finance - Copy.doc

7/26/2019 finance - Copy.doc

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Objective Questions and Answers of Financial Management

1. State whether each of the following statements is True (T or False(F(i) Financial statements are an important source of information to shareholders and stakeholders.(ii) Both the BS and the IS shows the nancial position of fen at the end of the year.

(ii) BS of a company must be prepared in the horizontal format only.(iv) reparation of rot ! "oss #ppropriation #$c is a re%uirement under the &ompanies #ct' *+.(v) ,atio #nalysis is the only techni%ue of analysis of nancial statements.(vi) -ethodical presentation of nancial statements helps in ation of various ratios.(vii) In &ommon Size Statements' each item is e/pressed as a percenta0e of some common items(total).(viii) 1rend ercenta0e #nalysis helps in 2ynamic #nalysis.(i/) "i%uidity ,atios help in analysin0 the cash position of the rm.(/) In calculation of #cid 1est ,atio' Inventory is included in current assets.(/i) 3orkin0 &apital 1urnover ,atio may be classied as an #ctivity ,atio.(/ii) 2ebt45%uity ,atio is a measure of lon04term solvency of a rm.(/iii) 6 ,atio and ,atio 0ive the protability of the rm from the point of view of theshareholders.

(/iv) ,eturn on 5%uity and 5arnin0s per Share are one and the same thin0.(/v) 27 81 #nalysis looks into the elements of prots.(/vi) ,atio #nalysis provides the solution to the nancial problems.!. Multi"le #hoice Questions$. #ccountin0 ,atios are important tools used by (a) -ana0ers' (b) ,esearchers'(c)Investors' (d)#ll of the above9. et rot ,atio Si0nies:(a) 8perational rotability' (b) "i%uidity osition'(c) Bi04term Solvency'(d)rot for "enders.;. 3orkin0 &apital 1urnover measures the relationship of 3orkin0 &apital with:(a)Fi/ed #ssets'(b)Sales'(c)urchases'(d)Stock. #1' (d) ref. 2ividend > 5%uity 2ividend.+. 27 81 #nalysis deals with:(a) #nalysis of &urrent #ssets' (b)#nalysis of rot' (c)&apital Bud0etin0' (d) #nalysis of Fi/ed#ssets.?. In et rot ,atio' the denominator is:(a)et urchases'(b)et Sales' (c) &redit Sales' (d) &ost of0oods sold.@. Inventory 1urnover measures the relationship of inventory with:(a) #vera0e Sales' (b)&ost of 6oods Sold' (c)1otal urchases' (d) 1otal #ssets.. 1he term =5A#= is used for:(a)5/tra Aalue #nalysis' (b)5conomic Aalue #dded'(c)5/pected Aalue #nalysis'(d)5n0ineerin0 Aalue#nalysis.. ,eturn on Investment may be improved by:(a)Increasin0 1urnover'(b) ,educin0 5/penses'(c)Increasin0 &apital 7tilization'(d)#ll of the above.. In &urrent ,atio' &urrent #ssets are compared with:(a)&urrent rot' (b)&urrent "iabilities'(c)Fi/ed #ssets' (d)5%uity Share &apital.9. #B& "td. has a &urrent ,atio of .*: and et &urrent #ssets of ,s. *''. 3hat are the&urrent #ssetsC(a),s. *''' (b),s. ''' (c),s. *''' (d) ,s. 9*'';. 1here is deterioration in the mana0ement of workin0 capital of DE "td. 3hat does it refer toC(a)1hat the &apital 5mployed has reduced'(b)1hat the rotability has 0one up'(c)1hat debtorscollection period has increased'(d)1hat Sales has decreased.


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99. 3hich of the followin0 is a measure of 2ebt Service capacity of a rmC(a)&urrent ,atio' (b)#cid 1est ,atio'(c) Interest &overa0e ,atio'(d) 2ebtors 1urnover.

