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

Even when two projects are mutually exclusive, capital rationing results in accurate ranking by

  1. NPV method only

  2. IRR method only

  3. NPV as well as IRR method

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

Mutually exclusive projects are projects in which acceptance of one project excludes the others from consideration. In such a scenario, the best project is accepted. NPV and IRR conflict, which can sometimes arise in case of mutually exclusive projects, becomes critical. The conflict either arises due to the relative size of the project or due to the different cash flow distribution of the projects. Since NPV is an absolute measure, it will rank a project adding more dollar value higher regardless of the original investment required. IRR is a relative measure, and it will rank projects offering best investment return higher regardless of the total value added.

Multiple choice theme, main idea and purpose of a passage reading comprehension english

A passage is given below followed by several inference . You have to examine each interference separately in the context of the passage and decide upon its degree of truth or falsity , Mark your answer as:

Investors today have more investment options than were available just a few years ago. Choice in any decision-making is good in so far it provides variety, differentiation and bench-marking. It could also, however, at times lead to clutter and "noise" if the options are mostly similar and undifferentiated. To make sense of this choice conundrum, it is imperative for an investor to define objective - both returns and digestible risk and then identify the possible options. The investor also needs to select the mix and regularly monitor that objectives and investment outcomes remain aligned. Sounds simple, but can present the most confounding situation which multiplies with the quantum of wealth. 
Multiple investment options of similar types helps in making better investment decisions.

  1. If the inference is 'definitely true'

  2. If the inference is 'probably true'

  3. if the 'data provide in inadequate'

  4. If the inference is 'probably false'
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Refer to the second and the third sentences of the passage. They say that choice is good, but they lead to clutter and noise if the products are similar. So, the inference is probably false.

Multiple choice theme, main idea and purpose of a passage reading comprehension english

A passage is given below followed by several inference . You have to examine each interference separately in the context of the passage and decide upon its degree of truth or falsity , Mark your answer as:

Investors today have more investment options than were available just a few years ago. Choice in any decision-making is good in so far it provides variety, differentiation and bench-marking. It could also, however, at times lead to clutter and "noise" if the options are mostly similar and undifferentiated. To make sense of this choice conundrum, it is imperative for an investor to define objective - both returns and digestible risk and then identify the possible options. The investor also needs to select the mix and regularly monitor that objectives and investment outcomes remain aligned. Sounds simple, but can present the most confounding situation which multiplies with the quantum of wealth. 
Present day investors need to use their judgement more critically before investing.

  1. If the inference is 'definitely true'

  2. If the inference is 'probably true'

  3. if the 'data provide in inadequate'

  4. If the inference is 'probably false'
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
According to the first sentence, it says that investors `today have more investment options' and then later in the paragraph says that investors need to evaluate risk. This means that investors today need to use their judgement mat critically. So, the inference is definitely true.

Multiple choice

Which of the following policies of the financial sectors is basically designed to transfer local financial assets into foreign financial assets freely, and at market determined exchange rates?

  1. Capital Account Convertibility

  2. Financial Deficit Management

  3. Minimum Support Price

  4. Restrictive Trade Practices

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

Capital Account Convertibility refers to the freedom to convert local financial assets into foreign financial assets and vice versa at market-determined exchange rates, which is a key policy for financial integration.

Multiple choice commerce sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

What is/are the eligibility criteria of foreign issuing company to issue Indian Depository Receipts (IDRs)?

  1. Preissue paidup capital and free reserves of at least US$ 50 million

  2. A continuous trading record or history on a stock exchange

  3. Listed in home country and not been prohibited to issue securities

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
IDR is a form of Depository receipt. It is created by a domestic depository. It is an instrument denominated in Indian Rupees. The eligibility criteria of foreign issuing company to issue Indian Depository Receipts are:
a) Pre issue paid up capital and free reserves of at least US$ 50 million b) A continuous trading record or history on a stock exchange
c) Listed in home country and not been prohibited to issue securities.
Multiple choice commerce sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

GDRs are usually denominated in U.S. dollars.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

GDRs are usually denominated in U.S. dollars- this is a true statement.GDR is a foreign currency denominated derivative instrument in the form of depository receipt created outside India and issued to non-resident investors. GDR stands for Global Depository Receipt. It is a bank certificate issued in more than one country for shares in a foreign company.

Multiple choice commerce sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

Which are the intermediaries involved in issuance of IDRs?

