[Solved] Capital Market MCQ [Free PDF] - Objective Question Answer for Capital Market Quiz - Download Now! (2024)

1. Only 1
2. Only 2
3. Both 1 and 2
4. More than one of the above
5. None of the above

The correct answer is Only 1.

Key Points

• The primary market in India is mainly dealt with new issues and debentures.
  • The primary market is wheresecurities are createdfor saleto investors for the first time.
  • The primary market issues new securities on astockexchange to enablefundraising for companies, governments, and individual investors.
  • Securities issued through a primary marketinclude shares, corporate or government bonds, notes, and bills.

Thus, the statement is correct.

• The primary market in India is supervised by the Insurance Regulatory Development Authority.
  • The IRDAI (Insurance Regulatory and Development Authority of India)does not regulate or supervise capital markets in India.
  • IRDAI functions to regulate and promote the insurance industryin India.
  • Primary market operations are supervised and regulated by the Securities and Exchange Board of India (SEBI).

Thus, the statement is incorrect.

On the basis of the above information, it can be concluded that only statement 1 is correct.

Additional Information

• Securities and Exchange Board of India (SEBI)
  • TheSecurities and Exchange Board of India(SEBI) is theregulatory bodyfor the securitiesandcommodity marketinIndiaunder theMinistry of Finance.
  • SEBI was established on 12 April 1988 as an executive body and was givenstatutorypowers on 30 January 1992 through theSEBI Act, 1992.

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1. Only 1
2. Only 2
3. Both 1 and 2
4. More than one of the above
5. None of the above

The correct answer is both 1 and 2.

Key Points

• The Indian money market is the market of short-term funds.
  • The money market is an organized exchange market where participants can lend and borrow short-term, high-quality debt instrumentswith average maturities of up to oneyear.
  • The money market enables governments, banks, and other large institutions to sellshort-term securitiesto fund their short-termcash requirements.
  • Money markets also allow individual investors to invest small amounts of money in a low-risk environment.

Thus, this statement is correct.

• The number of private sector banks is more in numberthan the public sector banks of the Indian scheduled commercial banks.
  • According to the RBI, there are 21 private-sector banks in India.
  • According to the RBI, there are 12 public sector banks in India.​
  • Private sector banks arebanks where the majority of the bank's equity is owned by a private entityor a group of individuals.
  • Public sector banks are those in which the government ownsmore than 50% of the total equity stock.

​Thus, this statement is correct.Important Points

• State Bank of India is the biggest public sector bank in India.
• HDFC is the biggest private sector bank in India.

On the basis of the above information, it can be concluded that both the given statements are correct.

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1. Call money markets record the highest daily transaction value amongst all segments of debt markets
2. These volumes are comparable with volumes in the ICD and CP markets
3. They register the largest transaction value after government securities
4. More than one of the above
5. None of the above

The correct answer is 'Call money markets record the highest daily transaction value amongst all segments of debt markets'.

Key Points

• Call money market
  • The call money market is a market for very short-term funds that are repayable on demand within a period ranging fromone day to a fortnight.
  • Call money market accounts for a major shareof the total financial transactionsof the money market.
  • The call money market is also known as the notice money market.
  • Participants in the callmoney market currently include banks (excluding Regional Rural Banks) and Primary Dealers (PDs), both as borrowers and lenders.

Important Points

• Money market
  • The money market is a market for short-term financial assets that are close substitutes for money.
  • The most important feature of a money market instrument is that it is liquid and can be converted into cashquickly at a low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers.

Thus, the statement that 'Call money markets record the highest daily transaction value amongst all segments of debt markets' is correct about the call money market.

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1. Long term capital
2. Short term capital
3. Working capital
4. More than one of the above
5. None of the above

• A capital market is a financial market in which long-term debt or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold.
• Capital markets refer to the places where savings and investments are moved between suppliers of capital and those who are in need of capital.
• Capital markets consist of the primary market, where new securities are issued and sold, and the secondary market, where already-issued securities are traded between investors.
• The most common capital markets are the stock market and the bond market.

• Working capital, also known as Net working capital(NWC), is the difference between a company's current assets, such as cash, accounts receivable (customers' unpaid bills) and inventories of raw materials and finished goods, and its current liabilities, such as accounts payable.
• Fixed capitalconsists of assets that are not consumed or destroyed in the production of a good or service and can be used multiple times. Property, plant, and equipment are standardfixed capitalitems.Fixed capitalassets are usually illiquid items and are depreciated over time.

