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 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 bonds issued by governments (typically) with minimal default risk. The term refers to securities with the highest credit quality and reliability, historically linked to the gold-edged certificates used by the Bank of England.

Multiple choice

Life membership fee is

  1. added to income

  2. added to investment

  3. added to capital fund

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

It is of non-recurring nature and the members will take advantage of the services provided throughout his life.

Multiple choice

Which of the following is/are true in a closed ended MF?

  1. Shares are not normally redeemable for cash or securities until the fund liquidates.

  2. Shares are redeemable for cash or securities before the fund liquidates.

  3. Typically an investor can acquire shares in a closed-end fund by buying shares on a secondary market from a broker, market maker, or other investor.

  4. Only (1) and (c)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

In a closed-end mutual fund, the fund issues a fixed number of shares which are then traded on a secondary market like a stock exchange. Unlike open-end funds, shares are not redeemable for cash by the fund itself until a specific liquidation date. Investors must buy or sell shares through a broker on the market.

Multiple choice

Which of the follwing is/are true about NAV?

  1. The market price of a fund share is often higher or lower than the per share NAV.

  2. It is a mutual fund's price per share.

  3. It is an exchange-traded fund's (ETF) per-share value.

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

Net Asset Value (NAV) represents the per-share value of a mutual fund or ETF, calculated by dividing total assets minus liabilities by the number of shares. While it is the price for mutual fund transactions, the market price of an ETF or closed-end fund can trade at a premium or discount to its NAV. Thus, all statements provided are correct.

Multiple choice

Which one of the following investments is considered most risky?

  1. Saving in a private bank.

  2. Investing in diversified mutual funds.

  3. Buying government security bonds.

  4. Investing in direct selling and buying of equity market.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Direct investment in the equity market (buying and selling individual stocks) is considered the most risky among the options because it exposes the investor to high market volatility and company-specific risks. Diversified mutual funds spread risk across many assets, and government bonds or bank savings are much more secure. Individual stock prices can drop to zero, leading to total loss of capital.

Multiple choice

Which of the following is the purpose owing to which banks have created Investment Fluctuation Reserves (IFR)? This will help them in managing:

  1. Interest rate risk

  2. CRR

  3. SLR

  4. Foreign Currency Accounts

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

Investment Fluctuation Reserves (IFR) are created by banks to cushion against potential losses in their investment portfolios. These losses typically occur due to fluctuations in market interest rates, which affect the valuation of fixed-income securities.

Multiple choice

Which of the following ratios is the indicator of the long term solvency of a firm?

  1. Acid - Test ratio

  2. Debt - Equity ratio

  3. Time interest earned ratio

  4. Return on investment ratio
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

The Debt-Equity ratio is a key indicator of a firm's long-term solvency. It measures the proportion of long-term debt to shareholder equity, showing the extent to which the firm relies on borrowed funds versus its own capital.

Multiple choice

Despite its attractive returns, investing in real estate can still pose risks, ranging from the potential for outright fraud in some cases to the lack of a regulatory framework to protect investors and a complete lack of transparency in others.

  1. to the shortage of regulations to protect investors and a serious lack of information about investments in others

  2. to the shortage of regulations to protect investors and in others a serious lack of information about investments

  3. and the shortage of regulations to protect investors and a serious lack of information about investments in others

  4. and the shortage of regulations to protect investors to a serious lack of information about investments in others

  5. to the shortage of regulations to protect investors in others and a serious lack of information about investments
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The correct usage is ‘ranging from .... to’, which eliminates options (3) and (4). Parallelism of the construct ‘in some cases .... in others’ makes option (1) the best choice. Hence (1).

Multiple choice

In many cases, Chinese banks work with so-called trust firms to attract savings through high-yielding investment products while lend the money to high-risk sectors, including property developers and cash-strapped local governments, without having to book the loans on their balance sheets.

  1. with so-called trust firms to attract savings through high-yielding investment products while lend the money to high-risk sectors

  2. with so-called trust firms to attract savings through high-yield investment products to lend the money to high-risk sectors

  3. with so-called trust firms to attract savers through high-yield investment products to lend the money to high-risk sectors

  4. with so-called trust firms to attract savers through high-yielding investment products and lend the money to high-risk sectors

  5. with so-called trust firms to attract savings through high-yielding investment products and lend the money to high-risk sectors
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The points of contention in the sentence are – savers/savings, high-yielding/high-yield and while/to/and. Banks would work to attract savers obviously as savings per se cannot be attracted. The adjective form of high-yield that is apt for the sentence is high yielding. And the best conjunction for the sentence would be ‘and’ as ‘while’ and ‘to’ are out of context. Hence (4).

Multiple choice

Diversification leads to lack of focus and losses.

  1. Yes

  2. No

  3. Cannot Say

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

While diversification can lead to lack of focus if poorly managed, it is a strategic tool for growth and risk mitigation; therefore, the statement that it inherently leads to losses is false.

Multiple choice

NAV (in Mutual funds) refers to

  1. Net Asset Valuation

  2. Net Earnings Valuation

  3. Net Exports Valuation

  4. Net Asset value
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

NAV stands for Net Asset Value, which represents the per-share value of a mutual fund's assets minus its liabilities.

Multiple choice

Call Option and Put Option are terms often used in

  1. Money Market

  2. Capital Market

  3. Derivatives Market

  4. Cash Market
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Call and Put options are standard financial instruments used in the derivatives market to hedge risk or speculate on price movements.

Multiple choice

Basel II Committee is relevant in the area of

  1. Social Security

  2. Insurance Development

  3. Investment Management

  4. Risk Management

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

The Basel II accord is a set of international banking regulations that provide recommendations on banking laws and regulations, specifically focusing on capital adequacy and risk management.

Multiple choice

The term 'short term market logic' refers to

Directions: Read the given passage carefully and answer the question that follows.

It has become oddly fashionable to look down on the humanities over the last few decades. Today’s students are being told that studying the classics of English literature, the history of the twentieth century, or the ethics of privacy are a fun but useless luxury. To best prioritize our scarce education resources, we ought instead to focus on technical subjects such as math and engineering. This short-term market logic doesn’t work across the thirty-or-so-year horizon of a full career. A generation ago, lawyers made more money than investment bankers. Today, we have too many law graduates (though there appears to be data to support it’s still worth the money) and the investment banks complain about a lack of talent. It is basically impossible to project that sort of thing into the far future. We are also told that a degree in the humanities is unlikely to make you successful. But quite a few people with humanities degrees have had successful careers and, in the process, created numerous jobs.
One might think that most people starting out or running tech companies in the heart Silicon Valley would be from the science, technology, engineering and mathematics (STEM) fields. Not so, studies found that 47 percent of the 652 technology and engineering company founders surveyed held terminal degrees in the STEM fields, with 37 percent of those degrees being in either engineering or computer technology and 2 percent in mathematics. The rest graduated with a healthy combination of liberal arts, health-care and business degrees.

  1. the investment patterns of people

  2. the belief that some subjects can insure better career prospects than some others

  3. the belief that lawyers earn more

  4. the belief that investment bankers will be in demand in future

  5. the belief that studying the classics of English literature, the history of the twentieth century, or the ethics of privacy are a fun but useless luxury
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This is the correct choice. The term 'short term logic' refers to the popularity of some subjects over others because of the current popularity of some subjects. It has also been demonstrated through the examples of professions like lawyers (who are too many) and investment bankers (who are looking for more talented people).