InterviewSolution
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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 1. |
An investor wanted to invest Rs 20,000 in Treasury Bills for a period of 91 days. When the approached the Reserve Bank of India for this purpose he came to know that it was not possible. Identify the reason why the investor could not invest in the Treasury Bill. |
| Answer» The investor could not invest in the Treasury Bills as they can be issued for a minimum amount of Rs 25,000 and its multiples thereof. | |
| 2. |
What is financial intermediation ? |
| Answer» Financial intermediation is basically the process under which funds are received from the depositors and then lend out to the borrowers. | |
| 3. |
Naina has 1,000 equity shares of a company. She wants to sell 500 of these shares. Which market should she approach ? Give reason in support of your answer. |
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Answer» secondary market should be approached...advantages of secondary market are : 1) securities can be re-purchase and sold.... 2)it has a particular place where securities can be sold or purchased... 3)It encourage new investment.... |
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| 4. |
What does the abbreviation SEBI stand for ? |
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Answer» SECURITIES AND EXCHANGE BOARD OF INDIA The Securities and Exchange Board of India is the Regulator for the Securities market in India owned by Government of India. It was established in 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992. |
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| 5. |
In which year the SEBI was estabilshed by the Government of India ? (a) 1980 (b) 1988 (c) 1992 (d) 1993 |
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Answer» It was established in 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992. THEREFORE OPTION (B) IS CORRECT. |
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| 6. |
What is Demant Account ? |
| Answer» Demat (Dematerialized) account refers to an account which an Indian citizen must open with the depository participant (banks, stockbrokers) to trade in listed securities in electronic form. The securities are held in the electronic form by a depository. | |
| 7. |
How many depositories are operational in India ? Name them. |
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Answer» At present, there are two depositories in India. The names of these depositories have been enlisted below. 1.NSDL (National Securities Depository Ltd.) and 2.CDSL (Central Depository Services Ltd.) |
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| 8. |
Give two protective functions of SEBI |
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Answer» TWO PROTECTIVE FUNCTIONS ARE- 1.Undertaking steps for investor protection. 2. Controlling insider trading and imposing penalties for such practices. |
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| 9. |
What is the overall objective of SEBI ? |
| Answer» The key objective of SEBI is to encourage healthy and organised growth of the securities market in India and to provide investor protection. It was formally set up by The Government of India in 1988 and given statutory powers in 1992. | |
| 10. |
What settlement system does the Equity spot market follow ? |
| Answer» Equity spot markets follow a T + 2 rolling settlement. This means a trade taking place on Monday gets settled by Wednesday | |
| 11. |
Which of the following is not a participant in the money market ? (a) RBI (b) SEBI (c) Mutual funds (d) NBFCS |
| Answer» Correct Answer - (B) | |
| 12. |
It is an instrument of short term borrowin issued by RBI on behalf of India government (a) Call money (b) Certificate of deposit (c) Commercial paper (d) Treasury billA. Call moneyB. Certificate of depositC. Commercial paperD. Treasury bill |
| Answer» (d)TREASURY BILLS | |
| 13. |
Mention any two major instruments of capital market |
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Answer» The instruments issued in capital markets are listed below:Shares: Share is the share in the share capital of the company.Share is one of the units into which the capital of company is divided. A person having the shares of the company is called as shareholder of that company, He is regarded as the part of owner of the company.There are 2 types of shares: 1.Equity shares 2.Preference shares2. Debentures : Debentures are long term borrowed funds of the company. They have fixed maturity period as well as fixed interest rate. These are the certificates issued under common seal of the company. |
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| 14. |
What is the effect of a rise in call money rates on other short-term debt instruments ? |
| Answer» Whenever call rates rise-up, it means that an organisation needs to pay more amount of interest if it resort to call money to meet its short-term financial needs. This means that call money has become a relatively expensive as compared to the other money market instruments | |
| 15. |
Which of the following money market instruments is also known as zero coupon bond ? (a) Treasury bills (b) commercial paper (c) Call money (d) Certificate of Deposits |
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Answer» (A)TREASURY BILLS because they are issued at a price which is lower than their face vale and repaid at par . therefore correct option is(a) |
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| 16. |
What are the methods of floatation in Primary Market ? Explain |