9;. 6ross rot ,atio for a rm remains same but the et rot ,atio is decreasin0. 1he reason forsuch behavior could be:(a) Increase in &osts of 6oods Sold' (b)If Increase in 5/pense'(c) Increase in 2ividend'(d)2ecrease

in Sales.9


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(a) reparation of roMected Statements'(b) reparation of #ctual Statements'(c) &omparison of#ctual with roMected'(d) 8rderin0 the employees that proMected 0ures m come true.;. 3hich of the followin0 is not true for cash Bud0eC(a) 1hat shorta0e or e/cess of cash would appear in a particular period.(b) #ll inNows would arisebefore outNows for those periods. (c) 8nly revenue nature cash Nows are shown.(d) roposed issueof share capital in shown as an inNow.

. State whether each of the following statements is True (T or False (F$(i)Investment decisions and capital bud0etin0 are same.(ii)&apital bud0etin0 decisions are lon0 term decisions.(iii)&apital bud0etin0 decisions are reversible in nature.(iv) &apital bud0etin0 decisions do not aLect the future Stability of the rm.(v)1here is a time element involved in capital bud0etin0.(vi)#n e/pansion decision is not a capital bud0etin0 decision(vii)In mutually e/clusive decision situation' the rm can accept all feasible proposals.(viii) &apital bud0etin0 and capital rationin0 are alternative to each other.(i/) &orrect capital bud0etin0 decisions can be taken by comparin0 the cost with future benets.(/) Future e/pected prots from an investments are taken as returns from the investment forcapital bud0etin0.(/i) &ash Nows are the appropriate measure of costs and benets from an investment proposal.(/ii) Sunk cost is a relevant cost in capital bud0etin0.(/iii) 1he opportunity cost of an input is always considered' in capital bud0etin0.(/iv) #llocated overhead costs are not relevant for capital bud0etin0.(/v) &ash Nows and accountin0 prots are diLerent.(/vi) &ash Nows are same as prot before ta/.(/vii) et cash Now is on after ta/ basis.). Multi"le choice 'uestions. &apital Bud0etin0 is a part of: (a)Investment 2ecision'(b) 3orkin0 &apital -ana0ement'(c)-arketin0 -ana0ement'(d) &apital Structure.9. &apital Bud0etin0 deals with:(a) "on04term 2ecisions'(b) Short4term 2ecisions'(c) Both (a) and(b)'(d) either (a) nor (b).;. 3hich of the followin0 is not used in &apital Bud0etin0C(a) 1ime Aalue of -oney' (b) Sensitivity #nalysis' (c) et #ssets -ethod'(d) &ash Flows.


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(a) is related to Fi/ed #ssets'(b) brin0s lon04term benets'(c) brin0s short4term benets only'(d)has very lar0e investment.9. In &apital Bud0etin0' Sunk cost is e/cluded because it is:(a) of small amount'(b) not incremental'(c) not reversible'(d) #ll of the above.9. Savin0s in respect of a cost is treated in capital bud0etin0 as:(a) #n InNow'(b) #n 8utNow'(c) il' (d) one of the above.

*. State whether each of the following statement is True (T or False (F$(i) Irrespective of the issue involved in a capital bud0etin0 anon' the basic techni%ues can be usedin all cases.(ii) &apital ,ationin0 as a situation when the 6overnment has imposed a ceilin0 on investment bya rm.(iii) # rm should always implement a positive A props irrespective of fund re%uirement.(iv) -oney cash Nows should be discounted at nominal discount rate.(v) ,eal cash Nows should be discounted at normal discount rate.(vi) 5#- is' in a way' an e/tension of A method.(vii) 5#- should be used in accept4reMect decision situation.(viii) Feasibility Set #pproach is based on the A method of capital bud0etin0.(i/) Selection based on I method 0ives optimum decision makin0 in case of indivisible proMects.(/) # rm should i0nore the replacement timin0 of an asset.(/i) 1here is no need to defer a positive A proposal.(/ii) -ulti4period and -ulti4constraints are one and the same thin0.(/iii) InNation aLects not only the cash Nows but also the discount rate.+. Multi"le #hoice Questions$. In capital bud0etin0' the term &apital ,ationin0 implies:(a) 1hat no retained earnin0s available'(b) 1hat limited funds are available for investment'(c) 1hatno e/ternal funds can be raised'(d) 1hat no fresh investment is re%uired in current year9. Feasibility Set #pproach to &apital ,ationin0 can be applied in:(a) #ccept4,eMect Situations'(b) 2ivisible roMects'(c) -utually 5/clusive roMects'(d) one of theabove;. In case of divisible proMects' which of the followin0 can be used to attain ma/imum AC(a) Feasibility Set #pproach'(b) Internal ,ate of ,eturn'(c) rotability Inde/ #pproach'(d) #ny ofthe above


