McqMate
Chapters
| 1. |
The liquidity status of certificate of deposit which is more negotiable is considered as |
| A. | certified liquidity |
| B. | term liquidity |
| C. | more liquid |
| D. | less liquid |
| Answer» A. certified liquidity | |
| 2. |
Which of the following statements about financial markets and securities are true? |
| A. | A bond is a long-term security that promises to make periodic payments called dividends to the firm’s residual claimants. |
| B. | A debt instrument is intermediate term if its maturity is less than one year. |
| C. | A debt instrument is long term if its maturity is ten years or longer. |
| D. | The maturity of a debt instrument is the time (term) to that instrument’s expiration date. |
| Answer» C. A debt instrument is long term if its maturity is ten years or longer. | |
| 3. |
Which of the following statements about financial markets and securities are true? |
| A. | Few common stocks are traded over-the-counter, although the over-the-counter markets have grown in recent years. |
| B. | A corporation acquires new funds only when its securities are sold in the primary market. |
| C. | Capital market securities are usually more widely traded than longer term securities and so tend to be more liqu |
| Answer» A. Few common stocks are traded over-the-counter, although the over-the-counter markets have grown in recent years. | |
| 4. |
At present, the apex institution with regard to rural credit is |
| A. | RBI |
| B. | NABARD |
| C. | ARDC |
| D. | SBI |
| Answer» B. NABARD | |
| 5. |
Which of the following in India is an exchange bank? |
| A. | ICICI bank |
| B. | CITI bank |
| C. | EXIM bank |
| D. | UCO bank |
| Answer» B. CITI bank | |
| 6. |
Exchange banks specialize in: |
| A. | Financing foreign trade |
| B. | Promoting foreign investment |
| C. | Financing domestic trade |
| D. | All the above |
| Answer» A. Financing foreign trade | |
| 7. |
The IDBI was started in |
| A. | 1949 |
| B. | 1964 |
| C. | 1982 |
| D. | 1962 |
| Answer» B. 1964 | |
| 8. |
The declining profits made banks to undertake the business of: |
| A. | Merchant banking |
| B. | Mutual funds |
| C. | Venture capital |
| D. | all of the above |
| Answer» D. all of the above | |
| 9. |
Retail banking means granting loans for: |
| A. | Construction of houses |
| B. | Purchases of consumer durables |
| C. | Educational purposes |
| D. | All of these |
| Answer» D. All of these | |
| 10. |
Investment banking was developed by |
| A. | Japan |
| B. | England |
| C. | USA |
| D. | None of the above |
| Answer» B. England | |
| 11. |
The presence of transaction costs in financial markets explains, in part, why |
| A. | financial intermediaries and indirect finance play such an important role in financial markets. |
| B. | equity and bond financing play such an important role in financial markets. |
| C. | corporations get more funds through equity financing than they get from financial intermediaries. |
| D. | direct financing is more important than indirect financing as a source of funds. |
| Answer» A. financial intermediaries and indirect finance play such an important role in financial markets. | |
| 12. |
Financial intermediaries can substantially reduce transaction costs per dollar of transactions because their large size allows them to take advantage of |
| A. | poorly informed consumers. |
| B. | standardization. |
| C. | economies of scale. |
| D. | their market power. |
| Answer» C. economies of scale. | |
| 13. |
The presence of in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets. |
| A. | noncollateralized risk |
| B. | free-riding |
| C. | asymmetric information |
| D. | costly state verification |
| Answer» C. asymmetric information | |
| 14. |
When the lender and the borrower have different amounts of information regarding a transaction,__________ |
| A. | asymmetric information |
| B. | adverse selection |
| C. | moral hazard |
| D. | fraud |
| Answer» A. asymmetric information | |
| 15. |
When the potential borrowers who are the most likely to default are the ones most actively seeking a loan, _ is said to exist. |
| A. | asymmetric information |
| B. | adverse selection |
| C. | moral hazard |
| D. | fraud |
| Answer» B. adverse selection | |
| 16. |
When the borrower engages in activities that make it less likely that the loan will be repaid, is said to exist. |
| A. | asymmetric information |
| B. | adverse selection |
| C. | moral hazard |
| D. | fraud |
| Answer» C. moral hazard | |
| 17. |
The concept of adverse selection helps to explain |
| A. | which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from the securities markets. |
| B. | why indirect finance is more important than direct finance as a source of business finance. |
| C. | why direct finance is more important than indirect finance as a source of business finance. |
| D. | only (A) and (B) of the above. |
| Answer» D. only (A) and (B) of the above. | |
| 18. |
Adverse selection is a problem associated with equity and debt contracts arising from |
| A. | the lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities. |
| B. | the lender’s inability to legally require sufficient collateral to cover a 100 percent loss if the borrower defaults. |
