Financial Markets MCQs

Consider the following statements: 1. Bondholders are lenders to a company while stockholders are owners. 2. In case of repayment, bondholders generally rank ahead of stockholders. Which of the above best explains why bondholders are usually at relatively lower risk than stockholders?

• ABoth 1 and 2 explain itCorrect
• BOnly 1 explains it
• COnly 2 explains it
• DNeither 1 nor 2 explains it

With reference to investments, consider the following: Bonds, Hedge Funds, Stocks and Venture Capital. How many of the above are treated as Alternative Investment Funds?

• AOnly one
• BOnly twoCorrect
• COnly three
• DAll four

With reference to India's equity options market, consider the following statements: 1. India accounts for a very large share of global equity options trading volume. 2. India's stock market capitalization has grown rapidly in recent years. 3. There is no regulatory body in India that cautions small investors about derivatives risk. Which of the statements given above are correct?

• A1 and 2 onlyCorrect
• B2 and 3 only
• C1 and 3 only
• D1, 2 and 3

If the United States were to default on its Treasury obligations, holders of US Treasury Bonds would face payment risk because:

• ATheir claim depends on the credit and promise of the US GovernmentCorrect
• BTreasury bonds are always backed by physical gold kept with investors
• CThey can never legally claim any payment under any circumstances
• DTreasury bonds are not debt instruments at all

Who among the following can trade in corporate bonds and Government securities in India? 1. Insurance companies 2. Pension funds 3. Retail investors Select the correct answer using the code given below:

• A1 and 2 only
• B2 and 3 only
• C1 and 3 only
• D1, 2 and 3Correct

Which of the following are financial instruments? 1. Exchange-Traded Funds 2. Motor vehicles 3. Currency swaps Select the correct answer using the code given below:

• A1 only
• B2 and 3 only
• C1, 2 and 3
• D1 and 3 onlyCorrect

Convertible bonds usually carry lower coupon rates because:

• AThey give investors an option to convert debt into equity, which has valueCorrect
• BThey are riskier than equity
• CThey are always indexed to inflation
• DThey cannot be traded before maturity

Inflation-Indexed Bonds are attractive to investors mainly because they:

• AProtect the real value of returns against inflationCorrect
• BGuarantee the highest equity-like capital gains
• CEliminate all interest-rate risk completely
• DCan be issued only by private companies

Government bond yields generally tend to rise when:

• AExpected inflation hardens and central banks tighten liquidityCorrect
• BBond prices rise sharply because of excess demand
• CInvestors flee toward safety in large numbers
• DThere is no borrowing requirement from the government

With reference to Treasury Bills and Government securities, consider the following statements: 1. Treasury Bills are short-term debt instruments of the Government of India. 2. Retail investors can participate in Government securities under the appropriate platform arrangements. Which of the statements given above is/are correct?

• A1 only
• B1 and 2Correct
• C2 only
• DNeither 1 nor 2

Which of the following are money market instruments? 1. Commercial Paper 2. Certificate of Deposit 3. Call Money 4. Zero-coupon long-term bonds Select the correct answer using the code given below:

• A1, 2 and 3 onlyCorrect
• B1 and 2 only
• C2, 3 and 4 only
• D1, 2, 3 and 4

Participatory Notes are associated with:

• AForeign portfolio or institutional investors issuing offshore instruments to overseas investorsCorrect
• BThe Consolidated Fund of India
• CPrimary agricultural cooperatives
• DWorld Trade Organization compliance notes