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Chapter-1 Merchant Banking in India
Self Assessment Questions
1. ……………………….function as an independent wing or as subsidiary of various private/ Central
Governments/State.
a. Banker Base
b. Merchant banks
c. Broker Base
d. None of these
2. Merchant bankers act as brokers in the stock exchange. They buy and sell shares on behalf of their
clients.
a. True
b. False
3. Merchant banks offer many services to public sector units and public utilities is known
as…………………..
a. Revival of Sick Industrial
b. Services to Public Sector
c. Special Assistance
d. None of these
4. A merchant bank is known as a general bank and is not used by the general public.
a. True
b. False
5. Which of the following is potentially obligated to sell an asset at a predetermined price?
a. A put writer.
b. A call writer.
c. A put buyer.
d. A call buyer.
6. Which of the following is not a characteristic of option contracts that trade on the Chicago Board
Options Exchange?
a. Option holders must take physical delivery of the underlying asset.
b. Option writers are required to put up collateral.
c. It is easy to transfer the contracts between investors.
d. The contracts are standardized.
7. Which of the following actions will not close a long position in a call option?
a. Exercising the call.
b. Allowing the call to expire.
c. Buying a put with the same strike price, expiration, and underlying asset.
d. Selling a call with the same strike price, expiration, and underlying asset.
8. Standardized futures contracts exist for all of the following underlying assets except:
a. Treasury bonds.
b. stock indexes.
c. gold.
d. common stocks.
9. Which of the following is false?
a. Futures contracts are marked to market.
b. Futures contracts allow fewer delivery options than forward contracts.
c. Futures contracts are more liquid than forward contracts.
d. Futures contracts trade on a financial exchange.
10. Which one of the following actions will offset a long position in a futures contract that expires in
June?
a. Hold the futures contract until it expires.
b. Buy any futures contract, regardless of its expiration date.
c. Buy a futures contract that expires in June.
d. Sell a futures contract that expires in June.
11. Which of the following does the most to reduce default risk for futures contracts?
a. Marking to market.
b. Credit checks for both buyers and sellers.
c. Flexible delivery arrangements.
d. High liquidity.
12. Which of the following is most similar to a stock broker?
a. Local.
b. Pit trader.
c. Futures commission merchant.
d. Floor broker.
13. SEBI guidelines stipulate that a minimum net worth of Rs.1 crore for authorization of merchant
bankers.
a. True
b. False
14. Which of the following is best described as selling a synthetic asset and simultaneously buying
the actual asset?
a. Speculating.
b. Diversifying.
c. Hedging.
d. Arbitrage.
15. Which of the following causes the futures price of an asset to increase, everything else held
constant?
a. Lower expected spot price for the underlying asset.
b. Lower risk-free rate of interest.
c. Higher costs of carrying the underlying asset.
d. Higher expected spot price for the underlying asset.
16. Which of the following investment strategies has unlimited profit potential?
a. Covered call.
b. Protective put.
c. Writing a call.
d. Bull spread.
17. The businessman has to gotten government permission for starting of the project.
a. True
b. False
18. Using futures contracts to transfer price risk is called:
a. speculating.
b. diversifying.
c. hedging.
d. arbitrage.
19. Which of the following has the right to sell an asset at a predetermined price?
a. A call buyer.
b. A put buyer.
c. A put writer.
d. A call writer.
20. Merchant bankers give advice for expansion and modernization of the business units is known
as………………
a. Project Management
b. Raising Finance for Customers
c. Modernization
d. Managing Public Issue
Answers for Self Assessment Questions
1. (b) 2.(a) 3.(b) 4.(a) 5.(d)
6. (a) 7.(c) 8.(d) 9.(b) 10.(d)
11. (a) 12.(c) 13.(a) 14.(d) 15.(c)
16. (b) 17.(a) 18.(c) 19.(c) 20.(c)
Chapter-2 Legal and Regulatory Framework
Self Assessment Questions
1. The sources of regulation which comprise the regulatory framework for financial reporting
include:
a. Legislation
b. Accounting standards
c. Stock exchange regulations
d. All of the above
2. "Accounting standards set out the broad rules which govern financial reporting but do not lay
down the detailed accounting treatments of transactions and other items".True or False?
a. True
b. False
3. The abbreviation "GAAP" stands for:
a. Globally accepted accounting practice
b. Generally accepted accounting practice
c. Globally accepted accounting principles
d. Generally accepted accounting principles
4. Standards issued by the International Accounting Standards Board (IASB) are known as:
a. Financial Reporting Standards (FRSs)
b. International Accounting Standards (IASs)
c. International Financial Reporting Standards (IFRSs)
d. International Financial Standards (IFSs)
5. The body to which the International Accounting Standards Board is responsible is:
a. The IFRS Advisory Council
b. The IFRS Interpretations Committee
c. The IFRS Foundation
d. The Monitoring Board
6. One of the main advantages of standardization in financial reporting is:
a. Comparability between accounting periods and between entities
b. The production of prudent financial statements
c. Increased flexibility in financial reporting
d. The use of creative accounting practices
7. IFRS1 First-time Adoption of International Financial Reporting Standards defines the date of
transition to IFRS as:
a. The date at the end of the first IFRS reporting period
b. The date at the start of the earliest period for which comparatives are provided in the
first IFRS financial statements
c. The date at the end of the earliest period for which comparatives are provided in the
first IFRS financial statements
d. The date at the start of the first IFRS reporting period
8. "An entity which adopts international financial reporting standards must always adhere to the
requirements of every standard, no matter what the circumstances". True or False?
