Market Participants
Level 1 — Recognition Test (MCQ + Matching + True/False with Justification)
Time Limit: 20 minutes Total Marks: 30
Section A — Multiple Choice Questions (1 mark each, 10 marks)
Choose the single best option.
Q1. Which of the following is a retail investor?
- A) Life Insurance Corporation of India
- B) An individual buying 50 shares from her savings
- C) A foreign pension fund
- D) A mutual fund house
Q2. "FII" in the Indian stock market stands for:
- A) Foreign Investment Institution
- B) Foreign Institutional Investor
- C) Financial Institutional Investor
- D) Federal Investment Instrument
Q3. The primary role of a market maker is to:
- A) Regulate stock exchanges
- B) Provide continuous buy and sell quotes to ensure liquidity
- C) Hold securities in electronic form
- D) Approve company listings
Q4. In India, the two depositories are:
- A) NSE and BSE
- B) NSDL and CDSL
- C) SEBI and RBI
- D) NSCCL and ICCL
Q5. Which body is the regulator of the Indian securities market?
- A) RBI
- B) SEBI
- C) NSDL
- D) Ministry of Finance
Q6. A clearing corporation is mainly responsible for:
- A) Marketing IPOs to investors
- B) Guaranteeing settlement of trades
- C) Setting interest rates
- D) Issuing PAN cards
Q7. DII stands for:
- A) Domestic Individual Investor
- B) Direct Investment Instrument
- C) Domestic Institutional Investor
- D) Depository Investment Institution
Q8. A sub-broker typically:
- A) Owns the stock exchange
- B) Acts as an agent of a broker to service clients
- C) Regulates FIIs
- D) Runs a clearing corporation
Q9. Which of these is a prop (proprietary) trading firm characteristic?
- A) Trades using clients' pooled retirement money
- B) Trades using the firm's own capital for profit
- C) Regulates the market
- D) Only stores securities
Q10. A standard requirement for listing on a stock exchange usually includes:
- A) No minimum public shareholding
- B) Compliance with disclosure norms and minimum public float
- C) A guarantee of profit to investors
- D) Approval from a hedge fund
Section B — Matching (1 mark each, 8 marks)
Match each participant in Column X with its function in Column Y.
| # | Column X (Participant) | Column Y (Function) | |
|---|---|---|---|
| 11 | Mutual Fund | A | Holds securities in dematerialised form |
| 12 | SEBI | B | Pools investor money into a diversified portfolio |
| 13 | Depository | C | Protects investors and regulates the market |
| 14 | Pension Fund | D | Guarantees and completes trade settlement |
| 15 | Clearing Corporation | E | Provides two-way quotes to add liquidity |
| 16 | Market Maker | F | Invests long-term retirement contributions |
| 17 | Broker | G | Executes trades on behalf of clients |
| 18 | Hedge Fund | H | Uses complex/leveraged strategies for high-net-worth investors |
(Write answers as 11–?, 12–?, etc.)
Section C — True/False WITH Justification (2 marks each: 1 for correct T/F, 1 for justification, 12 marks)
Q19. FIIs buying heavily tend to push Indian markets up, while heavy FII selling can drag them down. (T/F + justify)
Q20. A depository like CDSL executes buy and sell orders directly on the exchange. (T/F + justify)
Q21. Mutual funds are examples of Domestic Institutional Investors (DIIs). (T/F + justify)
Q22. SEBI is a stock exchange where shares are traded. (T/F + justify)
Q23. Market makers help reduce the bid-ask spread and improve liquidity. (T/F + justify)
Q24. In India settlement currently follows a T+1 rolling cycle for equities. (T/F + justify)
Answer keyMark scheme & solutions
Section A — MCQ (1 mark each)
Q1 — B. A retail investor is an individual trading small amounts of personal money; A, C, D are institutions. Q2 — B. FII = Foreign Institutional Investor — overseas entities investing in Indian markets. Q3 — B. Market makers post continuous two-way quotes so buyers/sellers always find a counterparty → liquidity. Q4 — B. NSDL and CDSL are India's two depositories; NSE/BSE are exchanges. Q5 — B. SEBI (Securities and Exchange Board of India) is the statutory regulator. Q6 — B. A clearing corporation acts as central counterparty guaranteeing settlement. Q7 — C. DII = Domestic Institutional Investor (e.g., Indian mutual funds, insurers). Q8 — B. A sub-broker is an agent of a registered broker servicing clients. Q9 — B. Prop firms trade the firm's own capital, not client money. Q10 — B. Listing needs disclosure compliance and a minimum public shareholding/float.
Marking: 1 mark per correct letter, 0 otherwise.
Section B — Matching (1 mark each)
| Q | Answer |
|---|---|
| 11 Mutual Fund | B — Pools investor money into diversified portfolio |
| 12 SEBI | C — Protects investors and regulates the market |
| 13 Depository | A — Holds securities in dematerialised form |
| 14 Pension Fund | F — Invests long-term retirement contributions |
| 15 Clearing Corporation | D — Guarantees and completes settlement |
| 16 Market Maker | E — Provides two-way quotes for liquidity |
| 17 Broker | G — Executes trades on behalf of clients |
| 18 Hedge Fund | H — Uses complex/leveraged strategies for HNIs |
Marking: 1 mark each; no partial marks per item.
Section C — True/False with Justification (2 marks each)
Q19 — TRUE (1) + justify (1). FIIs move large capital; net buying increases demand and lifts indices, net selling increases supply and pressures prices. Any equivalent explanation citing large fund flows earns the mark.
Q20 — FALSE (1) + justify (1). Depositories only hold/settle securities in demat form; brokers execute orders on the exchange.
Q21 — TRUE (1) + justify (1). Indian mutual funds are domestic institutions that invest pooled money, hence classified as DIIs.
Q22 — FALSE (1) + justify (1). SEBI is the regulator, not a trading venue; exchanges like NSE/BSE are where shares trade.
Q23 — TRUE (1) + justify (1). By continuously quoting both bid and ask, market makers narrow the spread and add liquidity.
Q24 — TRUE (1) + justify (1). Indian cash-equity settlement moved to a T+1 rolling cycle (fully implemented by early 2023), meaning trades settle one business day after the trade date.
Mark Distribution Summary
- Section A: 10 × 1 = 10
- Section B: 8 × 1 = 8
- Section C: 6 × 2 = 12
- Total = 30 marks
[
{"claim":"Section A has 10 one-mark questions totalling 10 marks","code":"result = (10*1 == 10)"},
{"claim":"Section B has 8 matching items worth 1 mark each = 8","code":"result = (8*1 == 8)"},
{"claim":"Section C has 6 questions at 2 marks each = 12","code":"result = (6*2 == 12)"},
{"claim":"Total paper marks equal 30","code":"secA=10*1; secB=8*1; secC=6*2; result = (secA+secB+secC == 30)"},
{"claim":"T+1 settlement means settlement date is trade date plus one business day","code":"trade_day=0; settle_day=trade_day+1; result = (settle_day == 1)"}
]