A certain degree of __________ speculation is necessary to ensure liquidity and price continuity in the stock market.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Healthy
Option (1) Healthy — Correct. Speculation means buying or selling securities to gain from a change in their price. A stock exchange allows it within the law, in a restricted and controlled manner. Such healthy speculation keeps buyers and sellers active all the time. So a share can be sold whenever the holder wants (liquidity), and its price moves smoothly rather than in sudden jumps (price continuity).
Option (2) Increasing — Incorrect. The stock exchange does not want more and more speculation. Excessive speculation leads to sudden rises and falls in prices, which is harmful.
Option (3) Upward — Incorrect. Speculation can be for a rise or a fall in price. The word says nothing about whether it is controlled.
Option (4) Extra — Incorrect. Extra speculation is the same problem as excessive speculation. It is not what the stock exchange encourages.
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. The chapter took a one-year break and is back for 2026. A calm read of these pages in the pre-rationalised NCERT is enough.
NCERT (Pre-rationalised Edition): “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.” |