1. Every financial market has the following characteristic:
Correct : D. It channels funds from lenders-savers to borrowersspenders.
2. Financial markets have the basic function of
Correct : A. bringing together people with funds to lend and people who want to borrow funds.
3. Which of the following can be described as involving direct finance?
Correct : D. None of the above.
4. Which of the following can be described as involving direct finance?
Correct : D. Both (B) and (C) of the above.
5. Which of the following can be described as involving indirect finance?
Correct : D. All of the above.
6. Which of the following can be described as involving indirect finance?
Correct : A. A bank buys a U.S. Treasury bill from one of its depositors.
7. Financial markets improve economic welfare because
Correct : D. they do (A) and (B) of the above.
8. Which of the following are securities?
Correct : D. All of the above
9. Which of the following statements about the characteristics of debt and equity are true?
Correct : D. All of the above
10. Which of the following are long-term financial instruments?
Correct : C. A U.S. Treasury bond
11. Which of the following are short-term financial instruments?
Correct : D. Both (A) and (B) of the above
12. Which of the following are short-term financial instruments?
Correct : A. A banker’s acceptance
13. Which of the following are primary markets?
Correct : D. None of the above
14. Which of the following are secondary markets?
Correct : D. All of the above
15. A corporation acquires new funds only when its securities are sold
Correct : B. in the primary market by an investment bank.
16. Intermediaries who are agents of investors and match buyers with sellers of securities are called
Correct : D. dealers.
17. Intermediaries who link buyers and sellers by buying and selling securities at stated
prices are called
Correct : D. dealers
18. An important financial institution that assists in the initial sale of securities in the primary market is the
Correct : A. investment bank
19. Which of the following statements about financial markets and securities are true?
Correct : D. Money market securities are usually more widely traded than longer-term securities and so tend to be more liquid.
20. The lending ability of commercial bank increases when
Correct : D. None of the above
21. RBI issues currency noted under
Correct : A. Minimum reserve system
22. Which of the following markets is sometimes organized as an over-the-counter market?
Correct : D. all of the above
23. Which of the following instruments is not traded in a money market?
Correct : D. None of the above
24. Which of the following instruments is not traded in a money market?
Correct : D. Residential mortgages
25. Which of the following instruments are traded in a capital market?
Correct : A. U.S. government agency securities
26. Which of the following instruments are traded in a capital market?
Correct : A. Corporate bonds
27. Bonds that are sold in a foreign country and are denominated in that country’s currency are known as
Correct : A. Foreign bonds.
28. Bonds that are sold in a foreign country and are denominated in a currency other than that of the country in which they are sold are known as
Correct : B. Eurobonds.
29. Financial intermediaries
Correct : D. do all of the above.
30. The main sources of financing for businesses, in order of importance,
are
Correct : A. financial intermediaries, issuing bonds, issuing stocks.
31. In primary markets, the first time issued shares to be publicly traded in stock markets is considered as
Correct : D. initial public offering
32. The transaction cost of trading of financial instruments in centralized market is classified as
Correct : B. low transaction costs
33. The stocks or shares that are sold to investors without transacting through financial
institutions are classified as
Correct : A. direct transfer
34. The type of financial security which have linked payoff to another issued security
is classified as.
Correct : B. derivative security
35. In primary markets, the property of shares which made it easy to sell newly issued security is considered as
Correct : A. increased liquidity
36. The depository institutions such as thrifts includes
Correct : D. all of above
37. The money market where debt and stocks are traded and maturity period is more than a year is classified as
Correct : B. capital markets
38. The example of derivative securities includes
Correct : D. all of above
39. In foreign financial markets, the growth is represented by the factors such as
Correct : D. all of above
40. The authority which intervenes directly or indirectly in foreign exchange markets by Altering the interest rates is considered as
Correct : C. central government
41. Which of the following are functions of a financial system? 1. The operation of a payments system. 2. Providing the means of portfolio adjustment. 3. Helping to reduce unemployment. 4. Channelling funds between lenders and borrowers. 5. Helping speculators to bet on price movements.
Correct : C. 1, 2 and 4
42. The regulation of the banking industry is of particular importance in modern economies because:
Correct : D. banks provide the principal means of payment for the economy.
43. Statutory regulation is likely to create larger compliance costs than self-regulation because:
Correct : C. statutory regulators are often over-cautious.
44. Moral hazard caused by regulation can only be removed from financial transactions if:
Correct : D. participants in the finance industry do not feel protected by the regulations.
45. The public debt of a country is not necessarily a burden on the economy to the extent that:
Correct : A. it grows less rapidly than GDP.
46. If the public debt can be financed without adding to inflation or causing interest rates
to rise, it is said to be:
Correct : D. sustainable
47. Interest rate expectations have been thought to be an important influence on bond sales
because:
Correct : C. the bond market is dominated by people interested mainly in capital gains.
48. The sale of government bonds overseas:
Correct : D. causes a smaller increase in interest rates than the sale of bonds to the domestic private sector.
49. In indirect finance:
Correct : B. an institution borrows from the lender and provides funds to the borrower.
