Economy : Capital Market

Q 10 / 15

UPSC CSE Prelims 2005

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. New York Stock Exchange is the oldest stock exchange in the world.

Which of the statements given above is/are correct?

EXPLANATION

Correct Option

Statement 2 is correct. The Sensex is a free-float market capitalization-weighted index. In this methodology, each constituent stock is assigned a proportional weightage based on its free-float market capitalization. This implies that stocks with a larger market value and a higher proportion of shares available for public trading have a greater influence on the index's overall movement.

Incorrect Options

Statement 1 is incorrect. The BSE Sensex is an index of 30 financially sound and well-established companies listed on the Bombay Stock Exchange (BSE), not 50. The Nifty 50, which is an index of the National Stock Exchange (NSE), comprises 50 stocks.

Statement 3 is incorrect. The Amsterdam Stock Exchange, established in 1602, is generally considered the oldest stock exchange in the world. The New York Stock Exchange (NYSE) was founded in 1792, making it one of the oldest and largest stock exchanges globally, but not the absolute oldest.

SOURCEIndian Economy by Ramesh Singh, Chapter 15: Capital Market