3rd Sept 2024 Shift 2:
| Examination: | UGC NET |
| Subject: | COMMERCE (Paper 2) |
| Exam cycle: | 3rd Sept 2024 Shift 2 |
| Types of Paper: | PYQ’s (Previous Year Questions) |
| Which Unit? | Unit 7 Banking and Financial Institutions |
Question No.1
Which of the following are the participants in T-Bills Market?
A. Reserve Bank of India
B. Commercial Banks
C. Foreign Banks
D. Provident Funds
E. Corporates
Choose the correct answer from the options given below:
- B, C, D & E Only
- A, B, C & E Only
- A, B, D & E Only
- A, B, C, D & E
Solutions:
The correct answer is A, B, C, D & E.
Key Points
Let’s analyze the participants in the T-Bills Market:
● Reserve Bank of India
o The Reserve Bank of India (RBI) is the central bank of India and plays a crucial role in the issuance and regulation of T-Bills. The RBI conducts auctions of T-Bills on behalf of the Government of India and ensures the smooth functioning of the T-Bills market.
o Reason for inclusion: As the issuer and regulator, the RBI is a key participant in the T-Bills market.
● Commercial Banks
o Commercial banks participate in the T-Bills market by buying and selling T-Bills. They use T-Bills as a secure investment option and as collateral for obtaining funds from the RBI.
o Reason for inclusion: Commercial banks are significant investors in T-Bills, making them key participants in the market.
● Foreign Banks
o Foreign banks operating in India also invest in T-Bills. They participate in the market to manage their liquidity and to hold a portion of their investments in secure government-backed instruments.
o Reason for inclusion: Foreign banks are active participants in the T-Bills market.
● Provident Funds
o Provident funds invest in T-Bills as a safe investment option to ensure the security and liquidity of their funds. T-Bills provide a risk-free return, making them an attractive investment for provident funds.
o Reason for inclusion: Provident funds are institutional investors in T-Bills, contributing to the demand in the market.
● Corporates
o Corporates invest in T-Bills to manage their short-term liquidity needs. T-Bills are a secure and liquid investment option for corporates looking to park their surplus funds for short durations.
o Reason for inclusion: Corporates are among the investors in T-Bills, participating actively in the market.
Therefore, all the listed entities – Reserve Bank of India, Commercial Banks, Foreign Banks, Provident Funds, and Corporates – are participants in the T-Bills market. This makes option 4: “A, B, C, D & E” the correct choice.
Question No.2
Which of the following are the schemes promoted by NABARD?
A. Kisan Credit Card (KCC)
B. Capital Investment Subsidy Scheme
C. Special Economic Zone Scheme
D. Rural Innovation Fund
E. Tribal Development Fund
Choose the correct answer from the options given below:
- A, B, C & D Only
- B, C, D & E Only
- A, B, D & E Only
- A, C, D & E Only
Solutions:
The correct answer is A, B, D & E Only.
Key PointsLet’s analyze each scheme:
● Kisan Credit Card (KCC)
o The Kisan Credit Card (KCC) scheme was introduced to provide farmers with timely access to credit. NABARD plays a significant role in promoting and supporting this scheme.
o Reason for inclusion: The KCC scheme is promoted by NABARD to ensure farmers have the necessary credit for their agricultural needs.
● Capital Investment Subsidy Scheme
o This scheme aims to promote investments in agriculture by providing subsidies for various capital investments.
o Reason for inclusion: NABARD supports the Capital Investment Subsidy Scheme to encourage agricultural investments and development.
● Special Economic Zone Scheme
o The Special Economic Zone (SEZ) scheme is designed to attract foreign investments and promote exports, primarily handled by different government bodies and not NABARD.
o Reason for exclusion: This scheme is not directly related to NABARD’s role and focus areas.
● Rural Innovation Fund
o The Rural Innovation Fund (RIF) is a scheme to promote innovative ventures in rural areas, supported by NABARD.
o Reason for inclusion: NABARD promotes the RIF to encourage innovative projects that can benefit rural development.
● Tribal Development Fund
o The Tribal Development Fund (TDF) is aimed at the development and welfare of tribal communities, and it is another initiative supported by NABARD.
o Reason for inclusion: NABARD supports the TDF to ensure the socio-economic development of tribal communities.
