FINANCIAL MARKETS: A

BEGINNER'S MODULE
Note:

Financial Markets Beginners Module

1. At 10% annual inflation rate, an item costing Rs. 100 today, would cost Rs. _______ after
two year.
[2 Marks]
(a) Rs. 141
(b) Rs. 121
(c) Rs. 142
(d) Rs. 122
(e) Not Attempted
Correct Answer : Rs. 121

2. Which of the following is true?

[3 Marks]
(a) The initial public issues are made in primary market whereas all subsequent issues are
made in the secondary markets.
(b) Primary markets are legal whereas secondary markets are not.
(c) Primary markets deal in shares whereas secondary markets are meant for debentures.
(d) Corporates raise resources directly from the investors through the Primary Market,
whereas in the Secondary Markets, investors buy and sell securities from one another.
(e) Not Attempted
Correct Answer : Corporates raise resources directly from the investors through the Primary
Market, whereas in the Secondary Markets, investors buy and sell securities
from one another.

3. Which short-term (up to one year) instrument is issued by government as a means of

financing it's cash requirements?
[1 Marks]
(a) ADRs
(b) Treasury bills
(c) Equity
(d) GDRs
(e) Not Attempted
Correct Answer : Treasury bills
4. The future value of a Rs.10,000 investment done today, which gives an annual rate of return
of 10% per annum, after two years would grow to ________.
[2 Marks]
(a) Rs. 12,100
(b) Rs. 12,200
(c) Rs. 12,500
(d) Rs. 12,600
(e) Not Attempted
Correct Answer : Rs. 12,100

5. The benchmark stock market index of India is ________.

[3 Marks]
(a) S&P 500
(b) Nikkei 225
(c) Dow Jones
(d) the NSE Nifty 50
(e) Not Attempted
Correct Answer : the NSE Nifty 50

6. Profitability Ratio is measured as _________.

[1 Marks]
(a) sales growth of a firm
(b) future growth prospects of a company
(c) operating / management efficiency of a firm
(d) payout to shareholders
(e) Not Attempted
Correct Answer : operating / management efficiency of a firm

7. Which of the following is the most suitable option for an investor with low risk appetite?
[2 Marks]
(a) Junk Bonds
(b) Equities
(c) Fixed Deposits
(d) Derivatives
(e) Not Attempted
Correct Answer : Fixed Deposits

8. Which securities amongst these have proved to be a better bet against inflation?
 [1 Marks]
(a) Debentures
(b) Bank Deposit
(c) Fixed Deposit
(d) Equity
(e) Not Attempted
Correct Answer : Equity

9. The Best Sell order is the order with the ________.

[1 Marks]
(a) Average Buy price
(b) Lowest Sell Price
(c) Average Sell price
(d) Highest Buy Price
(e) Not Attempted
Correct Answer : Lowest Sell Price

10. Which of the following is not a Leverage/Capital structure ratios?

[1 Marks]
(a) Interest Coverage
(b) Current Ratio
(c) Debt-Asset
(d) Debt-Equity
(e) Not Attempted
Correct Answer : Current Ratio

11. Which rate of return accounts for intra-year compounding?

[2 Marks]
(a) Effective
(b) Stated
(c) Both of the above
(d) None of the above
(e) Not Attempted
Correct Answer : Effective

12. Which of the following is TRUE about Primary Markets?

[3 Marks]
(a) Primary Market is the place where public can buy and sell securities from one another.
(b) Primary Markets refer to the mobilization of funds from the public by corporates through
the issue of shares / debentures.
(c) Primary Markets are places where only short term instruments are traded.
(d) Primary Markets are markets where commodities are sold.
(e) Not Attempted
Correct Answer : Primary Markets refer to the mobilization of funds from the public by
corporates through the issue of shares / debentures.

13. If a client buys shares worth Rs. 3,30,000 and sells shares worth Rs. 5,70,000 through a
broker, then the maximum brokerage payable to the broker is _____________.
[2 Marks]
(a) Rs. 22000
(b) Rs. 25000
(c) Rs.32500
(d) Rs. 22500
(e) Not Attempted
Correct Answer : Rs. 22500

14. Money market mutual funds can invest in _______.

[2 Marks]
(a) treasury bills
(b) certificate of deposits
(c) commercial paper
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

15. The holders of which instrument are members of the company and have voting rights?
[1 Marks]
(a) Commercial Paper
(b) Treasury Bill
(c) Debenture
(d) Equity
(e) Not Attempted
Correct Answer : Equity

16. ________________ is maintained by an Exchange to make good investor claims, which

may arise out of non-settlement of obligations by the trading member, who has been
declared defaulter, in respect of trades executed on the Exchange.
 [2 Marks]
(a) Investor Protection Fund (IPF)
(b) Investor Reimbursement Fund (IRF)
(c) Investor Education and Reimbursement Fund (IERF)
(d) Investor Education and Protection Fund (IEPF)
(e) Not Attempted
Correct Answer : Investor Protection Fund (IPF)

17. How can an investor acquire equity shares?

[2 Marks]
(a) Secondary Market only
(b) Through the Primary Market or Secondary Market
(c) Money Market
(d) Primary Market only
(e) Not Attempted
Correct Answer : Through the Primary Market or Secondary Market

18. What is the function of the securities market?

[1 Marks]
(a) A place where buyers and sellers of securities meet to enter into a transaction.
(b) A place where entrepreneurs can raise resources for their businesses.
(c) A place where various financial products such as shares, debentures, bonds, etc. are
available for buying and selling.
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

19. Calculate the value 4 years hence of a deposit of Rs. 1,000 made today if the interest rate is
8% (compounded annually).
[2 Marks]
(a) Rs.1,320
(b) Rs.1,040
(c) Rs.1,000
(d) Rs.1,360
(e) Not Attempted
Correct Answer : Rs.1,360
20. At 10% annual inflation rate, an item costing Rs. 100 today, would cost Rs. _______ after
one year.
[2 Marks]
(a) Rs. 110
(b) Rs.101
(c) Rs.115
(d) Rs. 109
(e) Not Attempted
Correct Answer : Rs. 110

21. ______________ the interest coverage ratio better is the firm's ability to meet its interest
burden.
[1 Marks]
(a) Higher
(b) Lower
(c) Does not matter
(d) None of the above
(e) Not Attempted
Correct Answer : Higher

22. Which of the following is not true about ADR?

[2 Marks]
(a) An ADR is a U.S. dollar denominated form of equity ownership in a non-U.S. company.
(b) ADRs may be used in public or private markets inside or outside US.
(c) ADRs do not eliminate the currency risk associated with an investment in a non-U.S.
company.
(d) ADR represents the foreign shares of the company held on deposit by a custodian bank in
the company's home country.
(e) Not Attempted
Correct Answer : ADRs may be used in public or private markets inside or outside US.

23. _________ is the process by which physical certificates of an investor are converted to an
equivalent number of securities in electronic form.
[1 Marks]
(a) Materialisation
(b) Rematerialisation
(c) Conversion
(d) Dematerialization
(e) Not Attempted
Correct Answer : Dematerialization

24. The future value of a Rs.12,000 investment made today, which gives an annual rate of
return of 10% per annum, after one year should be _________.
[2 Marks]
(a) Rs. 13,100
(b) Rs. 13,200
(c) Rs. 12,200
(d) Rs. 12,500
(e) Not Attempted
Correct Answer : Rs. 13,200

25. Book Building exercise through the NSE's on-line system offers the following benefits:
[1 Marks]
(a) A fair, efficient & transparent method for collecting bids using latest electronic systems.
(b) Costs involved in the issue are far less than those in a normal IPO.
(c) The system reduces the time taken for completion of the issue process.
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

26. If a client buys shares worth Rs. 2,25,000 and sells shares worth Rs. 5,75,000 through a
broker, then the maximum brokerage payable to the broker is _____________.
[2 Marks]
(a) Rs. 21000
(b) Rs. 25000
(c) Rs. 20000
(d) Rs. 22000
(e) Not Attempted
Correct Answer : Rs. 20000

27. Which of the following is not true of Demat account?

[1 Marks]
(a) One is not restricted to having account with only one DP.
(b) One does not need to keep any minimum balance of securities in a Demat account with a
DP.
(c) One cannot open more than one account with the same DP.
(d) One can dematerialise and hold investments such as debt instruments, mutual fund units,
government securities etc. in a single demat account.
(e) Not Attempted
Correct Answer : One cannot open more than one account with the same DP.