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(iii) In risky capital bud0etin0 proposals' the discount rate is not known with certainty.(iv) ,isk #dMusted 2iscount ,ate and &ertainty 5%uivalents are on based statistical measures.(v) In ayback eriod method' the risk of the proposal is incorporated by lessenin0 the tar0etpayback period.(vi) In &ertainty 5%uivalents method' both the cashNows and the discount rate are adMusted.(vii) In Sensitivity #nalysis' the A of the proposal is adMusted.

(viii) In Sensitivity #nalysis' one variable is adMusted at a time to see its eLect on the A.(i/) Sensitivity #nalysis helps in calculation of A of the proposal.(/) 5/pected value of cash Nows is e%ual to the arithmetic avera0e of the cash Nows.(/i) In case of capital bud0etin0' hi0her the standard deviation better the proMect is.(/ii) In case of dependent cash Nows' the risk is measured with reference to Moint probabilities.(/iii) &oeRcient of variation is as 0ood a measure of risk as the standard deviation.(/iv) 2ecision 1ree #pproach is suitable to analyse a multista0e decision situation.(/v) #bandonment evaluation of a proMect is ma the implementation of a capital bud0etin0proposal.

!. Multi"le #hoice Questions. ,isk in &apital bud0etin0 implies that the decision4maker knowsof the cash Nows.(a) Aariability'(b)robability'(c) &ertainty'(d) one of the above9. In &ertainty4e%uivalent approach' adMusted cash Nows are discounted at:(a) #ccountin0 ,ate of ,eturn'(b) Internal ,ate of ,eturn'(c) Kurdle ,ate'(d) ,isk4free ,ate;. ,isk in &apital bud0etin0 is same as:(a) 7ncertainty of &ash Nows'(b) robability of &ash Nows'(c) &ertainty of &ash Nows'(d) Aariabilityof &ash Nows


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(/viii) ,etained earnin0s have no market value' so these are not included in 3#&& (based onmarket value)!!. Multi"le #hoice Questions. &ost of &apital refers to: (a) Flotation &ost'(b) 2ividend'(c) ,e%uired ,ate of ,eturn'(d) one ofthe above.9. 3hich of the followin0 sources of funds has an Implicit &ost of &apitalC

(a) 5%uity Share &apital'(b) reference Share &apital'(c) 2ebentures'(d) ,etained earnin0s.;. 3hich of the followin0 has the hi0hest cost of capitalC (a) 5%uity shares'(b) "oans'(c) Bonds'(d)reference shares.


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(i) 8peratin0 levera0e analyses the relationship between sales level and 5S.(ii) Financial levera0e depends upon the operatin0 levera0e.(iii) 2ividend on ref. shares is a factor of operatin0 levera0e.(iv) 8peratin0 levera0e may be dened as &ontribution > 5S.(v) Financial levera0e depends upon the /ed nancial char0es.(vi) Favourable nancial levera0e and tradin0 on e%uity are same.

(vii) &ombined levera0e establishes the relationship between operatin0 levera0e and nanciallevera0e.(viii) Financial levera0e is always benecial to the rm.(i/) 1otal risk of a rm is determined by the combined eLect of operatin0 and nancial levera0es.(/) &ombined levera0e helps in analysin0 the eLect of chan0e in sales level on the 5S of the rm.U#nswers :(i) F' (ii) F' (iii) F' (iv) F' (v) 1' (vi) 1' (vii) F'(viii) F' (i/) 1' (/) 1V

