Security Market in India: UPSC Previous Year Questions (Indian Economy)
25 previous year UPSC Prelims questions on the security market are on this page, from 2000 to 2025. UPSC asks how bonds and stocks differ, what beta measures, what the Sensex is, who can trade in corporate bonds and what Participatory Notes and inflation-indexed bonds are. The explanations define each term so that investment questions can be solved logically.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
Showing 21–25 of 25 questions
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UPSC 2005Indian Economy · Security Market in India
Q21. Consider the following statements: 1. Sensex is based on 50 of the most important stocks available on the Bombay stock Exchange (BSE). 2. For calculating the Sensex, all the stocks are assigned proportional weightage. 3. The New York Stock Exchange is the oldest stock exchange in the world. Which of the statements given above is/are correct?
Explanation
Statement 1 is incorrect: The BSE Sensex (S&P BSE Sensex) is based on 30 of the most actively traded and financially strong stocks on the Bombay Stock Exchange (BSE), not 50.
Statement 2 is incorrect: In Sensex calculation, stocks are as-signed weightage based on free-float market capitalization, not proportional weightage. This means stocks with higher market capitalization and more freely tradable shares have a greater impact on the index.
Statement 3 is incorrect: The New York Stock Exchange (NYSE) is one of the largest stock exchanges but not the oldest. The Amsterdam Stock Exchange (Netherlands), established in 1602, is considered the world’s oldest stock exchange. As per Bombay Stock Exchange (BSE) reports, the Sensex is widely used as a benchmark index for tracking the performance of the Indian equity market.
UPSC 2004Indian Economy · Security Market in India
Q22. In the last one decade, which one among the following sectors has attracted the highest Foreign Direct Investment inflows into India?
Explanation
The services sector has attracted the highest Foreign Direct Investment (FDI) inflows into India in the decade leading up to 2004. This includes banking, insurance, IT, and business process outsourcing (BPO). The liberalization of FDI norms, IT boom, and rapid urbanization contributed to significant investments in financial services, telecommunications, and IT-enabled services. As per Reserve Bank of India (RBI) and Department for Pro-motion of Industry and Internal Trade (DPIIT) reports, the services sector remained the largest recipient of FDI inflows, consistently contributing over 15-20% of total FDI inflows.
Additional insight:
India’s FDI inflows are primarily driven by key sectors like services (15-20%), computer software and hardware (15%), and telecommunications (7-8%). Other major contributors include construction (5-6%), trading (5%), automobiles (4-5%), pharmaceuticals (3-4%), and renewable energy (3-4%). Initiatives like Make in India and the PLI scheme have boosted investments, particularly in electronics, clean energy, and manufacturing. In FY 2021-22, FDI reached a record $83.57 billion, reflecting strong investor confidence in India’s growth potential.
UPSC 2003Indian Economy · Security Market in India
Q23. Debenture holders of a company are its:
Explanation
Debenture holders are creditors of a company as they lend money to the company in exchange for a fixed interest rate over a specified period. Unlike shareholders, they do not hold ownership rights but receive priority during liquidation over equity holders. Debentures are issued to raise long-term capital and are generally backed by the company’s assets or revenue-gener-ating ability. Unlike equity shareholders, debenture holders do not have voting rights in company decisions.
UPSC 2002Indian Economy · Security Market in India
Q24. Global capital flows to developing countries increased significantly during the nineties. In view of the East Asian financial crisis and Latin American experience, which type of inflow is good for the host country?
Explanation
The East Asian Financial Crisis (1997) demonstrated the risks of excessive reliance on short-term portfolio investments, which led to currency instability and market crashes. FDI, on the other hand, is less volatile and contributes to sustainable growth.
Option (b) is correct: Among the various forms of capital in-flows, Foreign Direct Investment (FDI) is considered the most stable and beneficial for a host country’s economy. Unlike Foreign Portfolio Investment (FPI) and External Commercial Borrowings (ECB), which can lead to financial volatility, FDI brings in:
Long-term capital investments in infrastructure, manufacturing, and services. Technology transfer and skill enhancement. Employment generation and economic stability.
UPSC 2000Indian Economy · Security Market in India
Q25. A rise in ‘SENSEX’ means:
Explanation
A rise in SENSEX indicates an overall increase in the stock prices of a group of 30 financially strong companies listed on the Bombay Stock Exchange (BSE). These companies are selected based on market capitalization, liquidity, and sectoral representation and are considered indicators of market performance. SENSEX movements reflect investor sentiment, economic conditions, corporate earnings, and global market trends. It does not mean that the prices of all companies listed on the BSE rise simultaneously. As per the Bombay Stock Exchange (BSE) reports, Sensex is widely used by investors and analysts to gauge India’s stock market trends and investment climate.
Answer key for these questions
Q
UPSC year
Correct answer
21
2005
(d) Nnone
22
2004
(b) Services sector
23
2003
(b) creditors
24
2002
(b) Foreign Direct Investment
25
2000
(c) an overall rise in prices of shares of group of companies registered with Bombay Stock Exchange
What UPSC has tested in Security Market in India
Debenture holders of a company are its creditors, not owners.
Beta is a numeric value that measures the sensitivity of a security’s return to movements in the market.
A rise in the Sensex means an overall rise in the prices of the shares of the thirty companies in the index.
Participatory Notes are associated with Foreign Institutional Investors.
The SDR, the Special Drawing Right of the IMF, is treated as an artificial currency.
Foreign Direct Investment is a largely non-debt creating capital flow.
Frequently asked questions
How many previous year UPSC questions are there on Security Market in India?
This page covers 25 previous year UPSC Prelims GS Paper-I questions on Security Market in India (Indian Economy), asked from 2000 to 2025. Each has the correct answer and an explanation.
What does beta measure?
The sensitivity of a security’s return to the market’s return. A beta above one means the stock tends to move more than the market, and a beta below one means it moves less, so it is a measure of market risk.
Are debenture holders owners or creditors of a company?
Creditors. A debenture is a loan to the company that pays interest and is repaid on maturity, whereas shareholders are the owners and receive dividends only if the company declares them.
What is an inflation-indexed bond?
A bond whose principal or interest is adjusted for inflation, so that investors’ returns hold their real value. It benefits investors by protecting purchasing power and lets governments borrow at a lower real rate.
