[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 11 April 2022 – Economy – INSIGHTSIAS

Solution: b)

Every security market has two complementary markets—primary and the secondary.

The market in which the instruments of security market are traded (procured) directly between the capital raiser and the instrument purchaser is known as the primary market.

As for example, a share being directly purchased by anybody from the issuer which may be the company itself. The person is known as the primary shareholder.

The market where the instruments of security market are traded among the primary instrument holders is known as the secondary market.

BSE Limited, also known as the Bombay Stock Exchange (BSE) is the oldest stock exchange in Asia. It was established in 1875 by cotton merchant Premchand Roychand.

Solution: c)

A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement.

An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. 

A rights issue is an invitation to existing shareholders to purchase additional new shares in the company. This type of issue gives existing shareholders securities called rights.

A private placement is a sale of stock shares or bonds to pre-selected investors and institutions rather than on the open market. It is an alternative to an initial public offering (IPO) for a company seeking to raise capital for expansion.

Solution: b)

REITs are investment vehicles that pool investor money like mutual funds and use it to buy a portfolio of real estate assets. They manage these assets to generate a regular income and capital appreciation. In order to ensure that the REIT is able to generate income, 80 per cent of the portfolio of a REIT should be invested in completed and rent-generating properties.

While REITs can invest in all kinds of income-generating properties — residences, offices, hotels, malls, warehouses, in India the listed REITs are focussed mainly on office space.

As per SEBI’s guidelines, REITs need to mandatorily distribute 90 per cent of their income to unit-holders. The distribution could be in the form of dividend or interest income or both.

Solution: d)

• A credit default swap (CDS) is a financial derivative or contract that allows an investor to “swap” or offset his or her credit risk with that of another investor. For example, if a lender is worried that a borrower is going to default on a loan, the lender could use a CDS to offset or swap that risk. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse the lender in the case the borrower defaults. Most CDS contracts are maintained via an ongoing premium payment similar to the regular premiums due on an insurance policy.
• A credit default swap is the most common form of credit derivative and may involve municipal bonds, emerging market bonds, mortgage-backed securities or corporate bonds.
• Credit default swaps are customized between the two counterparties involved, which makes them opaque, illiquid, and hard to track for regulators

Solution: d)

The NIFTY 50 is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on the National Stock Exchange.