Q1. [4]
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.
Read the given passage and answer the questions that follow. (Part of: Answer any 3 out of given 5 questions in 50-80 words each.)
- (a) Explain the role of merchant banker in an issue.
- (b) Does SEBI play role in fixation of price in issue?
- (c) Mention two types of issues.
- (d) Who decides the final prices of issues?
Previously asked in CBSE board exam
2023 92 Q17
Generated by claude-sonnet-4-6 · 2026-06-15 07:07 · grounding stimulus
Model Answer
(a) The merchant banker works in consultation with the issuer (company) to decide the issue price. They are also required to give full disclosures of the parameters considered while deciding the price.
(b) No, SEBI does not play any role in price fixation. There is no price formula stipulated by SEBI. The company and merchant banker decide the price together.
(c) Two types of issues:
- Fixed Price Issue – where company and Lead Merchant Banker fix the price.
- Book Building Issue – where a floor price or price band is stipulated and market forces determine the final price.
(d) In a fixed price issue, the company and Lead Merchant Banker decide the final price. In book building, market forces determine the final price within the band stipulated by the company and Lead Manager.
Source: Financial Markets, Primary Market/Issue Pricing
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Explanation
- The passage is the sole source — all four answers are directly lifted from it. Do not add outside knowledge.
- (b) is a direct yes/no + reason — keep it sharp.
- (c) uses the passage's own terms: "fixed price" and the book-building type (floor price/price band).
- Since this is a case-study extract question, examiners reward passage-based answers; paraphrase the text closely.
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