Q1) depository and its functions
A depository is a financial institution that holds and safeguards financial
assets, such as securities (like stocks and bonds) and other assets, on behalf
of investors. It plays a crucial role in the financial markets by providing a
secure environment for the storage and management of these assets.
Functions of a Depository:
1. Safekeeping of Securities: The primary function of a depository is to
hold securities in electronic form, which reduces the risks associated
with physical certificates, such as loss or theft
2. Settlement of Trades: After a trade is executed, the depository ensures
that the transfer of securities and the payment between the buyer and
seller occurs simultaneously. This is known as the settlement process.
3. Corporate Actions: Depositories handle corporate actions such as
dividends, interest payments, stock splits, and mergers. They ensure
that investors receive their entitlements in a timely manner.
4. Record Keeping: Depositories maintain accurate records of all
transactions and holdings, providing investors with statements and
reports regarding their investments.
5. Lending and Borrowing: Some depositories offer services for securities
lending and borrowing, allowing investors to lend their securities to
others for short selling or other purposes.
Q2) role of stock exchange
The stock exchange plays a crucial role in the financial market by providing a
platform for buying and selling securities, such as stocks and bonds. Here are
some key roles of a stock exchange:
1. Facilitating Trading: Stock exchanges provide a regulated environment
where buyers and sellers can trade securities. This helps ensure
transparency and fairness in the trading process.
2. Price Discovery: The stock exchange helps determine the market price
of securities through the forces of supply and demand. As investors
buy and sell shares, the prices fluctuate based on market conditions.
3. Liquidity: Stock exchanges provide liquidity to investors, meaning they
can easily buy or sell their securities without significantly affecting the
price. This encourages more participation in the market.
4. Raising Capital: Companies can raise capital by issuing shares to the
public through the stock exchange. This process is known as an Initial
Public Offering (IPO). By listing on a stock exchange, companies can
access a larger pool of investors.
5. Regulation and Oversight: Stock exchanges are regulated by
government authorities to ensure fair practices and protect investors.
They set rules for trading and monitor transactions to prevent fraud
and manipulation.
6. Providing Information: Stock exchanges provide valuable information to
investors, such as stock prices, trading volumes, and financial reports.
This helps investors make informed decisions.
7. Facilitating Corporate Actions: Stock exchanges manage various
corporate actions, such as stock splits, dividends, and mergers,
ensuring that these processes are executed smoothly for investors.
Q3) short note on BSE and NSE
BSE (Bombay Stock Exchange) and NSE (National Stock Exchange) are two
major stock exchanges in India, each playing a significant role in the
country’s financial markets.
BSE, established in 1875, is Asia’s oldest stock exchange. It provides a
platform for trading various securities, including equities, debt instruments,
and derivatives. BSE has a rich history and has been instrumental in the
development of the Indian capital market. It is known for its benchmark
index, the Sensex, which tracks the performance of the top 30 companies
listed on the exchange.
NSE, on the other hand, was established in 1992 and quickly became a
leading stock exchange in India. It introduced electronic trading, which made
the trading process more efficient and transparent. NSE is known for its Nifty
50 index, which represents the top 50 companies listed on the exchange.
The NSE has played a significant role in promoting financial literacy and
expanding the reach of the stock market to retail investors.
Both exchanges have contributed to the growth of the Indian economy by
providing companies with access to capital and investors with opportunities
to invest in various financial instruments. If you need more information or
details about specific companies listed on these exchanges, feel free to ask!
Q4)
In the stock market, there are several types of orders that investors can use
to buy or sell securities. Here are the main types:
1. Market Order: This is the most straightforward type of order. A market
order is executed immediately at the current market price. It
guarantees that the order will be filled, but not the price at which it will
be filled, especially in volatile markets.
2. Limit Order: A limit order sets a specific price at which you want to buy
or sell a security. For a buy limit order, the order will only be executed
at the limit price or lower. For a sell limit order, it will only be executed
at the limit price or higher. This gives you more control over the price
but does not guarantee that the order will be filled.
3. Stop Order: Also known as a stop-loss order, this type of order
becomes a market order when a specified price (the stop price) is
reached. It is often used to limit losses or protect profits. For example,
if you own a stock and want to sell it if it drops to a certain price, you
would place a stop order at that price.
4. Stop-Limit Order: This combines features of both stop and limit orders.
Once the stop price is reached, the order becomes a limit order instead
of a market order. This allows you to specify the price at which you
want to sell after the stop price is triggered.
Q5) process of demat trading
Demat trading refers to the process of holding and trading securities in a
dematerialized format, meaning that physical certificates are replaced with
electronic records. Here’s a step-by-step breakdown of the demat trading
process:
1. Open a Demat Account: The first step is to open a demat account with
a registered depository participant (DP). This is similar to opening a
bank account. You’ll need to provide identification documents, proof of
address, and other necessary information.
2. Link Bank Account: You will also need to link your bank account to your
demat account. This allows you to transfer funds for buying securities
and receive money from selling them.
3. Buy Securities: When you decide to purchase securities (like stocks),
you place a buy order through your broker. The broker will execute the
order on your behalf.
4. Dematerialization: Once the order is executed, the purchased
securities are credited to your demat account in electronic form. This
process is known as dematerialization, where physical shares are
converted into electronic form.
5. Holding Securities: You can hold various types of securities in your
demat account, including stocks, bonds, mutual funds, and exchange-
traded funds (ETFs). You can view your holdings through your account
statement.
6. Selling Securities: When you want to sell your securities, you place a
sell order through your broker. Once the order is executed, the
securities are debited from your demat account, and the sale proceeds
are credited to your linked bank account.
7. Transaction Confirmation: After each transaction, you will receive a
confirmation from your broker. You can also check your demat account
statement to keep track of your holdings and transactions.
8. Annual Statements: At the end of the financial year, you will receive an
annual statement from your DP, summarizing your holdings and
transactions for tax purposes.
Q6) clearing house
A clearing house is a financial institution that acts as an intermediary
between buyers and sellers in financial markets, ensuring the smooth and
efficient settlement of trades. Here’s a brief overview of its functions:
1. Trade Confirmation: After a trade is executed, the clearing house
confirms the details of the transaction between the parties involved.
2. Settlement: The clearing house facilitates the settlement of trades,
ensuring that securities and funds are exchanged correctly and on
time.
3. Counterparty Risk Management: It reduces counterparty risk by
guaranteeing the trade. If one party defaults, the clearing house steps
in to fulfill the obligations.
4. Netting: The clearing house often nets the trades, meaning it offsets
buy and sell positions to reduce the number of transactions and the
amount of money that needs to change hands.