28. Which of the following is not true about Exchange Traded Funds (ETF)?
[3 Marks]
(a) An ETF is like a Bank deposit.
(b) An ETF represents a basket of stocks that reflect an index such as the Nifty.
(c) An ETF's price changes throughout the day, fluctuating with supply and demand.
(d) By owning an ETF, you get the diversification of an index fund plus the flexibility of a
stock.
(e) Not Attempted
Correct Answer : An ETF is like a Bank deposit.

29. Who among the following can invest in the Debt market?
[1 Marks]
(a) Financial Institutions
(b) Retail Investors
(c) Mutual Funds
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

30. NCDEX is _________.

[1 Marks]
(a) National Commodities and Derivatives Exchange
(b) National Currency and Derivatives Exchange
(c) New York Commodity & Derivatives Exchange
(d) None of the above
(e) Not Attempted
Correct Answer : National Commodities and Derivatives Exchange

31. Buying and selling of shares can be done through a ________.

[2 Marks]
(a) Depository
(b) Bank
(c) Stock Exchange
(d) Finance company
(e) Not Attempted
Correct Answer : Stock Exchange

32. What is an ISIN?

[1 Marks]
(a) International Securities Identification Number
(b) Intermediate Securities Identification Nomenclature
(c) Internal Securities Identification Number
(d) Indian Securities Identification Number
(e) Not Attempted
Correct Answer : International Securities Identification Number

33. In the balance sheet of a company, amounts due to the suppliers of goods and services
brought on credit, will reflect under the head ____________.
[2 Marks]
(a) Loans and Advances
(b) Current Liabilities and Provisions
(c) Miscellaneous expenditure
(d) Contingent Liabilities
(e) Not Attempted
Correct Answer : Current Liabilities and Provisions

34. Equity shares have mostly __________ all other forms of investments in the long term.
[1 Marks]
(a) remained neutral when compared to
(b) outperformed
(c) underperformed
(d) given negative returns when compared to
(e) Not Attempted
Correct Answer : outperformed

35. Which of the following problems have been eliminated by Depositories?

[1 Marks]
(a) Reduction in the share transfer time to the buyer.
(b) Risk of stolen, fake, forged shares.
(c) Stamp duty on transfer of shares in dematerialized form.
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above
36. What is the current yield if 11.50% bond sells in the market for Rs. 125?
[2 Marks]
(a) 9
(b) 9.2
(c) 9.25
(d) 9.15
(e) Not Attempted
Correct Answer : 9.2

37. Which is/are the ways by which companies can raise foreign currency resources?
[2 Marks]
(a) American Depository Share
(b) Global Depository Receipts
(c) Euro Issues
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

38. If a client buys shares worth Rs. 4,40,000 and sells shares worth Rs. 5,60,000 through a
broker, then the maximum brokerage payable to the broker is _____________.
[2 Marks]
(a) Rs. 12000
(b) Rs. 24000
(c) Rs. 25000
(d) Rs. 22000
(e) Not Attempted
Correct Answer : Rs. 25000

39. Which of the following has voting rights in a company?

[2 Marks]
(a) Equity shareholders
(b) Creditors
(c) Debenture holders
(d) Preference shareholders
(e) Not Attempted
Correct Answer : Equity shareholders
40. 'Ask' means the ________.
[1 Marks]
(a) Traded Price
(b) Market price
(c) Seller's price
(d) Buyer's price
(e) Not Attempted
Correct Answer : Seller's price

41. What is an Index?

[3 Marks]
(a) A basket of shares
(b) An indicator of market movement.
(c) An indicator of the economic conditions of the country.
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

42. Listing of securities means ______________.

[1 Marks]
(a) admission of securities of an issuer to trading privileges without a formal agreement with
the stock exchange
(b) admission of securities of an issuer to trading privileges on a stock exchange through a
formal agreement
(c) admission of securities of an issuer to clearing privileges on a stock exchange without a
formal agreement
(d) admission of securities of an issuer to clearing privileges on a stock exchange through a
formal agreement
(e) Not Attempted
Correct Answer : admission of securities of an issuer to trading privileges on a stock exchange
through a formal agreement

43. Nifty index is used in _________.

[1 Marks]
(a) Derivatives
(b) Index Funds
(c) Exchange Traded Funds (ETFs)
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above
44. Which instrument among these have historically shown to give the highest returns when
invested over long periods?
[1 Marks]
(a) Debentures
(b) Bank Deposit
(c) Equity
(d) Fixed Deposit
(e) Not Attempted
Correct Answer : Equity

45. Demutualisation of stock exchanges refer to _________.

[2 Marks]
(a) the legal structure of an exchange whereby the ownership, the management and the
trading rights at the exchange are segregated from one another
(b) the legal structure of an exchange whereby the ownership and the management at the
exchange are segregated from one another
(c) the legal structure of an exchange whereby the ownership, the management and the
trading rights at the exchange vests in one person
(d) None of the above
(e) Not Attempted
Correct Answer : the legal structure of an exchange whereby the ownership, the management
and the trading rights at the exchange are segregated from one another

46. Which of the following is not true about offer of shares through normal public issue?
[1 Marks]
(a) In normal Public issue, investors bid for shares at the floor price or above and after the
closure of the process the price is determined for allotment of shares.
(b) In case of the normal public issue the demand for an issue is known at the close of the
issue.
(c) In case of offer of shares through normal public issue price at which securities will be
allotted is known to an investor in advance .
(d) None of the above
(e) Not Attempted
Correct Answer : In normal Public issue, investors bid for shares at the floor price or above
and after the closure of the process the price is determined for allotment of
shares.

47. If a client buys shares worth Rs. 2,25,000 and sells shares worth Rs. 75,000 through a
broker, then the maximum brokerage payable to the broker is _____________.
 [2 Marks]
(a) Rs. 7500
(b) Rs. 6000
(c) Rs. 6500
(d) Rs. 8000

Correct Answer : Rs. 7500

48. The price band in book building is decided by ___________.

[1 Marks]
(a) The market regulator
(b) The Stock Exchange
(c) the issuing company in consultancy with Merchant Bankers
(d) Controller of Capital Issue
(e) Not Attempted
Correct Answer : the issuing company in consultancy with Merchant Bankers

49. What factor/s affect the interest rate?

[2 Marks]
(a) Government borrowings
(b) Supply of money
(c) Inflation rate
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

50. The Best Buy order is the order with the _______.
[1 Marks]
(a) Highest Buy price
(b) Average Sell price
(c) Average Buy price
(d) Lowest Sell price
(e) Not Attempted
Correct Answer : Highest Buy price

51. The future value of a Rs.12,000 investment, which gives an annual rate of return of 10% per
annum, after two years would grow to ___________.
[2 Marks]
(a) Rs. 14,750
(b) Rs. 14,500
(c) Rs. 12,600
(d) Rs. 14,520
(e) Not Attempted
Correct Answer : Rs. 14,520

52. The value of Rs.10,000 received today is ________ than the value of Rs. 10,000 received
after one year.
[2 Marks]
(a) can't say
(b) the same
(c) more
(d) less
(e) Not Attempted
Correct Answer : more

53. Which of the following is true about mutual fund?

[3 Marks]
(a) Mutual funds are risk-free investments.
(b) Mutual Funds assure fixed returns.
(c) In mutual funds the target investors are the High Net worth investors.
(d) None of the above
(e) Not Attempted
Correct Answer : None of the above

54. T+2 settlement cycle in a stock exchange means, the trade is settled ______ days after the
trade
[2 Marks]
(a) 1 day
(b) Same day as the trade
(c) 2 days
(d) 3 days
(e) Not Attempted
Correct Answer : 2 days

55. Who are the participants in the Securities Market?

 [1 Marks]
(a) Investor
(b) Intermediaries, such as merchant bankers, brokers etc.
(c) Issuers, i.e. companies who issue shares
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

