__________ enhances the encashability of shares by promoting capital formation indirectly.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Secondary Market
Option (1) SEBI — Incorrect. SEBI is the regulator of the securities market. It protects investors and regulates the market; it is not a market where shares change hands.
Option (2) Primary Market — Incorrect. The primary market sells new securities, and the money goes straight to the company. So it promotes capital formation directly.
Option (3) Secondary Market — Correct. In the secondary market (the stock exchange) existing shares are bought and sold. An investor can turn his shares into cash whenever he wants. This encashability, or liquidity, makes people more willing to buy new issues, so the secondary market promotes capital formation indirectly.
Option (4) Offer for Sale — Incorrect. An offer for sale is one method of issuing securities in the primary market.
Note: Although the chapter ‘Financial Markets’ was dropped from the NCERT textbooks during rationalisation, it has stayed in the NTA syllabus every year since 2022, except for 2025, and it is part of the syllabus again from 2026. This question is therefore based on the pre-rationalised NCERT, an extract from which is given below. NCERT (Pre-rationalised Edition):
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