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Answer» The following are the various methods through which floating of new issues can be done. (i) Offer through Prospectus The most commonly used method for raising funds in primary market is offer through prospectus. It involves inviting the subscriptions from public by issue of prospectus. A prospectus is published as advertisements in newspapers, magazines, etc. It provides such information as the purpose for which the fund is being raised, company’s background and future prospects, its past financial performance, etc. Such information helps the public and the investors to know about the company as well as the potential risk and the earnings involved. Such issues need to be listed on one of the stock exchanges and should be in accordance with the guidelines and rules listed under the Companies Act and SEBI disclosure. (ii) Offer through Sale As against offer through prospectus, under the offer through sale method, the company does not issue securities directly to the public rather they are issued through intermediaries such as brokers, issuing houses, etc. That is, under offer through sale, securities are issued in two steps, first the company sells its securities to the intermediaries at the face value and later the intermediaries resell the securities to the investing public at a higher price than the face value to earn profit. (iii) Private Placement Under this method, the securities are sold only to some selected individuals and big institutional investors rather than to the public. The companies either allot the securities themselves or they sell the securities to intermediaries who in turn sell them to selected clients. This method saves the company from various mandatory or non-mandatory expenses such as cost of manager fees, commission, underwriter fees, etc. Thus, the companies which cannot afford the huge expenses related to public issue often go for private placement. (iv) Rights Issue Under the Companies Act 1956, it is the right of the existing share holders of a company to subscribe to the new shares issued by it. The existing share holders are offered subscription of new shares of the company in proportion to the number of shares possessed by them. (v) e-IPOs It is system of issuing securities through online system. If a company decides to offer its securities through an online system it is required to gets into an agreement with the stock exchange. This is called Initial Public Offer (IPO). Company appoints brokers for accepting applications and placing orders. A company can apply to get listed in any stock market except from the one through which it has already offered securities. Herein, the lead manager looks upon the various activities and coordinates them. |
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| 17. |
Explain the various Money Market Instruments |
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Answer» Money Market refers to the market where short term funds are traded. Herein, short term funds are in the form of monetary assets having a maturity period of maximum one year. The following are some of the common money market instruments. (i) Treasury Bill (T-Bills) Treasury Bill refers to a promissory note used for short term borrowing by the government. They are the most commonly used money market instrument. They are auctioned and issued by the Reserve Bank of India on behalf of the Central Government. T-bills are available for a minimum of Rs 25,000 and in multiples thereof. Generally, three types of treasury bills are issued 91-days, 182-days and 364-days. T-Bills are issued at a discount and redeemed at par. That is, they are issued at a price lower than their face value and at the time of redemption, the investor gets the amount equal to the face value. The difference between the value at which they are issued and the redemption value is the interest received on them. For example, if an investor purchases a 182-days treasury bill with a face value of Rs 56,000 for Rs 50,000. At the time of maturity, the investor will receive Rs 56,000. Thus, the difference of Rs 6,000 (56,000 − 50,000) is the interest receivable on the bill. T-Bills are also called Zero-Coupon Bonds. T-bills are highly liquid bonds. Moreover, as they are issued by the RBI, they have negligible risk and offer assured return. (ii) Call Money Call money is an instrument used for interbank transactions. Through call money, the banks borrow from each other to meet any shortage of funds required to maintain CRR. That is, any bank in shortage of funds borrows from other bank having surplus funds. Call money have a very short maturity period ranging from one day to fifteen days. Interest paid on such loans is known as call rate. Call rate is highly volatile and varies from day to day. There exists a negative relationship between call rate and other money market instruments such as Commercial Papers and Certificate of Deposits. That is, as the call rate rise, other instruments of money market become cheaper and their demand increases. (iii) Commercial Paper (CPs) Commercial paper is an unsecured short term money market instrument. It is a negotiable and transferable promissory note with a maturity period ranging from a minimum of 15-days to a maximum of one year. They were introduced in India in 1990. CPs are mainly issued by large and creditworthy companies to raise short-term funds. Large companies view Commercial Papers as an alternative to bank borrowings and borrowings through capital market. The rate of interest payable on Commercial Papers is lower than the market rates. Generally, companies use Commercial Papers for bridge financing. That is, to raise the funds required to meet the floatation cost incurred on long term borrowings in the capital market. For example, if a company wishes to raise finance from the capital market to purchase land. For this, it will have to incur floatation cost such as cost related to brokerage, commission, advertising, etc. To finance such floatation costs the company can issue Commercial Paper. (iv) Certificate of Deposit (CDs) Certificate of Deposits are time deposits which are negotiable and unsecured in nature. They are bearer instruments for a short and specified time period ranging from one month to more than five years. CDs are a secured form of