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

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.

Multiple choice

Capital rationing is defined as

  1. the process of allocation of capital funds over various capital projects accoding to their ranks or profitability

  2. the process of distribution of available capital funds among various capital projects according to their ranks or profitability

  3. the process of distributing and allocating funds to existing capital projects accoding to their ranks or profitability

  4. all of the above

  5. only 1 and 2
Reveal answer Fill a bubble to check yourself
E Correct answer
Explanation

Owner' s wealth should be maximised.

Multiple choice

Which of the above statements are the two principles of capital structure?

Consider the given statements:

1. It must be balanced with adequate equity cushion.

2. It must be balanced with adequate debt cushion.

3. Ratio of funded debts to equity should be geared to the degree of stability.

4 . Ratio of equity to funded debts should be geared to the degree of stability.

  1. 3 and 4

  2. 2 and 3

  3. 1 and 3

  4. 1 and 4

  5. 1 and 2
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Correct

Multiple choice

What is the main attribute of a Gilt-Edged stock?

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

  2. A stock backed by gold.

  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
A Correct answer
Explanation

Gilt-edged stocks are high-quality government bonds with minimal risk of default. The term originates from the UK where government bond certificates had gilded edges, signifying their safety and reliability as investments.

Multiple choice

Which of the following is not a flow concept?

  1. Wages

  2. Wealth

  3. Income

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

Wealth is a stock concept (measured at a point in time), not a flow concept (measured over a period of time). Stock concepts represent accumulation, while flow concepts represent rates of change. Wages, income, and dividends are all flow concepts as they are measured over time periods (monthly, annually). Wealth represents accumulated assets at a specific moment.

Multiple choice

What is the main attribute of a Gilt-Edged stock?

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

  2. A stock backed by gold.

  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
A Correct answer
Explanation

Gilt-edged stocks are high-quality government bonds with minimal default risk, specifically referring to British government securities (gilts). The term 'gilt-edged' signifies the highest credit quality and safety, analogous to gilt or gold-edged certificates.

Multiple choice

Directions: Choose the correct option for the given question.

�Maximum method' is used for

  1. piecemeal distribution

  2. revaluation of assets and liabilities

  3. adjustment of capital of partners

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

The Maximum Loss Method (also called Maximum Deficit or Piecemeal Distribution Method) is used to distribute cash piecemeal as it becomes available during partnership dissolution. It assumes maximum possible loss on unrealized assets and distributes cash accordingly - partners receive amounts in proportion to their ultimate capital loss risk. This ensures gradual, fair distribution.

Multiple choice

JUNK BONDS are

  1. High yield, high risk

  2. Low yield, high risk

  3. Low yield, low risk

  4. High yield, low risk
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Junk bonds are high-yield securities issued by companies with poor credit ratings or financial instability. Investors demand higher returns to compensate for the elevated risk of default. Low-risk bonds (like government securities) offer lower yields, while high-yield junk bonds carry significant risk.

Multiple choice

Directions: Choose the correct option for the given question.

Lok Sabha on May 14, 2007 passed the Securities Contracts (Regulation) Amendment Bill 2007 to amend the Securities Contracts (Regulation) Act of

  1. 1948

  2. 1956

  3. 1961

  4. 1965
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Securities Contracts (Regulation) Act was originally enacted in 1956 to regulate the securities market in India. The 2007 Amendment Bill sought to update this landmark legislation. Options A (1948), C (1961), and D (1965) are incorrect as they do not match the historical enactment year.