| C. | the borrower’s lack of incentive to seek a loan for highly risky investments. |
| D. | none of the above. |
| Answer» A. the lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities. | |
| 19. |
When the least desirable credit risks are the ones most likely to seek loans, lenders are subject to the |
| A. | moral hazard problem. |
| B. | adverse selection problem. |
| C. | shirking problem. |
| D. | free-rider problem. |
| Answer» B. adverse selection problem. | |
| 20. |
Financial institutions expect that |
| A. | moral hazard will occur, as the least desirable credit risks will be the ones most likely to seek out loans. |
| B. | opportunistic behavior will occur, as the least desirable credit risks will be the ones most likely to seek out loans. |
| C. | borrowers will commit moral hazard by taking on too much risk, and this is what drives financial institutions to take steps to limit moral haza |
| Answer» B. opportunistic behavior will occur, as the least desirable credit risks will be the ones most likely to seek out loans. | |
| 21. |
Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks, thereby reducing losses due to |
| A. | moral hazard. |
| B. | adverse selection. |
| C. | bad luck. |
| D. | financial panics. |
| Answer» B. adverse selection. | |
| 22. |
In financial markets, lenders typically have inferior information about potential returns and risks associated with any investment project. This difference in information is called |
| A. | comparative informational disadvantage. |
| B. | asymmetric information |
| C. | variant information. |
| D. | caveatvenditor. |
| Answer» B. asymmetric information | |
| 23. |
The largest depository institution at the end of 2001 was |
| A. | life insurance companies. |
| B. | pension funds. |
| C. | state retirement funds. |
| D. | none of the above. |
| Answer» D. none of the above. | |
| 24. |
The value of assets held by commercial banks in 2001 was $6.7 trillion dollars, making commercial banks the |
| A. | second most important sector of financial intermediaries after mutual funds. |
| B. | second most important sector of financial intermediaries after lifeinsurance companies. |
| C. | second most important sector of financial intermediaries after privatepension funds. |
| D. | largest sector of financial intermediaries. |
| Answer» D. largest sector of financial intermediaries. | |
| 25. |
Which of the following financial intermediaries are depository institutions? |
| A. | A savings and loan association |
| B. | A commercial bank |
| C. | A credit union |
| D. | All of the above |
| Answer» D. All of the above | |
| 26. |
Which of the following is a contractual savings institution? |
| A. | A life insurance company |
| B. | A credit union |
| C. | A savings and loan association |
| D. | A mutual fund |
| Answer» A. A life insurance company | |
| 27. |
Which of the following are not investment intermediaries? |
| A. | A life insurance company |
| B. | A pension fund |
| C. | A mutual fund |
| D. | Only (A) and (B) of the above |
| Answer» D. Only (A) and (B) of the above | |
| 28. |
The government regulates financial markets for three main reasons: |
| A. | to ensure soundness of the financial system, to improve control of monetary policy, and to increase the information available to investors. |
| B. | to improve control of monetary policy, to ensure that financial intermediaries earn a normal rate of return, and to increase the information available to investors. |
| C. | to ensure that financial intermediaries do not earn more than the normal rate of return, to ensure soundness of the financial system, and to improve control of monetary policy. |
| D. | to ensure soundness of financial intermediaries, to increase the information available to investors, and to prevent financial intermediaries from earning less than the normal rate of return. |
| Answer» A. to ensure soundness of the financial system, to improve control of monetary policy, and to increase the information available to investors. | |
| 29. |
Asymmetric information can lead to widespread collapse of financial intermediaries, referred to as a |
| A. | bank holiday. |
| B. | financial panic. |
| C. | financial disintermediation. |
| D. | financial collapse. |
| Answer» B. financial panic. | |
| 30. |
The market value size of outstanding instruments of capital markets depends on factors |
| A. | primary cash flows |
| B. | number of issued securities |
| C. | market prices of securities |
| D. | both b and c |
| Answer» D. both b and c | |
| 31. |
When maturities of liabilities and assets are mismatched and risk incurred by financial intermediaries then this risk is classified as |
| A. | interest rate risk |
| B. | channel rate risk |
| C. | economic risk |
| D. | issuance risk |
| Answer» A. interest rate risk | |
| 32. |
The depository institutions includes |
| A. | mutual funds |
| B. | commercial banks and thrifts |
| C. | savings banks |
| D. | credit unions |
| Answer» B. commercial banks and thrifts | |
| 33. |
The major liabilities of the commercial banks are |
| A. | junk bonds |
| B. | deposits |
| C. | loans |
| D. | swap bonds |
| Answer» B. deposits | |
| 34. |
The money market where securities are issued by governments to obtain funds for short term is classified as |