investment, which are issued to individuals, corporations and companies by the commercial banks and development financial institutions. Herein, higher interests are offered for higher deposits. They are issued to meet the demand for credit in times of tight liquidity position. For example, when a person buys a CD by depositing a specific amount, he receives a certificate wherein the term of deposit, the interest rate applicable and the date of maturity is written. On the date of maturity, the individual gets entitled to receive the principle amount and the earned interest on it. (v) Commercial Bill Commercial bill also known as bank bill or bill of exchange refers to the instrument used to finance the working capital requirements of a firm. It is a short term negotiable instrument. Companies use Commercial Bills to finance their credit sales. For example, when an individual makes credit sales, the buyer becomes liable to make the payment on a specified future date. Herein, the seller draws a bill of exchange and gives it to the buyer mentioning a specific maturity period. Once the bill is accepted by the buyer it becomes a marketable instrument which can be discounted with a bank. For instance, if the seller requires funds before the maturity period, he can discount the bill with a commercial bank |
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| 18. |
Money market has no physical location. Then, how is trading done ? |
| Answer» Many money market instruments such as T-Bills, Commercial paper, Certificate of deposits, etc are traded under the wholesale debt market of National Stock Exchange. | |
| 19. |
Name the organisation which has been established in India to regulate stock exchanges and to protect the interests of investors. |
| Answer» The Securities and Exchange Board of India (SeBI) | |
| 20. |
State the first four steps which are involved in the screen -based trading for buying and selling of securities in the secondary market. |
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Answer» Following are the first four steps in the screen-based trading for buying and selling of securities in the secondary market:- a-The investor has to approach a registered broker or sub-broker and sign a broker-client agreement and a client registration form before placing an order to buy or sell securities. b. The investor has to open a “demat” account or “beneficial owner” account with a depository participant for holding and transferring securities in the demat form. c. The investor then places an order with the broker to buy or sell shares, the broker will go ahead with the deal and issue the order confirmation slip to the investor. d. The broker then will go on-line and connect to the main stock exchange and match the share and best price available. |
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| 21. |
What are the functions of a financial market ? Explain |
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Answer» A financial market refers to the market where the creation and exchange of financial assets such as shares and debentures takes place. The following are the functions of a financial market. i) Transfer of Savings and Alternatives for Investment A financial market acts a link between the savers and the investors. It provides a platform for the transfer of savings from the households to the investors. It also provides savers with various alternatives for investment and thereby, directs the funds to the most productive investment. ii) Establishes the Price Similar to a commodity, the price of a financial asset is established through the forces of demand and supply for funds. Financial market provides a platform for the interaction of the demand of the funds (represented by the business firms) and the supply of funds (represented by the households). Thereby, it helps in determining the price of the asset being traded. iii) Facilitates Liquidity An asset or a security can be easily purchased and sold in a financial market. This renders liquidity to the assets. That is, through trading in the financial market assets can be easily converted into cash or cash equivalents. iv) Reduced Cost of Transaction By rendering information regarding the securities being traded, their price, availability, etc., a financial market helps in reducing the cost of transaction in terms of effort, money and time. |
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| 22. |
What are the functions of a Stock Exchange ? Explain any four. |
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Answer» Stock Exchange refers to a market where buying and selling of the existing securities take place. The following are the main functions of a stock exchange. (i) Provides Liquidity and Marketability: Stock exchange provides a ready platform for trading of existing securities. In other words, it provides a continuous market for the sale and purchase of securities. Through stock exchange, securities can be easily converted into cash whenever required. In addition, long-term securities can be converted to medium-term and short-term through stock exchange. (ii) Determination of Prices: A stock exchange helps in establishing the price of the monetary assets that are traded in that market. It provides a platform for interaction for buyers and sellers of securities and thereby, helps in the determination of prices of the securities through the forces of demand and supply. (iii) Fair and Safe Market: As stock exchange is a legal and well regulated market. It trades within the defined and the existing legal framework. Thereby, it ensures safety and fairness in transactions. (iv) Facilitates Economic Growth: In a Stock Exchange the securities are continuously brought and sold. This continuous process of disinvestment and reinvestment helps in channelising the savings and the investments to the most productive use. This, enhances capital formation and economic growth. (v) Spreading Equity Cult: Through regulation of the issues and better trading practices, a stock exchange helps in educating the people about investment. It promotes and encourages the people to invest in ownership securities. (vi) Acts as an Economic Barometer: Through changes in the share prices, a stock exchange indicates the changes in economic conditions. For instance, a boom (or recession) is reflected in the rise (or fall) in the share prices. (vii) Scope for Speculation: It is generally believed that certain degree of speculation is necessary for better liquidity and to maintain demand and supply of securities. Stock exchange provides a reasonable and controlled scope of speculation within the provisions of law. |