Therefore the Capital market is a market forLong term capital.

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1. (A) is true, but (R) is false
2. Both (A) and (R) are true
3. (A) is false, but (R) is true
4. Both (A) and (R) are false

The correct answer isBoth (A) and (R) are true.

Key Points

• Assertion (A): Commercial bill is an important tool to finance credit sales.
  • A commercial bill is a short-term, negotiable, self-liquidating instrument that is used to finance the credit sales of business firms.
  • According to the Indian Negotiable Instruments Actof 1881, a bill ofexchange is a written instrument containing an unconditional order, signed by the maker, directing to pay a certain amount of money only to a particular person, or to the bearer of the commercial bill.
  • Commercial bills are also known as trade bills or accommodation bills.
  • These are common instruments used in credit purchases and sales.

Thus, the assertion is correct.

• Reason (R):It may be a demand bill or a usance bill.
  • There are two types of commercial bills, i.e., demand bills and usance bills.
  • A demand bill is payable on demand, i.e.ona presentation by the drawee.
  • A usance bill is payable after a specified time and on a future date.​

Thus, the reason is correct.

On the basis of the above information, it can be concluded that both the assertion and reason are correct.

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Capital Market Question 6

1. Recovery of loan
2. Disinvestment
3. Borrowing
4. Tax

Capital Market Question 6 Detailed Solution

The correct answer isTax.

Key Points

• Capital receipts are the cash received from the sale of fixed assets, cash received from the sale of company shares, and cash received through the issue of a debt instrument, such as loans and bonds.
• Capital receipts are government revenues that either (i)generate liabilities (e.g. borrowing) or (ii) reduce assets (e.g. disinvestment).
• A capital receipt occurs when the government raises funds by incurring liability or selling its assets.
• Revenue receipts are government receipts that do not (i) increase obligations or (ii) deplete assets.
• These are tax revenues, interest, and dividends on government investments, cess, and other government receipts for services given.

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Capital Market Question 7

1. Capital formation
2. Human capital
3. Technical progress
4. None of the above

Capital Market Question 7 Detailed Solution

The correct answer is Human capital.

Important Points

• Education investment is recognized as one of the main sources of human capital along with other sources like health, migration, on-job training, and information.
• Human capital refers to the capabilities, experience, and skill sets that employees bring to a business organization.
• Investment in education is considered one of the main sources of human capital.

Key Points

• Sources of human capital formation:
  • Expenditure of Education.
  • Expenditure on health.
  • On-the-job training.
  • Expenditure on migration.
  • Expenditure on the information.

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Capital Market Question 8

1. EXIM Bank
2. Ministry of Commerce and Industry
3. Director General Foreign Trade
4. RBI
5. SEBI

Capital Market Question 8 Detailed Solution

The correct answer isExport Credit Guarantee Corporation (ECGC).

Export Credit Guarantee Corporation of India (ECGC)

• It is an Indian enterprise which is administered by the Government of India through the Ministry of Commerce and Industry. ECGC which is wholly owned by the Indian Government was set up in the year 1957 with the intention to promote exports by offering credit risk insurance and allied services to the exporters.
• Export Credit Guarantee Corporation of India is fundamentally an export promotion organization, which seeks to enhance the competitiveness of Indian exports by offering them credit insurance covers. Over the years ECGC has considered various export credit risk insurance products suiting the needs of Indian exporters.
• This corporation was set up for ensuring the smooth functioning of Indian exporters by minimizing the risks associated with the payments emanating from other nations. This insurance cover which is provided by ECGC also assists the Indian exporters with better access to the credit facilities from banks and other financial institutions. ECGC is the 5th largest credit insurance company dealing with the exports of any country.
• Export Credit Guarantee Corporation of India offers protection against the non-payment by an importer. Due to this insurance cover, the financial institutions are better placed for lending and providing larger credit to exporters. ECGC also offers credit ratings as well as shares the information on various countries and risks associated with doing business with/in those countries.

