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 business organisation introduction to financial markets concept of financial market meaning and definition of financial market concepts and functions of financial markets

The net liquidation value of a firm is the best indicator of its financial health. This is the proposal of ____________.

  1. Beaver model

  2. L C Gupta model

  3. Wilcox model

  4. Altman's Z score model

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

Wilcox proposed that the net liquidation value of the firm is the best indicator of its financial health. The net liquidation value can be obtained by the difference in liquidation value of a firms assets and the liquidation value of its liabilities.

Multiple choice business organisation introduction to financial markets concept of financial market meaning and definition of financial market concepts and functions of financial markets

The long-term investment of a firm involves __________________.

  1. Irreversible investments

  2. Investments which benefit the firm for number of years

  3. All of the above

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

Long-term decisions involve setting up of the firm, expansion, diversification modernization and other similar capital expenditure decisions requiring huge investment made by raising long-term sources, the benefits of which can be seen only in the long term. Because of the huge investments involved these decisions are irreversible.

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

Trade credit as a source of funds has certain limitations, which is/are ______________________.

  1. Only limited amount of funds can be generated through trade credit.

  2. It is generally a costly source of funds.

  3. Availability of easy and flexible trade credit facilities may induce a firm to indulge in over-trading.

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Trade credit is issued when goods and services are traded on credit. It is offered by one seller to the other.a) Trade credit as a source of funds has certain limitations, which are:b) limited amount of funds can be generated through trade credit.
c) It is generally a costly source of funds.
Availability of easy and flexible trade credit facilities may induce a firm to indulge in over-trading.
Multiple choice commerce business finance financial planning financing financial management

Financial planning arrives at __________________.

  1. Minimising the external borrowing by resorting to equity issues

  2. Entering that the firm always have significantly more fund than required so that there is no paucity of funds

  3. ensuring that the firm paces neither a shortage nor a glut of unuable funds

  4. doing only what is possible with the funds that the firm has at tis disposal
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Financial planning aims at ensuring that the firm faces neither a shortage nor a glut of unusable funds. If there is shortage of funds then the firm will not be able to carry out its planned activities and commitment. On the other hand if there is excess funds available then it adds to cost of business which encourages waste of funds. Thus, financial planning focuses on ensuring the availability of just enough funds at right time.

Multiple choice commerce business finance financial planning financing financial management

Financial planning usually begins with the preparation of a _______ forecast.

  1. purchase

  2. sales

  3. cash

  4. budget
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Financial planning usually begins with the preparation of a sales forecast.
It starts with an estimate of the sales which are likely to happen in the next five years. Based on these, the financial statements are prepared keeping in mind the requirement of funds for investment in the fixed capital and working capital. Then the expected profits during the period are estimated so that an idea can be made of how much of the fund requirements can be met internally i.e. through retained earnings. This results in an estimation of the requirement for external funds. Further, the sources from which the external funds requirement can be met are identified and cash budgets are made, incorporating these factors.
Multiple choice commerce business finance financial planning financing financial management

Financial planning tries to link the ______ with the ______.

  1. future, present

  2. present, past

  3. present, future

  4. past, future
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise. Financial planning relates present financial requirement with future requirement by anticipating the sales and growth plans of the company.

Multiple choice commerce business finance financial planning financing financial management

Working capital is the difference between

  1. Inflow and outflow of funds

  2. Inflow and outflow of savings

  3. Internal and external capital sources

  4. Gross cash flow and net cash flow
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Working capital management involves balancing the inflow and outflow of funds to ensure the company can meet its short-term obligations.

Multiple choice commerce business finance financial planning financing financial management

Financial leverage is

  1. The process of using debt capital to increase the rate of return on equity

  2. The utilisation of current assets to effect disproportionate changes in income

  3. Both (a) and (b)

  4. A relationship between preference share capital and securities
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Financial leverage refers to the use of debt (borrowed capital) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing.

Multiple choice commerce business finance financial planning financing financial management

Choose the correct answer:
(a) Working capital management is an integral part of overall corporate management
(b) There are four tests of working capital policy

  1. Both (a) and (b) are true

  2. (a) is true, (b) is false

  3. (a) is false, (b) is true

  4. Both (a) and (b) are false
Reveal answer Fill a bubble to check yourself
A Correct answer
Multiple choice commerce business finance financial planning financing financial management

What are the twin objectives of financial planning?

