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 process of holding shares in electronic form is known as

  • Demutualisation
  • Dematerialisation
  • Speculation
  • None of the above

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

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

6. 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.

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

  • interest
  • pension
  • contribution
  • premium

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

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

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

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

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

  • Stag
  • Cat
  • Duck
  • Bear

11. _______ stocks that represent ownership shares in corporations

  • equities
  • capital market
  • secondary market
  • futures contract

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

  • Equity Shareholders
  • Institutional lenders
  • Promoters
  • Employees

13. 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

14. 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

15. Professional independent brokers are called------------------

  • Broker
  • Hedger
  • Jobber
  • Budlawalas

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

  • Gambling
  • Speculation
  • Dead cat bouncing
  • Market fluctuations

17. 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

18. 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

19. 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

20. 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

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

  • equities
  • futures contract
  • bond
  • savings

22. 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

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

  • risk
  • equities
  • bond
  • savings

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

  • equities
  • savings
  • bond
  • futures contract

25. _______ 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

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

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

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

  • equities
  • portfolio diversification
  • risk
  • bond

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

  • portfolio diversification
  • bond
  • futures contract
  • risk

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

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

30. _______ a network of savers, investors, financial assets, and financial institutions that work together to transfer savings to investment uses

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

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

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

32. 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

33. What is the main difference between Treasury bonds, Treasury notes, and Treasury bills?

  • the amount of time for maturity
  • the interest rate
  • the minimum purchase requirement
  • the method of sale

34. 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

35. Money market deals in _____________________

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

36. 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

37. 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

38. 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

39. A commercial bill is used to _____________

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

40. A stock currently sells for $25 per share and pays $0.24 per year in dividends. What is an investor's valuation of this stock if she expects it to be selling for $30 in one year and requires a 15 percent return on equity investments?

  • $30.24
  • $26.30
  • $26.09
  • $27.74

41. The Nasdaq is an example of:

  • an exchange.
  • an over-the-counter market.

42. 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

43. 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

44. 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

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

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

46. Suppose that you purchase a 91-day Treasury bill for $9,850 that is worth $10,000 when it matures. The security's discount rate if held to maturity is about

  • 4.87%
  • 5.93%
  • 6.18%
  • 7.00%

47. Finance companies raise funds in the money market by selling

  • commercial paper
  • federal funds
  • negotiable certificates of deposits
  • Eurodollars

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

  • short term
  • money
  • low risk
  • very liquid

49. If an investment earns 2% the first six months and 3% the second six months, its annual return is closest to:

  • 5%
  • 5.06%
  • 6%

50. Suppose a stock had return of 4% the first year, a loss of 5% the second year, and a return of 3% the third year, what is the average annual return on this stock?

  • 0.585%
  • 0.667%
  • 2%

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