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Business Studies · 2024 · 3 marks
CBSE 2024 · Region 4 · Set 3 · Q22
(a) Distinguish between ‘Capital Market’ and ‘Money Market’ on the basis of: (i) Instruments (ii) Liquidity (iii) Safety
(a)
Distinguish between ‘Capital Market’ and ‘Money Market’
on the basis of :
(i)
Instruments
(ii)
Liquidity
(iii)
Safety
OR
(b)
Explain the following as factors affecting 'Financing
Decision:
(i)
Fixed operating costs and
(ii)
State of Capital Market
Marking-scheme solution
Distinction between ‘Capital Market’ and ‘Money Market’ :
| Basis | Capital Market | Money market |
| Instruments | Equity shares, Debentures, Bonds, Preference shares etc are the instruments of capital market. | Short term debt instruments such as T- bills, trade bills reports, commercial paper and certificates of deposit are money market instruments. |
| Liquidity | They are less liquid in comparison to money market instruments | They are highly liquid |
| Safety | Capital market instruments are riskier both with respect to returns and principal repayment OR | Money market is generally much safer with a minimum risk of default |
Q. (b) Explain the following as factors affecting 'Financing
Decision:
(i)
Fixed operating costs and
(ii)
State of Capital Market
(i)
Fixed Operating Costs:
If a business has high fixed operating costs, it must reduce
fixed financing costs. Hence, lower debt financing is better.
Similarly, if fixed operating cost is less, more of debt
financing may be preferred.
(ii)
State of Capital Market:
During the period when stock market is rising, more people
invest in equity. However, a depressed capital market may
make issue of equity shares difficult for any company.
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CBSE Class 12 Business Studies past-paper question from the 2024 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.