Financial Markets (VSAQs)

Commerce-2 | 1. Financial Markets – VSAQs:
Welcome to VSAQs in Chapter 1: Financial Markets. This page includes the most important FAQs from previous exams. Each answer is provided in simple English and presented in the exam format. This approach helps you prepare effectively and aim for top marks in your final exams.

VSAQ-1: What is Capital Market?

The Capital Market is like a big marketplace where businesses go to raise money for long-term projects. Imagine a company needs funds to build a new factory or launch a new product. Instead of borrowing from a bank, they can raise this money by selling shares or bonds to investors through the capital market. This market is divided into two parts: the primary market, where new securities are issued and sold for the first time, and the secondary market, where existing securities are traded among investors. Participants in the capital market include banks, corporations, financial institutions, and even regular people like you and me, known as retail investors. The capital market plays a crucial role in the economy by allowing businesses to grow and by giving investors opportunities to invest and earn returns.

VSAQ-2: What is a Mutual Fund?

A Mutual Fund is like a big pot where many people put their money together to invest in various financial assets. Imagine you and your friends want to invest in the stock market, but you don’t have enough money individually to buy different stocks. By pooling your money together in a mutual fund, you can collectively invest in a diversified portfolio that includes stocks, bonds, government securities, and other financial instruments. A professional fund manager oversees this investment, deciding where to invest the money to generate profits. As an investor in a mutual fund, you can earn returns through dividends or capital appreciation (the increase in the value of your investment). Mutual funds are a popular way for people to invest without needing to pick and manage investments themselves, making it easier to get involved in the financial markets.