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

The situation assumes that I. New Year resolutions are the most reliable ones II. a hike in salary leads to an urge to invest money III. we must not seek other's advice while purchasing property

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. Only II

  2. Only III

  3. Only I and II

  4. I, II and III
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Only assumption II is supported: Vrati's behavior shows that with each salary hike, he immediately looked to invest in housing, indicating salary increases create investment urge. Assumption I is not supported - the passage shows Vrati's New Year resolution repeatedly failing over three years, contradicting that resolutions are 'most reliable.' Assumption III is contradicted - Vrati actively sought and considered friends' advice, which influenced his indecision. The passage doesn't suggest avoiding others' advice when purchasing property.

Multiple choice

Which of the following functions of the financial statements refers to study of financial health from different interested groups, such as management, employee, suppliers, etc?

  1. Financial instrument

  2. Financial planning

  3. Long term investment

  4. Financial analysis

  5. Data flow analysis
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This function of the financial management refers to study of financial health from different interested groups, such as management, employees, suppliers, etc.

Multiple choice

In which of the following functions of financial management, a finance manager has to decide what percentage of profit he has to distribute as dividend among share holders?

  1. Financial planning

  2. Working capital investment

  3. Dividend decision

  4. Financial instrument

  5. Programmed decision
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

In this function of the financial management, a finance manager has to decide what percentage of profit he has to distribute as dividend among share holders.

Multiple choice

Which of the following tools of the financial planning refers to planning of financial decision that means estimation of total fund requirement to run the concerned organisation?

  1. Budgeting

  2. Working capital investment

  3. Source mix

  4. Capitalisation

  5. Financial services
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

This tool of the financial planning refers to planning of financial decision that means estimation of total fund requirement to run the concerned organisation.

Multiple choice

Which of the following financial concepts facilitates mobilisation of fund between buyer of the fund and seller of the fund with the help of associate financial intermediaries?

  1. Financial instrument

  2. Financial market

  3. Financial services

  4. Money measurement concept

  5. Financial planning
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This financial concepts facilitates mobilisation of fund between buyer of the fund and seller of the fund with the help of associate financial intermediaries.

Multiple choice

Which of the following functions of the financial management provides long term effect, i.e. up to the life of the project and once taken, cannot be reversed?

  1. Financial planning

  2. Capital budgeting decision

  3. Working capital investment

  4. Financial instrument

  5. Programmed decision
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

This function of the financial management provides long term effect, i.e. up to the life of the project and once taken, cannot be reversed.

Multiple choice

Directions: Choose the correct option for the given question.

Which of the following is not correct?

  1. Mutual Fund ensures its participants a professional management of portfolio selection.

  2. Mutual Fund schemes can be open-ended or close-ended.

  3. Balanced Mutual Fund aims at earning current income and capital appreciation.

  4. Mutual Fund is an investment company and a merchant banker.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Mutual funds are investment vehicles that pool money from investors, not investment companies or merchant bankers. While they offer professional portfolio management and can be open-ended or close-ended, they are not classified as investment companies or merchant bankers. This is a fundamental distinction in financial markets.

Multiple choice

Directions: Choose the correct option for the given question.

Financial leverage occurs when

  1. A firm borrows fund

  2. A firm financing to the other

  3. A firm merge with other

  4. A firm dissolved

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

Financial leverage occurs when a firm uses borrowed funds (debt) to finance its operations or investments. The use of debt magnifies potential returns but also increases risk. Options B, C, and D describe different scenarios (financing others, mergers, dissolution) but not leverage.

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.