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

What is the theory of capital structure?

  1. Net operating income approach

  2. Net income approach

  3. Modigliani and Miller approach

  4. The traditional approach

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

All are correct.

Multiple choice

Profitability index is calculated as

  1. Cash outflow / cash inflow

  2. Present value of cash inflow / Initial cash outlay

  3. Profitability / PV

  4. Profit / Investment

  5. None of these
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This is the correct answer.

Multiple choice

Which of the following is not an assumption of net income approach?

  1. No taxes

  2. The cost of debt is less than the cost of equity.

  3. Business risk remains constant at every level of debt equity mix.

  4. Risk perception of investors is not changed by the use of debt.

  5. None of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

 This is not an assumption of net income approach.

Multiple choice

Which of the following is the advantage of financing through SHG?

  1. Poor individual gains strength

  2. Reduces transaction costs

  3. Lenders have to maintain only one single SHG account

  4. Options (1), (2) and (3)

  5. None of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Yes, the advantage of financing through SHG is to strengthen the economical condition of poor, reduce the transaction cost and the lenders have to maintain only a single SHG account.

Multiple choice

Which of the following are risk free assets?

  1. Housing loans

  2. Venture capital investments

  3. Government approved securities

  4. Loans against jewellery

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

Yes, all the above options are risk free assets.

Multiple choice

Long-term funds in the capital market can be raised either by borrowing from certain institutions or through

  1. Issue of note

  2. Taking loan from Government

  3. Issue of securities

  4. Taking loan from foreign institutions
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Companies raise long-term capital in capital markets primarily by issuing securities like shares and bonds to investors. Borrowing from government or foreign institutions are specific sources, not the primary mechanism, while issuing notes is a central bank function.

Multiple choice

According to the passage, investments in service are comparable to investments in production and distribution in terms of the

Directions: This question is based on the following reading passage. Choose the best answer to the  question on the basis of what is stated or implied in the passage.

The fact that superior service can generate a competitive advantage for a company does not mean that every attempt at improving service will create such an advantage. Investments in service, like those in production and distribution, must be balanced against other types of investments on the basis of direct, tangible benefits such as cost reduction and increased revenues. If a company is already effectively on a par with its competitors because it provides service that avoids a damaging reputation and keeps customers from leaving at an unacceptable rate, then investment in higher service levels may be wasted, since service is a deciding factor for customers only in extreme situations. This truth was not apparent to managers of one regional bank, which failed to improve its competitive position despite its investment in reducing the time a customer had to wait for a teller. The bank managers did not recognize the level of customer inertia in the consumer banking industry that arises from the inconvenience of switching banks. Nor did they analyze their service improvement to determine whether it would attract new customers by producing a new standard of service that would excite customers or by proving difficult for competitors to copy. The only merit of the improvement was that it could easily be described to customers.

 

  1. tangibility of the benefits that they tend to confer

  2. increased revenues that they ultimately produce

  3. basis on which they need to be weighed

  4. insufficient analysis that managers devote to them

  5. degree of competitive advantage that they are likely to provide
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The passage states that investments in service, like those in production and distribution, must be balanced against other types of investments on the basis of direct, tangible benefits. This establishes that all three types of investments need to be weighed on the same basis - direct, tangible benefits like cost reduction and increased revenues. The comparison is about the evaluation basis, not about the specific benefits they produce.

Multiple choice

What is a gilt-edged stock?

  1. A stock backed by gold.

  2. Bonds issued by the government whose likelihood of default is zero.

  3. Stocks which are linked to the inflation rate.

  4. Stocks doing well in the capital market.

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

Gilt-edged stocks (or gilts) are bonds issued by governments, particularly associated with the UK. They are called 'gilt-edged' because of their high reliability and minimal default risk, being backed by the government's creditworthiness.

Multiple choice

Which of the following is not true according to the situation?

Directions: Study the situation given below to answer the question.
Satish Vrati's New Year resolution for the past three years has been the same; to buy a new house in New Delhi at the earliest. With every hike in salary, he would scramble through newspapers to find out good properties and housing loans. Meanwhile, he received conflicting advice about the pros and cons of owning a flat. If one friend pointed out the risk involved in leasing out the property. Another would say his money was being locked up without good returns. Vrati became indecisive.

With the cut in Cash Reserve Ration (CRR) by the Reserve Bank of India (RBI), many banks decided to trim interest rates for housing loans. But Vrati still wondered whether real estate was a safe investment. With the entry of corporate sector, the real estate sector has become reliable�, says Rajendra Varshney, chartered accountant and real estate adviser. Today,� it can compete with any available investment option.�

  1. Satish Vrati is a well-to-do man.

  2. Leasing out a house is not an advisable proposition in every circumstance.

  3. Interest rates are linked to CRR.

  4. The attractive rates have now convinced Vrati to buy a flat.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The passage explicitly states 'But Vrati still wondered whether real estate was a safe investment' - this indicates he has NOT been convinced by the attractive rates to buy a flat. His indecision persists despite lower interest rates. Options A, B, and C are all supported by the passage: Vrati is well-to-do (salary hikes, considering property investment), there are valid concerns about leasing (mentioned by friends), and the passage directly links interest rates to CRR cuts by RBI.