Q1: Financial intermediation is the process that the financial intermediaries connect___and___by transferring funds from one side to another
- A. Banks and account holders
- B. Borrowers and lenders
- C. Borrowers and securities firms
- D. Investors and lender
Answer
Answer B. Borrowers and lenders
Q2: Which of the following does financial services industry consist of?
- A. Telecommunication
- B. Insurance
- C. Fund Management
- D. Trusts
Answer
Answer A. Telecommunication
Q3: Which one of the following is not a money market security?
- A. Treasury bills
- B. National savings certificate
- C. Certificate of deposit
- D. Commercial papers
Answer
Answer B. National savings certificate
Q4: The stock is
- A. Small units of equal value called shares
- B. Expressed in terms of money
- C. Expressed in terms of number of shares
- D. Fully paid p and partly paid up shares
Answer
Answer B. Expressed in terms of money
Q5: Equity shareholders rights are listed below: One of the rights is incorrect
- A. Right to have first claim in the case of winding up of the company
- B. Right to vote at the general body meeting of the company
- C. Right to share profits in the form of the dividends
- D. Right to receive a copy of the statutory report
Answer
Answer A. Right to have first claim in the case of winding up of the company
Q6: In a limited company
- A. The shareholders have to divide the debt of the company and pay
- B. The shareholders are not liable to pay the debt
- C. The shareholders have to pay the debt to the extent of their shares in the capital
- D. Common stock and preference shareholders have to pay the debt
Answer
Answer C. The shareholders have to pay the debt to the extent of their shares in the capital
Q7: Zero coupon bond shares its origin in
- A. U.S security market
- B. Wall street
- C. Japan’s security market
- D. Dalal street
Answer
Answer A. U.S security market
Q8: Capital Index bonds are linked with
- A. BSE Sensex
- B. NSE Nifty
- C. Consumer price index
- D. BSE-100
Answer
Answer C. Consumer price index
Q9: The aggressive investor buys more of___
- A. Money Market Instruments
- B. Gold
- C. Equity shares
- D. Options and Futures
Answer
Answer C. Equity shares
Q10: Financial intermediaries differ from other businesses in that both their assets and their liabilities are mostly
- A. Illiquid
- B. Owned by government
- C. Real
- D. Financial
Answer
Answer D. Financial
Q11: Sweat Equity is___
- A. A New class of equity shares
- B. Issued to the employees and directors
- C. Issued to the investor also
- D. Issued out of the class of equity shares already issued by the company
Answer
Answer D. Issued out of the class of equity shares already issued by the company
Q12: Mutual fund can make investment
- A. In any company listed or unlisted
- B. In privately placed securities of associated company
- C. Up to 40% of the listed or unlisted securities of group companies
- D. Should not exceed 10% of the funds in securities of a single company
Answer
Answer D. Should not exceed 10% of the funds in securities of a single company
Q13: Registrar to the issue
- A. Helps in the appointment of lead managers
- B. Drafts the prospectus
- C. Recommends the basis of allotment
- D. Directs the various agencies involved in the issue
Answer
Answer C. Recommends the basis of allotment
Q14: The broker has bought 10,000 ABC shares at Rs.200 and sold 8,000 shares at Rs.190 on the same day the margin he has to pay is
- A. Gross exposure margin
- B. Special margin
- C. Mark to market margin
- D. Concentration ratio margin
Answer
Answer C. Mark to market margin
Q15: Which one of the following statements regarding orders is false?
- A. A market order is simply an order to buy or sell a stock immediately at the prevailing market price
- B. A limit sell order is where investors specify prices at which they are willing to sell a security
- C. If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45
- D. None of the above
Answer
Answer D. None of the above
Q16: The use of the Internet to trade and underwrite securities
- A. Is illegal under SEC regulations
- B. Is regulated by the New York Stock Exchange
- C. Decreases underwriting costs for a new security issue
- D. Increases underwriting costs for a new security issue
Answer
Answer C. Decreases underwriting costs for a new security issue
Q17: Sell Reliance X Company shares at Rs. 60/-. This order is a
- A. Best rate order
- B. Limit Order
- C. Discretionary order
- D. Stop Loss order
Answer
Answer B. Limit Order
Q18: The Bombay Stock Exchange Ltd was originally known as
- A. The Native share and Stock Brokers Association
- B. The Native share and stock brokers union
- C. The Native Stock Brokers Association
- D. The Native share and stock brokers association of India
Answer
Answer A. The Native share and Stock Brokers Association
Q19: Shares for short transactions
- A. Are usually borrowed from other brokers
- B. Are typically shares held by the short seller’s broker in street name?
- C. Are borrowed from commercial banks
- D. B and C
Answer
Answer B. Are typically shares held by the short seller’s broker in street name?
