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 statement of changes in financial position meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement budgeting

Sum of discounted cash flows is best defined as _____________.

  1. technical equity

  2. defined future value

  3. project net present value

  4. equity net present value
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The sum of discounted cash flows for a project, minus the initial investment, is the definition of the Net Present Value (NPV).

Multiple choice book keeping and accountancy statement of changes in financial position meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement budgeting

Cash and Cash Equivalent includes _____________________.

  1. Cash on hand and bank balance.

  2. Marketable Securities.

  3. Short-term investments.

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

Cash and cash equivalents include highly liquid assets such as cash on hand, bank balances, marketable securities, and short-term investments that can be converted to cash quickly.

Multiple choice book keeping and accountancy statement of changes in financial position meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement budgeting

The financial ratio (the best single predictor) that is used in the Beavers Model to predict the failure of a company is the _____________.

  1. Debt-equity ratio

  2. Cash flow to total debt ratio

  3. Price earnings ratio

  4. Return on investment

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

The Beaver's Model for bankruptcy prediction identified the cash flow to total debt ratio as the most significant single predictor of corporate failure.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

While preparing a fund flow statement, attention is to be given to _______.

  1. Current Asset and Current Liabilities

  2. Changes in Fixed assets and Fixed Liabilities

  3. Changes in Fluctuating Capital

  4. Changes in Cash Receipts and Payments
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Funds Flow Statement is a statement prepared to analyse the reasons for changes in the Financial Position of a Company between two Balance Sheets. 

It shows the inflow and outflow of funds i.e. Sources and Applications of funds for a particular period.

 It is a statement which involves no error in the amount of funds inflow and outflow as it pays attention on the changes in value of fixed assets and fixed liabilities. 

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Fund flow statement measures :-

  1. The inflows and outflows of net assets

  2. The inflows and outflows of net working capital

  3. The inflows and outflows of working and non-working capital

  4. The inflows and outflows of cash
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Funds Flow Statement states the changes in the working capital of the business in relation to the operations in one time period. Net working capital is the total change in the business's working capital, calculated as total change in current assets minus total change in current liabilities.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Flow of funds means ___________.

  1. Change in funds

  2. Change in working capital

  3. Either (A) or (B)

  4. Change in cash receipts (or) payments
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Flow of funds are used to track the the flow of money to and from various sectors of a national economy. It is used to track the changes in the assets and liabilities of the company. It depicts the changes in funds as well as working capital.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following result from and increase or decrease of working capital?

  1. Flow of cash

  2. Flow of funds

  3. Both (A) and (B)

  4. Either (A) or (B)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Flow of funds are used to track the the flow of money to and from various sectors of a national economy. It is used to track the changes in the assets and liabilities of the company. It depicts the changes in funds as well as changes in working capital.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Stock at the end results in the __________.

  1. Source of funds

  2. Application of funds

  3. No flow of funds

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

Source of funds results in the generation of cash for the company. Stock at the end has two aspects in the financial statements. One effect is credited to trading account and other one is shown as asset in the balance sheet. Assets are nothing but the sources of funds. Hence stock at the end results in source of funds.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

a) Funds flow statement and cash flow statement are one and the same.
b) A cash flow statement can very well be equated with an 'Income statement'
Of these statements :- 

  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
B Correct answer
Explanation

(a) A cash flow statement is different from a cash budget. A cash flow statement shows the cash inflows and outflows which have already taken place during a past time period.

Funds Flow Statement states the changes in the working capital of the business in relation to the operations in one time period.

(b) A cash flow statement shows the exact amount of a company's cash inflows and outflows over a one-month period. 
The income statement is the most common financial statement, and shows a company's revenue and total expenses, including non-cash accounting such as depreciation, over a one-month period.
Both are different.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following are true or false?
a) Purchase of fixed assets is a use of funds.
b) For funds flow statement, provision for taxation will be treated as an item of internal source.

  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

Use of funds refers to investing funds in purchase of assets which gives return after some period of time. Hence, purchase of fixed assets is a use of funds. 


Provision for taxation is treated as an item of internal source because it is made internally.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following items would be specifically included in the statement of cash flows constructed in compliance with $AS-3$?

  1. Conversion of debt to equity

  2. Acquiring an asset through lease

  3. Operating and non-operating cash flow information

  4. Purchasing a building by given a mortgage to the seller
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Operating and non-operating cash flow are inflows and outflows of cash that are related or not related to the day-to-day, ongoing operations of a business. These non operating cash flows are associated with cash flows from investing and cash flows from financing on a company's statement of cash flows.

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Cash Flow Management involves.
i) Lock-box system
ii) Marketable securities
iii) Playing the float
iv) Concentration Bank Account

  1. I, II and III only

  2. II, III and IV only

  3. I, III and IV only

  4. I, II and IV only
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation
  • A lockbox is a bank-operated mailing address to which a company directs its customers to send their payments. The bank opens the incoming mail, deposits all received funds in the company's bank account, and scans the payments and any remittance information.
  • In cash management, float can be utilized to make use of cash on hand for as long as possible. Bank float is the time it takes to clear the funds, from the time they were deposited to the time they were credited to the depositing bank.
  • Cash Concentration is a corporate treasury management strategy involving the transfer of all funds from different accounts to a single, centralized account to increase cash management efficiency and reduce fees. 
Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following statement is true?
a. Cash flow reveals only the inflow of cash.
b. Cash flow reveals only the outflow of cash.
c. Cash flow is a substitute for income statement.
d. Cash flow statement is not a replacement of funds flow statement.

  1. Only (a)

  2. Only (b)

  3. Only (b) and (c)

  4. Only (d)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

AS-3, issued by the ICAI in June 1981, which dealt with a statement showing 'changes in financial position' (Fund Flow Statement), has been revised and now deals with the preparations of cash flow statement. The revised AS-3 has made it mandatory for all listed companies to prepare and present a cash flow statement along with other financial statements on annual basis, Hence, it may be noted that fund flow statement is no more considered relevant in accounting and so not discussed.  

Multiple choice commercial studies budgeting meaning, merits and demerits of cash flow statement meaning and objectives of cash flow statement statement of changes in financial position

Which of the following statement is false?
a. Cash flow statement is helpful in the formation of policies.
b. Cash flow statement is useful for external analysis.
c. Cash flow statement is helpful in estimating future cash flow.

  1. Both (a) and (b)

  2. Both (a) and (c)

  3. Both (b) and (c)

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

Cash flow statement helps users to assess the impact of the activities on the financial position of an enterprise and so on its cash and cash  equivalents.