Which of the following statements are false ? Indicate the correct code. (a) Grey market is a market for dealing in listed securities. (b) OTCEI is mainly intended for big investors. (c) Insider Trading is legally permitted in the capital market. (d) The device adopted to make profit out of the differences in prices of a security in two different markets is called ‘arbitrage’.
(a), (b), (c)
Identifying False Statements in Financial Markets
Let's carefully examine each statement regarding financial markets to determine which ones are false.
We will analyze each statement one by one.
Analyzing Statement (a): Grey Market vs. Listed Securities
Statement (a) says: Grey market is a market for dealing in listed securities.
The grey market, also known as the unofficial market, typically deals with securities that are not yet formally listed or traded on a stock exchange. This often involves trading shares before their public listing or during the period of an Initial Public Offering (IPO). Listed securities, on the other hand, are those that are officially admitted for trading on a recognized stock exchange. Therefore, the grey market is fundamentally different from the market for dealing in listed securities.
Conclusion for (a): This statement is false.
Analyzing Statement (b): OTCEI's Purpose and Target Investors
Statement (b) says: OTCEI is mainly intended for big investors.
OTCEI (Over-The-Counter Exchange of India) was established to provide a trading platform primarily for small and medium-sized companies that might find it difficult to get listed on major exchanges. Its aim was also to facilitate trading for retail investors (individual investors) in these securities. It was not designed mainly for big investors, but rather to broaden market access for smaller companies and investors.
Conclusion for (b): This statement is false.
Analyzing Statement (c): Legality of Insider Trading in Capital Markets
Statement (c) says: Insider Trading is legally permitted in the capital market.
Insider trading involves the buying or selling of a company's securities based on material, non-public information about the company. This practice is considered illegal and is prohibited by regulatory bodies in most capital markets worldwide, including India, under laws like the SEBI regulations. Insider trading is seen as unfair and detrimental to market integrity and investor confidence.
Conclusion for (c): This statement is false.
Analyzing Statement (d): Arbitrage and Price Differences
Statement (d) says: The device adopted to make profit out of the differences in prices of a security in two different markets is called ‘arbitrage’.
Arbitrage is indeed the practice of simultaneously buying an asset in a market where its price is lower and selling it in a market where its price is higher. The goal is to make a risk-free profit from the price difference. This process also helps to ensure that prices for the same asset converge across different markets. This statement accurately describes the concept of arbitrage.
Conclusion for (d): This statement is true.
Summarizing False Statements Identified
Based on our analysis of each statement:
- Statement (a) about the grey market is false.
- Statement (b) about OTCEI is false.
- Statement (c) about insider trading being legally permitted is false.
- Statement (d) about arbitrage is true.
Therefore, the statements that are false are (a), (b), and (c).
Financial Market Concepts: Revision Table
| Concept | Description | Statement Analysis |
|---|---|---|
| Grey Market | Market for unlisted securities (e.g., before IPO). | Statement (a) is false; it deals with listed securities. |
| OTCEI | Over-The-Counter Exchange of India; platform for small/medium companies and retail investors. | Statement (b) is false; it is not mainly for big investors. |
| Insider Trading | Trading on non-public material information. Generally illegal. | Statement (c) is false; it is not legally permitted. |
| Arbitrage | Profiting from price differences of the same asset in different markets. | Statement (d) is true; it correctly defines arbitrage. |
Expanding Your Knowledge: Additional Financial Concepts
- Capital Market: A market where buyers and sellers engage in the trade of financial securities like stocks, bonds, etc. It facilitates long-term investments.
- Money Market: A segment of the financial market where financial instruments with high liquidity and short-term maturities are traded.
- Primary Market: The part of the capital market that deals with the issuance of new securities.
- Secondary Market: The market where investors trade securities that have been previously issued.
- SEBI: The Securities and Exchange Board of India is the regulator of the securities market in India. It protects the interests of investors in securities and promotes the development of, and regulates, the securities market.
Important Questions from Capital Market
- Which of the following government financial transactions would be classified as a capital receipt?
What is the market price per share (face value = Rs. 100) as per Walter model if the profitability rate of the company is 16 percent, payout ratio is 80 percent and the cost of capital is 10 percent?
A company's share is currently selling for Rs. 50 and is expecting a dividend of Rs. 3 per share after one year which is expected to grow at 8% indefinitely. What is the equity capitalisation rate?
Amount unutilised in capital gain account scheme for which exemption claimed u/s 54 shall be treated as long-term capital gain, if
Choose the correct code for the following statements being correct or incorrect.
Statement I : FX Spot is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date.
Statement II : The date of maturity of a forward contract is more than two business days in future.
