Banking Financial Awareness · Economics

Financial Markets and Instruments

1,955 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

A type of annuity contract that delays payments of income, installments or a lump sum until the investor elects to receive them is known as:-

  1. Deferred annuity

  2. Immediate annuity

  3. Fixed annuity

  4. Variable annuity
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Deferred annuity is an annuity under which the annuity payment period is scheduled to begin at some future date. They enable people to increase their income stream later in life for less money because the insurance company is not on the hook as long when income payments are deferred.

Multiple choice

Which of the following is NOT a demerit of the Product Diversification?

  1. Risk involved

  2. Trap of full-line competition

  3. Huge investment

  4. None of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Product diversification involves expanding the product range, which has several drawbacks. Risk involvement means entering unknown markets with uncertain outcomes. The trap of full-line competition occurs when competitors attack across all product lines, and huge investment is required for R&D, production, and marketing of new products. Since all options A, B, and C are actual demerits of product diversification, option D correctly identifies that none of these is 'NOT a demerit' - meaning all are demerits.

Multiple choice

Which of the following is a financial asset?

  1. Gold

  2. Silver

  3. Share

  4. Land and building
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A financial asset is a non-physical asset whose value derives from a contractual claim, such as stocks, bonds, or bank deposits. Shares represent ownership in a company and are classic financial assets. Gold, silver, and land are physical or real assets, not financial assets.

Multiple choice

Which of the following is best suited to businessmen?

  1. Income fund

  2. Balanced fund

  3. Growth fund

  4. Taxation fund
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Growth funds focus on capital appreciation by investing primarily in equities with high growth potential, making them ideal for businessmen who typically have higher risk appetite and longer investment horizons. Income and balanced funds suit conservative investors, while taxation funds are for tax planning.

Multiple choice

What is/are the assumption(s) of Walter's approach?

  1. All earnings are either distributed or invested.

  2. Internal rate of return and market capitalisation rate are constant.

  3. Firm has infinite life.

  4. Debt or new equity is not issued for the purpose of financing investments.

  5. All of the above
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

All of the above are assumptions of Walter's model.

Multiple choice

Which of the following statements is/are true about NPV?

  1. It considers the time value of money.

  2. It considers all the cash flows.

  3. It gives more weightage to distant flows than to near-term flows.

  4. Only 1 and 2

  5. 1, 2 and 3
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Both 1 and 2 are considered in NPV method.

Multiple choice

Which of the following is an assumption of terminal value method?

  1. Each annual cash inflow is received at the end of year and is invested in another asset at a certain rate of return.

  2. Discounting rate is derived from the aggregate of the present values of all future cash inflows.

  3. Present value of all cash inflows from investments at different periods is determined.

  4. Rate of return of the annual net profit on investment is calculated.

  5. Time period of the recovery of cost of capital project by its own cash earnings is calculated.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Money is accumulated and discounted at the discount factor of last year.