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Business Studies · 2025 · 3 marks
CBSE 2025 · Region 2 · Set 1 · Q21
(a) Explain the following functions of Stock Exchange: (i) Providing liquidity and marketability to existing securities (ii) Pricing of securities…
(a)
Explain the following functions of Stock Exchange:
(i)
Providing liquidity and marketability to existing
securities
(ii)
Pricing of securities
(iii)
Safety of transaction
OR
(b)
Differentiate between 'Primary Market' and 'Secondary
Market' on the basis of any three points.
Marking-scheme solution
(i)
Providing liquidity and marketability to existing
securities
The basic function of a stock exchange is the creation of a
continuous market where securities are bought and sold. It
gives investors the chance to disinvest and reinvest.
(ii)
Pricing of securities
A stock exchange is a mechanism of constant valuation
through which the
prices of securities are determined by the forces of demand and
supply.
(iii)
Safety of transaction
The membership of the stock exchange is well regulated and its
dealings are well defined according to the existing legal
framework. This ensures that the investing public gets a safe
and fair deal on the market.
Differences between primary market and secondary market:
| Primary market | Secondary market | |
| (i) | There is sale of securities by new companies or further (new issues of securities by existing companies to investors). | There is trading of existing shares only. |
| (ii) | Securities are sold by the company to the investor directly (or through an intermediary). | Ownership of existing securities is exchanged between investors. The company is not involved at all. |
| (iii) | The flow of funds is from savers to investors, i.e. the primary market directly promotes capital formation | Enhances encashability (liquidity) of shares, i.e. the secondary market indirectly promotes capital formation |
| (iv) | Only buying of securities takes place in the primary market, securities cannot be sold there | Both the buying and the selling of securities can take place on the stock exchange |
| (v) | Prices are determined and decided by the management of the company | Prices are determined by demand and supply for the securities |
| (vi) | There is no fixed | These are located at |
further
(new issues of securities by existing companies to investors).
directly
(or between investors. The through an intermediary). company is not involved
geographical location. specified places
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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.