What Markets Are
Level 4 — Application (Novel Problems, No Hints)
Time Limit: 60 minutes
Total Marks: 50
Q1. (10 marks) — Market Capitalization & Classification
A company, Zentra Ltd., trades at ₹480 per share and has 12.5 crore shares outstanding. The exchange defines cap tiers as follows:
- Large-cap: ≥ ₹20,000 crore
- Mid-cap: ₹5,000 crore – ₹20,000 crore
- Small-cap: ₹500 crore – ₹5,000 crore
- Micro-cap: < ₹500 crore
(a) Calculate Zentra's market capitalization. (3) (b) Classify Zentra into the correct tier. (2) (c) Zentra issues 5 crore new shares in a fresh offering; the market price adjusts down to ₹420 immediately after. Compute the new market cap and re-classify. (3) (d) Explain in one line why market cap can change without any change in share count. (2)
Q2. (10 marks) — Bid, Ask & Spread
The order book for stock RIVOX shows:
| Bid Price | Bid Qty | Ask Price | Ask Qty |
|---|---|---|---|
| ₹250.10 | 400 | ₹250.60 | 300 |
| ₹250.00 | 700 | ₹250.90 | 500 |
(a) Identify the best bid, best ask, and compute the absolute spread and the spread as a percentage of the mid-price. (4) (b) A market buy order for 500 shares arrives. Compute the total cost and the average execution price. (4) (c) State, with justification, whether RIVOX appears liquid based on this snapshot. (2)
Q3. (10 marks) — Trading Hours & Time Zones
The NSE (India) trades 09:15–15:30 IST. The NYSE (New York) trades 09:30–16:00 ET. India is UTC+5:30; New York (during US EST) is UTC−5:00.
(a) Convert NYSE's opening and closing times into IST. (4) (b) Determine whether there is any time window during which both exchanges are open simultaneously. Show your reasoning. (4) (c) An Indian trader wants to react to NYSE's opening move on the same calendar day using NSE. Explain why this is generally impossible. (2)
Q4. (10 marks) — Exchanges, OTC & Price Discovery (Applied Scenario)
A startup founder is deciding how to let early investors sell their shares. Option A: list on the NSE. Option B: trade privately via dealer-negotiated OTC transactions.
(a) Give two distinct advantages of Option A related to price discovery and liquidity. (4) (b) Give two situations where Option B (OTC) is more appropriate. (4) (c) Explain how a stock exchange (electronically) matches a buyer and seller — name the mechanism. (2)
Q5. (10 marks) — Market Phases & Integrated Reasoning
An index moves as follows over five months (month-end values): 18,000 → 19,500 → 20,900 → 20,600 → 22,200.
(a) Compute the month-on-month percentage change for each step. (4) (b) Classify the overall five-month trend as bull, bear, or sideways, with justification. (3) (c) A ticker "TCS" appears on both NSE and BSE with different scrip codes. Explain what a ticker/scrip code identifies and why the same company can have two codes. (3)
Answer keyMark scheme & solutions
Q1 (10 marks)
(a) Market cap = price × shares = ₹480 × 12.5 crore = ₹6,000 crore. (3 marks: formula 1, substitution 1, answer 1)
(b) ₹6,000 crore lies in ₹5,000–₹20,000 crore band ⇒ Mid-cap. (2 marks)
(c) New shares = 12.5 + 5 = 17.5 crore. New cap = ₹420 × 17.5 = ₹7,350 crore ⇒ still Mid-cap. (3 marks: new count 1, cap 1, classification 1)
(d) Because market cap = price × shares; a change in market price alone (driven by supply/demand) shifts cap even with fixed share count. (2 marks)
Q2 (10 marks)
(a) Best bid = highest buy price = ₹250.10; best ask = lowest sell price = ₹250.60. Spread = 250.60 − 250.10 = ₹0.50. Mid = (250.10 + 250.60)/2 = 250.35. Spread% = 0.50/250.35 × 100 ≈ 0.1997% ≈ 0.20%. (4 marks: bid/ask 1, spread 1, mid 1, %1)
(b) A market buy hits the ask side. First 300 @ ₹250.60 = ₹75,180; remaining 200 @ ₹250.90 = ₹50,180. Total = ₹1,25,360. Avg price = 125360/500 = ₹250.72. (4 marks: level 1 = 1, level 2 = 1, total 1, avg 1)
(c) Spread is tight (~0.20%) and multiple levels have sizable depth ⇒ reasonably liquid. (2 marks)
Q3 (10 marks)
(a) ET → IST offset = +10:30 (UTC−5 to UTC+5:30).
- Open 09:30 ET + 10:30 = 20:00 IST.
- Close 16:00 ET + 10:30 = 02:30 IST (next day). (4 marks: offset 1, open 1.5, close 1.5)
(b) NSE open window: 09:15–15:30 IST. NYSE in IST: 20:00–02:30 IST. These windows do not overlap (NSE closes at 15:30; NYSE opens at 20:00). No simultaneous open period. (4 marks: conversion use 2, overlap conclusion 2)
(c) NYSE opens at 20:00 IST, by which time NSE (closes 15:30 IST) is already shut; the trader cannot trade on NSE the same day after seeing NYSE's open. (2 marks)
Q4 (10 marks)
(a) (2 each) — e.g. (i) Continuous public order flow yields transparent, competitive price discovery; (ii) Many buyers/sellers give high liquidity so investors can exit quickly at fair prices.
(b) (2 each) — e.g. (i) Company/shares not listed or too small to qualify for exchange listing; (ii) Large block/customized private deals where negotiated terms and confidentiality matter.
(c) Electronic exchanges use an order-matching engine / limit order book applying price-time priority to match compatible buy and sell orders. (2 marks)
Q5 (10 marks)
(a) (1 each)
- 18000→19500: +8.333%
- 19500→20900: +7.179%
- 20900→20600: −1.435%
- 20600→22200: +7.767% (4 marks)
(b) Net move 18000→22200 = +23.33%, a sustained series of higher highs with only a minor pullback ⇒ Bull market. (3 marks: net% 1, trend 1, justification 1)
(c) A ticker/scrip code is a unique identifier for a security on a specific exchange. The same company (TCS) can carry different codes because each exchange (NSE vs BSE) assigns its own symbol/scrip code. (3 marks)
[
{"claim":"Zentra initial market cap = 6000 crore","code":"result = (480*12.5 == 6000)"},
{"claim":"Zentra new market cap = 7350 crore","code":"result = (420*(12.5+5) == 7350)"},
{"claim":"RIVOX market buy 500 avg price = 250.72","code":"total = 300*250.60 + 200*250.90; result = (total == 125360) and (sympy.Rational(int(total*100),500*100) == sympy.Rational(25072,100))"},
{"claim":"NYSE open 09:30 ET -> 20:00 IST (offset +10.5h)","code":"result = ((9*60+30) + (10*60+30)) % (24*60) == 20*60"},
{"claim":"Index net move 18000->22200 = +23.33%","code":"result = round((22200-18000)/18000*100,2) == 23.33"}
]