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

You invest $5,000, buy $1,000 in supplies on account, and $500 of prepaid insurance with cash.
  1. $6,000
  2. $6,500
  3. $1,500
  4. $5,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The question asks for the total investment/assets involved. The $5,000 investment plus the $1,000 in supplies on account equals $6,000. The $500 prepaid insurance is typically part of the asset base, but in this specific context, the total value of the initial investment and the supplies purchased is $6,000.

Multiple choice

What is the benefit to shareholders of debt financing over equity financing?

  1. it minimises risk

  2. return on shareholders equity is likely to be higher

  3. repayments can be postponed in economic recessions

  4. loans are guaranteed by the australian securities exchange
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Debt financing can increase the return on equity for shareholders through financial leverage, as the cost of debt is often lower than the return generated by the assets it funds.

Multiple choice

How can a business improve its working capital management?

  1. by increasing cost centres

  2. by reducing variable costs

  3. by leasing rather than buying assets

  4. by extending credit terms to 60 days
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Leasing assets instead of buying them preserves cash and improves working capital, as it avoids large immediate cash outflows for capital expenditures.

Multiple choice

Which of the following is a benefit of the just in time method to manage working capital?

  1. it improves the control of cash

  2. it improves the control of inventory

  3. it improves the value of current assets

  4. it improves the control of current liabilities
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Just-in-time (JIT) is an inventory management strategy that aligns raw-material orders from suppliers directly with production schedules, thereby improving inventory control and reducing storage costs.

Multiple choice

They want to know how their funds are being used

  1. Management

  2. The Public

  3. Lenders

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

Shareholders are the owners of the company and are interested in the profitability and financial health of the business to understand how their invested funds are utilized.

Multiple choice

A common source of retirement income is 

  1. aMortgage

  2. pensions

  3. unemployment Insurance
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Pensions are a standard form of retirement income provided by employers or government programs. Mortgages are debts, and unemployment insurance is a temporary benefit for those between jobs.

Multiple choice

A good first step in financial planning would be to

  1. hire a professional financial planner

  2. create a balance sheet and cash flow statement

  3. pay off all of your debts

  4. develop long-term financial goals
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Creating a balance sheet and cash flow statement allows an individual to understand their current financial standing, which is essential before setting goals or making major changes.