| A. | money market instruments |
| B. | capital market instruments |
| C. | counter instruments |
| D. | long term instruments |
| Answer» A. money market instruments | |
| 35. |
The federal funds, bankers acceptance, commercial paper and repurchase agreements are classified as |
| A. | counter instruments |
| B. | long term instruments |
| C. | money market instruments |
| D. | capital market instruments |
| Answer» C. money market instruments | |
| 36. |
In financial transactions, the risk that there will be no profit in selling of this asset is classified as |
| A. | price risk |
| B. | profit risk |
| C. | selling risk |
| D. | financial risk |
| Answer» A. price risk | |
| 37. |
The type of risk in which the value of liabilities and assets is affected by the exchange rate is classified a |
| A. | economic rates |
| B. | foreign exchange risk |
| C. | selling rate |
| D. | buying rates |
| Answer» B. foreign exchange risk | |
| 38. |
In commercial banks, the subordinate debentures and subordinate notes are considered as |
| A. | stated rates |
| B. | banks debentures |
| C. | banks liabilities |
| D. | banks deposits |
| Answer» C. banks liabilities | |
| 39. |
The type of financial security having payoffs which are connected to some securities Issued some time back is classified as |
| A. | linked security |
| B. | previous security |
| C. | payoff security |
| D. | derivative security |
| Answer» D. derivative security | |
| 40. |
A bond whose coupon rate is below the current market rate of interest will have a price: |
| A. | more than its maturity value of Rs.100. |
| B. | less than its maturity value. |
| C. | equal to its maturity value |
| D. | none |
| Answer» C. equal to its maturity value | |
| 41. |
A widening of the difference between the return on corporate bonds and on government bonds might suggest which of the following? |
| A. | The economy is on the brink of recession. |
| B. | Interest rates are going to rise in future. |
| C. | Government bonds are becoming more risky compared to corporate bonds. |
| D. | Investors should avoid government bonds. |
| Answer» A. The economy is on the brink of recession. | |
| 42. |
In a situation where share prices are generally depressed because long-term interest rates are expected to rise in future, a large firm looking for long-term finance would normally consider: |
| A. | issuing long-dated bonds. |
| B. | making a new share issue. |
| C. | borrowing from its bank on overdraft. |
| D. | borrowing in the interbank market. |
| Answer» A. issuing long-dated bonds. | |
| 43. |
Using a supply and demand framework, what is likely to happen to share prices in general if the central bank unexpectedly raises interest rates? |
| A. | The demand curve shifts to the left. |
| B. | The supply curve shifts to the left. |
| C. | Both curves shift outwa |
| Answer» A. The demand curve shifts to the left. | |
| 44. |
Using a supply and demand framework, what is likely to happen to share prices in general if the central bank raises interest rates in response to a fall in the exchange rate? |
| A. | The supply curve shifts to the left. |
| B. | No changes. |
| C. | Both curves shift inwa |
| Answer» B. No changes. | |
| 45. |
Which of the following actions might you expect lenders to take during periods of variable and unpredictable inflation? |
| A. | Reduce the amount of lending they are prepared to do. |
| B. | Increase the average length of loans they are willing to make. |
| C. | Increase the amount of lending they are prepared to do. |
| D. | Reduce the average length of loans they are willing to make. |
| Answer» D. Reduce the average length of loans they are willing to make. | |
| 46. |
In the 'walking stick' hypothesis, the yield curve slopes: |
| A. | down and then up |
| B. | down |
| C. | up |
| D. | up and then down |
| Answer» D. up and then down | |
| 47. |
Secondary markets |
| A. | engage in buying and selling that is out of the public view. |
| B. | are where governments go to finance ongoing operations. |
| C. | include centralized exchanges, over-the-counter markets, and electronic communication networks. |
| D. | include all of the above. |
| Answer» C. include centralized exchanges, over-the-counter markets, and electronic communication networks. | |
| 48. |
Financial institutions: |
| A. | provide access to the financial markets. |
| B. | are also known as financial intermediaries. |
| C. | include banks, insurance companies, securities firms, and pension funds. |
| D. | include all of the above. |
| Answer» B. are also known as financial intermediaries. | |
| 49. |
Debt markets: |
| A. | are markets for money. |
| B. | are markets for bonds, loans, and mortgages. |
| C. | are markets for stocks. |
| D. | are markets for either stocks or bonds. |
| Answer» B. are markets for bonds, loans, and mortgages. | |
| 50. |
Centralized exchanges: |
| A. | are electronic systems that bring buyers and sellers together for electronic execution. |
| B. | are markets where claims based on an underlying asset are traded for payment at a later date. |
| C. | are markets where financial claims are bought and sold for immediate cash payment. |
| D. | are secondary markets where buyers and sellers meet in the same location. |
