, which of the following is compulsory?
A. Redemption premium must be higher than equity return
B. Credit rating and appointment of debenture trustee
C. Compulsory conversion into equity after 3 years
D. Listing only on BSE and not NSE
For listed NCDs, SEBI requires a valid credit rating and the appointment of a debenture trustee to protect investors’ interests.
18. Which SEBI regulation governs the public issue of debt securities in India?
A. SEBI (Merchant Banker) Regulations, 1992
B. SEBI (Buy-back of Securities) Regulations, 2018
C. SEBI (Issue and Listing of Debt Securities) Regulations, 2008
D. SEBI (Alternative Investment Funds) Regulations, 2012
The SEBI (Issue and Listing of Debt Securities) Regulations, 2008, provide the framework for public issue and listing of corporate debt securities.
19. Market capitalization of a company is calculated as:
A. Share price × Number of outstanding shares
B. Net profit ÷ Number of shares
C. Book value ÷ Market price
D. Dividend ÷ Earnings per share
Market capitalization measures a company’s size and is calculated by multiplying the current share price with the total number of outstanding shares.
20. If a stock trades at ₹500 and its Earnings Per Share (EPS) is ₹25, the Price-to-Earnings (P/E) ratio is:
A. 10
B. 15
C. 30
D. 20
P/E ratio = Market Price ÷ EPS = 500 ÷ 25 = 20.
21. Which of the following best describes a Bull Market?
A. Market with consistently falling prices
B. Market with no volatility
C. Market characterized by rising prices and investor optimism
D. Market dominated by debt instruments
A Bull Market is when stock prices are rising, and investor confidence is high, often leading to more buying.
22. Dividend Yield is calculated as:
A. Dividend per share ÷ Net profit × 100
B. Dividend per share ÷ Market price per share × 100
C. Dividend per share ÷ Book value per share × 100
D. Earnings per share ÷ Market price × 100
Dividend yield shows return from dividends relative to market price. Formula: Dividend per share ÷ Market price per share × 100.
23. Circuit Breaker in stock exchanges is used to:
A. Temporarily halt trading to control excessive volatility
B. Ensure higher liquidity in all securities
C. Prevent companies from issuing more shares
D. Stop insider trading completely
Circuit breakers are mechanisms to pause trading if prices rise or fall beyond a certain limit, to maintain stability and investor protection.
24. Case Study: An investor says the stock of ABC Ltd. is “highly liquid”. What does this imply?
A. The company is debt free
B. The company pays high dividends
C. The company has high market capitalization
D. The stock can be easily bought and sold without major price changes
Liquidity refers to how easily an asset can be converted into cash. Highly liquid stocks have active trading and minimal price impact.
25. Which of the following is not a type of capital issue in the primary market?
A. Initial Public Offer (IPO)
B. Rights Issue
C. Secondary Market Sale
D. Follow-on Public Offer (FPO)
The primary market deals with raising new capital through IPOs, FPOs, and rights issues. Secondary market sale is not a type of capital issue, as it involves trading of existing securities.
26. A company listed on a recognized stock exchange planning to issue additional shares to existing shareholders is doing so through which type of issue?
A. Rights Issue
B. IPO
C. Offer for Sale
D. FPO
A Rights Issue allows existing shareholders to buy additional shares in proportion to their existing holdings, usually at a discounted price.
27. Which of the following is a key eligibility requirement for a company making an IPO as per SEBI regulations?
A. Minimum paid-up equity of ₹5 crores
B. Net tangible assets of at least ₹3 crores in the preceding 3 years
C. Net worth of ₹25 crores in last year
D. Average turnover of ₹50 crores in 3 years
SEBI mandates that companies must have net tangible assets of at least ₹3 crores in the preceding 3 years to be eligible for an IPO.
28. In an Offer for Sale (OFS), who sells the shares to the public?
A. The company issues fresh shares
B. Underwriters
C. Lead managers
D. Promoters or existing shareholders
In an Offer for Sale (OFS), promoters or existing shareholders sell their shares directly to the public through the exchange platform.