56. The safer the debt instrument, the ___________ is the rate of interest.
[1 Marks]
(a) Lower
(b) Higher
(c) Safety of debt instrument will not have any impact on the interest rate
(d) None of the above
(e) Not Attempted
Correct Answer : Lower

57. What will be the future value of Rs.12,000 invested today with an annual rate of return of
20% per annum after one year?
[2 Marks]
(a) Rs. 14,000
(b) Rs, 14,250
(c) Rs. 14,400
(d) Rs. 14,500
(e) Not Attempted
Correct Answer : Rs. 14,400

58. Calculate the value 5 years hence of a deposit of Rs. 1,000 made today if the interest rate is
8% (compounded annually).
[2 Marks]
(a) Rs.1,040
(b) Rs.1,400
(c) Rs.1,000
(d) Rs.1,469
(e) Not Attempted
Correct Answer : Rs.1,469

59. Stock Split leads to ________.

 [1 Marks]
(a) No change in market capitalization
(b) Increase in the number of outstanding shares
(c) Decrease in the face value of the share of the company
(d) All of the above
(e) Not Attempted
Correct Answer : All of the above

60. At 6% annual inflation rate, an item costing Rs. 100 today, would cost Rs. _______ after
two years.
[2 Marks]
(a) Rs. 124.30
(b) Rs. 122.46
(c) Rs. 224
(d) Rs. 112.36
(e) Not Attempted
Correct Answer : Rs. 112.36
 PRACTICE QUESTIONS

Financial Markets (Advanced) Module

1. The market for equity is known as _______. [1Mark]

a) Capital market
b) Commodities market
c) Bullion market
d) Stock Exchange
Correct Answer: Capital market

2. Taxes collected from the enhanced economic activity promoted by markets help boost
the finances of the government. ` [1Mark]

a) True
b) False
Correct Answer: True

3. The ______ gives companies visibility and raises their profile with investors,
customers, government and general public. [1Mark]

a) central bank
b) merchant banker
c) depository
d) stock exchange
Correct Answer: stock exchange

4. _______ in the markets provide messages to investors on where various companies

stand. [1Mark]

a) Brokers
b) Volumes
c) Price discovery
d) Price Bands
Correct Answer: Price discovery

5. Investors can take exposure to companies, either directly or through mutual funds or
other funds. [1Mark]

a) True
b) False
Correct Answer: True

Non-Confidential
6. ______ help companies to mobilise the resources from investors. [1Mark]

a) Credit Rating agencies

b) Investment bankers
c) DPs
d) Registrars to the issue
Correct Answer: Investment bankers

7. Transactions executed in the stock market are settled through the ______[1Mark]

a) clearing agents
b) professional clearing members
c) clearing brokers
d) clearing corporation

Correct Answer: clearing corporations

8. Suppose 1-year zero coupon debt security offers yield of 13%, and 2-year zero coupon
debt security offers yield of 14%. What does this imply in terms of forward yield for
the 2nd year? [1Mark]

a) 15.01%
b) 16.01%
c) 17.01%
d) 14.01%

Correct Answer: 15.01%

9. The tax regime of countries may differentiate between taxation of interest and capital
gains. [1 Marks]

a) True
b) False
Correct Answer: True

10. ______ debt is also known as sovereign debt. [1Mark]

a) Muli-lateral
b) Corporate
c) government
d) bank
Correct Answer: government

Non-Confidential
11. Financial projections require [2 Marks]

a) Financial statement with tools and techniques

b) Financial statements
c) Tool and techniques
d) Financial strategy
Correct Answer: Financial statement with tools and techniques

12. Dividend per Share is Rs. 17. Cost of Equity is 10%. Calculate the share price. [1Mark]

a) 180
b) 190
c) 200
d) 170
Correct Answer: 170

13. E-Gold is a form of ______. [1Mark]

a) Alternate assest
b) Portfolio asset
c) Primary asset
d) Secondary asset
Correct Answer: Alternate asset

14. Gold exposure as an asset class can be taken by buying physical gold only. [1Mark]

a) True
b) False
Correct Answer: False

15. _______ are listed in an international exchange. [1Mark]

a) Depository Products (DPs)

b) Depository Receipts (DRs)
c) Depository Issues (DIs)
d) Depository Notes (DNs)
Correct Answer: Depository Receipts (DRs)

16. DRs that are listed in the American exchanges are called _____. [1Mark]

a) ADRs
b) VDRs
c) IDRs
d) GDRs

Non-Confidential
 Correct Answer: ADRs

17. The _____ (Price) Index is a free-float market capitalization-weighted index of 50

European blue-chip stocks from those countries participating in the EMU. [1Mark]

a) S&P 50
b) FTSE 50
c) CNX Nifty
d) EURO STOXX 50
Correct Answer: EURO STOXX 50

18. The Strong Exchange SRO model is prevalent in India, with SEBI being the primary
regulator. [1Mark]

a) True
b) False
Correct Answer: True

19. The following is a key recommendation of the Dr. Bimal Jalan committee as regards
capital of clearing corporations: Net worth should be Rs. ____ crores at all times.
[1Mark]

a) 300
b) 400
c) 500
d) 200
Correct Answer: 300

20. Decline in wealth can reduce the demand in the real economy - a phenomenon called
_______. [1Mark]

a) the wealth cycle

b) the wealth drain
c) the wealth effect
d) the wealth loss
Correct Answer: the wealth effect

21. The securities market regulator, ______ has introduced various regulations to ensure
transparency and protect investors' interests. [1Mark]

a) SEBI
b) IRDA
c) CCI

Non-Confidential
 d) RBI
Correct Answer: SEBI

22. ______ funds invest only in shares of small-sized listed companies which are not in
any of the market indices. [1Mark]

a) Infrastructure equity funds

b) PE funds
c) PIPE
d) Social Venture funds
Correct Answer: PIPE

23. The Nikkei-225 Stock Average is a price-weighted average of 225 top-rated _____
companies listed in the First Section of the Tokyo Stock Exchange. [1Mark]
a) Japanese
b) French
c) Australian
d) British
Correct Answer: Japanese

24. DRs that are listed on the London, Luxembourg etc. exchanges are called _____.
[1Mark]
a) IDRs
b) VDRs
c) ADR
d) GDRs
Correct Answer: GDRs

Non-Confidential
 PRACTICE QUESTIONS

Securities Markets (Advanced) Module

1. Finance for business comes from: (1 Marks)
a) lateral agencies
b) accountants
c) factories
d) multi-lateral agencies
Correct Answer: multi-lateral agencies

2.________ are issued equity shares as evidence of their ownership in the company. (1
marks)
a) Preference shareholders
b) Equity shareholders
Correct Answer: Equity shareholders

3. ______ are not guaranteed any repayment of capital. (1 marks)

a) Equity shareholders
b) Debenture holders
Correct Answer: Equity shareholders

4. Assume you have two instruments to invest in, equity shares or debentures. Which one
would you prefer if you like less risk in your portfolio?
(2Marks)
a) equity shares
b) debentures
Correct Answer: debentures

5. ______ can be a type of debenture. (2Marks)

a) Fluctuating return debenture

b) Optionally convertible debenture
c) Notionally convertible debenture
d) Equitable convertible debenture
Correct Answer: Optionally convertible debenture

Non-Confidential
6. The Expenditure in a company's P&L a/c is Rs. 49,389.23 crs. Current liabilities are Rs.
10,087.73 crs. What is the company's Average Payment Period? (2Marks)

a) 74.55
b) 73.34
c) 76.01
d) 75.79
Correct Answer: 74.55

7.A company's profit after tax before exceptional Items is Rs. 10,996.71 crs. Its share capital
is Rs. 7436.80 crs. Reserves are Rs. 29,257.50 crs. What is the company's return on Equity?
(2Marks)

a) 31.43
b) 29.97
c) 28.76
d) 31.21
Correct Answer: 29.97

8. ________ capital investors need the clarity that their investment can be completely
written off, if, for any reason, the entrepreneurial idea does not work out.
(1 marks)
a) base
b) seed
c) step-up
d) root
Correct Answer: seed

9. ______ investors invest at higher business valuations than the ________ investors and
invest with a shorter time horizon. (1 marks)

a) Venture capital, private equity

b) Private equity, venture capital
Correct Answer: Private equity, venture capital