  1. Overseas Custodian Bank

  2. Domestic Depository

  3. Merchant Banker registered with SEBI

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
IDR is a form of Depository receipt. It is created by a domestic depository. It is an instrument denominated in Indian Rupees. The intermediaries involved in issuance of IDRs are:
a) Overseas Custodian Bankb) Domestic Depository
c) Merchant Banker registered with SEB.
Multiple choice commerce sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

American Depository Receipt (ADR) is a certified negotiable instrument issued by an American bank suggesting the number of shares of a foreign company that can be traded in U.S. financial markets.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

American Depository Receipt (ADR) is a certified negotiable instrument issued by an American bank suggesting the number of shares of a foreign company that can be traded in U.S. financial markets- this is a true statement. Common types of ADR are: mediation, concilation, arbitration.

Multiple choice commercial studies sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

_____ is/are the disadvantage(s) of Global Depository Receipts.

  1. Dividends are paid in domestic countrys currency which is subject to volatility in the forex market.

  2. It is mostly beneficial to High Net-Worth Individual (HNI) investors.

  3. GDR is one of the expensive sources of finance.

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
GDR is a foreign currency denominated derivative instrument in the form of depository receipt created outside India and issued to non-resident investors. GDR stands for Global Depository Receipt. It is a bank certificate issued in more than one country for shares in a foreign company. Disadvantages of GDR are:
a) Dividends are paid in domestic countrys currency which is subject to volatility in the forex market.
b) It is mostly beneficial to High Net-Worth Individual (HNI) investors.
c) GDR is one of the expensive sources of finance.
Multiple choice commercial studies sources of business finance - 2 gdrs, adrs and idrs depository receipts international sources

Which is the next step of GDR mechanism, after the overseas depository bank enter into a custodian agreement with the domestic custodian of such company?

  1. On the instruction of domestic custodian, the overseas depository bank issues shares to foreign investors.

  2. The domestic custodian holds the equity shares of the company.

  3. The domestic company enters into an agreement with the overseas depository bank for the purpose of issue of GDR.

  4. The whole process is carried out under strict guidelines.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

After the overseas depository bank enter into a custodian agreement with the domestic custodian of such company, the next step of GDR mechanism is: the domestic custodian holds the equity shares of the company.  Hence the equity shares is held by the domestic custodian when the overseas depository bank signs the agreement.

Multiple choice commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

Lease financing enables the lessee to acquire the asset with a ________ investment.

  1. Higher

  2. Medium

  3. Lower

  4. Both a and b
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Lease financing in other words is renting of an asset for some specific period. The lessee pays a fixed periodic amount called lease rental to the lessor for the use of the asset. This enables the lessee to acquire  the assets with a lower investment.

Multiple choice organisation of commerce and management sources of business finance - 1 finance and accounts meaning and functions of finance and accounts department nature, need and significance of business finance

Which one of the following statements regarding 'financial literacy' is not true?

  1. Its objective is to make people aware of the risks and rewards of investments so that they can make an informed choice.

  2. India has a formal nationwide structured financial education programme.

  3. This would enhance the effectiveness and integrity of financial markets.

  4. It reduces the government burden in protecting the common person from elements of market failure.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

While India has various financial literacy initiatives, it does not have a single, unified, formal nationwide structured financial education program that covers the entire population in the way implied by the statement.

Multiple choice organisation of commerce and management sources of business finance - 1 finance and accounts meaning and functions of finance and accounts department nature, need and significance of business finance

The _________ aim of financial management is to maximize shareholder's wealth, which is referred to as the wealth maximization.

  1. primary

  2. secondary

  3. final

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

The most widely accepted objective of the firm is to maximize the value of the firm for its owners, that is, to maximize shareholder wealth. Shareholder wealth is represented by the market price of a firm’s common stock.

The shareholder wealth maximization goal states that management should seek to maximize the present value of the expected future returns to the owners (that is, shareholders) of the firm. 

Multiple choice commercial studies finance and accounts meaning and functions of finance and accounts department nature, need and significance of business finance introduction to business capital/finance

Interest paid by other than financial enterprises is shown in cash flow statement under ________________.

  1. Operating activities

  2. Investing activities

  3. Financing activities

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

Interest paid by non-financial enterprises is classified as a financing activity in the cash flow statement because it relates to the cost of obtaining financial resources. Operating activities typically involve the core revenue-generating activities of the business.

Multiple choice commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

The regulation of commercial paper comes under the preview of the ____________.

  1. Central Bank

  2. Reserve Bank of India

  3. State Government

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

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days. It is issued by one firm to another business firm, insurance companies, pension funds, and banks. The amount issued by commercial papers is generally very large. The regulation of commercial paper comes under the purview of Reserve Bank of India.