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Business Studies · 2025 · 6 marks
CBSE 2025 · Region 6 · Set 3 · Q32
(a)Explain any four functions of a stock exchange.
(a)
Explain any four functions of a stock exchange.
OR
(b)
Explain the following factors affecting the choice of
capital structure of a company :
(i)
Flexibility
(ii)
Risk consideration
(iii)
Floatation costs
(iv)
Cost of debt
Marking-scheme solution
Functions of Stock Exchange:
1. Providing Liquidity and Marketability to Existing
Securities
2. . Pricing of Securities
3. Safety of Transaction
4. . Contributes to Economic Growth
5. Spreading of Equity Cult
6. Providing Scope for Speculation
Factors affecting the choice of capital structure of a
company:
• (i) Flexibility
A firm loses flexibility to issue further debt if it uses its debt
potential to the full.
• $\displaystyle 27$
To maintain flexibility, it must maintain some borrowing
power to take care of unforeseen circumstances.
• (ii) Risk consideration
Use of debt increases the financial risk of a business when a
company is unable to meet its fixed financial charges. Every
business has some operating risk (also called business risk) which
• depends upon fixed operating costs.
The total risk depends upon both the business risk and the
financial risk hence if a firm’s business risk is lower, its capacity
to use debt is higher and vice-versa.
• (iii) Floatation Cost
Process of issuing shares and debentures involves some cost,
while obtaining a loan from a financial institution may not
• cost so much.
These considerations also affect the choice between debt and
equity, and hence capital structure
• (iv) Cost of Debt
A firm’s ability to borrow at a lower rate increases its
• capacity to employ higher debt.
Thus, more debt can be used if debt can be raised at a lower
rate
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CBSE Class 12 Business Studies past-paper question from the 2025 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.