[Link] Public Offerings (IPOs) are covered by the Securities & Exchange Board of India
____________.(2 marks)
a) (Issue of Capital Requirements) Regulations, 2007
b) (Issue of Capital through Initial Public Offering) Regulations, 2008
c) (Issue of Equity & Debenture Capital Requirements) Regulations, 2010

Non-Confidential
 d) (Issue of Capital & Disclosure Requirements) Regulations, 2009
Correct Answer: (Issue of Capital & Disclosure Requirements) Regulations, 2009

[Link] members registered in F&O segment and CD segment are eligible to trade in the
________ market. (2 marks)

a) interest rate futures

b) debt
c) bond
d) cash
Correct Answer: interest rate futures

12. Cash component of the security deposit to be placed by trading members at the NSE can
include (2 marks)
a) units of money market mutual fund
b) units of gilt fund
c) FDs
d) All of the above
Correct Answer: All of the above

13. A Professional Clearing member needs to deposit Collateral Security Deposit (CSD) of Rs.
_____ lakh with NSCCL. (1 marks)

a) 25
b) 35
c) 30
d) 40
Correct Answer: 25

14. A trading member at NSE can choose to become a member of CM and F&O segments. (1
marks)
a) FALSE
b) TRUE
Correct Answer: TRUE

15.A trading member at NSE can choose to become a member of only the CD segment
without taking membership of the CM segment. (1 marks)
a) FALSE
b) TRUE

Non-Confidential
 Correct Answer: TRUE

[Link] following are some grounds for suspension or expulsion of membership of a trading
member at the NSE:(2 marks)
a) Fraud or fraudulent act
b) trading with foreign clients
c) appointing sub-brokers
d) trading with other trading members
Correct Answer: Fraud or fraudulent act

17. Evasion of margin requirements is a case of _______ by a trading member.(2 marks)

a) Unprofessional conduct
b) Unprofessional trading
c) Illegal trading
d) Unfair trading
Correct Answer: Unprofessional conduct

18. The regulatory and supervisory framework of the securities market in India is being
progressively strengthened through various legislative and administrative measures and is
consistent with the best international benchmarks, such as, standards prescribed by
the___________.(1 marks)
a) International Organisation of Securities Commissions (IOSCO)
b) International Body of Securities Commissions (IBSCO)
c) International Organisation of Securities Committee (IOSCO)
d) International Organisation of Standards Commissions (IOSCO)
Correct Answer: International Organisation of Securities Commissions (IOSCO)

[Link] SC(R)A was amended in ______.(1 marks)

a) 1996
b) 1999
c) 2004
d) All of the above
Correct Answer: All of the above

20. Under the SC(R)A, contracts in derivatives, shall be legal and valid if such contracts are:(1
marks)
a) Settled on the clearing house of a recognized stock exchange
b) Traded on floor based exchanges
c) Settled by brokers
d) Traded on local indices
Correct Answer: Settled on the clearing house of a recognized stock exchange

Non-Confidential
21. (Futures Settlement price * Conversion factor of the delivered bond) + Accrued Interest
= __________.(2 marks)
a) Invoice price
b) Bid price
c) Offer price
d) Yield
Correct Answer: Invoice price

[Link] expect interest rates to go down. What position would you take in the interest rate
futures market if you wish to make money out of the interest rate movement?
(2 marks)
a) buy interest rate futures
b) sell interest rate futures
Correct Answer: buy interest rate futures

23. The value of a currency in terms of another currency is its _______.(2 marks)
a) exchange rate
b) offer rate
c) yield rate
d) official rate
Correct Answer: exchange rate

[Link] US Dollar is referred to in the currency market as ______. (2 marks)

a) USD
b) US$
c) USS
d) USP
Correct Answer: USD

25. According to the L. C. Gupta committee report, ______ is (are) non-allowable assets
while calculating the net worth of a member of the exchange. (2 marks)
a) Fixed Assets
b) Pledged securities
c) Member's card
d) All of the above
Correct Answer: All of the above

Non-Confidential
 PRACTICE QUESTIONS

CAPITAL MARKET (DEALERS) MODULE

1. Appeal against the orders Securities and Exchange Board of India can be made to
___________. [2 Marks]
(a) Central Government
(b) Securities Appellate Tribunal
(c) Registra r of Companies
(d) High Court

2. In case, a body corporate is applying for trading membership in the capital

market segment of NSEIL, [3 Marks]

(a) at least 5 directors should be graduates of whom one should be a professional.

(b) atleast two directors should be graduates and have minimum of 2 years
experience of securities market.
(c) no prior experience is required.
(d) all the directors should be graduates.

3. What is the purpose of 'Trade Log' report on the NEAT system?

[2 Marks]
(a) There is no report as 'Trades Log' report.
(b) To show the trades that have only been cancelled or modified orders for the
dealers belonging to a trading member for the current trading day.
(c) To show the details of the trade related activity by the trading member for a
specific day.
(d) To show the trades that was done by the trading member for the last seven
days.

4. In ASBA, the amount is blocked in

[2 Marks]
(a) Trading members account
(b) Investors own account
(c) Both A and B
(d) None of the above

5. The Capital Market Segment of NSE commenced operations in

[1 Mark]
(a) Sep-96
(b) Nov-94
(c) Aug-96
(d) Nov-96

6. _____________ obligates the depositories to maintain ownership records of

securities and effect changes in such records electronically at the behest of the
owner of the securities. [2 Marks]

1
(a) The Depositories Act, 1996
(b) The SEBI Act, 1992
(c) The Securities Contract (Regulation) Act, 1956
(d) The Companies Act, 1956

7. The first two characters in ISIN code for a security represents _____.
[1 Mark]
(a) issuer type
(b) security type
(c) country code
(d) company identity

8. Which of the following is true regarding the norms and procedures pertaining to
surrender of membership ?
a) A trading member desirous of surrendering membership has to give its request in
writing in a prescribed form
b) The original SEBI registration certificates for all trading segments have to be
submitted by the trading member.
c) Sub-broker registration certificates have to be submitted
d) All leased lines and VSATs will not be dismantled for the surrendering trading
member. [3 Marks]

(a) a,b,c
(b) a,c
(c) a,d
(d) a,b,c,d

9. If the eighth and ninth character of the ISIN is mentioned as 04, what does it
indicate [2 Marks]

(a) security is security receipt

(b) security is non-convertible preference share
(c) security is a warrant
(d) security is equity share / mutual fund

10. Activities in the 'Activity Log' screen on the NEAT system are displayed in
________. [2 Marks]

(a) chronological order where within the order number, the details appear with the
oldest activity first and the latest last
(b) descending order of order numbers
(c) ascending order of order numbers
(d) reverse chronological order

11. The 'Snap Quote' screen in the NEAT system enables the user to view
________. [1 Mark]

(a) instantaneous market information on a desired security.

(b) best five quotes in the market.

2
(c) quotes in the normal market.
(d) None of the above.

12. Clearing and settlement of trades and risk management are central functions of
NSCCL. [2 Marks]

(a) FALSE
(b) TRUE
(c) Not Attempted

13. Who provides counter party guarantee for all trades executed on NSEIL?
[1 Mark]
(a) NSE Clearing House
(b) NSEIL
(c) NSDL
(d) NSCCL

14. Which of the following is FALSE about auctions in the NEAT system?
[2 Marks]
(a) All auction orders are entered into the auction order book.
(b) Auction matching takes place only across orders belonging to the same
auction.
(c) All auction trades take place at the last traded price for that day in the regular
lot book in the normal market.
(d) Auction order matching takes place at the end of the solicitor period for the
auction.

