Financial Markets Test

Result

Financial Markets Test - 3

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Weekly Quiz Competition

Question 1
1 / -0

Consider the following information: Statement 1: The government of India uses this instrument, as issued by the RBI for short-term borrowings. They are issued at less than the face value however are repaid at par. Statement 2: It is a short-term instrument of finance with a maturity period of up to 15 days. It is used by banks to borrow from each other so as to maintain their CRR. In Statement 1, _______ is described, while in Statement 2, ________ is described.

A
Commercial paper, call money

B
Treasury bill, call money

C
Treasury bill, commercial paper

D
Commercial bill, call money

Solution

Statement 1 describes a treasury bill, while Statement 2 describes call money.

A treasury bill is a short-term borrowing instrument issued by the RBI on behalf of the Government of India. Treasury bills are used by the Central Government for their short-term fund requirement. They are issued at less than the face value and repaid at par.

Call money is a short-term instrument of finance which has a maturity period of less than 15 days. It is used for inter-bank transactions in the sense that commercial banks use call money to borrow from each other in order to maintain the CRR requirements.
Question 2
1 / -0

Which of the following methods of issuing securities in the primary market requires intermediaries for dealing with public?

A
Private placement

B
E-IPOs

C
Issue of prospectus

D
Offer for sale

Solution

Under the method of offer for sale, securities are issued through intermediaries such as stock brokers or issuing houses. In other words, companies first sell securities to intermediaries who in turn then resell to public.
Question 3
1 / -0

Consider the following information:

Safety Return

Capital Market a. ____ b. _____

Money Market High Low

Which of the following alternatives correctly fills the given table?

A
a. High; b. Low

B
a. High; b. High

C
a. Low; b. Low

D
a. Low; b. High

Solution

Securities traded in the capital market are less safe. This is because the companies which issued the securities may not perform as projected. However, they offer higher returns. This is because the securities of the capital market are held for a longer period, thereby offering better opportunities for earning. Moreover, the shareholders may gain through dividends.

Hence, the correct answer is option C.
Question 4
1 / -0

PK Ltd. wanted to avoid certain expenses which come up with issuing shares to the general public. It decided that it would allot securities only to some selected investors. Which of the following methods of floatation is being described in the given situation?

A
Rights to issue

B
Private placement

C
E-IPOs

D
Offer for sale

Solution

The given situation describes the private placement method of floatation. Under this method, the company allots securities only to some selected individuals or institutional investors. It is generally preferred by companies which are not in a position to afford public issue.

Hence, the correct answer is option D.
Question 5
1 / -0

Which of the following financial instruments is not traded in the capital market?

A
Bonds

B
Commercial paper

C
Debentures

D
Equity

Solution

Among the instruments mentioned in the question, commercial paper is not traded in the capital market. Rather, it is traded in the money market. The capital market deals in equity, bonds, debentures, preference shares etc.

Hence, the correct answer is option D.
Question 6
1 / -0

Under which of the following methods of floating, a direct appeal is made to the public?

A
Private placement

B
Offer through prospectus

C
Rights issue

D
Offer for sale

Solution

Under the method ‘Offer through prospectus’, companies invite subscription by issuing a prospectus. In other words, an appeal is made by means such as advertisement in newspapers and magazines. The prospectus so issued must be in accordance with the guidelines of SEBI and Companies Act.

Hence, the correct answer is option D.
Question 7
1 / -0

Which of the following is not a function of SEBI?

A
Regulating underwriters and brokers

B
Providing training to intermediaries

C
Trading in securities

D
Controlling fraudulent trade practices

Solution

Trading of securities is not a function of SEBI. It is done in the financial markets. All other functions as given in the alternatives are functions of SEBI.
Question 8
1 / -0

Money market deals in _______ funds whose maturity period is _____ years. Fill in the blanks.

A
Short term, one

B
Short term, two

C
Long term, five

D
Long term, ten

Solution

A money market is a market which deals in short-term funds whose maturity is less than one year.
Question 9
1 / -0

All trade in securities must be settled within ______ days of the trade date. Fill in the blank.

A
2

B
10

C
5

D
12

Solution

According to the regulations, it is mandatory to settle trade within two days of trade, i.e. T+2 basis.
Question 10
1 / -0

Statement 1: The expected return from securities in the capital market is more than that in the money market. Statement 2: There is a greater risk of default in securities of the money market. Which of the following alternatives is true with respect to the given information?

A
Only Statement 1 is correct.

B
Only Statement 2 is correct.

C
Both Statement 1 and Statement 2 are correct.

D
Neither Statement 1 nor Statement 2 is correct.

Solution

The expected return from securities in the capital market is more than that in the money market. This is because

a. Capital gains can be earned on equity.

b. In the long run, as a company prospers, the shareholders may earn dividends.

However, there is greater risk in the capital market. This is because companies issuing securities may not perform as projected. Accordingly, there are higher chances of fraud.

On the other hand, securities of the money market have a lesser risk of default. This is because

a. Funds are invested for a shorter period.

b. The issuers are financially sound.

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Re-Attempt Weekly Quiz Competition

	*Safety*	*Return*
*Capital Market*	a. ____	b. _____
*Money Market*	High	Low

Financial Markets Test - 3

Result

Financial Markets Test - 3

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SHARING IS CARING

Question 1

Commercial paper, call money

Treasury bill, call money

Treasury bill, commercial paper

Commercial bill, call money

Solution

Question 2

Private placement

E-IPOs

Issue of prospectus

Offer for sale

Solution

Question 3

a. High; b. Low

a. High; b. High

a. Low; b. Low

a. Low; b. High

Solution

Question 4

Rights to issue

Private placement

E-IPOs

Offer for sale

Solution

Question 5

Bonds

Commercial paper

Debentures

Equity

Solution

Question 6

Private placement

Offer through prospectus

Rights issue

Offer for sale

Solution

Question 7

Regulating underwriters and brokers

Providing training to intermediaries

Trading in securities

Controlling fraudulent trade practices

Solution

Question 8

Short term, one

Short term, two

Long term, five

Long term, ten

Solution

Question 9

2

10

5

12

Solution

Question 10

Only Statement 1 is correct.

Only Statement 2 is correct.

Both Statement 1 and Statement 2 are correct.

Neither Statement 1 nor Statement 2 is correct.

Solution

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