  1. To ensure availability of funds whenever require

  2. To see that the firm does not raise resources unnecessarily

  3. Both a and b

  4. None of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
Financial planning strives to achieve the following twin objectives.
a) To ensure availability of funds whenever required: This include a proper estimation of the funds required for different purposes such as for the purchase of longterm assets or to meet day-to-day expenses of business etc. Apart from this, there is a need to estimate the time at which these funds are to be made available. Financial planning also tries to specify possible sources of these funds.
(b) To see that the firm does not raise resources unnecessarily: Excess funding is almost as bad as inadequate funding. Even if there is some surplus money, good financial planning would put it to the best possible use so that the financial resources are not left idle and don’t unnecessarily add to the cost.
Multiple choice commerce business finance financial planning financing financial management

The process of estimating the fund requirement of a business and specifying the sources of funds is called ____________.

  1. working capital

  2. financial planning

  3. capital structure

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

Financial Planning is the process of estimating the capital required and determining it’s competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Multiple choice commerce business finance financial planning financing financial management

Avoiding business shocks and surprises and helping the company in preparing for the future is the _________ of financial planning.

  1. factor

  2. objective

  3. importance

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

Importance of financial planning

  1. Income: It's possible to manage income more effectively through planning. Managing income helps you understand how much money you'll need for tax payments, other monthly expenditures and savings.
  2. Cash Flow: Increase cash flows by carefully monitoring your spending patterns and expenses. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash.
  3. Capital: An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being.
  4. Family Security: Providing for your family's financial security is an important part of the financial planning process. Having the proper insurance coverage and policies in place can provide peace of mind for you and your loved ones.
  5. Investment: A proper financial plan considers your personal circumstances, objectives and risk tolerance. It acts as a guide in helping choose the right types of investments to fit your needs, personality, and goals.
  6. Standard of Living: The savings created from good planning can prove beneficial in difficult times. For example, you can make sure there is enough insurance coverage to replace any lost income should a family bread winner become unable to work.
  7. Financial Understanding: Better financial understanding can be achieved when measurable financial goals are set, the effects of decisions understood, and results reviewed. Giving you a whole new approach to your budget and improving control over your financial lifestyle.
  8. Assets: A nice 'cushion' in the form of assets is desirable. But many assets come with liabilities attached. So, it becomes important to determine the real value of an asset. The knowledge of settling or canceling the liabilities, comes with the understanding of your finances. The overall process helps build assets that don't become a burden in the future.
  9. Savings: It used to be called saving for a rainy day. But sudden financial changes can still throw you off track. It is good to have some investments with high liquidity. These investments can be utilized in times of emergency or for educational purposes.
  10. Ongoing Advice: Establishing a relationship with a financial advisor you can trust is critical to achieving your goals. Your financial advisor will meet with you to assess your current financial circumstances and develop a comprehensive plan customized for you.

Multiple choice business organisation capital market money markets participants in money market types of markets

Which of the following is true regarding call rate?

  1. A rise in call money rates makes other sources of finance cheaper.

  2. There is an inverse relationship between call rates and other short-term money market instruments.

  3. It is a highly volatile rate that varies from day-to-day and sometimes even from hour-to-hour.

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Call rate can be defined as the rate paid on call money. It is very volatile rate which varies from day to day and sometimes from hour to hour. Following statements are true regarding call rate:
a) A rise in call money rates makes other sources of finance cheaper.
b) There is an inverse relationship between call rates and other short-term money market instruments.
c) It is a highly volatile rate that varies from day-to-day and sometimes even from hour-to-hour.
Multiple choice business organisation capital market money markets participants in money market types of markets

Short-term borrowing is undertaken in.

  1. Money market

  2. Capital market

  3. Stock market

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

The money market is specifically designed for short-term borrowing and lending of funds, typically with maturities of one year or less. Capital, stock, and commodity markets are generally associated with longer-term investments or physical assets.