About Capital Markets

Following are some of the multiple choice questions on the Capital Markets with answers that will help the students in developing their knowledge.

Capital Markets MCQ

1. What is an IPO?

  • Initial Polling Office
  • Initial Public Offering
  • International Public Office
  • Increasing Public Opportunity

2. What are stocks?

  • Shares of ownership in a corporation.
  • Shares of trading in a corporation.
  • Bonds with potential to make money.
  • Bonds that are traded.

3. Who is the chairman of SEBI?

  • Ajay Tyagi
  • Arvind Panagariya
  • C. Rangarajan
  • Raghuram Rajan

4. The securities that are already issued are available for subsequent purchases and sales at:________.

  • Office of the registrar and transfer agent
  • Follow on public offer of the issuer
  • Stock exchanges where they are listed
  • Depositories where they are held

5. A company can raise capital through the primary market in the form of

  • Equity shares
  • Preference shares
  • Debentures
  • All of the above

6. PK Enterprises Limited has sold an entire lot of 5,00,000 equity shares @ ₹9 each to Prosperous Bank Private Limited. The bank, in turn, will offer the shares to the general public for subscription @ ₹11 per share. Identify the method of floatation being described in the given lines.

  • Private placement
  • Offer through prospectus
  • Offer for sale
  • Rights issue

7. The reserves of a company rightfully belong to ____________.

  • Equity Shareholders
  • Institutional lenders
  • Promoters
  • Employees

8. Compared to money market securities, capital market securities have

  • more liquidity
  • longer maturity
  • lower yields
  • less risk

9. A spot transaction in the foreign exchange market involves the

  • exchange of exports and imports at a specified future date.
  • exchange of bank deposits at a specified future date.
  • immediate (within two days) exchange of exports and imports.
  • immediate (within two days) exchange of bank deposits.

10. Money market securities have all the following characteristics except they are not

  • short term
  • money
  • low risk
  • very liquid

11. A basic principle of finance is that the value of any investment is

  • the present value of all future net cash flows generated by the investment
  • the undiscounted sum of all future net cash flows generated by the investment
  • unrelated to the future net cash flows generated by the investment
  • unrelated to the degree of risk associated with the future net cash flows generated by the investment

12. The primary reason that individuals and firms choose to borrow long-term is to

  • reduce the risk that interest rates will fall before they pay off their debt
  • reduce the risk that interest rates will rise before they pay off their debt.
  • reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments
  • reduce total interest payments over the life of the debt

13. What kind of fund collects and invests income for later payments to eligible recipients?

  • pension fund
  • credit union fund
  • insurance fund
  • mutual fund

14. The process of holding shares in electronic form is known as

  • Demutualisation
  • Dematerialisation
  • Speculation
  • None of the above

15. Which type of financial organization is a nonprofit service cooperative

  • commercial bank
  • mutual fund
  • insurance company
  • credit union

16. What is the name of the fee paid for an insurance policy?

  • interest
  • pension
  • contribution
  • premium

17. What is the main advantage of a mutual fund for an investor?

  • Its price doesn't change much.
  • It offers diversity in investment.
  • It has a set maturity date.
  • It can be sold at a profit.

18. When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar, the euro has ________ and the dollar has ________

  • appreciated; appreciated
  • depreciated; appreciated
  • appreciated; depreciated
  • depreciated; depreciated

19. If you buy a 30-day Treasury bill for 99.75, the discount yield on this security is closest to:

  • 3%
  • 3.0075%
  • 3.0493%
  • 3.0417%

20. _______ formal contract to repay borrowed money and interest on the borrowed money at regular future intervals

  • equities
  • savings
  • bond
  • futures contract

21. Which of the following is an advantage of a 401(k) plan?

  • Most employers match a portion of your contributions.
  • You may withdraw funds at any time without penalty.
  • You never pay taxes on your contributions.
  • Your contributions are invested in high-return, high-risk fund

22. Which of the following financial organizations specializes in buying installment contracts from merchants who sell on credit?

  • a bank
  • a credit union
  • a finance company
  • an insurance company

23. _______ a situation in which the outcome is not certain, but the probabilities can be estimated

  • equities
  • portfolio diversification
  • risk
  • bond

24. Typically, the interest rate on corporate bonds will be ________ the more restrictions are placed on management through restrictive covenants, because ________.