a. True
b. False
9. The role of the IFRS Advisory Council is to:
a. Chair the meetings of the IASB
b. Interpret the application of international standards
c. Appoint members to the IASB
d. Inform the IASB of the Council's views on standard-setting projects
10. A teleological approach to business ethics proposes that the guiding principle should be:
a. Practice
b. Purpose
c. People
d. Power
11. Which of the following are not major schools of thought?
a. Duties
b. Consequences
c. Roles
12. Sternberg claims that taking a bribe is:
a. A violation of human rights
b. A violation of common decency
c. A violation of distributive justice
d. A violation of an individual's right to privacy
13. Ethical behavior is not in the long-term interest of businesses.
a. True
b. False
14. Vance Packard's book was entitled:
a. The Hidden Persuaders
b. The Hidden Protectors
c. The Hidden Enforcers
d. The Hidden Provocateurs
15. Extortion is an attempt to buy:
a. Goodwill
b. At a discount
c. Influence
d. Goods and services quickly
16. One of the more important innovations facilitating a more rapid pace of economic development
has been the creation of regulators.
a. True
b. False
17. ……………..means the Foreign Exchange Regulation Appellate Board constituted by the central
government under part.
a. Authorized dealer
b. Appellate Board”
c. Possessor certificate
d. Coupon
18. “” means a person for the time being authorized under subdivision to deal in foreign exchange.
a. Authorized dealer
b. Appellate Board”
c. Possessor certificate
d. Authorized dealer
19. Regulators are intended to be free of the conflicts of interest that come from state-ownership the
public sector companies.
a. True
b. False
20. The …………………included under the provisions of the Companies Act 1956, is a public limited
company.
a. Euro-issues
b. OTC Exchange of India (OTCEI)
c. National Stock Exchange (NSE)
d. None of these
Answers for Self Assessment Questions
1. (d) 2.(b) 3.(b) 4.(c) 5.(c)
6. (a) 7.(d) 8.(b) 9.(d) 10.(b)
11. (c) 12.(a) 13.(b) 14.(a) 15.(c)
16. (a) 17.(b) 18.(d) 19.(a) 20.(b)
Chapter-3 Issue Management
Self Assessment Questions
1. Which of the following is not a benefit of direct marketing?
a. Assists client prospecting.
b. Greater product access and selection.
c. Immediate response.
d. Convenience.
2. What is the overall goal of relationship marketing?
a. Encourage utilization of products over the lifespan of the consumer.
b. Developing strategic partnerships with valued customers.
c. Improve profitability.
d. None of the above.
3. Personal selling can be defined as which of the following?
a. Local communication.
b. Inter-connective communication.
c. Interpersonal communication.
d. People communication.
4. There are four major characteristics of personal selling. Which of the following is not one of these
characteristics?
a. Cost.
b. Precision.
c. Impact.
d. Personality.
5. Precision represents one of the great advantages of personal selling over any of the other
promotional mixes and explains why it is so effective at the customer's point of decision-making.
Which of the following are two facets of personal selling precision?
a. Sales precision and advertising precision.
b. Message precision and targeting precision.
c. Advertising precision and message precision.
d. Promotion precision and message precision.
6. The tasks of the sales representative are beyond the straight selling situation. Which of the
following are examples of the tasks of the sales representative?
a. Prospecting; informing; persuading; maintaining relationships; monitoring
competitor action.
b. Prospecting; iInforming; persuading.
c. Prospecting; informing; persuading; maintaining relationships.
d. Maintaining relationships; monitoring competitor action.
7. Sales support is a broad term encompassing a variety of staff whose role is to augment the efforts
of the mainstream sales force. Which of the following are examples of the two categories of support
staff?
a. Sales engineer and missionary sales representative.
b. Voyager sales representative and mining sales representative.
c. Mining sales representative and sales engineer.
d. Missionary sales representative and sales engineer.
8. Which of the following is not a source of company inspired prospects?
a. Advertising responses.
b. Exhibitions and trade shows.
c. Sales records.
d. Referrals.
9. A project that is considered to be worthwhile at the appraisal stage qualifies for implementation.
a. True
b. False
10. Which recent case brought against a corporation's top management lead to new rules on
'corporate governance'?
a) The Enron affair
b) BP
c) Texaco
d) Northern Rock
11. The scientific management movement was the primary driver of this perspective.
(a) True (b) False
12. Supply of a commodity is a:
a. Stock concept
b. A flow concept
c. Both (a) and (b)
d. None of the above.
13. Consideration is synonymous with:
a. Task
b. Relations
c. Style
d. Altitude
14. Management strives to encourage individual activity that will lead to reaching organizational
goals and to discourage individual activity that will hinder the accomplishment of the organization
objectives
(a) True (b) False
15. Practicing managers who believe in management as an art are unlikely to believe that scientific
principles and theories will not be able to implement in actual managerial situations.
(a) True (b) False
17. The basic feature of oligopoly is:
a. Many sellers
b. Only one seller
c. A few sellers
d. Infinite sellers.
