Q1. [2] § 2.2 Participants
XYZ Ltd. is a mid-sized manufacturing company seeking to raise funds for operational expansion. The company is considering issuing debt instruments to acquire the necessary capital. Their financial advisor has recommended the option of issuing debentures or commercial paper.
In the context of paragraph, what is a debenture ?
Previously asked in CBSE board exam
2026 92 Q12
Generated by claude-sonnet-4-6 · 2026-06-15 07:07 · grounding rag
Model Answer
A debenture is a debt instrument issued by a company to raise funds from the public. It is a marketable security through which the issuer (company) borrows money from investors and promises to repay the principal along with interest. Debentures are listed under 'Securities' as per the SCRA, 1956.
Source: What is the function of Securities Market?, Chapter 2
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Explanation
- The passage mentions debentures as instruments traded in the securities market where buyers and sellers transact.
- SCRA, 1956 classifies debentures under "securities," which is the legal basis for the definition.
- For a 2-mark answer, mention: (1) it is a debt instrument, and (2) it is issued by a company to raise funds/capital. Mentioning the SCRA reference adds precision and earns full marks.
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