← Back to Class FM 405 Main Page
Primary Market Class 10 Questions and Answers provides important questions with simple and clear answers on the primary market. It covers key concepts such as the issue of new securities, Initial Public Offering (IPO), investors, companies, and the role of the primary market. These questions are helpful for Class 10 students to understand the topic, revise important concepts, and prepare for examinations.
Primary Market Class 10 Questions and Answers
Q. Jaykant Shikre owns one hundred shares of a company. He has been given a special offer to subscribe to a new issue of shares from the same company at a ratio 2 : 1 based on the number of shares he currently holds. What method of flotation is being described in this case? (CBSE 2025-26)
(A) Initial public offer
(B) Offer for sale
(C) Rights issue
(D) Private placement
Answer: (C) Rights issue
Q. In a book building issue, the issuer must specify either a price band or a floor price in the prospectus. The actual issue price can be any price within the specified price band or any price above the floor price. This determined issue price is known as – (CBSE 2025-26)
(A) Cut-off price
(B) Floor price
(C) Ceiling price
(D) Fixed price
Answer: (A) Cut-off price
Q. _________ is a mechanism, where during the period of which the IPO is open, bids are collected from investors at various prices, which are above or equal to the floor price. (CBSE 2024-25)
(A) Fixed Price
(B) Listing Price
(C) Book Building
(D) Delisting Price
Answer: (C) Book Building
Q. Which of the following is not an advantage of Book Building through NSE ? (CBSE 2024-25)
(A) It offers a nation wide bidding facility in securities.
(B) It provides a fair, efficient and transparent method for collecting bids using the latest electronic trading system.
(C) Costs involved in the issue are far less than those in a normal IPO.
(D) The system increases the time taken for completion of the issue process.
Answer: (D) The system increases the time taken for completion of the issue process
Q. In a book building issue, the issuer is required to indicate either the price band or a floor price in the prospectus. The actual discovered issue price can be any price in the price band or any price above the floor price. This issue price is referred to : (CBSE 2024-25)
(A) Floor Price
(B) Price Band
(C) Cut-off Price
(D) Market Price
Answer: (C) Cut-off Price
Q. The draft offer Document is available on the SEBI website for public comments for a period of ________ from the filling of draft offer document with SEBI. (CBSE 2024-25)
(A) 15 days
(B) 21 Days
(C) 30 Days
(D) 7 Days
Answer: (B) 21 Days
Q. The term ‘debenture’ is used for instruments issued by the ____________. (CBSE COMP 2024-25)
(A) Government
(B) Public Sector Organisation
(C) Private Corporate Sector
(D) RBI
Answer: (C) Private Corporate Sector
Q. It finalises the list of eligible allottees after deleting the invalid applications and ensures that the corporate action for crediting of shares to the demat accounts of the applicants is done and the dispatch of refund orders to those applicable are sent. Who is it ? (CBSE COMP 2024-25)
(A) Custodian
(B) Depository Participant
(C) Merchant Banker
(D) Registrar
Answer: (D) Registrar
Q. __________ is a part of subscribed capital which has been called-up by the company for payment. (CBSE COMP 2024-25)
(A) Called-up capital
(B) Subscribed capital
(C) Issued capital
(D) Authorised capital
Answer: (A) Called-up capital
Q. According to the Companies Act, 2013, an offer to subscribe to securities made to not more than 50 persons is called a _________ of securities. (CBSE COMP 2024-25)
(A) Private placement
(B) Rights issue
(C) Public issue
(D) Follow-on-issue
Answer: (A) Private placement
Q. A listed company makes either a fresh issue of securities to the public or an offer for sale to the public, through an offer document. (CBSE 2023-24)
(a) Rights Issue
(b) IPO
(c) Private Placements
(d) Further Issue (FPO)
Answer: (D) Further Issue (FPO)
Q. Most companies are usually started privately by their promoter‘(s). However, the promoters’ capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. The main objective(s) of primary market is/are (CBSE 2023-24)
(a) To raise funds
(b) Issuance of New Securities
(c) Capital Appreciation
(d) Both (a) and (b)
Answer: (D) Both (a) and (b) — To raise funds and issue new securities.
