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 economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Capital Formation involves ___________________.

  1. Creation of Savings

  2. Mobilisation of Savings

  3. Investment of Savings into Real Capital

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

Capital formation is a multi-stage process that begins with the creation of savings, requires the mobilization of these savings through financial intermediaries, and culminates in the actual investment of those funds into productive real capital assets.

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Inducement to Invest is influenced by _______________________.

  1. Prospective Rate of Profit

  2. Rate of Interest

  3. Both (a) and (b)

  4. Neither (a) nor (b)
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The decision to invest is primarily driven by the expected return on the investment (prospective rate of profit) compared to the cost of borrowing the funds (rate of interest).

Multiple choice economics concept of consumption function, saving function and investment function capital economy of a village wealth, capital and money

Which of the following is/are the stages of capital formation?

  1. Creation of savings

  2. Effective mobilization of savings

  3. Investment in savings

  4. All of these
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
The three stages of capital formation are:-
1) Creation of savings-Collective savings of individuals in an economy leads to creation of savings.
2) Effective mobilization of savings-Savings should be properly allocated to different purposes.
3) Investment in savings-Savings should be properly invested by the economy which will yield better productivity and help to increase the rate of existing capital formation.
Multiple choice commercial studies concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

Solomon concludes that

  1. The total market value of a firm and the cost of capital are independent of the capital strucure

  2. There is a definite impact on a firm's total market value when leverage is increased

  3. There is a definite impact on a firm's total market value when leverage is decreased

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

Ezra Solomon's work in corporate finance, particularly regarding the traditional view of capital structure, argues that there is an optimal capital structure and that leverage does impact a firm's total market value.

Multiple choice commercial studies concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

Which of the following approaches represent the effect of leverage on the cost of capital and the market value of a firm?

  1. Modigliani-Miller approach

  2. Ezra Solomon's approach

  3. Gordon Donaldson's approach

  4. Both (a) and (b)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Both the Modigliani-Miller approach (in its various forms) and Ezra Solomon's approach are foundational theories used to analyze the relationship between leverage, cost of capital, and firm value.

Multiple choice commercial studies concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

The basic assumptions of CAP< are
I. The efficiency of the security markets
II. Investor preferences
III. Restriction on investments
IV Single investor can affect market prices
Of thes:

  1. I, III, IV are correct

  2. II, III and IV are correct

  3. I and II are correct

  4. All are correct
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

CAPM assumes markets are efficient, meaning all relevant information is reflected in security prices, and that investors are rational actors who make decisions based on risk-return tradeoffs. These are the two foundational assumptions that allow the model to establish the relationship between systematic risk and expected return. Assumption III is incorrect because CAPM assumes unrestricted access to financial markets, while IV is false because CAPM specifically assumes no single investor can influence prices.

Multiple choice commercial studies concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

An investor would buy a bond if _____________.

  1. The intrinsic value is lower than the market value

  2. The intrinsic value is higher than the market value

  3. The current market value is lower than the redemption value

  4. The current market value is lower than the face value

  5. The required rate of return is equal to coupon rate of interest
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

If the intrinsic value of the bond is higher than the market value, then it indicates that the bond is under-priced and hence the investor would buy it.

Multiple choice organisation of commerce and management concept of market and marketer meaning and importance of marketing meaning and definition of market introduction to marketing marketing environment meaning and definition of marketer role of marketing

The _________ is especially well suited to offer hedging protection against transactions risk exposure.

  1. forward market

  2. spot market

  3. transactions market

  4. inflation-rate market
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Forward markets allow parties to lock in an exchange rate for a future date, which is a primary method for hedging against currency transaction risk.

Multiple choice

Finance that is put aside for unanticipated events

  1. Contingency fund

  2. Accounting fund

  3. Continuance fund

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

A contingency fund is a reserve of money set aside to cover unexpected expenses or emergencies. The other options are not standard financial terms for emergency reserves.

Multiple choice

Choose the best definition for invest

  1. look for information about

  2. have a desire for

  3. tell what to do

  4. spend to earn more
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

To invest means to put money, time, or effort into something with the expectation of achieving a profit or future benefit. This is best described as spending resources now in order to earn more later.

Multiple choice

Money used to invest, lend or borrow

  1. Capital

  2. Extra money

  3. Change

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

Capital refers to financial assets or wealth used to fund business operations, investments, or loans. Change refers to coins or returned money, and exchange is the act of giving or receiving one thing for another.

Multiple choice

Which of the following is not a function of insurance?

  1. Risk sharing

  2. Assist in capital formation

  3. Lending of funds

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

Insurance functions include risk sharing, capital formation, and providing certainty. Lending of funds is a primary function of banks or financial institutions, not insurance companies.