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 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

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

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

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

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

The Real Cashflows must be discounted to get the present value 'M' at a rate equal to ________________.

  1. Money Discount Rate

  2. Inflation Rate

  3. Real Discount Rate

  4. Risk free rate of interest
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

To calculate the present value of real cash flows, one must use a real discount rate, which excludes the effects of inflation. Using a money (nominal) discount rate would be appropriate only for nominal cash flows.

Multiple choice economics producer's equilibrium equilibrium of a firm shifts in demand and supply liquidity preference and profit

The precautionary motive relates to the desire of the people to hold cash to meet unexpected or unforeseen expenditures.

  1. True

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

The precautionary motive is one of the three motives for liquidity preference identified by Keynes, representing the need to hold cash for unforeseen or emergency expenses.

Multiple choice organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

Fund means __________.

  1. Capital

  2. Bond

  3. Assets

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

Receivable turnover ratio = Net credits sale/ Average accounts receivable = 10
and average collection period  =360
receivables turnover ratio = 36
Hence a receivable turnover ratio of 10 implies that the credit sales are 10 times the average receivables or in other words receivables are generated 10 times during the year.

Multiple choice organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

The IFCI sponsored the Risk capital and Technology Finance Corporation in ________.

  1. 1968

  2. 1978

  3. 1988

  4. 1998
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

The company Risk capital foundation was converted into the Risk capital and technology finance corporation in 1988 when IFCI introduced the technology and finance and development scheme for financing development and commercialization of indigenous technology. 

Multiple choice organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

Which of the following is a financial instrument used in international capital market?

  1. Global Depository Receipts

  2. American Depository Receipts

  3. Foreign Currency Convertible Bonds

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

There are various avenues for organizations to raise funds internationally. Modern companies depend upon sizeable borrowings from the international capital market. Financial Instruments like the Global Depository Receipts, American Depository Receipts, Foreign Currency Convertible Bonds are used in international capital market.

Multiple choice organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

The FCCB's are issued in a foreign currency and carry a ________ interest rate which is ________ than the rate of any other similar non-convertible debt instrument.

  1. fixed, higher

  2. fixed, lower

  3. fluctuating, lower

  4. fluctuating, higher
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation
Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specific period. The FCCB's are issued in a foreign currency and carry a fixed interest rate which is lower than the rate of any other similar non-convertible debt instrument.
Multiple choice organisation of commerce and management specialised financial institutions institutional sources long term sources of finance sources of business finance - 2

FCCB's are very similar to the _________ debentures issued in India.

  1. Secured

  2. Unsecured

  3. First

  4. Convertible
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation
Foreign currency convertible bonds are equity linked debt securities that are to be converted into equity or depository receipts after a specific period. Holder of FCCB's has the option of converting them into equity shares at a predetermined price or exchange rate. Hence, FCCB's are very similar to the convertible debentures issued in India.