Match List-I (functions of a stock exchange) with List-II (situations):
| List-I | List-II | ||
|---|---|---|---|
| (A) | Providing liquidity and marketability | (I) | Some traders buy shares expecting a short-term rise, within the limits set by law. |
| (B) | Pricing of securities | (II) | Ramesh needs cash for a family event and sells his existing shares on the exchange the same day. |
| (C) | Safety of transaction | (III) | Membership is well regulated and dealings follow the existing legal framework, so investors get a fair deal. |
| (D) | Providing scope for speculation | (IV) | A share becomes costlier when more investors want to buy it than to sell it. |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A)-(II), (B)-(IV), (C)-(III), (D)-(I)
| List-I | List-II | Reason |
|---|---|---|
| (A) Providing liquidity and marketability | (II) Ramesh needs cash for a family event and sells his existing shares on the exchange the same day. | Ramesh turns his existing shares into cash at once. This ready market is the liquidity and marketability the exchange provides. |
| (B) Pricing of securities | (IV) A share becomes costlier when more investors want to buy it than to sell it. | Prices are set by demand and supply. When buyers outnumber sellers, the price rises. |
| (C) Safety of transaction | (III) Membership is well regulated and dealings follow the existing legal framework, so investors get a fair deal. | Regulated membership and dealings under the legal framework give investors a safe and fair deal. |
| (D) Providing scope for speculation | (I) Some traders buy shares expecting a short-term rise, within the limits set by law. | Buying for a short-term rise is speculation. The exchange allows it within the provisions of law, in a controlled manner. |
NCERT (Pre-rationalised Edition): “1. Providing Liquidity and Marketability to Existing Securities: The basic function of a stock exchange is the creation of a continuous market where securities are bought and sold. It gives investors the chance to disinvest and reinvest. This provides both liquidity and easy marketability to already existing securities in the market.” “2. Pricing of Securities: Share prices on a stock exchange are determined by the forces of demand and supply. A stock exchange is a mechanism of constant valuation through which the prices of securities are determined. Such a valuation provides important instant information to both buyers and sellers in the market.” “3. Safety of Transaction: The membership of a stock exchange is well-regulated and its dealings are well defined according to the existing legal framework. This ensures that the investing public gets a safe and fair deal on the market.” “6. Providing Scope for Speculation: The stock exchange provides sufficient scope within the provisions of law for speculative activity in a restricted and controlled manner. It is generally accepted that a certain degree of healthy speculation is necessary to ensure liquidity and price continuity in the stock market.” |