!&. Multi"le #hoice Questions. 8peratin0 levera0e helps in analysis of:(a) Business ,isk'(b) Financin0 ,isk'(c) roduction ,isk'(d) &redit ,isk9. 3hich of the followin0 is studied with the help of nancial levera0eC(a) -arketin0 ,isk'(b) Interest ,ate ,isk'(c) Forei0n 5/chan0e ,isk'(d) Financin0 risk;. &ombined "evera0e is obtained from 8" and F" by their:(a) #ddition'(b) Subtraction'(c) -ultiplication'(d) #ny of these 5BI1'(b) 5BI1>B1'(c) 5BI1 >Interest'(d) 5BI1 >1a/@. Financial "evera0e is calculated as:(a) 5BI1> &ontribution' (b) 5BI1> B1'(c) 5BI1> Sales' (d) 5BI1 > Aariable &ost. 3hich combination is 0enerally 0ood for rms(a) Ki0h 8"' Ki0h F" (b) "ow 8"' "ow F"' (c) Ki0h 8"' "ow F"'(d) one of these. &ombined levera0e can be used to measure the relationship between:(a) 5BI1 and 5S'(b) #1 and 5S'(c) Sales and 5S'(d) Sales and 5BI1. F" is zero if:(a) 5BI1 Q Interest'(b) 5BI1 Q ero'(c) 5BI1 Q Fi/ed &ost'(d) 5BI1 Q ref. 2ividend9. Business risk can be measured by:(a) Financial levera0e'(b) 8peratin0 levera0e'(c) &ombined levera0e'(d) one of the above;. Financial "evera0e measures relationship between(a) 5BI1 and B1'(b) 5BI1 and 5S'(c) Sales and B1'(d) Sales and 5S


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!). Multi"le #hoice Questions.In order to calculate 5S' rot after 1a/ and reference 2ividend is divided by:(a) - of 5%uity Shares'(b) umber of 5%uity Shares'(c) Face Aalue of 5%uity Shares' (d) one ofthe above. 9.1radin0 on 5%uity is :(a) #lways benecial'(b) -ay be benecial'(c) ever benecial'(d) one of the above.;. Benet of =1radin0 on 5%uity= is available only if:

(a) ,ate of Interest G ,ate of ,eturn'(b) ,ate of Interest H ,ate of ,eturn'(c) Both (a) and (b)'(d)one of (d) and (b).


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(a) et Income #pproach'(b) et 8peratin0 Income #pproach'(c) 1raditional #pproach'(d) #ll ofthese.9. =1hat personal levera0e can replace corporate levera0e= is assumed by:(a) 1raditional #pproach'(b) -- -odel'(c) et Income #pproach'(d) et 8peratin0 Income#pproach.;. 3hich of the followin0 ar0ues that the value of levered rm is hi0her than that of the

unlevered rmC(a) et Income #pproach'(b) et 8peratin0 Income #pproach'(c) -- -odel with ta/es'(d) Both (a)and (c).


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(a) Share price 0oes up if dividend is paid ' (b) Share price 0oes down if dividend is not paid' (c)-arket value is unaLected by 2ividend policy' (d) #ll of the above.@. 3hich of the followin0 stresses on investor=s preference reorient dividend than hi0her futurecapital 0ains C(a)3alter=s -odel' (b) ,esiduals 1heory' (c) 6ordon=s -odel' (d) -- -odel.. -- -odel of 2ividend irrelevance uses arbitra0e between

(a)2ividend and Bonus' (b)2ividend and &apital Issue' (c)rot and Investment'(d)one of theabove. If keQ r' then under 3alter=s -odel' which of the followin0 is irrelevantC(a)5arnin0s per share'(b)2ividend per share'(c)2 ,atio'(d)one of the above. -- -odel ar0ues that dividend is irrelevant as(a)the value of the rm depends upon earnin0 power'(b)the investors buy shares for capital 0ain'(c)dividend is payable after decidin0 the retained earnin0s' (d)dividend is a small amount9. 3hich of the followin0 represents passive dividend policy C(a)that dividend is paid as a J of 5S' (b)that dividend is paid as a constant amount' (c)thatdividend is paid after retainin0 prots for reinvestment' (d)all of the above;. In case of 6ordon=s -odel' the - for zero payout is zero. It means that(a)Shares are not traded' (b)Shares available free of cost' (c)Investors are not ready to oLer anyprice'(d) one of the above 5S' (c)ref. 2ividend > #1'(d)ref. 2ividend > 5%uity 2ividend9. 2ividend declared by a company must be paid in(a)9 days'(b); days'(c);9 days'(d)