18. Practicing managers who believe in management as a science are likely to believe that there are
ideal managerial practices for certain situations.
(a) True (b) False
19. The demand for pepper is likely to have low price elasticity because it:
1. Involves only a small proportion of consumers expenditure
2. It is single-use goods
3. Has no close substitutes
16. Can readily be foregone
a. 1 and 2
b. 1 and 3
c. 2 and 3
d. 2 and 4
20. UNO has the maximum dues on:
a. India
b. Mexico
c. USA
d. Japan
Answers for Self Assessment Questions
1. (a) 2.(b) 3.(c) 4.(d) 5.(b)
6. (a) 7.(d) 8.(d) 9.(a) 10.(b)
11. (a) 12.(b) 13.(b) 14.(a) 15.(b)
16. (c) 17.(c) 18.(a) 19.(c) 20.(c)
Chapter-4 Marketing Issues
Self Assessment Questions
1. Which of the following increased marketers' interest in consumer behavior in the 1950s and 1960s?
a. consumers became more aware of environmental issues
b. marketers realized that current marketing theory failed to explain consumers' actions
c. the opening of international and global markets
d. all of the above
2. Marketing efforts and sociological influences on the consumer are aspects of which stage in the
consumer decision-making model?
a. the post-purchase evaluation
b. the input stage
c. the process stage
d. the output stage
3. How do the marketing concept and the societal marketing concept differ?
a. The societal marketing concept considers it unethical to fulfil target audiences' needs
if, by doing so, the individual or society is harmed.
b. The marketing concept focuses on the needs of the individual and the producer. The
societal marketing concept balances these needs with societal needs.
c. The marketing concept focuses on short-term increases in market shares and quick
profits. The societal marketing concept focuses on long-term profit, based on
customer loyalty and healthier societies.
d. all of the above
4. Which consumer-oriented marketing strategy assumes that marketers should make and sell what
customers want or need?
a. the marketing concept
b. the societal marketing concept
c. the consumer concept
d. the selling concept
5. Consumer behavior is an interdisciplinary science drawing heavily on the research and theories
from which other discipline?
a. cultural anthropology
b. sociology
c. social psychology
d. all of the above
6. Which stage in the decision-making process considers both purchase and post-purchase
evaluation?
a. input stage
b. psychological field
c. output stage
d. process stage
7. We study consumer behavior for which of the following reasons?
a. product life cycles have shortened
b. computer technology and statistical techniques have made it easier to research
consumer behaviors
c. the public is becoming increasingly concerned about environmental issues
d. all of the above
8. Which marketing strategy assumes that marketers should actively and aggressively persuade
consumers to purchase the product?
a. product orientation
b. production orientation
c. selling orientation
d. marketing concept
9. …………………… is the process of dividing a market into subsets of consumers with common
needs or characteristics.
a. market segmentation
b. targeting
c. the marketing mix
d. positioning
10. Which of the following is not a reason why small reductions in customer defections produce
significant increases in profit?
a. loyal customers buy more products
b. servicing existing customers who are familiar with the firm and its products is
cheaper
c. loyal customers are less price sensitive
d. none of the above
11. ………………. is the individual's perception of the performance of the product or service in
relation to his or her expectations.
a. customer satisfaction
b. customer value
c. customer profitability-focused marketing
d. positioning
12. ……………….. is developing a distinct image for the product or service in the mind of
consumers.
a. market segmentation
b. positioning
c. targeting
d. the marketing mix
13. A(n) …………….. is a payment of additional shares to shareholders in lieu of cash.
a. stock split
b. stock dividend
c. extra dividend
d. regular dividend
14. A(n) ……………… occurs when there is an increase in the number of shares outstanding by
reducing the par value of stock.
a. stock split
b. stock dividend
c. extra dividend
d. regular dividend
15. A broker who also acts as a seller or as a buyer becomes a most important party to the deal.
a. True
b. False
16. ……………. is a nonrecurring dividend paid to shareholders in addition to the regular dividend.
a. A stock split
b. A stock dividend
c. An extra dividend
d. A regular dividend
17. What method of stock repurchase occurs when the buyer seeks bids within a specified price
range and accepts the lowest price that will allow it to acquire the entire block of securities desired?
a. Dutch-auction
b. Fixed-price
c. Open-market
d. Fair-warning
18. What method of stock repurchase occurs when the buyer purchases securities through a
brokerage house?
a. Dutch-auction
b. Fixed-price
c. Open-market
d. Fair-warning
19. Marketing Strategy Implementation (MSI) is guilty for delivering the value proposition to the
customers.
a. True
b. False
20.
A(n)………………… is the expected cash dividend that is normally paid to shareholders.
a. stock split
b. stock dividend
c. extra dividend
d. regular dividend
Chapter-5 Mergers and Acquisitions
Self Assessment Questions
1. Which of the following refers to a situation in which the merger results in over 25% of the market
in the hands of the merged firms?
a. Restrictive practice
b. Gateway condition
c. ‘Share of supply’ test
d. ‘Assets’ test
2. The Director General of Fair Trading (DGFT) heads the Competition Commission.
a. True
b. False
3. Which of the following is responsible for investigating cases referred to it and deciding whether or
not a proposed merger is in the ‘public interest’?
a. Cabinet Office
b. Director General of Fair Trading (DGFT)
c. Secretary of State for Trade and Industry
d. Competition Commission (CC)
4. Which of the following refers to a situation in which the merger involves gross world-wide assets
exceeding £70m in value?
a. Restrictive practice
b. Herfindahl – Hirschman Index
c. ‘Turnover’ test
d. ‘Share of supply’ test
5. When firms which combine are involved in different products, but ones which have some
common factor inputs, the term ‘lateral integration’ is often used.
a. True
b. False
6. For the next five questions match each of the following descriptions of a type of merger or
acquisition with its correct term.
