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Financial Markets (12 Business Studies)

Practise chapter-wise MCQs for Class 12 Business Studies — Financial Markets. Every question comes with the correct answer and an explanation.

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TL;DR: Practise chapter-wise MCQs for Class 12 Business Studies — Financial Markets. Every question comes with the correct answer and an explanation.

Written & reviewed by the Syllab.in Academic Team (CBSE/NCERT subject experts) · Updated Aug 8, 2026

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Practise chapter-wise MCQs for Class 12 Business Studies — Financial Markets. Every question comes with the correct answer and an explanation.

Financial Markets MCQs with Answers & Explanations

Q1. Which of the following is a function of the money market?

  1. Facilitating long-term capital formation
  2. Enabling efficient management of short-term deficits and surpluses ✓ (correct)
  3. Providing a platform for trading existing shares
  4. Listing and trading of government securities with maturity over one year

Explanation: The money market helps institutions and individuals manage their short-term liquidity needs by providing a mechanism for borrowing and lending funds for short periods.

Q2. The market where securities are sold for the first time, directly by the issuer to the investors, is known as the:

  1. Money Market
  2. Secondary Market
  3. Primary Market ✓ (correct)
  4. Capital Market

Explanation: The primary market is where securities are created and issued for the first time to investors. The issuer raises capital directly from investors in this market.

Q3. A market where short-term debt instruments are traded is known as the:

  1. Stock Market
  2. Capital Market
  3. Primary Market
  4. Money Market ✓ (correct)

Explanation: The money market is a segment of the financial market where financial instruments with high liquidity and very short maturities (typically one year or less) are traded.

Q4. The term 'liquidity' in the context of financial markets refers to:

  1. The ease with which an asset can be converted into cash without significant loss of value ✓ (correct)
  2. The rate of return on an investment
  3. The risk associated with a particular security
  4. The profit earned from trading securities

Explanation: Liquidity is a measure of how quickly an asset can be bought or sold in the market at a price reflecting its true value. High liquidity means it can be converted to cash easily and quickly.

Q5. Which of the following is a characteristic of the capital market?

  1. Low risk associated with instruments
  2. Long-term investment horizon ✓ (correct)
  3. Short maturity period of instruments
  4. High liquidity of instruments

Explanation: The capital market deals with instruments that are typically used for long-term financing and investment, such as shares and debentures, which have longer maturity periods compared to money market instruments.

Q6. Which of the following is a primary function of a stock exchange?

  1. Underwriting fresh capital issues
  2. Facilitating the buying and selling of new issues
  3. Providing liquidity and marketability to existing securities ✓ (correct)
  4. Determining the creditworthiness of companies

Explanation: A stock exchange is the secondary market. Its primary function is to provide liquidity and marketability to securities that already exist, so an investor can convert holdings into cash quickly at a fair price. Issuing and underwriting NEW securities is the primary market, not the stock exchange.

Q7. Which of the following is NOT a type of capital market instrument?

  1. Bonds
  2. Shares
  3. Debentures
  4. Treasury Bills ✓ (correct)

Explanation: Treasury Bills are short-term debt instruments with a maturity of less than one year, and thus are part of the money market, not the capital market.

Q8. The primary role of SEBI (Securities and Exchange Board of India) in the financial markets is to:

  1. Regulate the stock exchanges and protect investor interests ✓ (correct)
  2. Determine interest rates for commercial banks
  3. Print new currency notes
  4. Provide loans to businesses

Explanation: SEBI is the regulatory body for the securities market in India, responsible for ensuring fair trade practices, investor protection, and the orderly development of the securities market.

Q9. An Initial Public Offering (IPO) is an example of a transaction in the:

  1. Secondary Market
  2. Primary Market ✓ (correct)
  3. Money Market
  4. Derivatives Market

Explanation: An IPO is the first time a private company offers its shares to the public, making it a primary market transaction.

Q10. When investors buy securities from other investors, and no new securities are created, this transaction takes place in the:

  1. Primary Market
  2. Commodity Market
  3. Secondary Market ✓ (correct)
  4. Money Market

Explanation: The secondary market is where existing securities are traded between investors. No new securities are issued by companies in this market.

More 12 Business Studies MCQs

  • Nature and Significance of Management
  • Principles of Management
  • Business Environment
  • Planning
  • Organising
  • Staffing

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