About Capital Markets

The phrase "capital market" refers to both the physical locations where various forms of financial instruments are traded as well as the online environments in which these transactions take place. The bond market, stock market, foreign exchange markets, and currency are all conceivable venues. The majority of markets may be found in major financial hubs throughout the world, such as London, New York City, Hong Kong, and Singapore.

Meaning of Capital Market

The capital markets provide a conduit for the flow of savings and investments between those who have capital available to lend or invest and those who are in need of it. These suppliers might be individuals or institutions. Those that supply capital is most often financial institutions and investors, whereas those that want it are often corporations, people, and governments.

Composition of Capital Market

The participants in the capital markets are known as the suppliers and the consumers of funds. Households, through the savings accounts they maintain with banks, are one type of supplier. Other types of organizations, such as pension and retirement funds, life insurance firms, charity foundations, and non-financial corporations that create extra income, are other examples of suppliers. Buyers of homes and automobiles, investors in non-financial enterprises, and governments that are financing infrastructure investment and operational expenditures are all examples of "users" of the money that is dispersed on capital markets. The stock market and the bond market are two of the most prevalent types of capital markets.

Importance of Capital Market

The capital market is constantly looking for ways to streamline its transactional processes. These markets provide a venue for the trading of securities as well as a meeting point for people seeking capital and those who supply goods and services.


The global economy cannot function well without its capital markets. They offer a platform for those who are interested in earning a return on their investments of previously saved money to do so. They have the ability to direct their capital toward individuals and companies who have an immediate need for capital in order to expand. This is the core tenet upon which the expansion of a market-based, capitalist economy is founded.

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
  • Rangarajan
  • Raghuram Rajan
  • Madhabi Puri Buch

4. 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.

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. 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

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

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

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

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

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

  • interest
  • pension
  • contribution
  • premium

18. 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.

19. 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

20. 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%

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

  • equities
  • savings
  • bond
  • futures contract

22. 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

23. 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

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

  • equities
  • portfolio diversification
  • risk
  • bond

25. 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

26. 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.

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

  • Budlawalas
  • Tarawaniwalas
  • Hedger
  • Speculators

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

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

29. The self-regulatory organization for brokers and dealers is the:

  • SEC.
  • FINRA.
  • NYSE.
  • none of the above

30. 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.

31. 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

32. A commercial bill is used to _____________

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

33. 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

34. Money market deals in _____________________

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

35. 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

36. 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

37. 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

38. 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

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

  • Gambling
  • Speculation
  • Dead cat bouncing
  • Market fluctuations

40. Professional independent brokers are called------------------

  • Broker
  • Hedger
  • Jobber
  • Budlawalas

41. 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

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

  • Stag
  • Cat
  • Duck
  • Bear

43. 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

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

  • equities
  • futures contract
  • bond
  • savings

45. _______ stocks that represent ownership shares in corporations

  • equities
  • capital market
  • secondary market
  • futures contract

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

  • risk
  • equities
  • bond
  • savings

47. _______ 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

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

  • portfolio diversification
  • bond
  • futures contract
  • risk

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

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

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

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

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