Involving a firm in the same business and at the same stage of production.
a. Conglomerate integration
b. Horizontal integration
c. Backward vertical integration
d. Lateral integration
7. Involving a firm in a totally unrelated business.
a. Conglomerate integration
b. Organic growth
c. Backward vertical integration
d. Lateral integration
8. Towards the final consumer.
a. Organic growth
b. Backward vertical integration
c. Lateral integration
d. Forward vertical integration
9. Involves firms in different product areas, but with some common elements (e.g. common factor
inputs or product outlets).
a. Backward vertical integration
b. Forward vertical integration
c. Organic growth
d. Lateral integration
10. Towards the raw material supplier.
a. Organic growth
b. Horizontal integration
c. Backward vertical integration
d. Lateral integration
11. Answer the following five questions either 'True' or 'False'.
Productive efficiency involves setting a price which corresponds to the marginal cost of production.
a. True
b. False
12. Which of the following provides a judicial review of a mergers-decision made by the OFT, CC or
Secretary of State for Trade and Industry?
a. Chancellor of the Exchequer
b. Competitor Appeal Tribunal (CAT)
c. Secretary of State for Trade and Industry
d. Competition Commission
13. The Secretary of State for Trade and Industry must implement all Competition Commission
recommendations.
a. True
b. False
14. Which of the following has the responsibility for making an initial decision as to whether a
proposed merger is likely to result in a 'lessening of competition'?
a. Monetary Policy Committee
b. Competition Commission (CC)
c. Secretary of State for Trade and Industry
d. Office of Fair Trading (OFT)
15. Every portfolio management services scheme charges fund management charges is known
as……………
1. Entry Load
2. Management Charges
3. Profit Sharing
4. None of these
16. Which of the following must be satisfied to support a classification as a finance lease?
1. Ownership is transferred by the end of the lease term.
2. The lease contains a bargain purchase option.
3. The lease term is for the major part of an asset's useful life.
4. The present value of the minimum lease payments are substantially more or equal to the
asset's fair value.
a. 1, 2 and 3
b. 1 and 2
c. Any of the four criteria
d. All of the four criteria
17. …………….is a process by which a firm can obtain the use of a certain fixed assets for which it
must pay a series of contractual, periodic, tax deductible payments.
1. Term of a Lease
2. Leasing
3. Saving of Capital
4. None of these
18. The lease agreement can be tailor- made in respect of lease period and lease rentals according to
the ease and requirements of all lessees is known as…………..
a. Improvement in Liquidity
b. Planning Cash Flows
c. Flexibility and Convenience:
d. None of these
19. Leasing enables the renter to improve their liquidity place by adopting the sale and lease back
method.
a. Improvement in Liquidity
b. Planning Cash Flows
c. Flexibility and Convenience:
d. None of these
20. The purpose of the part is to describe bills discounting as an asset-based financial service.
a. True
b. False
Answers for Self Assessment Questions
1. (c) 2.(b) 3.(d) 4.(c) 5.(a)
6. (b) 7.(a) 8.(d) 9.(d) 10.(c)
11. (b) 12.(b) 13.(b) 14.(d) 15.(b)
16. (c) 17.(b) 18.(c) 19.(a) 20.(a)
Chapter-6 Financial Services
Self Assessment Questions
1. n finance we refer to the market for short-term government and corporate debt securities as the
……………… market.
a. money
b. capital
c. primary
d. secondary
2. Which of the following would generally have unlimited liability?
a. A limited partner in a partnership.
b. A shareholder in a corporation.
c. The owner of a sole proprietorship.
d. A member in a limited liability company (LLC).
3. A corporation in the U.S. estimates and pays it taxes ………………...
a. monthly
b. quarterly
c. semi-annually
d. annually
4. The average tax rate is equal to the …………….
a. total tax liability divided by taxable income
b. rate that will be paid on the next dollar of taxable income
c. median marginal tax rate
d. percentage increase in taxable income from the previous period
5. In finance we refer to the market where existing securities are bought and sold as the
………………….market.
a. money
b. capital
c. primary
d. secondary
6. Which of the following is not an example of a financial intermediary?
a. Wisconsin S&L, a savings and loan association.
b. Strong Capital Appreciation, a mutual fund.
c. Microsoft Corporation, a software firm.
d. College Credit, a credit union.
7. How are funds allocated efficiently in a market economy?
a. The economic unit that considers itself most in need of funds receives funds first
followed by those who are less in need.
b. Receipt of funds is rotated over time so that each economic unit can receive them in
turn.
c. The largest economic units receive the funds first followed by smaller firms if
sufficient funds are available.
d. The economic unit that is willing to pay the highest expected return for a given risk
level receives the funds.