Question No.3
Arrange the following steps involved in the process of IPO issue in correct order.
A. Verification by SEBI
B. Hiring an under writer
C. Registration for IPO
D. Pricing of IPO
E. Allotment of shares
Choose the correct answer from the options given below:
- A, C, D, B, E
- A, D, C, B, E
- B, C, D, A, E
- B, C, A, D, E
Solutions:
The correct answer is B, C, A, D, E.
Key Points
● Hiring an underwriter (B):
o The first step in the IPO process involves hiring an underwriter, typically an investment bank. The underwriter helps the company prepare for the IPO by determining the financial health and readiness of the company for the public market.
o This step is crucial as the underwriter plays a key role in advising on the IPO process, preparing necessary documentation, and ensuring regulatory compliance.
● Registration for IPO (C):
o After hiring an underwriter, the company must register for the IPO with the appropriate regulatory authorities, such as the Securities and Exchange Board of India (SEBI).
o This step involves submitting a detailed prospectus outlining the company’s financials, business model, risk factors, and other pertinent information.
● Verification by SEBI (A):
o Following registration, the regulatory authority (SEBI) conducts a thorough verification of the submitted documents to ensure compliance with all legal and financial requirements.
o This verification process is critical to protect investors by ensuring that all information provided by the company is accurate and complete.
● Pricing of IPO (D):
o Once the regulatory authority approves the IPO, the next step is to determine the IPO price. This involves setting the price at which the shares will be offered to the public.
o The pricing is typically decided through a book-building process where the demand for shares is gauged to arrive at an optimal price.
● Allotment of shares (E):
o The final step in the IPO process is the allotment of shares to investors. This step involves distributing the shares to institutional and retail investors based on the demand and subscription levels.
o Successful allotment marks the company’s transition to a publicly traded entity, and its shares begin trading on the stock exchange.
Question No.4
Match the List-I with List-II
| LIST I Instruments | LIST II Market | ||
| A | Forwards | I. | Primary Market |
| B | Certificate of Deposits | II. | Money Market |
| C | FPO | III. | Derivative Market |
| D | IPO | IV. | Stock Market |
Choose the correct answer from the options given below:
- A-I, B-III, C-II, D-IV
- A-II, B-IV, C-I, D-III
- A-IV, B-II, C-III, D-I
- A-III, B-II, C-IV, D-I
Solutions:
The correct answer is ‘A-III, B-II, C-IV, D-I’.
Key Points
● Forwards (A) matches with Derivative Market (III).
o Explanation: Forwards are financial contracts that obligate the buyer to purchase, and the seller to sell, an asset at a predetermined future date and price. These are traded over-the-counter (OTC) and are part of the Derivative Market.
o Derivatives are financial instruments whose value is derived from the value of an underlying asset, which can include stocks, bonds, commodities, currencies, interest rates, and market indexes.
o Key Point: Forwards are used for hedging or speculation purposes in the financial markets.
● Certificate of Deposits (B) matches with Money Market (II).
o Explanation: Certificates of Deposits (CDs) are short to medium-term, interest-bearing, debt instruments offered by banks. They are considered low-risk and are traded in the Money Market.
o The Money Market deals with short-term borrowing and lending, typically involving financial instruments that are considered safe and liquid.
o Key Point: CDs provide a fixed interest rate to investors until the maturity date.
● FPO (C) matches with Stock Market (IV).
o Explanation: Follow-on Public Offer (FPO) is a process by which a company already listed on a stock exchange issues new shares to investors. This occurs in the Stock Market.
o FPOs are used by companies to raise additional capital after an initial public offering (IPO).
o Key Point: FPOs can be dilutive or non-dilutive, depending on whether new shares are issued or existing shareholders sell their shares.
● IPO (D) matches with Primary Market (I).
o Explanation: An Initial Public Offering (IPO) is the first time a company offers its shares to the public. This process occurs in the Primary Market.
o The Primary Market is where new securities are created and sold for the first time, allowing companies to raise capital directly from investors.
o Key Point: After the IPO, the shares are traded in the Secondary Market, where existing shares are bought and sold among investors.