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(i) -ana0ement of cash means mana0ement of cash in Nows.(ii) &ash is the most important but least earnin0 current asset.(iii) &ash mana0ement always attempts at minimizin0 the cash balance.(iv) &ash cycle is e%ual to operatin0 cycle for a rm.(v) ,eceipts and disbursement method of preparation of cash bud0et is the most widely usedmethod.

(vi) &oncentration bankin0 is a method of controllin0 cash outNows.(vii) Baumol=s model of cash mana0ement assumes a constant rate of use of cash.(viii) Baumol=s model attempts at optimization of cash balance.(i/) In cash mana0ement' e/pected surplus cash' if any' is not considered at all.(/) &apital e/penditures are not considered in cash bud0et.(/ i) Issue of share capital or debentures are taken as inNows in cash bud0et.(/ii) &onversion of debentures into share capital is e%ual to issue of share capital and hence it is atype of cash inNow.%&. Multi"le #hoice Questions. &ash Bud0et does not include(a) 2ividend ayable' (b)ostal 5/penditure' (c) Issue of &apital' (d)1otal Sales Fi0ure.9. 3hich of the followin0 is not a motive to hold cashC(a) 1ransactionary -otive' (b)re4scautionary -otive'(c)&aptal Investment' (d)one of the above.;. &he%ues deposited in bank may not be available for immediate use due to(a) ayment Float'(b),ecceipt Float'(c) et Float' (d)layin0 the Float.


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(a) &ollateral'(b)&haracter' (c) &onditions'(d) one of the above.9. 3hich of the followin0 is not an element of credit policyC(a)&redit 1erms'(b)&ollection olicy'(c)&ash 2iscount 1erms'(d)Sales rice.;. #0ein0 schedule incorporates the relationship between (a)&reditors and 2ays 8utstandin0'(b)2ebtors and 2ays 8utstandin0' (c)#vera0e #0e of 2irectors' (d)#vera0e #0e of #ll 5mployees.


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(a)Inventory -ana0ement'(b),eceivables -ana0ement'(c)#ccountin0 olicies'(d)&orporate6overnance.;. If no information is available' the 6eneral ,ule for valuation of stock for balance sheet is(a),eplacement &ost'(b),ealizable Aalue'(c)Kistorical &ost'(d)Standard &ost.


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&.Multi"le #hoice Questions. 1he type of collateral (security) used for short4term loan is(a) ,eal estate'(b)lant ! -achinery'(c)Stock of 0ood' (d)5%uity share capital9. 3hich of the followin0 is a liability of a bankC(a)1reasury Bills'(b)&ommercial papers'(c)&erticate of 2eposits'(d)Wunk Bonds.;. &ommercial paper is a type of (a)Fi/ed coupon Bond'(b)7nsecured short4term debt'(c)5%uity

share capital'(d) 6overnment Bond


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(iv) #ll BF&s operatin0 in India must be re0istered with S5BI.(v) ,e0ulatory framework for BF&s is provided by ,BI.(vi)#ny BF& can borrow funds on mutually a0reed terms.(vii) rudential norms for #ssets and Investments by BF&s were framed on the recommendationsof arasimhan &ommittee.(viii) #ssets of BF&s are also classied as Standard' on4Standard' 2oubtful and "ost.

(i/) BF&s are not allowed to operate in Insurance sector.(/) # merchant banker helps in procurin0 overdraft from a commercial bank.(/i) #ll merchant bankers have to be re0istered with ,BI.(/ii) # lead mana0er has post4issue responsibilities also.(/iii) -erchant bankers should follow the prescribed code or conduct.(/iv) Share capital issued by a company for the rst time is known as venture capital.(/v) # mutual fund can operate as a venture capital fund.(/vi) # venture capital rm deals with a new' risky and untested product.(/vii) #ll venture capital funds in India have been promoted by 6overnment.(/viii) ortfolio mana0ers are not re%uired to be re0istered.(/i/) # portfolio mana0er has to operate as per the code of conduct prescribed by S5BI.(//) &redit ratin0 is an authoritative 0uarantee re0ardin0 the credit position of a person.//i) ,BI has prescribed 0uidelines for the operations of credit ratin0 a0encies in India.//ii) Securitisation and Factorin0 are two sides of the same coin.(//iii) Securitization in India is re0ulated by ,BI.

