What Markets Are

Q1 (10)

(a) (3) A financial market is a system/place where buyers and sellers trade financial assets (shares, bonds, currencies, derivatives). (1) Its economic purpose: to channel savings into productive investment (1) and enable exchange of capital and risk efficiently. (1)

(b) (4) Savers/investors have surplus funds (1); firms/governments need capital (1). Markets connect them: firms issue securities, savers buy them, funds flow to firms (1). Efficient allocation means capital flows to the most productive/profitable users → higher economic growth and best use of scarce resources. (1)

(c) (3) Price discovery = the process by which the market determines the fair price of an asset (1) through the continuous interaction of supply (sellers/asks) and demand (buyers/bids) (1); the agreed transaction price reflects aggregated information and expectations of all participants. (1)

Q2 (12)

(a) (3) Bid = highest price a buyer will pay (0.5); Ask = lowest price a seller will accept (0.5); Spread = Ask − Bid (0.5).

• Absolute spread = $\text{Ask}-\text{Bid}$ (0.5)
• Mid = $\frac{\text{Ask}+\text{Bid}}{2}$ (0.5)
• Spread % = $\dfrac{\text{Ask}-\text{Bid}}{\text{Mid}}\times100$ (0.5)

(b) (3) Absolute spread = 247.55 − 247.20 = ₹0.35 (1.5). Mid = (247.55+247.20)/2 = ₹247.375 (1.5).

(c) (2) Spread % = 0.35 / 247.375 × 100 = 0.1415% ≈ 0.14% (2).

(d) (4) Same absolute spread ₹0.35 near ₹40: mid ≈ 40, % = 0.35/40 × 100 = 0.875% ≈ 0.88% (2). Higher percentage spread → less liquid: wider relative spread means higher transaction cost, fewer/thinner orders (1). RELX (0.14%) is more liquid than the ₹40 stock (0.88%). (1)

Q3 (10)

(a) (2) $\text{Market Cap} = \text{Share Price} \times \text{Shares Outstanding}$. (2)

(b) (4) Market Cap = 1250 × 8 crore = ₹10,000 crore (2). Thresholds (common India rule of thumb): Large ≥ ~₹20,000 cr, Mid ₹5,000–20,000 cr, Small below ~₹5,000 cr (micro smallest). (1) At ₹10,000 cr → Mid-cap. (1) (Full marks for stated consistent thresholds.)

(c) (4) Price after +20%: 1250×1.20 = 1500. Bonus doubles shares (→16 cr) and halves price (→750). (1) New price = 1500/... careful: two effects. Take +20% first → 1500; then bonus: shares 8→16 cr, price 1500→750. (1) New cap = 750 × 16 = ₹12,000 crore (1). Net effect: only the 20% price rise changed market cap (10,000→12,000); the bonus split is value-neutral (share count up, price down proportionally). (1)

Q4 (10)

(a) (4) Any 3 (≈1.3 each, cap 4):

• Centralisation: Exchange = centralised, standardised venue; OTC = decentralised dealer network.
• Transparency: Exchange has public order book/prices; OTC prices negotiated, less transparent.
• Standardisation/listing: Exchange lists standardised, regulated securities; OTC trades unlisted/customised instruments.
• Counterparty: Exchange uses central clearing/matching; OTC is bilateral with counterparty risk.

(b) (3) NSE and BSE are India's two main exchanges (1). BSE — Asia's oldest exchange (est. 1875), benchmark index SENSEX (1). NSE — larger by volume, fully electronic, benchmark index NIFTY 50 (1).

(c) (3) (0.75 each) NYSE — New York, USA; NASDAQ — USA (electronic, tech-heavy); LSE — London, UK; TSE — Tokyo, Japan.

Q5 (10)

(a) (4) IST − ET = (UTC+5:30) − (UTC−5) = 10:30 hours ahead (2). NYSE open 09:30 ET → 09:30 + 10:30 = 20:00 IST (8:00 PM) (2).

(b) (3) Ticker symbol = short alphabetic code identifying a stock (e.g., NSE: INFY, NYSE: AAPL) (1.5). BSE scrip code = numeric code (e.g., Infosys = 500209) (1.5).

(c) (3) Cross-border investors must know when each market is open (1); time-zone differences mean overnight gaps and overlapping/non-overlapping sessions (1); affects execution timing, reaction to global news, and liquidity availability. (1)

Q6 (8)

(a) (3) Bull = sustained rising prices/optimism (1). Bear = sustained fall, commonly a ≥20% decline from a recent peak (1). Sideways = prices range-bound with no clear up/down trend (small % moves). (1)

(b) (5)

• 12,000 → 15,000: +25% → Bull (1.5)
• 15,000 → 14,850: −1% → Sideways (negligible move) (1.5)
• 14,850 → 11,700: −21.2% → Bear (exceeds 20% threshold) (2)

Working: (15000−12000)/12000=25%; (14850−15000)/15000=−1%; (11700−14850)/14850=−21.2%.

[
  {"claim":"Q2b/c: spread 0.35, mid 247.375, pct ≈0.1415%","code":"bid=Rational('247.20');ask=Rational('247.55');spread=ask-bid;mid=(ask+bid)/2;pct=float(spread/mid*100);result=(spread==Rational('0.35') and mid==Rational('247.375') and abs(pct-0.1415)<0.001)"},
  {"claim":"Q2d: 0.35 near 40 gives ~0.875%","code":"pct=0.35/40*100;result=abs(pct-0.875)<0.001"},
  {"claim":"Q3b/c: caps 10000 then 12000 crore","code":"cap1=1250*8;price=1250*Rational('1.2');shares=16;cap2=(price/2)*shares;result=(cap1==10000 and cap2==12000)"},
  {"claim":"Q5a: NYSE 09:30 ET -> 20:00 IST (10.5h ahead)","code":"open_et=9*60+30;offset=10*60+30;ist=open_et+offset;result=(ist==20*60)"},
  {"claim":"Q6b: index moves 25%, -1%, -21.2%","code":"m1=(15000-12000)/12000*100;m2=(14850-15000)/15000*100;m3=(11700-14850)/14850*100;result=(abs(m1-25)<0.01 and abs(m2+1)<0.01 and abs(m3+21.2)<0.1)"}
]