Investment Scenario

1. Which of the following is not a money market instrument

I. treasury bills
II. commercial paper
III. debentures
IV. certificates of deposit
V. call money papers
Explanation: debentures normally are a capital market instrument because they
are long term investment

2. Which of the following is not a money market instrument?

I. Treasury Bill
II. Convertible Debentures
III. Debentures
IV. Certificate of Deposit
V. Both (II) and (III) above

3. Which of the following is not a part of money market in India?

I. Call money market
II. Stock market
III. Treasury bills market
IV. Market for commercial papers
V. Market for certificate of deposit

4. The money lent in money market for a period of 2 to 15 days is

referred to as
I. Call money
II. Demand loan
III. Term loan
IV. Notice money
V. None of the above
Explanation: The money that is lent for one day in call money market is known as
call money and if it exceeds one day (but less than 15 days) is referred as notice
money.

5. What is the present value of perpetuity of Rs 25,000 if the

interest rate is 12%
I. 208,333
II. 208,500
III. 205,333
IV. 208,550
V. 205,250

6. Which of the following is/are characteristic(s) of Gambling?

I. It is largely a matter of luck
II. The payoff is always non-linear
III. The risk and return are disproportionate.
a. Only (I) above
b. Only (II) above
c. Only (III) above
d. Both (I) and (II) above
e. Both (I) and (III) above.
Statement II is not correct as payoff may be linear at times

7. Which of the following is not a benefit of mutual fund?

a. Diversified investment
Tax benefits
Botheration free investment
Revolving type of investment
Assured return.
Reason: As per prevailing regulations no mutual fund can provide assured return. All
other alternatives in a), b), c) and d) are the benefits of a mutual fund.

The primary goal of corporate management should be to:

a. maximize the number of shareholders.
b. maximize the firm’s profit.
c. minimize the firm’s costs.
d. maximize the shareholders’ wealth

The concept of compound interest refers to:

a. earning interest on the original investment.
b. payment of interest on previously earned interest.
c. investing for a multi-year period of time.
d. determining the APR of the investment.

Cash flows occurring in different periods should not be compared unless:

a. interest rates are expected to be stable.
b. the flows occur no more than one year from each other.
c. high rates of interest can be earned on the flows.
d. the flows have been discounted to a common date.

11. ________________serve as net suppliers of funds to financial

institutions and _________________serve as net demanders of funds.
a. Firms; governments
b. Individuals; firms
c. Governments; firms
d. Firms; individuals

Securities Markets

1. Which of the following statement(s) is/are true

a. India has a well organized secondary market for the buying and
selling of existing securities
b. A company’s shares can be traded on only one stock exchange at a time
c. The performance of the primary market is in no way related to that of
the secondary market
d. In the secondary market, the buyers and sellers of securities interact
directly with each other
e. The markets are efficient
 Explanation: India has a well organized secondary market. Other statements are not
valid.

2. The following is / are the players who have an important role in

demat set-up
a. National Securities Depositories Ltd
b. Stock exchanges
c. Stock brokers
d. Depository participants
e. Both (a) and (d) above
Explanation: Both NSDL and DPs have a role.

The breadth of a market indicates the

a. Value of the securities traded
b. Volume of the securities traded
c. Scope of using insider information to ones benefit
d. Number of rational participants with homogeneous
expectations in the market
e. Closeness between the value of an asset and its prices
Explanation: Breadth indicates the number of participants with homogeneous
expectations in the market.

4. In India, stock exchanges are regulated by

a. SEBI
b. SEBI and the Governing boards of exchanges within the
legal framework of SCRA and SEBI Act
c. RBI
d. Only the Governing boards of exchanges
e. Department of Company Affairs

5. Which of the following are not current trends in the Indian financial markets
Individual investors dominance
Demutualization
Disintermediation
Price discovery
Strong regulations
Explanation: Individual investors are not dominating the financial markets.
Institutional investors are dominant.

6. If in an order to buy/sell shares from a stock exchange is limited by a

fixed price it is called
a. Limit order
b. Limited discretionary order
c. Stop loss order
d. Best rate order
e. Cancel order
Explanation: Limit order is an order fixed by a fixed price. It may or may not include
brokerage.
 7. The organization of stock exchanges in India is in the form of
a. Public Limited Company
b. Company limited by guarantee
c. Voluntary non-profit making organisation
d. All of the above.
e. Both (a) and (b) above
The stock exchanges have orgained themselves in the form of
i. A public limited company (eg. BSE, NSE)
ii. A company limited in guarantee (eg. Madras stock exchange)

8. When corporations need to raise funds through stock issues, they rely upon the:
a. primary market.
b. secondary market.
c. over-the-counter market.

9. The flow of funds from investors to financial managers is facilitated by

a. advertising.
b. government regulation.
c. financial markets.
d. creditors.

10. Harrison Publishing Inc. issued 500,000 shares last year for $80 each
to fund an expansion project. Its shares were trading in the Stock exchange
yesterday at $100 per share. These transactions would be classified respectively
as:
a. secondary market activity; primary market activity
b. secondary market activity; secondary market activity
c. primary market activity; secondary market activity