15. Is order cancellation and order modification allowed for orders entered in the
retail debt market segment.
[2 Marks]
(a) FALSE
(b) TRUE

16. The FIIs can invest in a company upto _____ % of the paid up capital of the
company. This percentage can be increased upto the sectoral cap as applicable to
the Indian Companies by passing a resolution of its board of directors.
[2 Marks]
(a) 32
(b) 26
(c) 28
(d) 24

17. Are secured loans a part of Liability or Asset in balance sheet ?

[1 Mark]
(a) Liability
(b) Asset
(c) Not Attempted

3
18. Member can procure the CTCL Software from - a) Vendors empanelled with NSE
b) Non-empanelled Vendors c) Develop in-house d) All of the above
[1 Mark]
(a) b
(b) a
(c) c
(d) d

19. The Client registration form is filled by the client when ________.
[2 Marks]
(a) client delivers spurious shares
(b) broker has to file FIR against client
(c) client enrolls himself with the broker
(d) client defaults in making payments

20. The corporate action indic ator XB on the NEAT system stands for
[2 Marks]
(a) ex-dividend
(b) ex-bonus
(c) ex-rights
(d) ex-interest

21. Which of the following statements is NOT correct?

[1 Mark]
(a) Depository is registered owner of the securities held in demat form.
(b) Securities in a depository are fungible.
(c) Securities in a depository are held in dematerialised form.
(d) Dematerialised securities have distinct numbers.

22. Do clearing banks provide stock lending facilities ?

[1 Mark]
(a) FALSE
(b) TRUE
(c) Not Attempted

23. SEBI has prescribed the Code of Conduct for the sub-brokers in __________.
[1 Mark]
(a) Indian Contract Act, 1872
(b) Securities Contracts (Regulation) Act, 1956
(c) Companies Act, 1956
(d) SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992

24. A stockbroker means a member of _________.

[1 Mark]
(a) SEBI
(b) any exchange
(c) a recognised stock exchange

4
(d) any stock exchange

25. What price does a market order take, in case the security has never been traded
on the NEAT system? [2 Marks]

(a) The market order gets cancelled by the system.

(b) Market orders cannot be entered for a security in which a trade has not taken
place.
(c) The market order takes the value of the base price and sits in the order book
as a passive order.
(d) None of the above

26. Member A places a buy order for 1000 shares of ABC Ltd. in the NEAT system at
11:22:01 for Rs.155 per share. Member B places a sell order for 2000 shares of ABC
Ltd. at 11:22:02 for Rs.150 per share. Assume that no other orders were available in
the system during this time. Whether the trade will take place and if yes, at what
price? [1 Mark]

(a) 1000 shares get traded at Rs. 150 per share.

(b) 1000 shares get traded at Rs. 150.50 per share.
(c) 1000 shares get traded at Rs. 152.50 per share.
(d) 1000 shares will get traded at Rs. 155 per share.

27. VaR margin is charged at differential rate on the ____________ position of the
client in each security.
[2 Marks]
(a) Only sale
(b) Only buy
(c) Gross outstanding
(d) Net outstanding

28. Nifty index drops by 15% at 3:00 pm. Market will be halted _____.
[2 Marks]
(a) by half an hour
(b) for remainder of the day
(c) for ten minutes
(d) for fifteen minutes

29. What is FALSE about an outstanding order on the NEAT system?

[2 Marks]
(a) It is an order that has been entered by the user and is partially matched.
(b) It is a stop loss order that has not yet been triggered in the market.
(c) It is an order that has been entered by the user and not yet been traded.
(d) It is an order that has been entered by the user, but which has not yet been
completely traded or cancelled.

30. Which of the following is NOT true about SEBI?

5
[2 Marks]
(a) It determines the premium/discounts at which securities are to be issued.
(b) It can specify the matters to be disclosed and the standards of disclosure
required for the protection of investors in respect of issues.
(c) Its regulatory jurisdiction extends over all intermediaries and persons
associated with the securities market.
(d) Its regulatory jurisdiction extends over corporates in the issuance of capital
and transfer of securities.

31. Which of the following is NOT true about corporate securities market reforms?
[1 Mark]
(a) The secondary market overcame the geographical barriers by moving to screen
based trading.
(b) Counter-party risk is borne by investors.
(c) The trading cycle in the stock exchanges follow rolling settlement.
(d) The practice of allocation of resources among different competing entities as
well as its terms by a central authority was discontinued.

32. A portfolio contains securities with the expected return as follows:-

Security Probability Return
A 50 10
B 30 25
C 20 40

What will be the expected return of the portfolio? [1 Mark]

(a) 1.75
(b) 20.5
(c) 1,980
(d) 43

33. Which of the following is FALSE about order cancellation in the NEAT system?
[2 Marks]
(a) Order Cancellation functionality is available for all book types.
(b) The user is allowed to cancel auction initiation and competitor orders in auction
market.
(c) Order Cancellation functionality can be performed only for orders which have
not been fully or partially traded (for the untraded part of partially traded orders
only).
(d) Order Cancellation functionality can be performed during market hours and in
pre open period

34. The maximum amount of claim payable from the IPF to the investor (where the
trading member through whom the investor has dealt is declared a defaulter) is
________. [2 Marks]
(a) Rs. 15 lakh
(b) Rs. 10 lakh
(c) Rs. 17 lakh
(d) Rs. 1 lakh

6
35. ABC Bank Ltd has a policy of continous compounding of fixed deposits. Abhishek
has deposited Rs. 60,000 at the interest rate of 12% for 3 years. How much would
his deposit grow upto at the end of the term?
[2 Marks]
(a) 82,068.81
(b) 87,730.8
(c) 77,047.12
(d) 85,999.97
(e) Not Attempted

36. When a user logs in for the first time in the trading system of CM segment, he
has to enter the default password provided by the Exchange. What is this default
password ?
[1 Mark]
(a) NEAT
(b) DEFAULTPSWD
(c) NEATCM
(d) NEATPASSWORD

37. Which of the following statement(s) is/are true pertaining to Mark - to - Market
margin ?
a) It is calculated by marking each transaction in security to the closing price of the
security at the end of trading.
b) The margin is collected from the member before the start of the trading of the
next day.
c) The MTM margin is collected on the gross open position of the member.
[1 Mark]
(a) a,b
(b) a,b,c
(c) a,c
(d) b,c

38. If the eighth and ninth character of the ISIN is mentioned as 12, what does it
indicate
[2 Marks]
(a) security is deep discount bond
(b) security is a floating rate bond
(c) security is regular return bond / promissory note
(d) security is step discount bond

39. If a client buys shares worth Rs. 1,25,000 and sells shares worth Rs. 75,000
through a broker, then the maximum brokerage payable to him is ___.
[2 Marks]
(a) Rs. 5,000
(b) Rs. 24,000
(c) Rs. 20,000
(d) Rs. 16,000

7
40. In case of surrender of the membership at NSEIL, ___________.
[2 Marks]
(a) the matter is treated as confidential
(b) only the members are notified by way of a circular
(c) the surrendering member is permitted to trade with a limited exposure
(d) advertisement is issued in leading dailies

41. A trading member on the NSE, has set the branch order value unlimited for his
Chennai branch and Rs. 650 lakh for Kolkata branch. Chennai branch has two users
'X' and 'Y' with user order value limits of Rs. 250 lakh and Rs. 300 lakh respectively.
Kolkata branch has one user 'Z' with user order value limit of Rs. 350 lakh. The
member applies for a new user at Kolkata. What is the maximum user order value
that can be set for the new user?
[3 Marks]
(a) Rs. 300 lakh
(b) unlimited
(c) Zero
(d) Not more than Rs. 650 lakh

42. An application for arbitration can be filed within ____ from the date of dispute.
[1 Mark]
(a) 3 months
(b) 45 days
(c) 6 months
(d) 1 year

43. SEBI (Intermediaries) Regulations 2008 are not applicable for foreign venture
capital investors.
[1 Mark]
(a) TRUE
(b) FALSE

44. Which of the following requirements by intermediaries are laid down by the SEBI
(Intermediaries) Regulations, 2008 for all the Intermediaries.
a) Grant of Registration
b) Code of Conduct
c) Common procedure for action in case of default.
[1 Mark]
(a) b,c
(b) a,b,c
(c) b
(d) a,b

45. Which of the following is not a delivery report ?

[2 Marks]
(a) Memberwise withheld securities statement

8
(b) Margin Report
(c) Client Allocation Details
(d) Demat Final Delivery Statement

46. Who can set Branch Order Value limits on the NEAT system?
[2 Marks]
(a) None of the above
(b) Dealer
(c) Corporate manager
(d) Branch manager