29. As per SEBI, a company making a public issue must have net worth of at least how much in each of the last 3 years?
A. ₹1 crore
B. ₹5 crores
C. ₹10 crores
D. ₹15 crores
SEBI specifies that companies making a public issue must have a net worth of at least ₹1 crore in each of the preceding 3 years.
30. Which of the following best describes a Follow-on Public Offer (FPO)?
A. First issue of equity shares to the public
B. Issue of securities to Qualified Institutional Buyers only
C. Subsequent issue of shares by an already listed company
D. Private placement of shares
A Follow-on Public Offer (FPO) is when an already listed company issues additional shares to the public after its IPO.
31. Which of the following acts as the main link between the company raising funds and the investors in the primary market?
A. Registrar
B. Banker to the Issue
C. Merchant Banker
D. Underwriter
Merchant bankers (lead managers) are the main intermediaries responsible for managing the issue process, ensuring compliance, and acting as a bridge between the company and investors.
32. Who is responsible for ensuring proper allotment of shares and maintaining records of investors in a primary issue?
A. Merchant Banker
B. Banker to the Issue
C. Underwriter
D. Registrar to the Issue
The Registrar to the Issue is responsible for processing applications, maintaining records, and finalizing the basis of allotment for investors.
33. Which intermediary in the primary market guarantees the subscription of securities to the extent of the commitment made by them?
A. Merchant Banker
B. Underwriter
C. Registrar
D. Debenture Trustee
Underwriters ensure that in case the issue is not fully subscribed by the public, they will subscribe to the remaining portion as per their commitment.
34. Who ensures that the interests of debenture holders are protected in a primary issue of debentures?
A. Debenture Trustee
B. Merchant Banker
C. Banker to the Issue
D. Registrar to the Issue
Debenture Trustees are appointed to safeguard the interests of debenture holders and to monitor the issuer's compliance with the terms of the issue.
35. Which of the following intermediaries is primarily responsible for handling the money received from investors during a primary issue?
A. Registrar
B. Merchant Banker
C. Banker to the Issue
D. Underwriter
Bankers to the Issue are responsible for collecting application money from investors, depositing it, and transferring funds as per the allotment process.
36. Under the ASBA facility, an investor’s application money for securities is:
A. Paid immediately to the company
B. Blocked in the investor’s bank account until allotment
C. Refunded within 7 days of application
D. Deposited with SEBI directly
In ASBA, the application money remains blocked in the investor’s bank account and is debited only to the extent of allotted securities. This ensures interest accrual continues till allotment.
37. Which category of investors is mandated to apply through ASBA for public issues?
A. Retail individual investors only
B. High Net-Worth Individuals (HNIs)
C. All categories of investors, including QIBs
D. Only institutional investors
SEBI has made ASBA compulsory for all categories of investors applying in public issues. This reduces refund delays and ensures transparency.
38. In ASBA, which intermediary is primarily responsible for blocking funds in the investor’s bank account?
A. Merchant Banker
B. Underwriter
C. Registrar
D. Self-Certified Syndicate Bank (SCSB)
Self-Certified Syndicate Banks (SCSBs) block the application money in investors’ bank accounts and release funds only to the extent of allotment.
39. Qualified Institutional Placement (QIP) is a capital-raising method available only to:
A. Listed companies in India
B. Unlisted companies
C. Foreign companies
D. Government undertakings only
QIP is a fundraising tool available only to Indian listed companies to raise capital from Qualified Institutional Buyers (QIBs) without undergoing lengthy regulatory procedures.
40. The primary advantage of QIP for a company is:
A. It requires SEBI approval for each issue
B. It allows faster fundraising with less regulatory compliance
C. It is open to all retail investors
D. It ensures full subscription by underwriters
QIP enables listed companies to raise funds quickly from QIBs without the need for elaborate approvals, making it a time-efficient method.
