Market Participants

Q1. (4 marks)

• Retail investor: An individual who buys/sells securities for personal account in relatively small quantities. (1)
• Institutional investor: An organisation (bank, insurance co., mutual fund, pension fund) that invests large pooled sums on behalf of others. (1)
• Two differences (1 each): trade size (small vs large); market impact (negligible vs significant); access to research/resources; regulatory treatment.

Q2. (4 marks)

• FII = Foreign Institutional Investor. (1)
• DII = Domestic Institutional Investor. (1)
• Heavy FII selling → outflow of foreign capital → falling stock indices (1) → increased dollar demand/rupee sold → rupee depreciates. (1)
• Why: FIIs bring foreign currency; when they exit, they convert INR to USD, weakening the rupee and pressuring prices.

Q3. (4 marks)

• Mutual fund role: pools money from many investors and invests in a diversified portfolio of securities managed by professionals. (2)
• Difference: pension funds have a long-term horizon (retirement, decades) and favour stable/lower-risk assets, whereas mutual funds may serve short-to-long horizons depending on scheme. (2)

Q4. (4 marks)

• Hedge fund: a privately pooled, lightly regulated investment fund for wealthy/qualified investors using aggressive strategies to earn high returns. (2)
• Two distinguishing features (1 each): uses leverage & derivatives / short-selling; open only to accredited investors; high minimum investment; performance-based fees; less regulated than mutual funds.

Q5. (4 marks)

• Market maker: a firm/participant that continuously quotes both buy (bid) and sell (ask) prices, providing liquidity. (1.5)
• Bid-ask spread: the difference between the ask price and the bid price. (1.5)
• Spread $= 100.50 - 100.20 = ₹0.30$. (1)

Q6. (4 marks)

• Broker: a SEBI-registered member of the stock exchange authorised to execute buy/sell orders for clients. (1.5)
• Sub-broker: an agent who works under a broker, procures clients but is not a direct exchange member (now largely replaced by Authorised Persons). (1.5)
• Broker function (1): executing trades, providing trading platform, offering research/advisory, settling trades.

Q7. (4 marks)

• NSDL = National Securities Depository Limited. (1)
• CDSL = Central Depository Services Limited. (1)
• Primary function: hold securities in dematerialised (electronic) form and enable their transfer/settlement. (2)

Q8. (4 marks)

• Clearing corporation: an entity that acts as central counterparty, guaranteeing and settling trades, managing counterparty risk. (1.5)
• T+1: settlement is completed one business day after the trade date (T). (1.5)
• Trade Monday → settlement Tuesday. (1)

Q9. (4 marks) — any four, 1 mark each:

• Protecting investor interests.
• Regulating stock exchanges and intermediaries.
• Preventing insider trading / fraudulent & unfair trade practices.
• Registering & regulating brokers, mutual funds, FIIs.
• Promoting investor education and market development.

Q10. (4 marks) — any four, 1 mark each:

• Minimum paid-up capital / market capitalisation.
• Minimum public shareholding (e.g., 25%).
• Minimum number of shareholders.
• Track record of profitability/net worth.
• Compliance with SEBI/exchange disclosure norms & listing agreement.
• Prospectus/IPO requirements.

[
  {"claim":"Bid-ask spread = 100.50 - 100.20 = 0.30", "code":"bid=Rational('100.20'); ask=Rational('100.50'); result = (ask-bid == Rational('0.30'))"},
  {"claim":"T+1 settlement of a Monday trade settles Tuesday (day offset of 1)", "code":"trade_day=0; settle_day=trade_day+1; result = (settle_day == 1)"},
  {"claim":"Minimum public shareholding requirement is 25 percent", "code":"mps=25; result = (mps == 25)"}
]