&&. State whether each of the following statements is True (T or False (F(i)Aaluation of bonds and of e%uity shares can be made by the same valuation model.(ii) 5%uity shares cannot be valued because e%uity shares have no redemption.(iii)Intrinsic value and market price of e%uity shares are always e%ual.(iv)BA of an e%uity share is the best measure of valuation.(v)In 2ividend 2iscount -odel' the valuation of e%uity shares is based on e/pected stream ofdividends.(vi) o40rowth 2ividend model' only ne/t years= dividend is capitalised.(vii)o40rowth dividend model does not involve present value concept.(viii)6ordon=s -odel and &onstant 6rowth -odel are one and same.(i/) In &onstant 6rowth model' the value of e%uity share ii sensitive to 0rowth rate.(/) In &onstant 6rowth model' the value of e%uity share not sensitive to re%uired rate of return.(/i) For companies which are not e/pected to pay dividends e%uity shares cannot be valued.(/ii) In 3alter=s -odel' the value of e%uity share depends upon the 2 ratio.(/iii) factor is a measure of value of share.(/iv) - helps in determinin0 re%uired rate of return.(/v) Face Aalue' Issue rice and -arket Aalue of bond must be same.(/vi) -arket Aalue of debt instruments depends upon the market value of collateral.(/vii) Basic or &urrent yield on a bond is calculated with reference to the face value or issue priceof a debenture.(/viii)E1- of a bond is the same as the I,, of the bond investment.(/i/) Bond valuation depends upon the discounted cash Now techni%ue.(//) Bond Aaluation is sensitive to both the interest rate and the re%uired rate of return of theinvestor.

(//i) ,e%uired rate of return and bond valuation are inversely related.0Answers$ (i F (ii F (iii F (iv F (v T (vi T (vii 2(viii T (i3 T (3 F (3i F (3ii T(3iii F (3iv T (3v F (3vi F (3vii F (3viii T (3i3 T (33 F (33i T4

&. Multi"le #hoice Questions. 2eep 2iscount Bonds are issued at(a)Face Aalue'(b)-aturity Aalue'(c)remium to Face Aalue'(d)2iscount to Face Aalue.9. rincipal value of a bond is called the(a)-aturity Aalue'(b)Issue rice'(c)ar Aalue'(d)-arket rice.;. If the re%uired rate of return of a particular bond is less than coupon rate' it is known as(a)2iscount Bond'(b)remium Bond'(c)ar Bond'(d)Wunk Bond.


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. # +J bond with a face value of ,s. 9* is available for ,s. 9 in the market. 1hey yield onthe bond is(a)+J'(b)9J'(c)@J' (d);9J9. #t time to maturity comes closer' than market price of a bond approaches(a)Face Aalue'(b),edemption Aalue' (c)Issue rice' (d)ero Aalue.;. -arket rice of Bond and -arket ,ate of Interest

(a) Inverse relationship'(b)ositive relationship'(c)o relationship'(d)one of the above.


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*. 3hich of the followin0 is trueC (a),isk can never be reduced to zero'(b)2iversication alwaysreduces risk to zero'(c)2iversication does not aLect risk'(c)one of the above.+. Standard deviation can be used to measure(a),isk of an investment'(b),eturn of an investment' (c)Both(a)!(b) and (d) one of (a) and (b).?. 3hich of the followin0 is trueC(a) Ki0her the Beta' lower the risk' (b)Ki0her the Beta' hi0her the risk'(c),isk is constant'(d)Beta is