8. What mechanism ensures that large firms who benefit from tax laws pay some minimum amount
of tax?
a. Annual minimum tax.
b. Alternative minimum tax.
c. Minimum tax law.
d. Corpulent minimum tax.
9. A profitable firm would prefer to use which of the following methods of depreciation -- for tax
purpose -- for a given depreciable asset, all else equal?
a. Straight-line.
b. Double-declining-balance.
c. Modified accelerated cost recovery system.
d. All of the above techniques are equally useful for a profitable firm because they
provide the same tax deductions over the life of the asset.
10. A major disadvantage of the corporate form of organization is the ……………………….
a. double taxation of dividends
b. inability of the firm to raise large sums of additional capital
c. limited liability of shareholders
d. limited life of the corporate form
11. Which of the following examples would be deductible as an expense on the corporation's income
statement?
a. Interest paid on outstanding bonds.
b. Cash dividends paid on outstanding common stock.
c. Cash dividends paid on outstanding preferred stock.
d. All of the above.
12. In finance we refer to the market where new securities are bought and sold for the first time as
the ………………..market.
a. money
b. capital
c. primary
d. secondary
13. Which of the following is an advantage of a corporation that is not an advantage as a limited
partner in a partnership?
a. Limited liability.
b. Easy transfer of ownership position.
c. Double taxation.
d. All of the above are advantages that the corporation has over the limited partner.
14. Which of the following statements is correct for a sole proprietorship?
a. The sole proprietor has limited liability.
b. The sole proprietor can easily dispose of their ownership position relative to a
shareholder in a corporation.
c. The sole proprietorship can be created more quickly than a corporation.
d. The owner of a sole proprietorship faces double taxation unlike the partners in a
partnership.
15. What is potentially the biggest advantage of a small partnership over a sole proprietorship?
a. Unlimited liability.
b. Single tax filing.
c. Difficult ownership resale.
d. Raising capital.
16. In finance we refer to the market for relatively long-term financial instruments as the
……………..market.
a. money
b. capital
c. primary
d. secondary
17. To financial analysts, "working capital" means the same thing as …………………..
a. total assets
b. fixed assets
c. current assets
d. current assets minus current liabilities.
18. Which of the following would be consistent with an aggressive approach to financing working
capital?
a. Financing short-term needs with short-term funds.
b. Financing permanent inventory buildup with long-term debt.
c. Financing seasonal needs with short-term funds.
d. Financing some long-term needs with short-term funds.
19. Which of the following would be consistent with a conservative approach to financing working
capital?
a. Financing short-term needs with short-term funds.
b. Financing short-term needs with long-term debt.
c. Financing seasonal needs with short-term funds.
d. Financing some long-term needs with short-term funds.
20. Which of the following would be consistent with a hedging (maturity matching) approach to
financing working capital?
a. Financing short-term needs with short-term funds.
b. Financing short-term needs with long-term debt.
c. Financing seasonal needs with long-term funds.
d. Financing some long-term needs with short-term funds.
Answers for Self Assessment Questions
1. (a) 2.(c) 3.(b) 4.(a) 5.(d)
6. (c) 7.(a) 8.(b) 9.(c) 10.(a)
11. (a) 12.(c) 13.(b) 14.(c) 15.(d)
16. (b) 17.(c) 18.(d) 19.(a) 20.(d)
Chapter-7 Lease and Hire Purchase
Self Assessment Questions
1. When examining for deficiencies of inventory, a firm would not make allowances for:
a. Wastage of goods
b. Stealing by customers
c. Changes in market conditions
d. Thefts by employees
2. The act of buying an asset without having to make full payment in the immediate future is known
as:
a. Hire purchase
b. Sale and leaseback
c. Finance lease
d. Operating lease
3. In branch accounting, if the head office maintains all the accounts then the accounts are used for
three main purposes. Which one of the following would not apply?
a. To measure the qualities of staff
b. To ascertain the profitability of each branch
c. To check for theft at the branch level
d. To record changes in assets, liabilities and capital
4. Which account is used for transactions concerned with head office supplying resources to the
branch?
a. Branch account
b. Capital account
c. Joint venture account
d. Current account
5. When conversions due to exchange rates leads to disagreement on the trial balance then, which
account should be opened?
a. Difference on exchange account
b. No account should be opened
c. Foreign exchange account
d. Suspense account
6. If the firm stops making repayments and the goods or assets are taken away from them as a result,
this is known as:
a. Repossession
b. Annulment
c. Forfeiture
d. Cancellation
7. Which of the following would not make a distinction between a hire purchase and a ‘normal’
purchase?
a. Cost to buyer is likely to be higher than it would be for a normal purchase
b. Purchaser pays for item by instalments over a period of time
c. Asset does not belong to purchaser when delivery is received from supplier
d. Trade discounts cannot be offered on hire purchase
8. On the balance sheet of a company, the value of the asset bought through hire purchase will
appear as:
a. Cost less depreciation to date less amount owing on hire purchase
b. Cost less depreciation to date less amount owing on hire purchase less interest owing
c. Cost less amounts owing on hire purchase
d. Cost less depreciation to date
9. At the end of the period ownership will not be usually pass from the finance company to the
business.
a. True
b. False
10. Which one of the following is not an advantage to a firm in raising finance by borrowing through
a bank overdraft?