47. If the eighth and ninth character of the ISIN is mentioned as 07, what does it
indicate
[2 Marks]
(a) security is non-convertible preference share
(b) security is a warrant
(c) security is equity share / mutual fund
(d) security is secured debenture

48. If a client buys shares worth Rs. 90,000 and sells shares worth Rs. 1,10,000
through a stock-broker, then the maximum brokerage payable is _____.
[3 Marks]
(a) Rs. 4,000
(b) Rs. 6,000
(c) Rs. 2,000
(d) Rs. 5,000

49. If the eighth and ninth character of the ISIN is mentioned as 08, what does it
indicate
[2 Marks]
(a) security is equity share / mutual fund
(b) security is non-convertible preference share
(c) security is secured debenture
(d) security is an unsecured debenture

50. NSE's Certification in Financial Markets is NOT a _____________ testing and

certification system.
[1 Mark]
(a) nation-wide
(b) conventional
(c) fully automated
(d) online

51. The securities market has two segments primary and secondary.
Is the above statement True or False
[1 Mark]
(a) FALSE
(b) TRUE

9
52. Auction is held in XYZ for 10,000 shares.
The closing price of XYZ on that day was Rs.146.00
The last traded price of XYZ on that day was Rs.141.00
The close price of XYZ last Friday was Rs.142.00
The previous day's close price of XYZ was Rs.151.00
What is the maximum allowable price at which the member can put a sell order in
the auction for XYZ? (Price band applicable for Auction market is +/ -15%)
[3 Marks]
(a) Rs. 167.90
(b) Rs. 173.65
(c) Rs. 163.30
(d) Rs. 162.15

53. In case of failure to give delivery in a limited physical market, close out price is
_____% over the actual trade price. [2 Marks]

(a) 20
(b) 25
(c) 15
(d) 30

54. ______ price is the price for orders after the orders get triggered from the stop
loss book
[1 Mark]
(a) Limit
(b) Trigger
(c) Not Attempted

55. A depository participant _______________

[1 Mark]
(a) is an investor who buys/sells shares through the depository.
(b) trades in the dematerialised shares.
(c) destroys the share certificates and makes a credit entry for his clients.
(d) is an agent of the depository and takes physical share certificates from his
clients and sends them for dematerialisation.

56. Under the Member Constituent Agreement, trading members are required to
make the clients aware of which of the following
a) trading segment in which the trading member is admitted
b) SEBI Registration number
c) basic risks involved in trading on the Exchange
[1 Mark]
(a) b,c
(b) a,b
(c) a,c
(d) a,b,c

10
57. Mr. Desai has decided to deposit Rs. 100,000 in the bank annually. If the bank
has a policy of continuous compounding and the prevailing interest rate is 11.5%
how much would his deposit grow upto in 2 years? [2 Marks]

(a) 166,141.11
(b) 171,507.54
(c) 185,570.7
(d) 224,871.26

58. Which of the following is deemed to be price sensitive information

a) periodical financial results of the company
b) intended declaration of dividends (both interim and final)
c) issue of securities or buy back of securities
d) any major expansion plans or execution of new projects
[1 Mark]
(a) b,c,d
(b) a,b,c,d
(c) c,d
(d) a,b,c

59. Which of the following statements is FALSE about the NEAT system?
[1 Mark]
(a) All orders placed on NEAT must necessarily result in trades.
(b) Orders are matched automatically by the computer keeping the system
transparent, objective and fair.
(c) All orders received on the system are sorted with the best priced order getting
the first priority for matching.
(d) Similarly priced orders are sorted on time priority basis.

60. If the third character of the ISIN is mentioned as 'E' what does this denote ?
[2 Marks]
(a) The issuer is company, statutory corporation, banking company
(b) The issuer is mutual fund
(c) The issuer is state government
(d) The issuer is municipal corporation

11
Answers

1 (b) 21 (d) 41 (a)

2 (b) 22 (b) 42 (c )
3 (c ) 23 (d) 43 (a)
4 (b) 24 (c ) 44 (b)
5 (b) 25 (c ) 45 (b)
6 (a) 26 (d) 46 (c )
7 (c) 27 (d ) 47 (d)
8 (a) 28 (b) 48 (d)
9 (b) 29 (b) 49 (d)
10 (a) 30 (a) 50 (b)
11 (a) 31 (b) 51 (b)
12 (b) 32 (b) 52 (b)
13 (d) 33 (b) 53 (a)
14 (c ) 34 (a) 54 (a)
15 (b) 35 (d) 55 (d)
16 (d) 36 (c ) 56 (d)
17 (a) 37 (b) 57 (d)
18 (d) 38 (d) 58 (b)
19 (c ) 39 (a) 59 (a)
20 (b) 40 (d) 60 (a)

12
 PRACTICE QUESTIONS

SECURITIES MARKET (BASIC) MODULE

1) The following are participants in the securities markets ______. (1 mark)

(a) Underwriters
(b) Debenture Trustees
(c) Venture Capital Funds
(d) All of the above
(e) I am not attempting the question

2) The securities markets have the following category (ies) of participant (s)
_____. (1 mark)

(a) issuers of securities

(b) investors in securities
(c) intermediaries
(d) All of the above
(e) I am not attempting the question

3) In private placement, issuance is done to _____. (2 marks)

(a) more than 50 persons

(b) less than 100 persons
(c) less than 50 persons
(d) less than 10 persons
(e) I am not attempting the question

4) Which entity provides novation :_______. (2 marks)

(a) NSCCL
(b) NSE
(c) NSDL
(d) CDSL
(e) I am not attempting the question

5) ______ deals with issue, allotment and transfer of securities and various
aspects relating to company management. (2 marks)

(a) Companies Act, 1956

(b) Depositories Act, 1996
(c) Capital Issues (Control) Act, 1947
(d) None of the above
(e) I am not attempting the question
6) ______ envisages transfer of ownership of securities electronically by book
entry without making the securities move from person to person. (2 marks)

(a) Companies Act, 1956

(b) Depositories Act, 1996
(c) Capital Issues (Control) Act, 1947
(d) None of the above
(e) I am not attempting the question

7) A company making a public issue of securities has to file a draft prospectus

with ____. (1 mark)

(a) RBI
(b) SEBI
(c) Ministry of Finance
(d) None of the above
(e) I am not attempting the question

8) For public and rights issues of debt instruments, it is mandatory to obtain

credit rating from a registered credit rating agency. True or False. (1 mark)

(a) True
(b) False
(c) I am not attempting the question

9) Promoters’ contribution in case of public issues by unlisted companies and

promoters’ shareholding in case of ‘offers for sale’ shall not be less than ____ of post
issue capital (2 marks)

(a) 50%
(b) 15%
(c) 20%
(d) 30%
(e) I am not attempting the question

10) The Companies Act, 1956 requires that every public listed company making
an IPO of any security for ____ or more shall issue the same only in dematerialized
form. (2 marks)

(a) Rs. 50 crores

(b) Rs. 30 crores
(c) Rs. 20 crores
(d) Rs. 10 crores
(e) I am not attempting the question
11) Foreign Currency Convertible Bonds (FCCBs) are also known as _______.
(2 marks)

(a) Euro Issues

(b) Dollar Issues
(c) Convertible credit securities
(d) Convertible credit bonds
(e) I am not attempting the question

12) Mutual Funds being Public Trusts are governed by the ______. (2 marks)

(a) Indian Trustees Act, 1887

(b) Mutual Trust Act, 1880
(c) Public Trust Act, 1886
(d) Indian Trust Act, 1882
(e) I am not attempting the question

13) A company proposing to list on the NSE must have a minimum paid up equity
capital of _____. (1 mark)

(a) Rs. 50 crs.

