Master Practice Set 1 Welcome to AADVIKMS!  Practice Set of Securities Markets Total Number of Questions: 100 Time: 100 Minutes All the best... Kind Regards CMA Madhuri Kashyap & CMA Sandeep Kumar - Founder - International Navodaya Chamber of Commerce Name Email Phone State 1. What is the primary role of **Securities Markets**? Provide liquidity to financial instruments. Facilitate long-term investments Ensure government borrowing stability. Manage risks of investors None 2. What is the key benefit of **Mutual Funds** for retail investors? High-risk investments. Professional management of funds. Tax-free returns. Guaranteed fixed returns None 3. Which of the following best describes **Primary Markets**? Trading of existing securities. Issuance of new securities. Risk management strategies. Monitoring mutual funds None 4. How do **Equity Shares** differ from **Debt Instruments**? Equity shares represent ownership; debt represents borrowing. Equity shares guarantee fixed returns; debt does not Debt instruments carry higher risk than equity shares. Equity shares have a shorter tenure than debt instruments None 5. What is the role of **SEBI** in the securities market? Ensure profitability for investors. Regulate and develop the market Provide loans to companies. Guarantee returns on investments None 6. Which financial instrument is traded in the **Secondary Markets**? Newly issued securities. Existing securities. Derivatives only Mutual funds None 7. What is the primary advantage of **derivatives** in financial markets? Risk management and hedging. Guaranteed profits. Increased leverage for investors. Direct ownership in underlying assets None 8. What is the **face value** of a security? The market value at the time of trading The value printed on the security certificate The expected dividend or interest rate. The value determined by SEBI. None 9. Who is considered a **retail investor** in the securities market? Institutional bodies investing in large volumes. Individual investors investing smaller amounts Banks acting as brokers. Foreign entities investing in mutual fund None 10. What is the **main purpose** of financial regulation in markets? Ensure investor safety and market efficiency. -Increase government revenue. Promote insider trading. Facilitate tax evasion. None 11. What type of securities are referred to as **hybrid instruments**? Instruments combining equity and debt features Derivatives with guaranteed returns. High-risk government bonds. Equity shares with voting rights None 12. What is a **depository participant (DP)**? An entity holding physical securities for investors An intermediary enabling electronic securities trading. An organization regulating the stock market. A trader managing secondary market operations None 13. What is the **primary function of a stock exchange**? Issue new securities. Provide a platform for trading securities Determine government policies Guarantee returns to investors None 14. How are **government bonds** typically categorized? High-risk securities. Low-risk, fixed-income securities. Non-tradable financial products. Tax-free equity instruments. None 15. What is the role of **merchant bankers** in primary markets? Provide loans to investors. Manage and underwrite new issues. Act as custodians for securities. Monitor mutual fund performance None 16. Which is a **feature of preference shares**? Fixed dividend payouts. High-risk and high-return investment. Ownership and voting rights. No preference in liquidation proceedings None 17. What does the term **asset allocation** mean in investing? Allocation of savings to fixed deposits only. Diversifying investments across asset classes. Investing in mutual funds exclusively. Avoiding equity investments altogether None 18. What is the primary purpose of **risk management systems** in the securities market? Eliminate all risks associated with investments. Identify, assess, and mitigate potential market risks. Increase trading volumes for brokers Ensure higher profits for all investors None 19. What are **systematic transactions** in mutual funds? Investments made once a year. Regular and automated investments or withdrawals. Investments with guaranteed returns. Transactions regulated by SEBI. None 20. Which statement is true about **electronic gold receipts (EGRs)**? They are physical forms of gold investment. They are non-tradable securities. They represent gold in dematerialized form. They are exempt from regulatory oversight. None 21. What is the role of **credit rating agencies** in the securities market? Issue new securities for companies. Provide ratings on the risk of debt instruments. Ensure liquidity in the secondary market. Manage investor portfolios None 22. What is a **debt instrument**? An ownership stake in a company. A financial product representing borrowing. A speculative derivative An asset with no fixed returns. None 23. Which of the following is a **type of public issue of equity shares**? Initial Public Offering (IPO). Systematic Investment Plan (SIP). Exchange-Traded Funds (ETFs). Rights Issue of Bonds None 24. What is the **difference between primary and secondary markets**? Primary markets trade existing securities, secondary markets issue new ones. Primary markets issue new securities, secondary markets trade existing ones Both involve issuing and trading new securities. There is no difference between the two. None 25. What does the **investment horizon** refer to? The expected timeframe for an investment. The maximum risk an investor can bear. - The return expected from an investment. The diversification strategy