Q. Minimum number of days for which a bid remains open during book building. (CBSE 2022-23)
(a) Three days
(b) Five days
(c) Seven days
(d) Nine days
Answer: (A) Three days
Q. “It accompanies the application form of public issues.” (CBSE 2022-23)
(a) Income Statement
(b) Annual Report
(c) Prospectus
(d) Financial Report
Answer: (C) Prospectus
Q. Owners of these kinds of shares are entitled to a fixed dividend or dividend calculated at a fixed rate to be paid regularly before the dividend can be paid in respect of equity shares. They also enjoy priority over the equity shareholders in payment of surplus. (CBSE 2022-23)
(a) Preference shares
(b) Bonus share
(c) Right share
(d) Equity share
Answer: (A) Preference shares
Q. Most companies are usually started privately by their promoter(s). The promoters’ capital / and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long-term. In context of this statement, explain why do companies require to issue shares to the public ? (CBSE 2024-25)
Answer: Most companies are started with the capital provided by promoters and borrowings from banks and financial institutions. These funds may not be sufficient for setting up or expanding the business in the long run. Therefore, companies issue shares to the public to raise additional capital. This process helps the company meet its financial requirements and expand its business activities.
Q. Foreign capital issuance is the process by which a foreign entity raises capital through the issuances of securities in a foreign market. This can be done through a variety of securities, including stocks, bonds and other financial instruments. Indian companies are permitted to raise foreign currency resources through two main sources : (CBSE 2024-25)
- (a) Issue of foreign currency convertible bonds more commonly known as ‘Euro’ issues; and
- (b) Issue of ordinary shares through depositories receipts namely Global Depository Receipts (GDRs), American Depository Receipts (ADRs), to foreign investors i.e. to the institutional investors or individual investors. In the context of this para, what are foreign currency convertible bonds, Global Depository Receipts (GDRs) and American Depository Receipts ?
Answer:
- Foreign Currency Convertible Bonds (FCCBs): FCCBs are bonds issued by Indian companies in a foreign currency. These bonds can be converted into equity shares of the company after a specified period.
- Global Depository Receipts (GDRs): GDRs are negotiable certificates issued by a depository bank that represent a company’s shares. They enable companies to raise capital from investors in international markets.
- American Depository Receipts (ADRs): ADRs are certificates representing shares of a non-US company and are traded in the United States. They allow American investors to invest in foreign companies.
Q. A large number of new companies float public issues. While a large number of these companies are genuine, quite a few may want to exploit the investors. Therefore, it is very important that an investor, before applying for any issue, identifies future potential of the company. A part of guidelines issued by SEBI is the disclosure of information to the public. This disclosure includes information like the reason for raising the money, the way money is proposed to be spent, the return expected on the money, etc. This information is in the form of ‘prospectus’. Explain who prepares the prospectus. (CBSE COMP 2024-25)
Answer: The Prospectus is generally prepared by Merchant Bankers. They are responsible for appraising the project, estimating the cost and profitability, and preparing the prospectus. The prospectus is then submitted to SEBI for observations.
Q. Explain the following : (CBSE COMP 2024-25)
(a) Floor Price
(b) Price Band and who decides this price band
Answer:
- Floor Price is the minimum price at which investors can place bids in a book-built issue. No bid can be made below the floor price.
- Price Band is the range within which investors can bid for shares in a book-building issue. The company, in consultation with the Merchant Banker or Lead Manager, decides the price band.
Q. Book building is basically a process used in IPO for efficient . (CBSE 2023-24)
Answer: Price Discovery
Q. The companies that issue their shares are called issuers and the process of issuing shares to public is known as ________. (CBSE 2023-24)
Answer: Public Issue
Q. Registrars are independent financial institutions registered with stock exchanges and appointed by the company going public. Enumerate two roles of registrar related to public issues. (CBSE 2023-24)
Answer:
- The Registrar finalizes the list of eligible allottees after removing invalid applications.