(b) Rs. 20 crs.
(c) Rs. 10 crs.
(d) Rs. 30 crs.
(e) I am not attempting the question

14) During Auction, order matching takes place after the ____. (3 marks)

(a) Solicitor period

(b) Intitiator period
(c) Competitor period
(d) Open period
(e) I am not attempting the question

15) For Auction market price bands of _____ are applicable. (2 marks)

(a) 50%
(b) 15%
(c) 20%
(d) 30%
(e) I am not attempting the question

16) ______ is a clearing member but not a trading member. (1 mark)

(a) Clearing Banks

(b) Self Clearing Member
(c) Clearing Member
(d) Custodian
(e) I am not attempting the question

17) If the Custodian rejects a trade, the obligation is assigned back to the _____.
(1 mark)
(a) investor
(b) trading member
(c) clearing bank
(d) depository
(e) I am not attempting the question

18) A clearing member receives shares during ____ . (1 mark)

(a) pay-in
(b) pay-out
(c) auction
(d) funds settlement
(e) I am not attempting the question

19) The market for government securities comprises the securities issued by the
_________ (1 mark)

(a) Central Govt.

(b) State Govt
(c) State sponsored entities
(d) All of the above
(e) I am not attempting the question

20) The _____ arises if a party discharges his obligations but the counterparty
defaults. (2 marks)

(a) replacement cost risk

(b) principal risk
(c) systemic risk
(d) unsystematic risk
(e) I am not attempting the question

21) The ______ combines the features of cash as well as futures markets.
(1 mark)
(a) account period settlement
(b) rolling settlement
(c) T+2 settlement
(d) T+1 settlement
(e) I am not attempting the question

22) Under the T+2 rolling settlement at NSE, Auction takes place on ______.
 (1 mark)

(a) T+0
(b) T+1
(c) T+2
(d) T+3
(e) I am not attempting the question

23) Under the T+2 rolling settlement at NSE, Custodial Confirmation takes place
on ______. (1 mark)

(a) T+0
(b) T+1
(c) T+2
(d) T+3
(e) I am not attempting the question

24) NSCCL levies penalties on trading members for non-compliances and defaults
like : ____ (2 marks)

(a) Funds Shortages

(b) Securities Shortages
(c) Margin Shortages
(d) All of the above
(e) I am not attempting the question

25) Interest payments of the following bonds are based on Wholesale Price Index
/ Consumer Price Index : (1 mark)

(a) SBI Bonds

(b) RBI Bonds
(c) Zero Coupon bonds
(d) Indexed bonds
(e) I am not attempting the question

26) Security Type GS stands for ____ in the WDM Segment of NSE. (1 mark)

(a) GDR Securities

(b) Government Securities
(c) General Securities
(d) None of the above
(e) I am not attempting the question

27) Under DVP III, securities are settled on a ___ basis. (2 marks)

(a) cash
(b) gross
(c) net
(d) T+5
(e) I am not attempting the question

28) _____ performs novation for transactions in Government Securities.

(3 marks)

(a) Clearing Corporation of India Ltd. (CCIL)

(b) National Securities Clearing Corporation Ltd. (NSCCL)
(c) National Stock Exchange (NSE)
(d) National Depository Services Ltd. (NSDL)
(e) I am not attempting the question

29) ______ trades are essentially forward transactions in a security which is still
to be issued. (3 marks)

(a) Forward
(b) If Issued
(c) When Issued
(d) None of the above
(e) I am not attempting the question

30) Swaps are a type of derivatives. True or False. (1 mark)

(a) True
(b) False
(c) I am not attempting the question

31) Arbitrageurs are one of the participants in the derivatives markets. True or
False. (1 mark)

(a) True
(b) False
(c) I am not attempting the question

32) Risk averse investors use derivatives for speculation. True or False. (1 mark)

(a) True
(b) False
(c) I am not attempting the question

33) Speculators use derivatives as Hedging tools. True or False. (1 mark)

(a) True
(b) False
(c) I am not attempting the question

34) _____ are standardized, exchange traded contracts. (2 marks)

(a) Swaps
(b) Forwards
(c) Futures
(d) FRAs
(e) I am not attempting the question

35) An exporter would _____ dollar forwards to lock in an exchange rate.

(2 marks)

(a) sell
(b) buy
(c) hold
(d) exchange
(e) I am not attempting the question

36) Strike Price for a call option on a stock is Rs. 125 and the underlying stock
price is Rs. 120. If the Premium is Rs.2, the option is _____. (2 marks)

(a) In the money

(b) Out of the money
(c) At the money
(d) Deep in the money
(e) I am not attempting the question

37) An out of the money call option has an intrinsic value of zero. True or False.
(3 marks)
(a) True
(b) False
(c) I am not attempting the question

38) A security trades in the Spot market at Rs. 1319. Money can be invested at
10% p.a. The fair value of a one month futures contract on the security is ___
(2 marks)
(a) Rs. 1341.10
(b) Rs. 1333.20
(c) Rs. 1328.30
(d) Rs. 1330.05
(e) I am not attempting the question

39) A security trades in the Spot market at Rs. 1423. Money can be invested at
10% p.a. The fair value of a one month futures contract on the security is ___
(2 marks)
(a) Rs. 1441.90
(b) Rs. 1434.40
(c) Rs. 1426.70
(d) Rs. 1434.90
(e) I am not attempting the question
40) If you are bullish about a stock, you would ____ call options on the stock.
(1 mark)

(a) sell
(b) buy
(c) short
(d) write
(e) I am not attempting the question

41) If you are bearish about a stock, you would ____ put options on the stock.
(1 mark)
(a) sell
(b) buy
(c) short
(d) write
(e) I am not attempting the question

42) ______ is the total number of outstanding contracts that are held by market
participants at the end of each day. (1 mark)

(a) Outstanding position

(b) Outstanding Interest
(c) Open position
(d) Open Interest
(e) I am not attempting the question

43) _____ means a depository whose name is entered as such in the register of
the issuer. (2 marks)

(a) Beneficiary owner

(b) Registered owner
(c) Investment Banker
(d) R&T Agent
(e) I am not attempting the question

44) A company may purchase its own shares, out of _____. (2 marks)

(a) it’s promoters money

(b) it’s Equity Capital
(c) Profits
(d) Free Reserves
(e) I am not attempting the question

45) A security trades in the Spot market at Rs. 1600. Money can be invested at
10% p.a. The fair value of a one month futures contract on the security is ___
(2 marks)
(a) Rs. 1651.90
(b) Rs. 1634.40
(c) Rs. 1666.40
(d) Rs. 1613.40
(e) I am not attempting the question

46) A seller of a call option has to pay securities transaction tax. True or False.
(1 mark)

(a) True
(b) False
(c) I am not attempting the question

47) A buyer of a put option has to pay securities transaction tax. True or False.
(1 mark)

(a) True
(b) False
(c) I am not attempting the question

48) _____ deals with listing of securities on stock exchanges. (2 marks)

(a) NSDL
(b) RBI
(c) SC(R)R, 1957
(d) SC(R)A, 1956
(e) I am not attempting the question

49) What is the present value of Rs. 1000 payable 3 years hence, if the interest
rate is 8% per annum? (2 marks )

(a) Rs. 779.42

(b) Rs. 788.23
(c) Rs. 793.83
(d) Rs. 785.54
(e) I am not attempting the question

50) What is the present value of Rs. 1000 payable 5 years hence, if the interest
rate is 10% per annum? (2 marks)

(a) Rs. 680.64

(b) Rs. 656.56
(c) Rs. 620.92
(d) Rs. 690.76
(e) I am not attempting the question
51) Calculate the value 5 years hence of a deposit of Rs. 1000 made today if the
interest rate is 9%. (2 marks)

(a) Rs. 1543.65

(b) Rs. 1538.62
(c) Rs. 1546.23
(d) Rs. 1570.54
(e) I am not attempting the question

52) _____ is the discount rate which makes its net present value equal to zero.
(1 mark)

(a) Accrued Interest rate

(b) Compunding
(c) Discounting
(d) Internal Rate of Return (IRR)
(e) I am not attempting the question

53) The Dividend Growth Model approach assumes that the price of equity stock
depends ultimately on the dividend expected from it. True or False. (2 marks)

(a) True
(b) False
(c) I am not attempting the question

54) Security A gives a return of 10% with a dispersion of 4%, while security B
gives return of 18% with a dispersion of 6%.Which security is more risky? (2 marks)

a) Security A
b) Neither of the securities is risky
c) Security B
d) Both securities are equally risky
e) I am not attempting the question

55) Security A gives a return of 12% with a dispersion of 4%, while security B gives
return of 15% with a dispersion of 5%.Which security is more risky? (2 marks)

a) Security B
b) Both securities are equally risky
c) Security A
d) Neither of the securities is risky
e) I am not attempting the question