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Capital Market Question 9

1. (a), (b) and (d)
2. (a) and (b)
3. (b), (c) and (d)
4. (c) and (d)

Capital Market Question 9 Detailed Solution

Venture Capital:

a)Venture capital (VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which have demonstrated high growth (in terms of the number of employees, annual revenue, the scale of operations, etc.). Venture capital firms or funds invest in these early-stage companies in exchange for equity, or an ownership stake. Venture capitalists take on the risk of financing risky start-ups in the hopes that some of the firms they support will become successful.

b)Venture Capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms. It is the money provided by an outside investor to finance a new, growing, or troubled business.

c)Venture capitalist finances innovation and ideas, which have the potential for high growth but are unproven. This makes it a high risk, high return investment. In addition to finance, venture capitalists also provide value-added services and business and managerial support for realizing the venture’s net potential.

d)Start-up companies with the potential to grow to need a certain amount of investment. Wealthy investors like to invest their capital in such businesses with a long-term growth perspective. This capital is known as venture capital and the investors are called venture capitalists.Venture capital financing is a long term investment. It generally takes a long period to encash the investment in securities made by the venture capitalists.

Thus, options A and B are False.

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Capital Market Question 10

1. Both the statement I and II are correct.
2. Both the statement I and II are incorrect.
3. Statement I is correct, but II is incorrect.
4. Statement II is correct, but I is incorrect.

Capital Market Question 10 Detailed Solution

Call options & put options.

1. These are Derivative instruments that mean their price movements are based on price movements of another product called 'underlying' assets.
2. In Derivative Trading, the buying and selling of shares are done at a specific price ascertained in the future. On this basis there are two predominant types of options available namely - Call options & put options.
3. Options are contracts in derivative investments that give the buyer the right t buy or sell the underlying asset or the security on the basis of which derivative contract is made by a set expiration date at a specific price. The specific price is called the strike price. It refers to the amount at which a derivative contract can be done either to purchase or sell.

1. Call Option: It is a contract that gives the buyer the right and obligation to buy the underlying asset at the strike price at any time up to the expiration date.Example - A stock call option with a strike price of 20 means the option buyer can use the option to buy that stock at $20 before the option expires.

Therefore, the statement I is incorrect.

2. Put Option: It is a contract that gives the buyer the right to sell the underlying asset at a strike price at any time up to the expiration date.Example - A Stock Put option with a strike price of 20 signifies the put option buyer can use the option to sell that stock at $20 before the option expires.

Therefore, statement IIis incorrect.

• Call Option is purchased if the trader expects the price of the underlying asset to increase within a certain time frame.
• Put Option is bought if the trader anticipates the price of the underlying asset to fall drastically within a certain time frame.
• The strike price is the set price that a put or call option can be purchased or sold.
• Both the options represent 100 shares of the underlying stock.

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Capital Market Question 11

1. The receipts that do not lead to a claim on the government
2. The receipts of the government which create liability or reduce financial assets
3. The receipts of the grants given to state governments and other parties
4. The receipts of the government which result in the reduction of financial liabilities

Capital Market Question 11 Detailed Solution

The correct answer isThe receipts of the government which creates liability or reduce financial assets.

Key Points

• Capital receipts arethe income received by the company which is non-recurring in nature. They are part of the financing and investing activities rather than operating activities.
• They also refer to incoming cash flows. Capital receipts can be both non-debt and debt receipts.
• Loans from the general public, foreign governments and the Reserve Bank of India (RBI) form a crucial part of capital receipts.
• Contributions into the business by the proprietor, loans taken from banks and amount received on issue of share capitalare capital receipts.

Additional Information

• Revenue receiptsare those receipts that do not lead to a claim on the government.
  • They are hence termed non-redeemable.
  • They are classified into tax and non-tax revenues.
• Capital receiptsare receipts that create liabilities or reduce financial assets.
  • They also refer to incoming cash flows.
  • Capital receipts can be both non-debt and debt receipts.

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Capital Market Question 12

1. Self Regulatory Organisations
2. Small Revenue Operators
3. Securities Roll-Back Operators
4. Securities Regulatory Organisations

Capital Market Question 12 Detailed Solution

Self Regulatory Organization (SRO) means, an organization of intermediaries or an entity promoted by a stock exchange, as may be recognized by the Board.

