Banking Financial Awareness · Economics

Financial Markets and Instruments

1,985 Questions

Financial markets and instruments cover mutual funds, risk management, portfolio optimization, and investment strategies. These topics are critical for banking and financial awareness sections in competitive exams. Practice these questions to understand operational risk, asset valuation, and market regulations.

Portfolio optimizationOperational risk managementMutual funds valuationInvestment income typesHedging strategies

Financial Markets and Instruments Questions

Multiple choice

SENSEX is related with the value of a few selected companies. The number of companies is

  1. 300

  2. 30

  3. 150

  4. 100
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The BSE SENSEX (Sensitive Index) tracks 30 financially sound and representative companies across key sectors. These 30 companies are selected based on market capitalization, trading volume, and industry representation. The index was originally created with a base of 30 companies in 1986 and maintains this number for focused market representation.

Multiple choice

Which of the following is meaning of fund based accounting?

  1. Process of producing information for external use usually in the form of financial statements.

  2. Produces information primarily for internal use by the company's management.

  3. An accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments.

  4. Refers to the type of accounting information system used in the public sector.

  5. Accounting for the tax related matters.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Fund accounting is a system of accounting widely used in non-business entities, such as nonprofits, government agencies, churches, hospitals and colleges and universities. Fund accounting differs from traditional business accounting, which focuses on identifying how successful an entity has been at creating profits. Since nonprofits and governments are not designed to generate profits, an alternative accounting method gives them a more fitting approach to tracking and reporting their finances.

Multiple choice

Very often we hear the terms 'Foreign Direct Investment' and 'Foreign Institutional Investment'. Which of the following statements is/are correct in relation to them?

  1. FDI is an investment that a parent company makes in a foreign country. On the contrary, FII is an investment made by an investor in the market of a foreign nation.
  2. FDI can enter the stock market easily and also withdraw from it easily, but FII cannot enter and exit that easily.
  3. Foreign Direct Investment targets a specific enterprise. The FII provides for increasing capital availability in general.

  1. Only 1 and 2

  2. Only 1

  3. Only 1 and 3

  4. 1, 2 and 3
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Statement 1 is correct: FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. On the contrary, FII or Foreign Institutional Investor is an investment made by an investor in the market of a foreign nation. Statement 2 is incorrect: In FII, the companies only need to get registered in the stock exchange to make investments. Foreign Institutional Investment is also known as hot money as the investors have the liberty to sell it and take it back. But in Foreign Direct Investment, this is not possible. In simple words, FII can enter the stock market easily and also withdraw from it easily. Statement 3 is correct: Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise.

Multiple choice

Which of the following is meaning of fund based accounting?

  1. Process of producing information for external use usually in the form of financial statements.

  2. Produces information primarily for internal use by the company's management.

  3. An accounting system emphasizing accountability rather than profitability, used by non-profit organizations and governments.

  4. Refers to the type of accounting information system used in the public sector.

  5. Accounting for the tax related matters.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Fund accounting is a system of accounting widely used in non-business entities, such as nonprofits, government agencies, churches, hospitals and colleges and universities. Fund accounting differs from traditional business accounting, which focuses on identifying how successful an entity has been at creating profits. Since nonprofits and governments are not designed to generate profits, an alternative accounting method gives them a more fitting approach to tracking and reporting their finances.

Multiple choice

Which of the following come under the definition of Foreign Direct Investment?

  1. Mergers and acquisitions
  2. Portfolio investment
  3. Building new facilities
  4. Transfer of technology

  1. Only 1and 3

  2. Only 1, 2 and 3

  3. Only 1, 3 and 4

  4. All of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Foreign direct investment (FDI) is a direct investment into production or business in a country by a company in another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Foreign direct investment is in contrast to portfolio investment which is a passive investment in the securities of another country such as stocks and bonds. Foreign direct investment has many forms. Broadly, foreign direct investment includes mergers and acquisitions, building new facilities, reinvesting profits earned from overseas operations and intra-company loans. FDI usually involves participation in management, joint-venture, transfer of technology and expertise.

Multiple choice

Which one of the following is correct? (i) A ratio is an arithmetical relationship of one number to another number. (ii) Liquid ratio is also known as acid test ratio. (iii) Rule of thumb for current ratio is 2 : 1. (iv) Debt equity ratio is the relationship between outsiders' fund and shareholders' fund.

  1. All (i), (ii), (iii) and (iv) are correct.

  2. Only (i), (ii) and (iii) are correct.

  3. Only (ii), (iii) and (iv) are correct.

  4. Only (ii) and (iii) are correct.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

All four statements are correct. A ratio compares two quantities arithmetically. Liquid ratio is the acid-test ratio (excluding inventory). The 2:1 rule is a benchmark for current ratio. Debt-equity ratio compares external funds to shareholders' funds.

Multiple choice

The financial management is concerned with the:

  1. Procurement of funds and their effective utilisation

  2. Raising of funds from the market

  3. Management of Working Funds only

  4. Investing funds in the most appropriate assets
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Financial management encompasses both raising funds (procurement) and deploying them effectively (utilization). Option A captures this dual scope completely, while other options focus on only one aspect.

Multiple choice

Read the following statements: (i) “Working Capital is the amount of funds necessary to cover the Cost of operating the enterprise.” (ii) “Circulating capital means current assets of a company that are changed in the ordinary course of business from one form to another.”

  1. (i) and (ii) both are correct.

  2. (i) and (ii) both are false.

  3. (i) is correct, but (ii) is false.

  4. (i) is false, but (ii) is correct.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Statement (i) is correct - working capital funds day-to-day operations. Statement (ii) is false - circulating capital refers to capital that circulates/changes form, not current assets specifically. Current assets include cash, inventory, receivables which do change form, but the definition is imprecise.

Multiple choice

Which one is not the part of, Migration to new capital adequacy framework based on the three pillar approach, namely:

  1. Minimum capital requirements

  2. Supervisory review

  3. Market Discipline

  4. Book keeping
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The Basel II and Basel III frameworks are built on three pillars: Pillar 1 covers minimum capital requirements, Pillar 2 covers supervisory review processes, and Pillar 3 covers market discipline through disclosure requirements. Book keeping is a basic accounting function, not a pillar of the capital adequacy framework.

Multiple choice

Match the following:

 
List - I
List - Il
(a) The presence of fixed cost in the cost structure of a firm.
1.Super-leverage
(b) The presence of fixed return funds in the capital structure of a firm.
2.Operating leverage
(c) Impact of changes in sales on the earnings available to shareholders.
3. Financial leverage

  1. (a)-(1), (b)-(2), (c)-(3)

  2. (a)-(2), (b)-(3), (c)-(1)

  3. (a)-(3), (b)-(2), (c)-(1)

  4. (a)-(1), (b)-(3), (c)-(2)

Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Operating leverage (2) refers to the presence of fixed costs in the cost structure - fixed operating costs amplify the impact of sales changes on operating income. Financial leverage (3) relates to fixed return funds (debt) in capital structure. Super-leverage (1) or combined leverage captures the total impact of sales changes on shareholder earnings by combining both operating and financial leverage effects.

Multiple choice

Which of the following is a valid promissory note?

  1. “A, I owe you some amount.”

  2. “A, I owe you Rs. 1000.”

  3. “I promise to pay A or order Rs. 1000."

  4. “I promise to pay the bearer Rs. 1000."
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A valid promissory note is a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand. “I promise to pay A or order Rs. 1000” is a valid promissory note.