Lesson no 3 Disaster management and economics
Q.1 Differentiate between shares and debentures?
Ans:- Shares and debentures are both financial instruments used by companies to raise capital, but they differ in terms of ownership, returns, and legal characteristics.
Shares, also known as equities or stocks, represent ownership in a company. When an individual buys shares, they become a partial owner or shareholder in that company, entitled to a share of profits and certain rights such as voting privileges. Shareholders may receive dividends if the company profits, and they have the potential to benefit from capital appreciation if the share price rises.
On the other hand, debentures are debt instruments issued by companies to borrow money from investors. When an investor purchases a debenture, they are effectively lending money to the company. Debenture holders do not have ownership rights in the company, but they become creditors and are entitled to receive fixed interest payments periodically. Debentures typically have a predetermined maturity date, upon which the company is obliged to repay the principal amount borrowed.
In summary, shares represent ownership in a company and provide the potential for profit through dividends and capital appreciation, while debentures are debt instruments that offer fixed interest payments but do not entail ownership rights.
Q.2 Write a short note on stock exchanges?
Ans:- Ans stock exchange is a regulated marketplace where various financial instruments, primarily stocks or shares, are bought and sold. It serves as a platform for companies to raise capital by selling ownership interests in the form of stocks to investors. Here are some key points to understand about the stock exchange:
1. Function: The stock exchange acts as an intermediary between buyers and sellers, facilitating the trading of securities. It provides liquidity and transparency to market participants, ensuring fair and orderly transactions.
2. Listing: Companies seeking to trade their stocks on the exchange must meet specific criteria and comply with regulations. Once listed, their stocks become publicly available for trading.
3. Stockbrokers: Individual investors cannot directly buy or sell stocks on the stock exchange; they need to go through licensed brokers or brokerage firms. These intermediaries execute trades on behalf of investors.
4. Trading Process: Trading on the stock exchange generally occurs through electronic platforms, where buyers and sellers place their orders. The stock exchange matches these orders based on price and time priority, resulting in transactions.
5. Price Determination: Stock prices on the exchange fluctuate based on the forces of supply and demand. Factors like company performance, economic indicators, market sentiment, and news influence the buying and selling decisions, impacting stock prices.
6. Indices: Stock exchanges often have benchmark indices that track the overall performance of selected stocks. These indices, such as the S&P 500 or Dow Jones Industrial Average, provide a snapshot of the market's health and serve as reference points for investors.
7. Regulation: Stock exchanges are regulated by governmental bodies or independent regulatory authorities to maintain fairness, integrity, and investor protection. They enforce rules and regulations related to trading, listing, disclosure, and market conduct.
8. Investment Opportunities: The stock exchange offers investors the opportunity to participate in the growth and profitability of companies. By purchasing shares, investors become partial owners and may benefit from dividends, capital gains, and potential voting rights.
9. Risks: Investing in the stock market carries certain risks, including market volatility, economic fluctuations, and specific company-related risks. Investors should carefully assess their risk tolerance and conduct thorough research before investing in stocks.
Overall, the stock exchange plays a crucial role in the global financial system by facilitating the buying and selling of securities, enabling capital formation, and providing investment opportunities for individuals and institutions alike.
Q.3 What is SEBI ? Explain the role of SEBI in stock exchange?
Ans:-
SEBI stands for the Securities and Exchange Board of India. It is the regulatory body for the securities market in India. Established under the SEBI Act of 1992, SEBI has a crucial role in ensuring fair and transparent functioning of the stock exchanges and protecting the interests of investors.
The primary role of SEBI is to regulate and supervise the activities of various participants in the securities market, including stock exchanges, brokers, listed companies, and other intermediaries. Here are some key functions and responsibilities of SEBI:
1. Regulation and oversight: SEBI formulates and enforces rules, regulations, and guidelines for the functioning of stock exchanges, depositories, and other market intermediaries. It aims to create a level playing field for all participants and maintain market integrity.
2. Investor protection: SEBI works to safeguard the interests of investors through various measures. It promotes fair practices and discourages fraudulent and unfair trade practices in the securities market. SEBI also encourages transparency and disclosure norms, ensuring that investors have access to reliable information for making informed investment decisions.
3. Market development: SEBI plays an active role in developing and nurturing the securities market in India. It introduces market reforms, encourages innovation, and adopts best practices from around the world to enhance the efficiency and competitiveness of Indian markets. SEBI also encourages the adoption of technological advancements to improve market infrastructure and trading systems.
4. Supervision and enforcement: SEBI has the authority to monitor and inspect the books, records, and activities of market intermediaries. It carries out inspections, investigations, and inquiries to ensure compliance with its regulations. SEBI also has the power to take appropriate enforcement actions against those found violating the rules, including imposing fines and penalties.
5. Investor education and awareness: SEBI aims to enhance investor education and awareness by conducting workshops, seminars, and campaigns to educate investors about various investment avenues, risks associated with investing, and the importance of due diligence. It also provides a grievance redressal mechanism to address investor complaints and disputes.
Overall, the role of SEBI in the stock exchange is to create a fair and transparent environment, protect the interests of investors, foster the growth and development of the securities market, and ensure smooth functioning of market participants. Its regulatory oversight helps maintain market integrity and instill investor confidence, making the Indian stock market more robust and secure.
Q.4 Write a short note on SENSEX?
The Sensex, also known as the S&P BSE Sensex, is the benchmark stock market index of the Bombay Stock Exchange (BSE) in India. It represents the performance of the top 30 largest and most actively traded companies listed on the BSE. The Sensex is often used as a gauge to measure the overall health and direction of the Indian stock market.
The calculation of the Sensex is based on the free-float market capitalization methodology, which means that the index is weighted based on the market value of each individual company's shares that are available for public trading. This methodology ensures that the larger companies have a higher impact on the index compared to smaller ones.
The Sensex is computed using a base year and base value, which is adjusted periodically to reflect changes in the market. The base value of the Sensex was set at 100 in 1979-80, and it has since grown significantly over the years. The index is calculated in real-time, providing investors with up-to-date information on the performance of the Indian stock market.
Investors and analysts closely track the Sensex as it serves as an important indicator of market sentiment and economic performance. When the Sensex is rising, it generally indicates positive investor sentiment and the overall bullishness of the market. Conversely, a declining Sensex suggests a bearish market sentiment and often raises concerns about the health of the economy.
The Sensex is influenced by various factors, including corporate earnings, economic indicators, global market trends, government policies, and geopolitical events. It serves as a reference point for assessing the performance of individual stocks, mutual funds, and portfolios, and is widely used by both domestic and international investors to make investment decisions.
In conclusion, the Sensex is a key barometer of the Indian stock market, reflecting the performance of the top 30 companies listed on the BSE. It provides investors with valuable insights into market trends, sentiment, and overall economic conditions, making it an essential tool for analyzing and understanding the Indian stock market.
0 Comments