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| 23. |
Sakshi Ltd, a wll-known real estate company has manged to carve a niche for itself in this sector. Recently, it was revealed that the directors of the directors of the company have used price sensitive information for their own personal interest Adequate public disclosures were also not made. SEBI is considering action against these directors. Name the term used for trading malpractice done by the directors of this company |
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Answer» Insider trading . Insider trading is a term in which executive officer of a company misuse the extremely official Internal information of a company for personal gain.for example CS of a co. knows the share price of a co. which would be obtained by co. in next few days or month if he use this information for personal benefits or benefit of his family or any other person in which he interested he shall be guilty and liable for penaltyThis is called insider trading |
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| 24. |
A Treasury Bill is basically _______A. an instrument to borrow short-term fundsB. an instrument to borrow long-term fundsC. an instrument of capital marketD. None of the above |
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Answer» Correct Answer - A (A) an instrument to borrow short- term funds . |
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| 25. |
Saqib Ltd, is a large credit worthy company operating in the Kashmir Valley. It is an export oriented unit, dealing in exclusive embroidered shawls. The floods in the Valley have created many problems for the company. Many craftsmen and workers have been dislocated and raw material has been destroyed. The firm, is therefore, unable to get an uninterrupted supply of raw material, and the duration of the production cycle has also increased. To add to the problems of the organisation, the suppliers of raw material who were earlier selling on credit are asking the company, for advance payment or cash payment on delivery. The company is facing a liquidity crisis. The CEO of the company feels that taking a bank loan is the only option with the company to meet its short term shortage of cash. As a finance manager of the company name and explain the alternative to bank borrowing that the company can use to resolve the crisis. |
| Answer» Commercial Paper: (Explain) | |
| 26. |
Shreya Ltd. is a large credit-worthy company manufacturing automobiles for the India market. It now wants to cater to the other market and decided to invest in new machines. For this, it requires long-term finance. It decides to raise funds by issuing equity shares. The issue of equity shares involves huge floatation cost. To meet the expenses of floatation cost the company decides to tap the money market. (a) Name and discuss the money market insutrument the company can use for the above purpose. (b) What is the duration for which the company can get funds through this instrument ? (c) State any other purpose for which this instrument can be used. |
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Answer» (a) Commercial paper -it is a short term unsecured promissory note, negotiable and transferable by endorsement add delivery with a fixed maturity period. (b) 15 days to one year. (c) It is used to provide short term funds for seasonal and working capital needs of the business |
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| 27. |
Primary and secondary markets ________ (a) complete with each other (b) complement each other (c) function independdently (d) control each other |
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Answer» Primary and secondary markets complement each other. Among the given options option (b) complement each other is the correct answer. Explanation: Capital market are of two types primary market and secondary market. Capital market is a market for medium and long term funds. Primary market is also known as the new issues market as this market deals with the new securities issued for the first time. Secondary market is also known as stock market stock exchange. |
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| 28. |
These days, the development of a country is also judget by its system of transferring finance from the sector where it is in surplus to the sector where it is needed most. To give strength to the economy, SEBI is undertaking measure to develop the capital market. In addition to this there is another market in which unsecured and short-term debt instruments are actively traded everyday. These markets together help the savers and investors in directing the available funds into their most productive investment opportunity. (a) Name the function being performed by the market in the above case. (b) Also, explain briefly three other functions performed by this market. |
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Answer» Mobilisation of savings and channeling them into the most productive uses/Allocative function. Other functions performed by Financial market are: (i) Facilitating price determination/discovery (ii) Providing liquidity to financial assets (iii) Reducing the cost of transactions |
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