of a portfolio None 26. What is the **main feature** of convertible bonds? They pay a fixed interest rate forever They can be converted into equity shares. They are risk-free securities. They cannot be traded in secondary markets None 27. What is **dematerialization** in the securities market? Conversion of physical securities into electronic form. Transfer of securities between investors. The process of issuing new securities. Cancellation of old securities None 28. What is the **function of a custodian** in the securities market? Issuing new securities for investors. Managing the physical and electronic holdings of securities. Providing loans to retail investors. Regulating the stock exchange. None 29. Which of the following is a **feature of equity investment**? Fixed returns and no ownership rights. Ownership rights and potential for variable returns. Guaranteed dividends irrespective of profits. No voting rights for shareholders. None 30. What does **liquidity** in the securities market mean? The ability to hold securities long-term. The process of issuing new shares. The ease of converting securities into cash. The guarantee of profits in investments. None 31. What is the purpose of **Systematic Investment Plans (SIPs)**? Ensure fixed returns from mutual funds. Facilitate regular, disciplined investments. Reduce market risk entirely. Offer short-term profits. None 32. What is a **bull market**? A market where prices are declining steadily. A market characterized by rising prices. A market with no significant price movement. A market controlled by institutional investors. None 33. Who are considered **institutional investors**? Individual retail investors. - Banks, mutual funds, and pension funds. Small-scale private traders. Government agencies issuing bonds None 34. What does **portfolio diversification** mean? Investing only in equity securities. Spreading investments across various asset classes. Allocating all funds to a single stock. Investing exclusively in government bonds. None 35. Which market regulator is responsible for the **Indian securities market**? RBI (Reserve Bank of India). SEBI (Securities and Exchange Board of India). IRDAI (Insurance Regulatory and Development Authority). Ministry of Corporate Affairs. None 36. What is **market capitalization**? Total profit generated by a company. Total value of a company's outstanding shares. Number of shares issued by a company. Fixed value of a company’s assets None 37. Which of the following is an **example of a derivative instrument**? Equity shares. Futures contracts. Mutual fund units. Government bonds. None 38. What does **NAV (Net Asset Value)** represent in mutual funds? . The total dividends paid to investors. The market price of a mutual fund unit. The value per unit of the mutual fund's assets. The profit generated by the fund in a year None 39. What is **insider trading**? Buying or selling securities based on non-public information. Investing in international markets. Trading in government securities. Purchasing large quantities of shares openly. None 40. What is the role of **registrars and transfer agents (RTAs)** in the securities market? Regulate stock exchanges. Maintain records of investor transactions and holdings. Manage company mergers. Offer loans to investors. None 41. What does **SEBI’s role in corporate governance** involve? Regulating IPO pricing. Ensuring transparency and accountability in corporate practices. Approving mergers and acquisitions. Issuing government bonds. None 42. What is **short selling** in the stock market? Selling a security without owning it, expecting the price to drop. Buying shares in small quantities. Holding shares for a short duration. Investing in low-value stocks. None 43. What is the **key benefit of ETFs (Exchange-Traded Funds)**? Guaranteed high returns. Tax-free dividends. Liquidity and real-time trading on exchanges. Exclusive investment for institutional investors. None 44. What is the function of **depositories in the securities market**? Issue new securities. Hold securities in electronic form and facilitate transfers. Determine stock prices. Provide loans to investors None 45. What does the **price-to-earnings (P/E) ratio** indicate? The total earnings of a company. The company’s valuation relative to its earnings. The market price of its bonds. The average stock price in the market None 46. What is a **blue-chip stock**? A highly speculative stock with low valuation. Shares of established companies with a history of stable performance. A stock listed only in foreign markets. A stock with no dividend history. None 47. What is a **hedge fund**? A fund that invests only in government securities. A pooled investment fund that uses advanced strategies for high returns. A mutual fund for retail investors. - A fund exclusively for commodity trading None 48. Which type of bond is **issued at a discount** but pays no interest? Convertible bond. Zero-coupon bond. Floating-rate bond. Perpetual bond. None 49. What does the **Sharpe Ratio** measure? A fund's expense ratio. Risk-adjusted returns of an investment. Market volatility over time. A company’s profitability. None 50. What is the **purpose of a prospectus** in a public offering? To guarantee investor returns. To provide detailed information about the offering and the company. To register the company with SEBI. To conduct post-issue reporting. None 51. What does **market risk** refer to? Risk from changes in market interest rates. Risk of losing investment due to market volatility. Risk associated with company bankruptcy. Risk of fraud in