Identify which of the following statements are correct.

A. The stock exchange provides sufficient scope within the provisions of law for speculative activity in controlled manner

B. Primary market has no fixed geographical location

C. Investment in the capital market necessarily require a huge financial outlay

D. Call rate is highly volatile rate, which is inversely related with other short term money market instruments

E. Treasury bills are also known as Zero coupon Bonds issued by RBI on behalf of the Central Government.

Choose the correct answer from the options given below :

A, B, D and E only

The correct answer is option (2)- A, B, D and E only.

A. The stock exchange provides sufficient scope within the provisions of law for speculative activity in controlled manner. This is correct. 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.

B. Primary market has no fixed geographical location. This is correct. Primary Market is the market for the sale of securities by new companies or further (new issues of securities by existing companies to investors). Securities are sold by the company to the investor directly (or through an intermediary). The flow of funds is from savers to investors, i.e. the primary market directly promotes capital formation. Only buying of securities takes place in the primary market, securities cannot be sold there. Prices are determined and decided by the management of the company. There is no fixed geographical location.

C. Investment in the capital market necessarily require a huge financial outlay. This is incorrect. Investment in the capital market i.e. securities does not necessarily require a huge financial outlay. The value of units of securities is generally low i.e. Rs 10, Rs 100 and so is the case with minimum trading lot of shares which is kept small i.e. 5, 50, 100 or so. This helps individuals with small savings to subscribe to these securities. In the money market, transactions entail huge sums of money as the instruments are quite expensive.

D. Call rate is highly volatile rate, which is inversely related with other short term money market instruments. This is correct. Call money is short term finance repayable on demand, with a maturity period of one day to fifteen days, used for inter-bank transactions. Commercial banks have to maintain a minimum cash balance known as cash reserve ratio. The Reserve Bank of India changes the cash reserve ratio from time to time which in turn affects the amount of funds available to be given as loans by commercial banks. Call money is a method by which banks borrow from each other to be able to maintain the cash reserve ratio. The interest rate paid on call money loans is known as the call rate. It is a highly volatile rate that varies from day-to-day and sometimes even from hour-to-hour.

E. Treasury bills are also known as Zero coupon Bonds issued by RBI on behalf of the Central Government. This is correct. A Treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year. They are also known as Zero Coupon Bonds issued by the Reserve Bank of India on behalf of the Central Government to meet its short-term requirement of funds.