SRO is the first level regulator that performs the crucial task of regulating intermediaries representing a particular segment of securities market on behalf of the regulator. An SRO would be seen as an extension of the regulatory authority of SEBI and would perform the tasks delegated to it by SEBI. The role of an SRO is developmental, regulatory, related to grievance redressal and dispute resolution as well as taking disciplinary actions. Therefore, it is crucial that SEBI, after due diligence, recognizes such entity/entities which is/are capable of carrying out responsibilities of an SRO.

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Capital Market Question 13

1. Rs.169.20
2. Rs.182.90
3. Rs.179.20
4. Rs.180.90

Capital Market Question 13 Detailed Solution

The correct answer isRs. 179.20

Key Points

• Walter Model:One of the most significant dividend theories in financial management is Walter's model.
• Thismodel, put out by Professor James E. Walter, claims that a company's dividend policy is a sign of future worth.

Important Points

• Face Value = Rs. 100
• Profitability Rate = 16%
• EPS (Earning Per Share) = 16% of 100
• Payout Ratio = 80%
  • 80% of 16
  • 12.8
• Formula:

P = D + r/ K_e(EPS - D) / K_e

= 12.8 + 0.16 / 0.1 (16 - 12.8) / 0.1

= 12.8 + 1.6 ( 3.2) / 0.1

= 12.8 + 5.12 / 0.1

= 17.92 / 0.1

= 179.2

Hence, the correct answer isRs. 179.20

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Capital Market Question 14

1. I, III, IV only
2. I, II, IIIonly
3. I, II, IVonly
4. II, III, IVonly
5. Answer not known

Capital Market Question 14 Detailed Solution

The correct answer is​II, III, IVonly.

Key Points

Incremental capital-output ratio

• ICOR refers to the additional capital required to generate additional output. Thus, it reflects how efficiently capital is being used to generate additional output.
• For example, if the 10% additional capital is required to push the overall output by a percent, the ICOR will be 10.
• ICOR = Annual Investment Capital/Annual Increase in GDP
• Lower the ICOR, the better it is.
• A higher ICOR indicates thatproduction is inefficient as it requires more capital investment to generate the next unit of production.

Dynamic efficiency

• It is concerned with the productive efficiency of a firm over a period of time.
• A dynamically efficient firm will be reducing its cost curves by implementing new production processes.
• Dynamic efficiency will enable a reduction in both SRAC and LRAC.
• Therefore dynamic efficiency is concerned with the optimal rate of innovation and investment to improve production processes which helps to reduce the long-run average cost curves.

Static efficiency

• It is concerned with the most efficient combination of existing resources at a given point in time.
• Static efficiency involves the concept ofproductive efficiency– producing at the lowest point on the short-run average cost curve – given existing resources and factor inputs.
• Static efficiency is also concerned withallocative efficiency – the optimal distribution of resources in an economy.
• Static efficiency contrasts withdynamic efficiency. This is concerned with the development of better technology and working practices that improve the efficiency of production over a period of time.

Allocative efficiency

• It is a state of the economy in which production is aligned with consumer preferences; in particular, every good or service is produced up to the point where the last unit provides a marginal benefit to consumers equal to the marginal cost of producing.

Technical efficiency

• It is theeffectivenesswith which a given set of inputs is used to produce an output.
• A firm is said to be technically efficient if a firm is producing the maximum output from the minimum quantity of inputs, such as labor, capital, and technology.
• ​Hence, Option 4 is correct.

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Capital Market Question 15

1. Both the statement I and II are correct.
2. Both the statement I and II are incorrect.
3. Statement I is correct, but II is incorrect.
4. Statement II is correct, but I is incorrect.

Capital Market Question 15 Detailed Solution

Statement I: FX Spot is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date.

Explanation:

1. A foreign exchange spot transaction, also known as FX spot, is an agreement between two parties to buy one currency against selling another currency at an agreed price for settlement on the spot date.
2. The exchange rate at which the transaction is done is called the spot exchange rate.
3. Thus, the statement I is correct.

Statement II: The date of maturity of a forward contract is more than two business days in the future.

Explanation:

1. A forward contract is a customized contract between two parties to buy or sell an asset at a specified price on a future date.
2. Aforward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed on at the time of conclusion of the contract, making it a type of derivative instrument.
3. The date of maturity of a forward contract is more than two business days in the future.
4. Thus, statement II is correct.

Option 1 is the correct answer.

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