| Answer» D. are secondary markets where buyers and sellers meet in the same location. | |
| 51. |
Debt and equity markets: |
| A. | are markets where financial claims are bought and sold for immediate cash payments. |
| B. | are decentralized secondary markets where dealers stand ready to buy and sell securities electronically. |
| C. | are markets where newly issued securities are so |
| Answer» A. are markets where financial claims are bought and sold for immediate cash payments. | |
| 52. |
The internal rate of return is: |
| A. | the interest rate at which money is borrowed for investment. |
| B. | the interest that allows a profit. |
| C. | profit divided by investment amount. |
| D. | the interest rate that equates the present value of an investment with its cost. |
| Answer» D. the interest rate that equates the present value of an investment with its cost. | |
| 53. |
Coupon bonds: |
| A. | require borrowers to pay the lender coupon payments until maturity, when the borrower pays the principle. |
| B. | require borrowers to pay lenders coupon payments until maturity. |
| C. | require borrowers to pay lenders principle and interest at maturity. |
| D. | require only interest payments until maturity when principle and interest are paid. |
| Answer» A. require borrowers to pay the lender coupon payments until maturity, when the borrower pays the principle. | |
| 54. |
The present value of a coupon bond is: |
| A. | the present value of the coupon payments plus the future value of the principle payment. |
| B. | the sum of the coupon payments and the principle payment. |
| C. | the sum of the coupon payments. |
| D. | the present value of the coupon payments and the present value of the principle payment. |
| Answer» D. the present value of the coupon payments and the present value of the principle payment. | |
| 55. |
The real interest rate: |
| A. | is the nominal interest rate + inflation. |
| B. | greater than the nominal interest rate when inflation is greater than0. |
| C. | is the interest rate expressed in current dollar terms. |
| D. | is the inflation adjusted interest rate. |
| Answer» D. is the inflation adjusted interest rate. | |
| 56. |
The nominal interest rate indicates that: |
| A. | people care only about the number of dollars. |
| B. | people care about what dollars can buy. |
| C. | people want compensated only for inflation. |
| D. | people only require the opportunity cost as payment when lending. |
| Answer» B. people care about what dollars can buy. | |
| 57. |
The commercial paper issued with low interest rate thus the commercial paper is categorized as |
| A. | payables rating |
| B. | commercial rating |
| C. | poor credit rating |
| D. | better credit rating |
| Answer» D. better credit rating | |
| 58. |
The maximum maturity days of holding commercial paper are |
| A. | 170 days |
| B. | 270 days |
| C. | 120 days |
| D. | 5 days |
| Answer» B. 270 days | |
| 59. |
In borrowing and lending of federal funds, the federal funds rate is result of function between |
| A. | assets and liability |
| B. | cost and marketing |
| C. | supply and demand |
| D. | income and expense |
| Answer» C. supply and demand | |
| 60. |
The demand for heavy loans can cause |
| A. | excess funds for banks |
| B. | deficiencies for banks |
| C. | organized reservation |
| D. | competitive reservations |
| Answer» B. deficiencies for banks | |
| 61. |
The agreement which incurs the transaction between two parties and promise held that second party will sell security at specific maturity is classified as |
| A. | repurchasing commercial notes |
| B. | repurchase bills |
| C. | purchase agreement |
| D. | reverse repurchase agreement |
| Answer» D. reverse repurchase agreement | |
| 62. |
Which among the following was set up by RBI in 1988 jointly with public sector banks and all India Financial Institutions to develop the money market & provide liquidity to money market instruments as sequel to Vaghul Working Group recommendations? |
| A. | Discount and Finance House of India Ltd (DFHI) |
| B. | Central Depository Services (India) Limited (CDSL) |
| C. | Financial Intelligence Unit India (FIU-I |
| Answer» A. Discount and Finance House of India Ltd (DFHI) | |
| 63. |
Which among the following is correct regarding BPLR or bench mark prime lending rate? |
| A. | It is lowest interest rate below PLR charged by a bank from the best customer of the financial year |
| B. | It is highest interest rate above PLR charged by a bank from the any customer of the financial year |
| C. | Both (a) & (b) |
| D. | None of the above |
| Answer» A. It is lowest interest rate below PLR charged by a bank from the best customer of the financial year | |
| 64. |
Which among the following coined the term “Second generation Reforms”? |
| A. | World Bank |
| B. | International Monetary Fund |
| C. | Reserve bank of India |
| D. | SBI |
| Answer» B. International Monetary Fund | |
| 65. |
The commercial paper issued with low interest rate thus the commercial paper are categorized as |
| A. | payables rating |
| B. | commercial rating |
| C. | poor credit rating |
| D. | better credit rating |
| Answer» D. better credit rating | |
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