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 business studies sources of business finance internal & external stakeholders and distinction between shareholders, stakeholders and customers stakeholders in commercial organisation stakeholders

An investor earns investment income or dividend. A creditor earns interest income and other credit charges.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
An investor contributes asset in a form of capital or equity.
A creditor contributes asset in a form of debt or liability. Thus, an investor earns investment income or dividend. A creditor earns interest income and other credit charges.
Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Cash Flow Statement facilitates to determine Cash Flow from ____________ activities.

  1. operating

  2. investing

  3. financing

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

A Cash Flow Statement is structured to show cash flows from three main activities: operating, investing, and financing activities.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Financing Activities are the activities that result in changes in the size and composition of the owner's capital and borrowings of the company.

  1. True

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

Financing activities are activities that result in changes in the size and composition of the owners' capital and borrowings of the enterprise. e.g., cash proceeds from issue of equity shares, debentures, raising long-term loans, repayment of bank loans, etc. Cash proceeds from issuing shares (equity / preference).

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Cash Equivalents are short-term, highly liquid investments that are readily convertible into known amount of cash and which are subject to an insignificant risk of change in value.

  1. True

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

This is the standard accounting definition of cash equivalents as per accounting standards like AS-3 or Ind AS-7.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following are included in investing activities?

  1. Sale of machnery.

  2. Purchase of furniture

  3. Loans and advances to third parties.

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

Investing activities involve the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Sale of machinery, purchase of furniture, and loans to third parties all fall under this category.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

a) A decrease in current liabilities increases working capital
b) Funds flow refers to change in long-term funds.
Of these

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

  2. Both (a) and (b) are false

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

  4. (a) is false but (b) is true
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

(a) If a transaction increases current assets and current liabilities by the same amount, there would be no change in working capital, While decrease in Current liabilities increases working capital.

(b) Fund flow statements deals with the transactions which change either the amount of current assets and current liabilities (in the form of decrease or increase in working capital) or fixed assets, long-term loans including ownership fund.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

The last item on statement of cash flows prior to the schedule of non-cash investing and financing activities reports _________________.

  1. The increase or decrease in cash

  2. Cash at the end of year

  3. Net cash flow from investing activities

  4. Net cash flow from financing activities
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Non-cash investing and financing activities are the activities that do not directly affect cash. These activities involve only long-term assets, long-term liabilities, and stockholder's equity, and they appear at the bottom of the statement of cash flows.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following represents an inflow of cash and therefore would be reported on the statement of cash flows?

  1. Retirement of bond payable

  2. Acquisition of treasury stock

  3. Declaration of stock dividends

  4. Issuance of long-term debt
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Funds received by a company due to sales, financing or investments. 

Cash inflow are used to gauge the overall financial health of a business, and a company with a large and stable cash inflow can be considered to be a good financial position. 

Examples of cash inflows are - Cash proceeds from issuing shares or other similar instruments, cash receipts from disposal of fixed assets including intangibles, cash receipts from sale of goods and rendering services.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following should be on a statement of cash flows under the financing activities section?

  1. The purchase of long-term investments in the common stock of another company.

  2. The payment of cash to retire a long-term note.

  3. The proceed from the sale of building.

  4. The issuance of a long-term note to acquire land.
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

As per AS-3, financing activities are activities that result in changes in the size and composition of the owner's capital and borrowings of the enterprise. Separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds to the enterprises.   

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

The statement of cash flow is not useful for _________________.

  1. Planning future investing and financing activities

  2. Determining companies ability to pay its debts

  3. Determining companies ability to pay dividends

  4. Calculating the net worth of the company
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Cash flow statement is the financial statement that presents the cash inflows and outflows of a business during a given period of time. It is equally as important as the income statement ad balance sheet for cash flow analysis but it is not useful for checking net worthiness of the company.

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following would not be on the statement of cash flows ________________.

  1. Cash flows from investing activities

  2. Cash flows from financing activities

  3. Cash flows from operating activities

  4. Cash flows from contingent activities
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The cash flow statement is a good consolidated indicator of a business's cash inflow and outflow. It breaks down these cash flows into three distinct categories: operating activities, investing activities, and financing activities. 

Multiple choice commercial studies budgeting distinction between funds flow and cash flow statements preparation of cash flow statement statement of changes in financial position

Which of the following is an application of funds?

  1. Purchase of machinery.

  2. Profit earned during the year.

  3. Issue of share capital.

  4. Long term loan raised.
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Fund Flow statement is prepared to show the sources and application of funds. It is prepared by incorporating the various sources through which the funds are received and the items where the funds are utilized. 


Purchase of Machinery is an application of funds.
Profit earned during the year is a source of fund
issue of share capital is a source of fund
Long term loan raised is a source of fund.

Multiple choice commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

Equity shares are suitable for investors who are willing to assume risk for ________ returns.

  1. Lower

  2. Higher

  3. Medium

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

Equity shares represent the ownership of the company. Equity share holders do not get a fixed dividend but are paid on the basis of earnings by the company.  They enjoy the rewards as well as bear the risks of theownership. Hence, Equity shares are suitable for investors who are willing to assume risk for higher returns.

Multiple choice commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

Investors who need steady income may not prefer equity shares as they get ___________ returns.

  1. Fixed

  2. Fluctuating

  3. Higher

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

Investors who need steady or fixed dividend from the capital invested may not prefer equity shares as they fluctuating returns on the basis of the earnings of the company and receive all the leftovers after all the other claims are delt with.

Multiple choice book keeping and accountancy reserve and fund meaning and characteristics of reserves reserves provisions and reserves

Reserve created for maintaining a stable rate of dividend is termed as dividend equalisation fund.

  1. True

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

This Statement is true. 

Dividend Equalization reserve is a distributable reserve which is specifically set up to  ensure that dividends remain stable for despite being changes in earnings.Stability in dividend helps in maintaining trust among shareholders. So in the year of higher profit companies transfer some part of profit to this fund and in year of less profit dividend is paid out of this profit.