a. Interest is charged on the daily outstanding balance and can therefore be cheaper
than other sources of finance
b. Security (collateral) is not required
c. When the funds are no longer required they can be quickly and easily repaid without
suffering a penalty
d. The borrowing firm is not asked to forecast the precise amount and duration of its
borrowing at the outset but retains the flexibility to borrow up to a stated limit
11. Which of the following most accurately describes trade credit?
a. When goods and services are delivered to a firm they are financed by a trade credit
company
b. When goods and services are delivered to a firm for use in its production they are
not paid for immediately
c. The creditworthiness of customers in the view of suppliers
d. The creditworthiness of firms in the view of bank lenders
12. The acquisition of assets particularly expensive capital equipment is a major commitment for
many businesses.
a. True
b. False
13. Which one of the following is not a feature or characteristic of hire purchase?
a. Regular interest and capital payments (e.g. monthly) are made by the user to the hire
purchase company
b. The hirer can use the asset immediately (or within a few days) of agreement
c. The user of the asset never becomes the owner
d. A small initial outlay (deposit) is required
14. Which of the following is not an advantage of hire purchase?
a. Hire purchase agreements can be cancelled at short notice with no penalty
b. Hire purchase is often available when other sources of finance are not
c. Hire purchase is easy to arrange
d. Hire purchase usually represents a fixed rate form of finance
15. Which one of the following most accurately describes an operating lease?
a. A short-term leasing contract or a contract which can be terminated at short notice.
The lessor conveys the right to use equipment in return for regular rental payments
b. A short-term leasing contract in which the lessee conveys the right to the lessor to
receive interest payments from an asset leased out to another firm
c. A lease agreement in which a firm sells equipment to a finance house, which then
permits the firm to continue to use it in return for regular rental payments
d. A lease agreement in which the finance provider expects to recover the full cost (or
almost the full cost) of the equipment, plus interest, over the period of the lease
16. Which of the following is not a service provided by factoring companies?
a. Bond issuance facilities
b. The provision of finance
c. Sales ledger administration
d. Credit insurance
17. The major difference between hire purchase (HP) and leasing is:
a. In HP the payments are made annually, whereas with leasing monthly payments are
more common
b. The effective rate is much higher on HP than on leasing
c. With HP, the user of the equipment generally owns it eventually after a set number
of payments, whereas with leasing the user never owns the equipment
d. HP is easy to arrange at point of sale, whereas leasing involves a prolonged legal
process
18. Which one of the following factors does not determine the length of trade credit granted?
a. Tradition within the industry
b. The presence of fixed assets to act as collateral
c. The type of product bought
d. Bargaining strength of customer and supplier
19. Which of the following is not a feature of an operating lease?
a. Supplier assumes responsibility for repairs and maintenance
b. Insurance is the responsibility of the leasor
c. Legal title passes to the lessee
d. Rental period is usually less than the asset’s economic life
20. Leases are classified into different types based on the variation in the elements of a lease.
a. True
b. False
Answers for Self Assessment Questions
1. (c) 2.(a) 3.(a) 4.(d) 5.(a)
6. (a) 7.(d) 8.(d) 9.(b) 10.(b)
11. (b) 12.(a) 13.(c) 14.(a) 15.(c)
16. (a) 17.(c) 18.(b) 19.(c) 20.(a)
Chapter-8 Merchant Banking
Self Assessment Questions
1. What is a legal agreement, also called the deed of trust, between the corporation issuing bonds
and the bondholders that establish the terms of the bond issue?
a. Indenture.
b. Debenture.
c. Bond.
d. Bond trustee.
2. …………… is a high-risk, high-yield bond rated below investment grade; while a/(an)
…………..bond has its interest payment contingent on sufficient earnings of the firm.
a. A subordinated debenture; mortgage
b. A debenture; subordinated debenture
c. A junk bond; income
d. An income bond; mortgage
3. To acquire rail engines or similar equipment, a railroad might issue …………… which is a lease
type of financing.
a. equipment trust certificates
b. special purpose securities
c. pooled certificates
d. asset-backed securities
4. An issue of preferred stock has …………….. feature that requires all cumulative unpaid dividends
on preferred stock to be paid prior to paying any dividends on common stock.
a. an arrearage
b. a cumulative dividends
c. a preceding condition
d. a participation
5. Which of the following statements is correct regarding common stock and its features?
a. For most firms, book value exceeds liquidation value.
b. Firms usually prefer to have more shares authorized than are currently issued.
c. When shares of common stock are initially issued, they generally are sold to
investors at par value.
d. All of the above are
6. Which of the following statements concerning the rights of common shareholders is correct, or
most accurate?
a. Common shareholders are entitled to a share of the company's current earnings in
cash.
b. Common shareholders are entitled to elect the board of directors under a majority-
rule voting system.
c. Because of their preemptive right, common shareholders are entitled to always
subscribe to new common stock so that they can maintain their pro rata interest in
the company.
d. Voting by common shareholders can be done either in person at the shareholders'
annual meeting or by proxy.