  • higher; corporate earnings will be limited by the restrictions
  • higher; the bonds will be considered safer by bondholders
  • lower; the bonds will be considered safer by buyers
  • lower; corporate earnings will be higher with more restrictions in place

25. If you expect that the price of a stock will decline, which of the following are you most likely do?

  • Buy a put option on the stock.
  • Buy a call option on the stock.
  • Write a put option on the stock.
  • Buy the stock on margin.

26. Who is acting as both the broker and jobber?

  • Budlawalas
  • Tarawaniwalas
  • Hedger
  • Speculators

27. What is the name of fictitious transactions in the share market?

  • Nil transactions
  • Blank sales
  • Wash sales
  • White sales

28. If the 2005 inflation rate in Britain is 6 percent, and the inflation rate in the U.S. is 4 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the British pound in terms of U.S. dollars will

  • rise by 10 percent.
  • rise by 2 percent.
  • fall by 10 percent.
  • fall by 2 percent.

29. A capital market is ideal when:

  • Financial institutions are sufficiently developed
  • Finance is available at a reasonable cost
  • Capital is most productively allocated
  • All of these

30. A commercial bill is used to _____________

  • Finance the working capital requirements
  • Meet the short term debt
  • Meet the long term debt
  • Pay the interest

31. When a trade bill is accepted by a commercial bank, it is known as a _____

  • Commercial Bill
  • Call money
  • None of these
  • Certificate of deposit

32. Money market deals in _____________________

  • Medium-term securities
  • Short term Securities
  • Long term Securities
  • None of these

33. Jayant is holding a hundred shares of a company. He has been given a privileged offered to subscribe to a new issue of shares of the same company in the proportion of 2:1 to the number of shares already possessed by him. Identify the method of floatation being described in the above case.

  • Offer through prospectus
  • Offer for sale
  • Rights issue
  • Private placement

34. On this day, the exchange will deliver the share or make payment to the other broker

  • Pay-in day
  • Pay-out day
  • Transaction day
  • None of the above

35. It is a legally enforceable document which is issued by a stockbroker within 24 hours of the execution of a trade order.

  • PAN number
  • Unique Order Code
  • Contract Note
  • None of the above

36. Under this method of floatation in the primary market, a subscription is invited from the general public to invest in the securities of a company through the issue of advertisement.

  • Private placement
  • Offer through prospectus
  • Offer for sale
  • All of the above

37. ----------------- is based on the uncertain event whose result determined by chance or accident

  • Gambling
  • Speculation
  • Dead cat bouncing
  • Market fluctuations

38. Professional independent brokers are called------------------

  • Broker
  • Hedger
  • Jobber
  • Budlawalas

39. The financial results of a company show that it has suffered losses due to decliningmarket share. The price of its equity share drops in the market. This is an example of therole of the market as: _________.

  • Provider of liquidity
  • Orderly channel for transfer of funds from investors to issuers
  • Generator of productive investments
  • Information Signalling through prices

40. When a bear is unable to meet his commitment immediately he becomes--------------

  • Stag
  • Cat
  • Duck
  • Bear

41. A trader use borrowed funds from a broker for purchasing securities. State which type of trading is this?

  • Debt trading
  • Lease trading
  • Margin trading
  • Hire purchasing

42. _______ is an agreement to buy or sell at a specific date in the future at a predetermined price

  • equities
  • futures contract
  • bond
  • savings

43. _______ stocks that represent ownership shares in corporations

  • equities
  • capital market
  • secondary market
  • futures contract

44. _______ the dollars that become available for investors to use when others refrain from consuming

  • risk
  • equities
  • bond
  • savings

45. _______ a market in which all financial assets can be sold to someone other than the original issuer

  • primary market
  • secondary market
  • financial system
  • capital market

46. _______ a market in which financial capital is loaned and/or borrowed for at least one year

  • primary market
  • secondary market
  • financial system
  • capital market

47. _______ a strategy of holding different kinds of investments to minimize risk

  • portfolio diversification
  • bond
  • futures contract
  • risk

48. _______ a market in which only the original issuer can sell or repurchase a financial asset

  • financial system
  • primary market
  • capital market
  • secondary market

49. The rate of return on a corporate, municipal, or government bond is its _______ .

  • par value
  • compensation rate
  • interest rate
  • coupon rate

50. Junk bonds usually have low ratings because _______ .

  • they have a low rate of return
  • they have a low risk of default
  • they are not risky investments
  • they are a high-risk investment

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