56) How much is the correlation coefficient between the companies A and B, if their
covariance is 20 and their standard deviations respectively are 4 and 6? (2 marks)

a) 0.5345
b) 0.8334
c) 0.5275
d) -0.2131
e) I am not attempting the question

57) How much is the correlation coefficient between the companies A and B, if their
covariance is 32 and their standard deviations respectively are 7 and 6? (2 marks)

a) 0.53
b) 0.83
c) 0.52
d) 0.76
e) I am not attempting the question

58) For a security B, if price at the beginning of the year is Rs.50; dividend
receivable at the end of the year is Rs.1.5; and the price at the end of the year is
Rs.53 then what is the rate of return on the security? (2 marks)

a) 0.05
b) 0.03
c) 0.02
d) 0.09
e) I am not attempting the question

59) Gross Profit Ratio is given by __________. (2 marks)

a) Gross Profit/Net Sales

b) Net Profit/ Cost of Sales
c) Net Profit/Sales
d) Gross Profit/Cost of Sales
e) I am not attempting the question

60) Fixed Assets Turnover Ratio is given by __________. (2 marks)

a) Net Sales/Average Net Fixed Assets

b) Net Sales/Gross Fixed Assets
c) Cost of Sales/Average Net Fixed Assets
d) Cost of Sales /Gross Fixed Assets
e) I am not attempting the question
Answers :

1 (d) 21 (a) 41 (b)

2 (d) 22 (d) 42 (d)
3 (c) 23 (b) 43 (b)
4 (a) 24 (d) 44 (d)
5 (a) 25 (d) 45 (d)
6 (b) 26 (b) 46 (a)
7 (b) 27 (c) 47 (b)
8 (a) 28 (a) 48 (d)
9 (c) 29 (c) 49 (c)
10 (d) 30 (a) 50 (c)
11 (a) 31 (a) 51 (b)
12 (d) 32 (b) 52 (d)
13 (c) 33 (b) 53 (a)
14 (a) 34 (c) 54 (a)
15 (c) 35 (a) 55 (b)
16 (d) 36 (b) 56 (b)
17 (b) 37 (a) 57 (d)
18 (b) 38 (d) 58 (d)
19 (d) 39 (d) 59 (a)
20 (b) 40 (b) 60 (a)
 PRACTICE QUESTIONS

MUTUAL FUNDS : A BEGINNERS’ MODULE

Q:1 For anybody to start a mutual fund, relevant experience in financial

services is mandatory [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:2 Mutual Funds in India follow a 3-tier structure [2 Marks ]

(a) TRUE
(b) FALSE

Q:3 The sponsor registers the mutual fund with SEBI after forming the trust
[ 2 Marks ]
(a) FALSE
(b) TRUE

Q:4. Trustees manage investor's money [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:5 Fund managers of closed ended schemes are not allowed to churn
portfolios as frequently as open end schemes [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:6 Only the physical securities are held by the Custodian. [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:7 The AMC cannot act as a Trustee for some other Mutual Fund.[ 2 Marks ]

(a) TRUE
(b) FALSE

1
Q:8 Offer Document is not a legal document [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:9 A scheme has 50 cr units issued with a face value of Rs. 10. Its NAV is
Rs. 12.36. Its AUM in Rs. Cr is (Entry Load 2%) [ 2 Marks ]

(a) 500
(b) 618
(c) 630.36
(d) Insufficient Information

Q:10 Entry load is highest for Liquid schemes [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:11 Tracking error in index funds is only due to entry loads [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:12 Scheme A has 2.5% entry load, Scheme B has none. No scheme has an
exit load. How much more annual returns will be A have to deliver to
match B's performance if B delivers 12% annual returns [ 2 Marks ]

(a) 2.5%
(b) 12%
(c) 14.87%
(d) 2.87%

Q:13 Investors are mutual, beneficial and proportional owners of the

scheme’s assets. [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:14 Investors have a right to be informed about changes in the fundamental

attributes of a scheme. [ 2 Marks ]

(a) TRUE
(b) FALSE

2
Q:15 NAV of a scheme without entry load will rise more than NAV of a
scheme with an entry load [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:16 A scheme with lower NAV is always better than a scheme with higher
NAV [ 2 Marks ]
(a) TRUE
(b) FALSE

Q:17 Index Funds invest in stocks comprising indices [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:18 If a scheme has 45 cr units issued and has a FV of Rs. 10 and NAV is at
11.13, unit capital (Rs. Cr) would be equal to [ 2 Marks ]

(a) 500.85
(b) 50.85
(c) 950.85
(d) 450

Q:19 If a scheme issues more units, its NAV will [ 2 Marks ]

(a) Have no impact

(b) Fall
(c) Rise
(d) Can’t say

Q:20 Redemption of units translates into higher NAV [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:21 Offer Document has to be provided by the advisor along with the
application form [ 2 Marks ]

(a) TRUE
(b) FALSE

3
Q:22 A fund fact sheet is published by mutual funds [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:23 Fund fact sheet gives comparison of performance of each scheme with
its benchmark [2 Marks ]

(a) TRUE
(b) FALSE

Q:24 Expense Ratio = Expenses/ Average Weekly Net Assets [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:25 Among equity funds, risk is highest for index funds [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:26 Expense Ratio for a fund should be as low as possible [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:27 Expense Ratio will increase if investors start redeeming [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:28 A scheme has average weekly net assets of Rs. 324 cr and has annual
expenses of Rs. 3.24 cr, its expense ratio is [ 2 Marks ]

(a) 1%
(b) 10%
(c) Can't say
(d) Insufficient information

4
Q:29 For a scheme to be defined as equity fund, it must have minimum
[ 2 Marks ]
(a) 65% in Indian equities
(b) 65% in equities
(c) 51% Indian equities
(d) 35% in Indian equities

Q:30 Long term capital gains will not be charged for international funds with
100% investment in foreign equities as compared to a fund investing
only in Indian companies [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:31 If YTM increases [ 2 Marks ]

(a) Future Value of Cash Flows goes down

(b) Present Value of Cash Flows goes up
(c) Present Value of Cash Flows goes down
(d) Future Value of Cash Flows goes up

Q:32 Gains made from Equity funds are not liable for long term capital gains
tax [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:33 A 100% international equity fund is similar to a debt fund from

taxation viewpoint [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:34 SWP stands for [ 2 Marks ]

(a) Systematic Whining Pain

(b) Systematic Whining Plan
(c) Systematic Withdrawal Plan

5
Q:35 Growth option is for those investors who are looking for capital
appreciation. [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:36 In case of Dividend Reinvestment option, the investor chooses to

reinvest the dividend in the scheme. [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:37 Equity Mutual fund investors have to bear Securities Transaction Tax
(STT) [ 2 Marks ]

(a) TRUE
(b) FALSE

Q:38 SEBI stands for [ 2 Marks ]

(a) Securities & Exchange Board Institute

(b) Securities & Exchanges Board of India
(c) Securities & Exchange Board of India
(d) Securities & Exchanges Board of Institute

Q:39 Money Markets refers to that part of the debt market where the
maturity is [ 2 Marks ]

(a) less than 1 year

(b) less than 1 month
(c) less than 6 months
(d) more than 1 year

Q:40 Long term capital gains will not be charged for international funds with
minimum 65% in Indian equities. [ 2 Marks ]

(a) FALSE
(b) TRUE

NOTE : THIS IS A SAMPLE TEST. THE ACTUAL TEST WILL CONTAIN 50

QUESTIONS.

6
Answers :

1 (a) 21 (b)
2 (a) 22 (a)
3 (b) 23 (a)
4 (b) 24 (a)
5 (b) 25 (b)
6 (a) 26 (a)
7 (a) 27 (a)
8 (b) 28 (a)
9 (b) 29 (a)
10 (b) 30 (b)
11 (b) 31 (c)
12 (d) 32 (a)
13 (a) 33 (a)
14 (a) 34 (c)
15 (b) 35 (a)
16 (b) 36 (a)
17 (a) 37 (a)
18 (d) 38 (c)
19 (a) 39 (a)
20 (b) 40 (b)