7. A proxy is …………………..
a. a unique voting system that allows minority shareholders to elect at least one
director.
b. a protective agreement that allows shareholder the ability to purchase new shares in
the same percentage as their current ownership proportion.
c. a legal document giving one entity or person the authority to vote for another.
d. All of the above answers are in
8. A firm has two classes of common stock outstanding. The first class is nonvoting; while the second
class, owned by the original founders, has voting rights. This is usually referred to as ……………...
a. two-tier common stock
b. dual-class common stock
c. multi-class common stock
d. not possible in the U.S. because this system of ownership is not allowed under
current SEC legislation
9. Who or what is a person or institution designated by a bond issuer as the official representative of
the bondholders?
a. Indenture.
b. Debenture.
c. Bond.
d. Bond trustee.
10. …………… is a long-term, unsecured debt instrument with a lower claim on assets and income
than other classes of debt; while a/(an) ……………. bond issue is secured by the issuer's property.
a. A subordinated debenture; mortgage
b. A debenture; subordinated debenture
c. A junk bond; income
d. An income bond; junk
11. A special purpose vehicle (SPV) raises money by selling ………….. where interest and principal
payments are provided by cash flows from a discrete pool of assets.
a. equipment trust certificates
b. special purpose securities
c. pooled certificates
d. asset-backed securities
12. The term 'commercial hot money' is used to describe:
a. the international movement of funds by companies in order to reduce their tax
payments.
b. speculation based on expected future changes in exchange rates.
c. the movement of funds to profit from changes in short-term interest rates.
13. The poorer developing countries are only marginal participants in the international capital
market because:
a. they are not regarded as credit worthy by private lenders.
b. their currencies are not used in world trade.
c. they have no money to lend.
d. their leaders are invariably corrupt.
14. A eurocurrency is:
a. the currency of the European Union.
b. a bank deposit in a non-European currency held in Europe.
c. a bank deposit in a European currency held outside of Europe.
d. the currency of European Economic and Monetary Union - called the euro for short.
15. Problems arose in the 1990s in the newly emerging markets because:
a. Asian currencies appreciated, causing sharp falls in the exports of the Asian
economies.
b. the Asian 'tiger' economies collapsed.
c. losses in one market frequently cause investors to become temporarily risk averse.
d. individual investors are always risk averse.
16. Borrower may enter into loan agreement with recognized overseas lender for raising ECB under
automatic route without prior approval of RBI.
a. True
b. False
17. An agreement to exchange fixed interest rate payments on a loan for floating interest rate
payments is:
a. an interest rate swap.
b. a floating rate eurobond.
c. a currency swap.
d. a flip flop option.
18. Countries around the globe may be more, or less, prone to inflation than the US economy is at
any given time. Is known as…………….
a. Political Risk
b. Inflation Risk:
c. Currency Risk
d. None of these
19. The world of Greenhouse Development Rights, in other words, is not merely a world divided
between North and South.
a. True
b. False
20. Floating rate eurobonds become popular:
a. when investors are particularly concerned about income risk.
b. when interest rates are very volatile.
c. when exchange rates are very volatile.
d. during crises in the newly emerging markets.
Answers for Self Assessment Questions
1. (a) 2.(c) 3.(a) 4.(b) 5.(b)
6. (d) 7.(c) 8.(b) 9.(d) 10.(a)
11. (d) 12.(c) 13.(a) 14.(a) 15.(c)
16. (a) 17.(a) 18.(b) 19.(a) 20.(b)
Chapter-9 Insurance Service
Self Assessment Questions
1. A sudden demand by depositors for notes and coin is an example of:
a. Liquidity risk
b. Capital risk
c. Asset risk
d. Currency risk
2. The idea behind a capital adequacy ratio is that banking risk should be borne by:
a. Creditors
b. Borrowers
c. Directors
d. Shareholders
3. 'Reinsurance' refers to the practice by insurance companies of:
a. Renewing existing policies
b. Terminating existing policies
c. Insuring the same risk twice
d. Buying insurance from another firm
4. By taking out insurance cover an individual:
a. Converts the possibility of large loss to certainty of a small one
b. Reduces the certainty of major loss
c. Reduces the risk of an accident
d. Reduces the cost of an accident
5. Diversification is one way in which insurance companies can protect themselves against:
a. Random fluctuation
b. The law of large numbers
c. Moral hazard
d. Parameter change
6. A retirement annuity is particularly attractive to someone who has:
a. A large family
b. Financial myopia
c. High longevity risk
d. Low longevity risk
7. A 'pay as you go' pension system is unsuitable for a private firm because:
a. There is a disincentive effect for current workers
b. The dependency ratio is too high
c. The benefits are insufficient
d. The firm may cease trading
8. Pension and life insurance funds hold few short-term assets because:
a. Short-term assets are too risky
b. Long-term assets are more profitable
c. Their cash flows are predictable
d. Short-term assets are too dear
9. . When the event insured against takes place, the policy holder must do everything to minimize
the loss and to save what is left.
a. True
b. False
10. …………………provides much-needed protection against surprising events such as accidents,
illness, fire, aggravated burglary.
a. Endowment policy
b. General Insurance
c. Insurance Companies
d. None of these
11. …………………….is a device of prepare for the bad consequences of the prospect. Insurance
policy is often very suitable way of providing for the future.
a. Removal of Uncertainties
b. Insurance facilitates
c. Economy
d. None of these
12. Insurance facilitates to maintain the large size commercial and industrial organizations.
a. True
b. false
13. A ……………………………………is an amalgamation of protection and investment which serves
a useful rationale.
