Given below are two statements:
Statement I: The capital market directs the savings of the community into their most productive use, leading to growth and development of the economy.
Statement II: In the capital market, the possibility of earnings is higher if the securities are held for a shorter duration.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is correct but Statement II is incorrect.
Statement I: The capital market directs the savings of the community into their most productive use, leading to growth and development of the economy. — Correct. The capital market gathers savings and puts them to their most productive use. This helps the economy grow.
Statement II: In the capital market, the possibility of earnings is higher if the securities are held for a shorter duration. — Incorrect. Earnings are higher when securities are held for a longer duration. Over time, the investor can earn capital gains on equity shares. A prosperous company also shares its profit through high dividends and bonus issues.
NCERT (Pre-rationalised Edition): “Capital Market The term capital market refers to facilities and institutional arrangements through which long-term funds, both debt and equity are raised and invested. It consists of a series of channels through which savings of the community are made available for industrial and commercial enterprises and for the public in general. It directs these savings into their most productive use leading to growth and development of the economy. The capital market consists of development banks, commercial banks and stock exchanges.” “(vii) Expected return: The investment in capital markets generally yield a higher return for investors than the money markets. The possibility of earnings is higher if the securities are held for a longer duration. First, there is the scope of earning capital gains in equity share. Second, in the long run, the prosperity of a company is shared by shareholders by way of high dividends and bonus issues.” |