Q20: FII’s are permitted
- A. To invest in the listed companies only
- B. To invest in the listed and unlisted companies only
- C. Not to invest in the debentures
- D. To invest in shares of listed, unlisted companies and debentures
Answer
Answer D. To invest in shares of listed, unlisted companies and debentures
Q21: One of the following factors leads the activity stock market
- A. Money supply
- B. Per capita income
- C. Unemployment rate
- D. Manufacturing and trade
Answer
Answer A. Money supply
Q22: The share prices
- A. Move either in declining trend or increasing trend
- B. May remain flat for a period of time
- C. The movements of the share prices form a straight line
- D. The increasing or decreasing move may be Zigzag
Answer
Answer D. The increasing or decreasing move may be Zigzag
Q23: Investors invest more in stocks during their
- A. Early career period
- B. Mid-career level
- C. Retirement stage with huge money
- D. All the above-mentioned period
Answer
Answer A. Early career period
Q24: The duration of a bond is a function of the bond’s
- A. coupon rate
- B. time to maturity
- C. yield to maturity
- D. all of the above
Answer
Answer D. all of the above
Q25: A firm has a higher asset turnover ratio than the industry average, which implies
- A. the firm is utilizing assets more efficiently than other firms in the industry
- B. the firm is more likely to avoid insolvency in the short run than other firms in the industry
- C. the firm is more profitable than other firms in the industry
- D. the firm has a higher P/E ratio than other firms in the industry
Answer
Answer A. the firm is utilizing assets more efficiently than other firms in the industry
Q26: Hedge funds are___transparent than mutual funds because of___strict SEC regulation on hedge funds
- A. more; more
- B. more; less
- C. less; less
- D. less; more
Answer
Answer C. less; less
Q27: Gross domestic product is a logical factor to analyse the economy in picking up a stock because it indicates
- A. Inflation or deflation
- B. The market value of assets
- C. The status of the economy
- D. The condition of the stock market
Answer
Answer C. The status of the economy
Q28: A statistic that measures how the returns of two risky assets move together is
- A. Correlation
- B. Standard deviation
- C. Covariance
- D. A and C
Answer
Answer D. A and C
Q29: Portfolio theory as described by Markowitz is most concerned with
- A. The elimination of systematic risk
- B. The identification of unsystematic risk
- C. The effect of diversification on portfolio risk
- D. Active portfolio management to enhance returns
Answer
Answer C. The effect of diversification on portfolio risk
Q30: Which statement about portfolio diversification is correct?
- A. Proper diversification can reduce or eliminate systematic risk
- B. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities have been purchased
- C. Because diversification reduces a portfolio’s total risk, it necessarily reduces the portfolio’s expected return
- D. Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate
Answer
Answer D. Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate
Q31: The standard deviation of a two-asset portfolio is a linear function of the assets’ weights when
- A. The assets have a correlation coefficient less than zero
- B. The assets have a correlation coefficient equal to zero
- C. The assets have a correlation coefficient greater than zero
- D. The assets have a correlation coefficient equal to one
Answer
Answer B. The assets have a correlation coefficient equal to zero
Q32: The presence of risk means that
- A. More than one outcome is possible
- B. Investors will lose money
- C. The standard deviation of the payoff is larger than its expected value
- D. Final wealth will be greater than initial wealth
Answer
Answer A. More than one outcome is possible
Q33: The exact indifference curves of different investors
- A. Can be calculated precisely with the use of advanced calculus
- B. Cannot be known with perfect certainty
- C. Although not known with perfect certainty, do allow the advisor to create more suitable portfolios for the client
- D. B and C
Answer
Answer D. B and C
Q34: Given the capital allocation line, an investor’s optimal portfolio is the portfolio that
- A. Maximizes her expected utility
- B. Maximizes her risk
- C. Minimizes both her risk and return
- D. Maximizes her expected profit
Answer
Answer A. Maximizes her expected utility
Q35: Olivia is a risk-averse investor. Alex is a less risk-averse investor than Olivia. Therefore
- A. For the same risk, Alex requires a higher rate of return than Olivia
- B. For the same return, Alex tolerates higher risk than Olivia
- C. For the same risk, Olivia requires a lower rate of return than Alex
- D. the same return, Olivia tolerates higher risk than Alex
Answer
Answer B. For the same return, Alex tolerates higher risk than Olivia
Q36: Deferral of capital gains tax
I. means that the investor doesn’t need to pay taxes until the investment is sold
II. allows the investment to grow at a faster rate
III. means that you might escape the capital gains tax if you live long enough.
IV. provides a tax shelter for investors
A. II and III
B. I, II, IV
C. I, III, and V
D. II, III, and IV
Answer
Answer B. I, II, IV
Q37: A risk-free intermediate or long-term investment
- A. is free of all types of risk
- B. Does guarantee the future purchasing power of its cash flows
- C. Does not guarantee the future purchasing power of its cash flows as it is insured by the U.S. Treasury
- D. A and B
Answer
Answer C. Does not guarantee the future purchasing power of its cash flows as it is insured by the U.S. Treasury
Q38: In words, the real rate of interest is approximately equal to
- A. The nominal rate times the inflation rate
- B. The inflation rate minus the nominal rate
- C. The nominal rate minus the inflation rate
- D. The inflation rate divided by the nominal rate
Answer
Answer C. The nominal rate minus the inflation rate
Q39: Suppose that the pre-tax holding period returns on two stocks are the same. Stock X has a high dividend pay-out policy and stock Y has a low dividend pay-out policy. If you are an individual in a high marginal tax bracket and do not intend to sell the stocks during the holding period
- A. stock X will have a higher after-tax holding period return than stock Y
- B. the after-tax holding period returns on stocks X
- C. it is impossible to determine which stock will have a higher after-tax holding period return given the information available
- D. stock Y will have a higher after-tax holding period return than stock X
Answer
Answer D. stock Y will have a higher after-tax holding period return than stock X
Q40: The first step a pension fund should take before beginning to invest is to
- A. establish investment objectives
- B. develop a list of investment managers with superior records to interview
- C. establish asset allocation guidelines
- D. decide between active and passive management
Answer
Answer A. establish investment objectives