- The Registrar ensures credit of allotted shares into investors’ demat accounts and arranges refunds for unsuccessful applicants.
Q. The primary market is used by issuers for raising fresh capital from the investors by making initial public offers or rights issues or offers for sale of equity or debt. The promoters capital and the borrowings from banks and financial institutions may not be sufficient for setting up or running the business over a long term. So companies invite the public to contribute towards the equity and issue shares to individual investors. In the context of this para, explain the various types of issues of share. (CBSE 2023-24)
Answer:
- Initial Public Offer (IPO): It is the first issue of shares by an unlisted company to the public. It helps the company get listed on the stock exchange.
- Follow-on Public Offer (FPO): It is an issue of shares by a company that is already listed on a stock exchange.
- Rights Issue: It is an offer of new shares to existing shareholders in proportion to their current holdings.
- Preferential Issue: It is an issue of shares to a selected group of investors. It is a quicker way of raising capital.
Q. What do you understand by ‘Global Depository Receipts’ ? (CBSE 2022-23)
Answer: Global Depository Receipts (GDRs) are negotiable certificates issued by a depository bank representing a company’s shares. They help companies raise funds from international investors through global markets.
Q. Indian primary market ushered in an era of free pricing in 1992. Following this, the guidelines have provided that the issuer in consultation with Merchant Banker shall decide the price. There is no price formula stipulated by SEBI. SEBI does not play any role in price fixation. The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price. There are two types of issues, one where company and Lead Merchant Banker fix a price, called fixed price and other, where the company and the Lead Manager (LM) stipulate a floor price or a price band and leave it to market forces to determine the final price. (CBSE 2022-23)
(a) Explain the role of merchant banker in an issue.
Answer: The Merchant Banker helps in project appraisal, preparation of the prospectus, issue management, and deciding the issue price in consultation with the company.
(b) Does SEBI play role in fixation of price in issue ?
Answer: No, SEBI does not play any role in fixing the issue price. The company and Merchant Banker decide the price.
(c) Mention two types of issues.
Answer:
- Fixed Price Issue
- Book Building Issue
(d) Who decides the final prices of issues ?
Answer: The company and the Lead Manager (Merchant Banker) decide the final issue price.
Q. Differentiate between equity shareholders and preference shareholders. (CBSE 2022-23)
Answer:
| Equity Shareholders | Preference Shareholders |
|---|---|
| They are the owners of the company. | They have preferential rights over dividend and repayment of capital. |
| Dividend is not fixed. | Dividend is fixed. |
| They have voting rights. | Generally, they do not have voting rights. |
| They receive dividend after preference shareholders. | They receive dividend before equity shareholders. |
Q. Identify and outline two key advantages of the book-building processes within NSE IPO system. (CBSE 2025-26)
Answer:
- It provides a fair, efficient and transparent method of collecting bids through an electronic system.
- It reduces the time and cost involved in completing the IPO process.
Q. Define the following terms : (CBSE 2025-26)
(a) Foreign Currency Convertible Bonds (FCCB)
Answer: FCCBs are bonds issued in a foreign currency that can be converted into equity shares of the issuing company after a specified period.
(b) Lock-in
Answer: Lock-in refers to a restriction on the sale of shares for a specified period. It ensures that promoters continue to hold their shares after the public issue.
(c) Abridged Prospectus
Answer: An Abridged Prospectus is a shortened version of the prospectus containing its important features. It is attached to the application form of a public issue.
(d) Public Issue
Answer: A Public Issue is an offer made by a company to the general public to subscribe to its shares or securities for raising capital.
Disclaimer: The content that is present on our website is based on the NCERT Class 10 Introduction to Financial Markets 405 textbook and is provided for educational purposes only. All the content and images have been taken from Introduction to Financial Markets Class 10 NCERT Textbook. Images and content shown above are the property of individual organizations and are used here for reference purposes only. To make it easy to understand, some of the content and images are generated by AI and cross-checked by the teachers.