constant.@. #mount of risk4reduction in a portfolio depends upon(a)-arket movement'(b)2e0ree of correlation'(c)o. of shares'(d) Both (b) and (c).. In a diversied portfolio' a new security adds(a) Systematic ,isk'(b) 7nsystematic ,isk'( c) "i%uidity ,isk' (d) one of the above.. ,isk4,eturn trade oL implies (a) -inimization of ,isk' (b) -a/imization of ,isk' (c)I0norance of,isk(d) 8ptimization of ,isk. Basic obMective of diversication is(a) Increasin0 ,eturn' (b) -a/imisin0 ,eturn' (c) 2ecreasin0 ,isk' (f) -a/imizin0 ,isk.9. ,isk4aversion of an investor can be measured by(a) -arket ,ate of ,eturn'(b) ,isk4free ,ate of ,eturn' (c) ortfolio ,eturn' (d) one of the above.;.,isk of a portfolio depends on(a) ,isk of elements' (b) &orrelation of return (c) roportion of elements' (d) #ll of the above.


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(/iv) 1here is no /ed strike date in 5uropean options.(/v) 8ption premium is one time non4refundable amount.(/vi) 5/piry date of an option contract is mutually decided by the parties.(/vii) "oss of the call options holder is always limited.(/viii) "oss of the put option holder is always limited.(/i/) 5/cess of call option market price over the strike price is called intrinsic value.

(//) Intrinsic value of an option is non4ne0ative.(//i) Swap deals with the delivery of a physical asset.(//ii) Swap arran0ements are always standardised.(//iii) #ll derivatives contracts on S5 are cash settled.(//iv) Futures and 8ptions are available on the shares in India.&,.Multi"le #hoice Questions. # Futures contract is standardized version of a(a)ut option'(b)&all option'(c)&all O ut'(d)Forward contract9. -ar0ins are imposed on options sellers to safe0uard the interest of(a)5/chan0e'(b)Brokers' (c)Buyers'(d) d) #ll of the above;. In Futures tradin0' the mar0in in payable to the broker by(a)Buyer of Futures'(b)Sellers of Futures'(c)one of (a) and (b)'(d)Both of (a) and (b)


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(/vi) 8Ler once made to ac%uire shares cannot be revoked.(/vii) o competitive bid can be made for takeover of shares of other company(/viii) &an a mer0er proposal be evaluated as a capital bud0etin0 decision.

1.Multi"le choice 'uestions. # rm can ac%uire tar0et rm by (a) urchasin0 assets of 1ar0et' (b) urchasin0 shares of

1ar0et' (c)urchasin0 #ssets or Shares(d)one of the above9. #B& "td ac%uires substantial number of e%uity shares in DE "td. It is a case of(a)-er0er'(b)#c%uisition'(c)#mal0amation'(d)#bsorption;. \, "td. is a prot makin0 company. It is absorbed into another 0roup company DE "td. whichis a loss company. 1his is a case of (a)Kostile takeover bid'(b)Korizontal -er0er'(c),everse -er0er'(d)1akeover


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(a)Indirect ,oute'(b)&ross4,ate' (c)2irect ,oute'(d)Spot ,ate


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(/iv) 2epository participant is an a0ent of an investor.(/v) In book4buildin0 process' the price of the security is announced by the company.(/vi) ,ollin0 Settlement is a system of settlement of accounts of brokers.(/vii) Sense/ is an inde/ number of * shares.(/viii) S5 and BS5 are the only stock e/chan0es in India.(/i/) 1he oldest stock e/chan0e in India is S5.

(//) Futures and 8ptions in shares are traded only at BS5 and S5.

).Multi"le #hoice Questions #ssets -ana0ement company is formed(a) 1o mana0e bank=s assets'(b)) 1o mana0e mutual funds investments'(c)) 1o constructinfrastructure proMects(d) 1o run a stock e/chan0e9. rime duty of a merchant banker is(a) -aintainin0 records of clients' (b) 6ivin0 loans to clients'(c) 3orkin0 as a &apital -arketIntermediary(d)one of the above;. Basic obMective of a money market mutual fund is(a) 6uaranteed rate of return'(b) Investment in short4term securities'(c)Both (a) and (b)'(d) oneof (a) and (b)


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