a. enlargement
b. life policy
c. Insurer accumulates
d. None of these
14. Insurance enables the small business units to contend upon more equal terms with the bigger
organization is known as……………………
a. Growth of Business Competition
b. Employment Opportunity
c. Favorable Allocation
d. Employment Opportunity
15. The insured must have power over an insurable interest in the object insured.
a. True
b. False
16. The textbook mentions purposes of attachment. Which of the following is the purpose of the
attachment?
a. Proximity Maintenance
b. Behavior Inhibition
c. Secure Base
d. The first and third choices
17. According to Sroufe, emotional development is the foundation for:
a. The response to the new psychosocial stimulus
b. The study of individual adaptation and psychopathology
c. The infants' behavior as a result of differentiation and integration of the original
reflexes
d. All of these
18. What is the relationship between infant reactivity and later shyness?
a. Low reactivity leads to high shyness
b. Low reactivity leads to low shyness
c. High reactivity leads to high shyness
d. High reactivity leads to low shyness
19. Investment trusts often expose investors to higher capital risk than unit trusts because:
a. Investment trusts can be 'geared'
b. Investment trusts invest in overseas shares
c. Investment trusts are less diversified
d. Unit trusts hold more bonds
20. Birla Sun Life Insurance Company Limited introduced unit Linked Life Insurance Solutions in
India.
True
False
Answers for Self Assessment Questions
1. (a) 2.(d) 3.(d) 4.(a) 5.(a)
6. (c) 7.(d) 8.(c) 9.(a) 10.(b)
11. (c) 12.(a) 13.(b) 14.(a) 15.(a)
16. (d) 17.(b) 18.(c) 19.(a) 20.(a)
Chapter-10 Depository Service and Mutual Funds
Self Assessment Questions
1. Closed-end funds have lower cash requirements than open-end funds because:
a. closed-end funds have limited lifetimes.
b. open-end funds pay more taxes than closed-end funds.
c. open-end funds allow investors to redeem their shares at any time.
d. open-end funds tend to invest in less liquid assets.
2. Which type of fund invests in debt securities with very short maturities?
a. Growth fund.
b. Bond fund.
c. Certified fund.
d. Money market mutual fund.
3. Which type of fund is most likely to have the lowest management fee?
a. Index fund.
b. Equity income fund.
c. Equity growth fund.
d. Bond fund.
4. Shares of closed-end funds often sell:
a. at a premium to the net asset value.
b. at a discount to the net asset value.
c. at the net asset value, plus a load fee.
d. exactly at the net asset value.
5. NSDL is not a electronically linked to each of these business partners via a satellite link through
Very Small Aperture Terminals (VSATs).
a. True
b. False
6. A …………………is a trust that pools the savings of a number of investors who share a common
financial goal.
a. depository
b. mutual fund
c. depository participant
d. None of these
7. Depository facilitates investor to hold securities in electronic form and to trade in these securities
a. True
b. False
8. A ………………….is an organization which holds securities of investors in electronic form at the
request of the investors through a registered depository participant.
a. depository
b. mutual fund
c. depository participant
d. None of these
9. A natural guardian is required to take court approval for selling demats securities on behalf of a
minor.
a. True
b. False
10. The ……………..is committed to provide best service to investors and recognizes that
quantitative progress is ineffective if not backed by quality services.
a. NSDL
b. Depository Participants (DPs)
c. NCFM
d. NSE’s
11. The …………………is owned subsidiary of central depository services India limited it is one of
the leading depository in the country.
a. Depository Participants (DPs)
b. NCFM
c. NSE’s
d. CDSL Ventures Limited (CVL)
12. The NSDL (National security Depository Ltd) and CDSL (Central Depository service Ltd) play an
important role in the Indian stock market today.
a. True
b. False
13. …………………provides its services to investors through its agents called as depository
participant (DPs).
a. NSDL
b. Depository
c. Mutual funds
d. None of these
14. A ……………………………….is a representative in the depository system of an investor.
a. Nomination facility
b. depository participant
c. transactions cost
d. None of these
15. ………………….in the demat mode is the safer and faster alternative to the physical existence of
securities.
a. Dematerialization and trading
b. Opening a depository
c. Depository Service and Mutual Funds
d. None of these
16. A depository account holder (beneficiary account) may freeze securities lying-in the account for
as long as the account holder wants it.
a. True
b. False
17. An account holder can close his account by just filling the closing form, which is available with
the entire depository participant is known as………………..
a. Freezing
b. Account Closing
c. Transmission
d. None of these
18. Remat means converting electronic form into physical form.
a. True
b. False
19. Most mutual funds are members of a group of mutual funds known as:
a. a money market funds.
b. a dual purpose funds.
c. an investment trusts.
d. a family of funds.
20. Settlements of traders which are done by stock exchange of India are done by CDSL and NSDL.
a. True
b. False
Answers for Self Assessment Questions
1. (c) 2.(d) 3.(a) 4.(b) 5.(b)
6. (b) 7.(a) 8.(b) 9.(b) 10.(a)
11. (d) 12.(a) 13.(b) 14.(b) 15.(a)
16. (a) 17.(b) 18.(a) 19.(d) 20.(a)
