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

Directions: Select the option that best answers the question at the end of the paragraph.

Seasoned market observers have often commented that a study of human nature is far more useful for investors than number crunching skills. And as expert chroniclers of human behaviour are wont to put it. “History always repeats itself“. There is no better example of this truism than the behaviour of investors. The last three years battered investor confidence to levels where they refused to buy anything at any price. And now, when life looks a little rosier, they are once again falling for the same old gimmicks in new disguises. The story of 1997 has undoubtedly been that of the software industry, and today, even second and third line stocks are shooting up. The author is

  1. cautioning against the futuristic mindset of investors

  2. assessing the various bottlenecks of the software industry

  3. talking about the inherent danger of the stock market

  4. justifying the continuing craze of software stocks
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The author has talked about study of human nature and trying to judge the trend in which the investors would behave in future. So, (1) is the only relevant option. (2) & (4) choices have specifically mentioned about 'software' but 'software' is simply a reference taken by the author and so, 'software doesn't come into picture in the central idea. (3) can't be the answer as 'inherent danger' of stock market does not come in the central idea.

Multiple choice

What can be the bad effect of excessive working capital?

  1. The liquidity position is low.

  2. Profitable business opportunity goes out of hand.

  3. There is borrowing of funds at exorbitant rates

  4. Proper rate of return is not earned on the investment
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

By the excessive working capital, the funds remain idle as the company has more funds than required. When funds remain idle, no profit is earned on idle funds. Hence, proper rate of return is not earned on the investment of the company.

Multiple choice

The relationship between cash dividends and retained earnings is

  1. direct

  2. positive

  3. reciprocal

  4. none of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The relation between cash dividends and retained earnings is reciprocal. The retained earning is the part of profits which is not distributed as profits and is kept by the company. If the company decides to distribute major part of profits as dividend in the form of cash, then obviously it would have less earnings left to be retained or kept and vice-versa.

Multiple choice

Which of the following is an internal factor affecting dividend policy?

  1. General state of economy

  2. State of capital market

  3. Financial needs of the company

  4. Legal restrictions
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It is an internal factor affecting the dividend policy as it is concerned with the company in particular. If the company needs funds for larger profitable projects, the company would retain the major part of the earnings and distribute less dividends.

Multiple choice

Which of the following is not the form of dividend?

  1. Cash dividend

  2. Stock dividend

  3. Bond dividend

  4. Kind dividend
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This is not the form of dividend. The kind means that dividend is given in form of goods or assets other than cash, which is not possible.

Multiple choice

Which of the following is an external source of finance?

  1. Retained earnings

  2. Depreciation funds

  3. Public deposits

  4. General reserve
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

It is external source of finance. In public deposits, the funds are accepted from the public in the form of deposits. As the public has deposited the funds, which is an outside party, it is an external source of finance. The deposits are to be paid back to the public.

Multiple choice

Directions: Select the word/phrase that must be deleted/corrected, in order to make the sentence grammatically correct.

Although not giving quite as much return as a share-market account, financial experts recommend fixed deposit for its stable yield.

  1. Although not giving

  2. quite as much

  3. as a share market

  4. financial experts recommend
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Type of error: Incorrect usage of 'Although not giving'. The sentence has a misplaced modifier as what does not give quite as much return is not answered. So, a pronoun 'it' needs to be introduced. Correct usage is 'Although it does not give'.

Multiple choice

Which one of the following is not an actionable claim?

  1. Claim for arrears of rent

  2. Provident fund payable after retirement

  3. A share in partnership

  4. A secured debt
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Actionable claim is a claim to any debt, other than a debt secured by mortgage or pledge. Actionable claim is a claim to any beneficial interest not in the possession of the claimant.

Multiple choice

Which of the following statements best describes an ordinary annuity?

  1. Equal cash flows at equal time intervals forever.

  2. Equal cash flows at equal time intervals for a specific time period.

  3. Lumpy cash flows at equal time intervals forever.

  4. Lumpy cash flows at equal time intervals for a specific time period.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An ordinary annuity is a series of equal payments made at the end of each period for a fixed period of time.

Multiple choice

Which of the following statements is/are true about Current Money Method of dividend payment?

  1. Returns depend on when the investment was made.

  2. Different investment blocks get different dividends.

  3. It is also called segmented or investment block method.

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In Current Money Method, the returns depend on when the investment was made and the rate that was secured at the time of investment. It has also been called segmented or investment block method as different investment blocks get different returns. Hence, all the given statements about Current Money Method are correct.