Which one of the following statements is false?
GDR is a negotiable instrument issued by a US bank.
Analyzing Statements on Financial Markets and Instruments
The question asks us to identify the false statement among the given options related to financial markets and instruments like Capital markets, GDRs, and Stock Exchanges.
Evaluating Each Statement
Let's examine each statement carefully to determine its truthfulness:
- Statement 1: Capital market is a market for medium and long term funds.
This statement accurately describes the capital market. The capital market deals with financial instruments with a maturity period of more than one year, providing a platform for raising medium and long-term funds. Examples include stocks and bonds.
Therefore, this statement is true regarding the nature of the Capital market.
- Statement 2: GDR is a negotiable instrument issued by a US bank.
A GDR, or Global Depository Receipt, is indeed a negotiable instrument. However, the statement that it is "issued by a US bank" requires clarification. A US bank acts as a depository bank and issues GDRs, but these GDRs represent ownership of shares of a foreign company (a non-US company). The foreign company is the ultimate entity whose shares are being traded indirectly via the GDR. The US bank holds the underlying shares in custody and issues receipts against them. So, while a US bank is involved in the issuance process as a depository, the GDR fundamentally represents shares of a foreign entity, not an instrument issued *by* the US bank on its own behalf.
This wording makes the statement misleading or false as it implies the US bank is the issuer of the security in the same way a company issues shares or bonds.
- Statement 3: Many publicly listed companies in India trades their shares through Bombay stock exchange or national stock exchange.
This statement is true. The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are the two primary and largest stock exchanges in India. Publicly listed companies in India have their shares traded actively on one or both of these exchanges, making them the main platforms for secondary market trading of shares in India.
Therefore, this statement is true regarding the trading of shares of publicly listed companies in India.
- Statement 4: Securities that are listed on various stock exchanges are eligible for being traded there, are called listed securities.
This statement provides the definition of listed securities. Securities that have gone through the listing process and are admitted for trading on a stock exchange are called listed securities. This listing makes them eligible for public trading on that exchange.
Therefore, this statement is true regarding the definition of listed securities.
Identifying the False Statement
Based on the analysis, Statement 2 contains an inaccuracy regarding the issuance of a GDR. While a US bank acts as the depository bank, it issues the GDRs on behalf of a foreign company whose shares are held in custody, not as a security issued by the US bank itself in the primary sense of being its own liability or equity instrument.
Conclusion
The false statement among the given options is the one describing the issuance of a GDR.
| Statement | Analysis | Truthfulness |
|---|---|---|
| Capital market is a market for medium and long term funds. | Correct definition of Capital market dealing with instruments > 1 year maturity. | True |
| GDR is a negotiable instrument issued by a US bank. | GDR represents foreign company shares held by a US depository bank, not an instrument issued by the US bank itself. | False |
| Many publicly listed companies in India trades their shares through Bombay stock exchange or national stock exchange. | BSE and NSE are major Indian stock exchanges where listed companies trade. | True |
| Securities that are listed on various stock exchanges are eligible for being traded there, are called listed securities. | Correct definition of listed securities. | True |
Revision Table: Key Concepts
| Concept | Description |
|---|---|
| Capital Market | Market for long-term funds (maturity > 1 year), including stocks and bonds. |
| GDR (Global Depository Receipt) | Negotiable certificate issued by a depository bank in one country (often the US) representing shares of a foreign company, allowing those shares to be traded on local exchanges. |
| Stock Exchange | Organized market where securities (like stocks and bonds) are bought and sold. Examples in India are BSE and NSE. |
| Listed Securities | Financial instruments that have been formally admitted for trading on a stock exchange. |
Additional Information on Financial Instruments and Markets
Understanding different financial instruments and the markets they trade in is crucial. The Capital market is distinct from the money market, which deals with short-term funds (maturity up to 1 year). Instruments like Treasury bills, commercial paper, and certificates of deposit are traded in the money market.
GDRs are a type of depository receipt. Other types exist, such as American Depository Receipts (ADRs), which are specifically for foreign companies trading on US exchanges. GDRs can be traded on exchanges in multiple countries, not just the US.
Stock exchanges like BSE and NSE provide liquidity for listed securities, allowing investors to buy and sell shares easily. They also play a role in price discovery and market regulation.
Important Questions from International Marketing
Which of the following products would require intensive modification in the international arena?
Logically sequence the following in the process of entering international markets outlined in the uppsala model.
(A) Sporadic (Ad hoc) exports
(B) Foreign production and manufacturing
(C) Establishing a foreign sales subsidiary
(D) Domestic operations and production
(E) Exporting via independent representative
Choose the correct answer from the options given below:
Occasional sale of a commodity at a lower price abroad in order to unload an unforeseen and temporary surplus of the commodity without reducing domestic prices is called:
- Which one of the following non-tariff barrier is designed to protect domestic industries by imposing additional charges on imported goods that are priced below the cost of production ?
