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 book keeping and accountancy accounting equation and business transactions introduction to final accounts meaning, objectives and importance of final accounts meaning, objectives, importance and preparation of final accounts

The general formula for the explicit cost of capital of any source of raising finance would be as follows:

  1. ${ CI } _{ o }={ CO }^{ t }{ \left( 1-c \right) }^{ t }$
  2. $k={ r } _{ j }+b+f$
  3. ${ k } _{ p }=\cfrac { d }{ { p } _{ o }(1-f) } $
  4. ${ CI } _{ o }=\sum _{ t=1 }^{ n }{ \cfrac { { Co }^{ t } }{ { \left( 1+c \right) }^{ t } } } $
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The explicit cost of capital (CI) is calculated by discounting the expected cash outflows (CO) over time at the cost of capital rate (c). Option D correctly represents the present value summation formula for these outflows.

Multiple choice organisation of commerce and management introduction to commerce and business characteristics of vocational activities basis of classification of business activities classification of business

Capital rationing is applied in a situation where ________________________.

  1. It is difficult to bring in required amount of capital

  2. Financial institutions are doubtful or not sure of the viability of the project

  3. A large number of investment proposals compete for limited funds

  4. The dividend is converted into capital for completion of a new project
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Capital rationing occurs when a firm has more profitable investment opportunities than it has capital available to fund them, forcing it to choose only a subset of projects.

Multiple choice economics theories of distribution liquidity preference and profit revenue and revenue curves simple monopoly and commodity market

The actual return of an investor is reduced sometimes as the prices of the commodities go up all of a sudden. In financial sector this type of phenomenon is known as _____________.

  1. probability risk

  2. market risk

  3. inflation risk

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

Market risk refers to the possibility of an investor experiencing losses due to factors that affect the overall performance of the financial markets, such as sudden price changes.

Multiple choice book keeping and accountancy book of original record - journal understand the need for journal journals functions, advantages, objects and importance of journal

Which of the following statement(s) is / are true regarding Net Benefit Cost Ratio (NBCR)?

  1. It does not take time value of money into consideration

  2. This criterion cannot be used when the investment outlay is spread over more than one period

  3. IF NBCR = 0.75 the project cannot be accepted

  4. All of the above

  5. Both (B) and (C) above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Net benefit cost ratio takes into consideration the time value of money.
Net benefit cost ratio  = NPV /
Investment = BCR-1
When NBCR>1 (BCR>1), the project is accepted. Therefore, a project with NBCR = 0.75 will be accepted. This criterion cannot be used when investment outlay is spread over more than one period.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Liquidity of asset is dependent on __________.

  1. the term of amatively of the asset

  2. existence of organized secondary Markets

  3. both a & b

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

Liquidity refers to how easily an asset can be converted into cash. This depends on both the maturity of the asset (time) and the existence of secondary markets where the asset can be traded.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

Money is most liquid of all the assets because ___________.

  1. it is readily convertible into other assets

  2. it can be easily stored

  3. it gives income to the holder

  4. it has no carrying cost
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Liquidity refers to the ease with which an asset can be converted into a medium of exchange without loss of value. Money is the most liquid asset because it is already the medium of exchange.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

The _________________ relates to the desire of the people to hold cash in order to take advantage of market movements regarding the future changes in the price of bonds and securities in the capital market.

  1. speculative motive

  2. precautionary motive

  3. demand motive

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

The speculative motive relates to the motive of the public to hold cash in their hand in order to take advantages of the market actions and movement in the future where they can influence the future change in the price of bonds and securities in the capital market.

Multiple choice economics theories of distribution functions of money value, nature and functions of money liquidity preference and profit

As a measure of value money provides

  1. Its holder with perfect liquidity

  2. Its fixed return in future

  3. A common denominator for determining value of goods

  4. A mechanism for allocating resources and distributing output
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Money as a measure of value, helps in determining the value of goods and services in the economy. Money is taken as the common denominator while measuring the value of goods and services in the economy. Therefore, with the help of this function everything can be measure in a common denominator or unit. 

Multiple choice business organisation and correspondence partnership 4 - dissolution of a partnership firm meaning of dissolution of partnership firm modes of dissolution of firm dissolution of firm difference between realisation account and revaluation account payment of firm's debts and separate debts, realisation of assets and liabilities

Which of the following is the assumption of the MM model on dividend policy?

  1. The firm is an all-equity firm

  2. The investments of the firm are financed solely by retained earnings

  3. The firm has an infinite life

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

The Modigliani-Miller (MM) theorem on dividend policy assumes perfect capital markets, rational investors, no taxes, and that the firm has an infinite life.

Multiple choice book keeping and accountancy bill of exchange (trade bill) dishonour of a bill dishonour of bills advantages of bill of exchange

Which of the following would be considered a risk-free investment?

  1. Gold

  2. Equity in a house

  3. High-grade corporate bonds

  4. Treasury bills
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

T-bills are considered the safest possible investment and provide what is referred to as a "risk-free rate of return," based on the credit worthiness of the United States of America. This risk-free rate of return is used as somewhat of a benchmark for rates on municipal bonds, corporate bonds and bank interest.

Multiple choice book keeping and accountancy accounting equation meaning, objectives and need of adjustments need for adjustments accounting equations and transactions

Type of financial securities that matures in less than a year are classified as ___________________.

  1. Money market securities

  2. Capital market securities

  3. Saving intermediaries

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

The money market is part of the fixed-income market that specializes in short-term debt securities that mature in less than one year. Most money market investments often mature in three months or less.