the securities market. None 52. What is the **strike price** in an options contract? The price at which the contract is executed. The agreed-upon price to buy or sell the underlying asset. The current market price of the asset. The premium paid for the option. None 53. What are **REITs (Real Estate Investment Trusts)**? Mutual funds for investing in equities. Companies that manage and invest in real estate properties. Bonds issued by real estate developers. Stocks with high dividend yields. None 54. What is the main purpose of **credit default swaps (CDS)**? To provide loans to investors. To hedge against the risk of credit defaults. To enhance market liquidity. To guarantee profits for banks None 55. Which market segment deals in **short-term debt instruments**? Primary market. Money market. Derivatives market. Commodity market None 56. What does **systematic risk** refer to? Risk associated with individual companies. Risk inherent to the entire market or economy. Risk caused by human error in trading. Risk from speculative trading. None 57. What is the **main advantage of equity financing** for companies? Guaranteed repayment to investors. No obligation to pay interest or principal. Reduced volatility in stock prices. Lower cost than debt financing. None 58. What is the **primary role of a clearing corporation**? Issue new securities. Ensure the settlement of trades. Manage investor accounts. Provide loans to traders. None 59. What is a **rights issue**? Issuance of new shares to the public Issuance of additional shares to existing shareholders. Distribution of dividends to shareholders. Conversion of bonds into equity. None 60. What is the **purpose of a stock split**? Reduce the market value per share. Increase the company’s total market capitalization. Issue bonus shares to employees. Change the company's ownership structure None 61. What is the **beta of a stock**? A measure of its risk relative to the market. Its average dividend yield. Its expected annual return. Its market capitalization None 62. What is a **call option**? The right to sell an asset at a specified price. The obligation to buy an asset at a specified price. The right to buy an asset at a specified price. The obligation to sell an asset at a specified price. None 63. What is a **hedging strategy**? A method to speculate on price movements. A technique to reduce investment risk. A process of maximizing returns. A plan to invest in high-risk asset None 64. What is **arbitrage**? Speculating on future price movements. Simultaneously buying and selling an asset to profit from price differences. Investing in high-risk securities. Converting one asset class into another None 65. What is the **main advantage of index funds**? . Higher returns than actively managed funds. Low costs and diversification. Guaranteed profits in all market conditions. Exclusive access for institutional investors None 66. What does **SEBI's insider trading regulation** aim to prevent? Trading based on publicly available information. Fraudulent and unfair trade practices. Trading by foreign portfolio investors. Issuance of new securities without approval. None 67. What is a **demat account**? An account to hold physical certificates. An account to trade derivatives. An account to store securities in electronic form. An account for foreign investors. None 68. What is the purpose of a **stop-loss order**? Lock in profits when prices rise. Minimize losses by selling at a predetermined price. Buy additional shares during a price drop. Protect dividends from taxation None 69. What is the **difference between growth and value investing**? Growth investing focuses on undervalued companies; value investing focuses on fast-growing companies. Growth investing targets high-growth companies; value investing targets undervalued companies. Growth investing guarantees higher returns. Value investing only applies to government bonds. None 70. What is a **derivative**? A financial instrument derived from the value of an underlying asset. A fixed-income security. A loan offered by banks. A mutual fund investment. None 71. What is **diversification** in portfolio management? Investing all funds in one asset class. Spreading investments across multiple asset classes to reduce risk. Investing only in government securities. Avoiding high-risk assets completely. None 72. What does a **bond yield** indicate? The percentage of profit made by a company. The annual return earned on a bond investment The face value of a bond. The total market value of the bond. None 73. What is the **lock-in period** in an investment?. The period during which an investor can freely trade securities The duration for which the investment cannot be withdrawn or sold. The time taken to settle trades The period required to open a trading account None 74. Which of the following is a **money market instrument**? Treasury bills. Equity shares. Corporate bonds Preference shares. None 75. What is the **book-building process** in an IPO? Setting a fixed price for the shares being offered. Determining the price range based on investor demand. Allocating shares to retail investors only. Selling all shares to institutional investors None 76. What is the **difference between equity and debt** investments? Equity investments provide fixed returns; debt investments do not. Equity represents ownership; debt represents borrowing. Debt investments are riskier than equity. - Equity is tradable, but debt is not. None 77. What is the **price discovery mechanism** in stock markets? Setting prices by regulators. Determining prices through supply