Deck 2: Understanding Financial Instruments and Market Functions

Question 1

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 1

The financial instrument is always issued by a bank.

Question 2

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 2

sub-prime mortgages.

Question 3

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 3

as a store of value, as a means of payment, and to transfer risk.

Question 4

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.

Question 5

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.

Question 6

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.

Question 7

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.

Question 8

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.

Question 9

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

Question 10

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

Question 11

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.

Question 12

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

Question 13

Which of the following is the disadvantage of SEBI

A)Ease of Trading
B)Tax saving
C)Money Laundering
D)All of them

Question 14

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.

Question 15

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

Question 16

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.

Question 17

Clearing and settlement operations of NSE are carried out by:

A)NSDL
B)NSCCL
C)SBI
D)CDSL

Question 18

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

Question 19

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

A)RBI
B)NABARD
C)ARDC
D)SBI

Question 20

Which of the following in India is an exchange bank?

A)ICICI bank
B)CITI bank
C)EXIM bank
D)UCO bank

Question 21

Exchange banks specialize in:

A)Financing foreign trade
B)Promoting foreign investment
C)Financing domestic trade
D)All the above

Question 22

The IDBI was started in

A)1949
B)1964
C)1982
D)1962