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430+ Financial Markets and Institutions Solved MCQs

These multiple-choice questions (MCQs) are designed to enhance your knowledge and understanding in the following areas: Master of Commerce (M.com) , Master of Business Administration (MBA) .

Chapters

Chapter: Unit 1
51.

Which of the following is not a characteristic of a financial instrument?

A. The financial instrument is always issued by a bank.
B. A financial instrument is a written legal obligation of one party to transfer something of value, usually money.
C. The transaction in a financial instrument is specified to take place at a future date.
D. A financial instrument specifies certain conditions.
Answer» A. The financial instrument is always issued by a bank.
52.

Securities backed by _______ layed an important role in the financial crisis of 2007- 2009?

A. asset backed securities.
B. bonds.
C. sub-prime mortgages.
D. small business loans
Answer» C. sub-prime mortgages.
53.

Financial instruments are used

A. as a unit of account, as a store of value, and as a means of payment.
B. as a unit of account, as a means of payment, and to transfer risk.
C. as a store of value, as a means of payment, and to transfer risk.
D. as a unit of account, as a store of value, and to transfer risk.
Answer» C. as a store of value, as a means of payment, and to transfer risk.
54.

Two important characteristics of financial instruments are:

A. information communication and risk neutrality.
B. risk neutrality and liquidity.
C. standardization and information communication.
D. liquidity and standardization.
Answer» C. standardization and information communication.
55.

Benefits of the merger between the NYSE and Paris-based Euronext, a pan European stock exchange include:

A. lower costs and speedier transactions for international financial markets.
B. foreign ownership of domestic assets.
C. international consolidation of financial services.
D. greater the uncertainty.
Answer» A. lower costs and speedier transactions for international financial markets.
56.

Which of the following increases the value of a financial instrument?

A. smaller payments.
B. payments made further in the future.
C. payments that are made when we need them.
D. payments that are less likely to be made.
Answer» C. payments that are made when we need them.
57.

An example of financial instruments that are primarily used as stores of value is:

A. insurance contracts.
B. home mortgages.
C. options.
D. futures contracts.
Answer» B. home mortgages.
58.

Financial markets serve which three purposes?

A. Financial markets allow-risk sharing, pool and communicate information, and offer stability.
B. Financial markets allow risk sharing, offer stability, and offer liquidity.
C. Financial markets offer stability, pool and communicate information, and offer liquidity.
D. Financial markets allow-risk sharing, pool and communicate information, and offer liquidity.
Answer» D. Financial markets allow-risk sharing, pool and communicate information, and offer liquidity.
59.

Which of the following is not a function of SEBI:

A. Development of the Securities market
B. Investor Protection
C. Making the Rules and Regulation for the securities market
D. Framing policies for central government operations
Answer» B. Investor Protection
60.

SEBI operates to fulfill the needs of these three groups, choose the one which is not in those three:

A. the issuers of securities
B. the police
C. the investors
D. the market intermediaries
Answer» B. the police
61.

SEBI has not been vested with the following powers:

A. to approve by−laws of stock exchanges.
B. to require the stock exchange to amend their by−laws.
C. inspect the books of accounts and call for periodical returns from recognized stock exchanges.
D. inspect the books of accounts of financial intermediaries.
Answer» B. to require the stock exchange to amend their by−laws.
62.

SEBI signs MoUs with different country’s financial jurisdictions who are not a signatory to the multilateral MoU of International Organization of Securities Commissions (IOSCO).

A. True
B. False
C. all
D. none
Answer» B. False
63.

Which of the following is the disadvantage of SEBI

A. Ease of Trading
B. Tax saving
C. Money Laundering
D. All of them
Answer» A. Ease of Trading
64.

The difference between a primary market and a secondary market is

A. primary market is the stock market and secondary market is the market for second hand sale of securities
B. a primary market helps in long-term credit and secondary market offers short-term credit
C. a primary market helps in the issue of new securities those which are offered for the first time and the secondary market is for second hand sale of securities listed on the stock exchange
D. a primary market is the unorganized sector and the secondary market is the organized sector for sale and purchase of securities.
Answer» C. a primary market helps in the issue of new securities those which are offered for the first time and the secondary market is for second hand sale of securities listed on the stock exchange
65.

The function of a financial system is to

A. establish a link between savers and investors
B. link commercial banks with the Central Bank of a country
C. create regulators for influencing the intermediaries
D. help traders and moneylenders in the capital market
Answer» A. establish a link between savers and investors
66.

As a part of the capital adequacy requirement, the base minimum capital prescribed by SEBI:

A. varies from exchange to exchange.
B. is based on the recommendations of the Kaul committee.
C. is based on the recommendations of the Justice Bhagwati Committee.
D. is the same across members of all exchanges.
Answer» A. varies from exchange to exchange.
67.

Primary and secondary markets:

A. Compete with each other
B. Complement each other
C. Function independently
D. Control each other
Answer» B. Complement each other
68.

Clearing and settlement operations of NSE are carried out by:

A. NSDL
B. NSCCL
C. SBI
D. CDSL
Answer» B. NSCCL
Chapter: Unit 2
69.

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
70.

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.
71.

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.
72.

At present, the apex institution with regard to rural credit is

A. RBI
B. NABARD
C. ARDC
D. SBI
Answer» B. NABARD
73.

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
74.

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
75.

The IDBI was started in

A. 1949
B. 1964
C. 1982
D. 1962
Answer» B. 1964
76.

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
77.

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
78.

Investment banking was developed by

A. Japan
B. England
C. USA
D. None of the above
Answer» B. England
79.

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.
80.

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.
81.

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
82.

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
83.

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
84.

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
85.

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.
86.

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.
87.

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.
88.

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.
89.

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.
90.

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
91.

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.
92.

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.
93.

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
94.

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
95.

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
96.

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.
97.

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.
98.

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
99.

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
100.

The depository institutions includes

A. mutual funds
B. commercial banks and thrifts
C. savings banks
D. credit unions
Answer» B. commercial banks and thrifts

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