and demand. Fixing prices at the start of each trading day. Guaranteeing prices for investors None 78. What is a **credit rating**? The current market price of a bond. An assessment of a borrower's ability to repay debt. The dividend declared by a company. The annual return on an equity investment. None 79. What is a **put option**? The right to buy an asset at a specified price. The right to sell an asset at a specified price. The obligation to buy an asset at a future date The obligation to sell an asset at a future date None 80. What does the **time value of money** concept state? Money's value remains constant over time. A rupee today is worth more than a rupee in the future. Inflation does not affect the value of money. Future cash flows have higher value than present cash flows. None 81. What is the **primary objective of mutual funds**? Offer high returns with no risk. Pool money from investors to create a diversified portfolio. Provide loans to institutional investors. Invest exclusively in government bonds. None 82. What is a **margin call**? A demand for additional funds in a margin account. A penalty for late trading. A request for selling all securities in a portfolio. A call to increase dividends. None 83. What is a **financial derivative**? A physical asset with fixed returns. A security derived from the value of an underlying asset. A government-issued savings bond. A type of stock with voting rights. None 84. What does **market liquidity** mean? The ease with which securities can be bought or sold without affecting prices. The number of shares issued by a company. The total market capitalization of a stock. The percentage of a company's outstanding debt. None 85. What is **systematic risk**? Risk associated with specific companies. Market-wide risk that cannot be eliminated through diversification. Risk from human error in transactions. Risk caused by speculative activities. None 86. What is **compounding** in finance? . The process of earning interest on the principal amount only. Earning interest on both the principal and previously earned interest. A method of calculating fixed returns. A way to increase investment risk None 87. What is a **Treasury Bill (T-Bill)**? A long-term debt instrument issued by corporations. A short-term debt instrument issued by the government. An equity-based financial product. A derivative contract. None 88. What does **NIFTY 50** represent? The performance of the top 50 large-cap companies listed on the NSE. A basket of government bonds. A small-cap index for startups. A global stock exchange performance indicator. None 89. What is the **capital market**? A market for trading short-term financial instruments. A market for raising and trading long-term funds. A market for only government bonds. A market for real estate investments. None 90. What is the purpose of a **debenture**? To provide equity ownership in a company. To raise long-term debt without collateral. To enable short-term borrowing by corporations. To distribute profits to shareholders. None 91. What is the **alpha** in investment returns? The return earned from dividends. The excess return of an investment compared to its benchmark. The average market return. The risk-adjusted return of a portfolio. None 92. What is the **difference between SIP and lump sum investments**? SIP involves regular investments, while lump sum is a one-time investment Lump sum investments provide higher returns than SIPs. SIPs are only for high-risk portfolios. Lump sum investments are not allowed in mutual funds. None 93. What is the **purpose of the futures market**? Facilitate spot trading of commodities. Enable trading contracts to buy or sell assets in the future at predetermined prices. Provide guaranteed profits to investors. Eliminate all risks in trading. None 94. What is **market capitalization**? The face value of a company's shares. The total value of a company's outstanding shares at the current market price. The total annual profit of a company. - The amount of money raised through an IPO None 95. What is the purpose of an **exchange-traded fund (ETF)**? To provide risk-free returns. To track the performance of an index or commodity. To manage large institutional portfolios. To invest exclusively in government securities. None 96. What is the **difference between G-Secs and corporate bonds**? G-Secs are risk-free; corporate bonds carry credit risk. G-Secs are short-term, while corporate bonds are always long-term. Corporate bonds are issued by governments. G-Secs offer higher returns than corporate bonds. None 97. What is a **yield curve**? A graph showing dividend payments over time. A graph showing interest rates across different maturities. A tool to calculate bond prices. A curve representing market volatility None 98. What is the **difference between an active and passive investment strategy**? Active strategies aim to outperform the market; passive strategies aim to replicate market performance. Passive strategies guarantee profits. Active strategies involve less trading than passive strategies. Passive strategies exclude equity investments. None 99. What is the **primary market**? A market for trading already issued securities. A market for issuing new securities to raise funds. A market for derivatives. A market for commodities. None 100. What is a **dividend payout ratio**? The percentage of profits distributed to shareholders as dividends. The annual growth rate of dividends. The dividend yield of a stock. The total number of shares eligible for dividends. 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