50. Aloan:
Correct : B. is an asset for the lender and a liability for the borrower.
51. Which of the following is not a characteristic of a financial instrument?
Correct : A. The financial instrument is always issued by a bank.
52. Securities backed by _______ layed an important role in the financial crisis of 2007- 2009?
Correct : C. sub-prime mortgages.
53. Financial instruments are used
Correct : C. as a store of value, as a means of payment, and to transfer risk.
54. Two important characteristics of financial instruments are:
Correct : C. standardization and information communication.
55. Benefits of the merger between the NYSE and Paris-based Euronext, a pan European stock exchange include:
Correct : A. lower costs and speedier transactions for international financial markets.
56. Which of the following increases the value of a financial instrument?
Correct : C. payments that are made when we need them.
57. An example of financial instruments that are primarily used as stores of value is:
Correct : B. home mortgages.
58. Financial markets serve which three purposes?
Correct : D. Financial markets allow-risk sharing, pool and communicate information, and offer liquidity.
59. Which of the following is not a function of SEBI:
Correct : B. Investor Protection
60. SEBI operates to fulfill the needs of these three groups, choose the one which is not in those three:
Correct : B. the police
61. SEBI has not been vested with the following powers:
Correct : B. to require the stock exchange to amend their by−laws.
62. SEBI signs MoUs with different country’s financial jurisdictions who are not a signatory to the multilateral MoU of International Organization of Securities Commissions (IOSCO).
Correct : B. False
63. Which of the following is the disadvantage of SEBI
Correct : A. Ease of Trading
64. The difference between a primary market and a secondary market is
Correct : C. a primary market helps in the issue of new securities those which are offered for the first time and the secondary market is for second hand sale of securities listed on the stock exchange
65. The function of a financial system is to
Correct : A. establish a link between savers and investors
66. As a part of the capital adequacy requirement, the base minimum capital prescribed by SEBI:
Correct : A. varies from exchange to exchange.
67. Primary and secondary markets:
Correct : B. Complement each other
68. Clearing and settlement operations of NSE are carried out by:
Correct : B. NSCCL
69. The liquidity status of certificate of deposit which is more negotiable is considered as
Correct : A. certified liquidity
70. Which of the following statements about financial markets and securities are true?
Correct : C. A debt instrument is long term if its maturity is ten years or longer.
71. Which of the following statements about financial markets and securities are true?
Correct : A. Few common stocks are traded over-the-counter, although the over-the-counter markets have grown in recent years.
72. At present, the apex institution with regard to rural credit is
Correct : B. NABARD
73. Which of the following in India is an exchange bank?
Correct : B. CITI bank
74. Exchange banks specialize in:
Correct : A. Financing foreign trade
75. The IDBI was started in
Correct : B. 1964
76. The declining profits made banks to undertake the business of:
Correct : D. all of the above
77. Retail banking means granting loans for:
Correct : D. All of these
78. Investment banking was developed by
Correct : B. England
79. The presence of transaction costs in financial markets explains, in part, why
Correct : A. financial intermediaries and indirect finance play such an important role in financial markets.
80. Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of
Correct : C. economies of scale.
81. The presence of in financial markets leads to adverse selection and moral hazard
problems that interfere with the efficient functioning of financial markets.
Correct : C. asymmetric information
82. When the lender and the borrower have different amounts of information regarding a
transaction,__________
Correct : A. asymmetric information
83. When the potential borrowers who are the most likely to default are the ones most
actively seeking a loan, _ is said to exist.
Correct : B. adverse selection
84. When the borrower engages in activities that make it less likely that the loan will be
repaid, is said to exist.
Correct : C. moral hazard
85. The concept of adverse selection helps to explain
Correct : D. only (A) and (B) of the above.
86. Adverse selection is a problem associated with equity and debt contracts arising from
Correct : A. the lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities.
87. When the least desirable credit risks are the ones most likely to seek loans, lenders are
subject to the
Correct : B. adverse selection problem.
88. Financial institutions expect that
Correct : B. opportunistic behavior will occur, as the least desirable credit risks will be the ones most likely to seek out loans.
89. Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks, thereby reducing losses due to
Correct : B. adverse selection.
90. In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called
Correct : B. asymmetric information
91. The largest depository institution at the end of 2001 was
Correct : D. none of the above.
92. The value of assets held by commercial banks in 2001 was $6.7 trillion dollars, making commercial banks the
Correct : D. largest sector of financial intermediaries.
93. Which of the following financial intermediaries are depository institutions?
Correct : D. All of the above
94. Which of the following is a contractual savings institution?
Correct : A. A life insurance company
95. Which of the following are not investment intermediaries?
Correct : D. Only (A) and (B) of the above
96. The government regulates financial markets for three main reasons:
Correct : A. to ensure soundness of the financial system, to improve control of monetary policy, and to increase the information available to investors.
97. Asymmetric information can lead to widespread collapse of financial intermediaries,
referred to as a
Correct : B. financial panic.
98. The market value size of outstanding instruments of capital markets depends on factors
Correct : D. both b and c
99. When maturities of liabilities and assets are mismatched and risk incurred by financial intermediaries then this risk is classified as