Master Practice Set 2 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 **difference between bonds and debentures**? Bonds are backed by collateral, while debentures are unsecured. Debentures are issued by governments, while bonds are issued by corporations. Bonds are always short-term, while debentures are long-term. There is no difference between the two None 2. What is the **role of a stockbroker**? Issue new securities in the market. Act as an intermediary between investors and stock exchanges. Regulate trading activities. Provide loans to retail investors None 3. What is a **circuit breaker** in stock markets? A tool to prevent excessive volatility by halting trading when limits are breached. A strategy for speculative trading. A method for calculating market indices. A feature that guarantees profits for traders None 4. What is the **difference between market orders and limit orders**? Market orders execute immediately at the current price; limit orders execute at a specified price. Limit orders are faster than market orders. Market orders are applicable only for derivatives. Limit orders guarantee execution, while market orders do not None 5. What is the **ex-dividend date**? The date when dividends are paid to shareholders. The cutoff date for shareholders to be eligible for dividends. The date a company announces its dividend. The last trading day for the stock. None 6. What is a **stop-limit order**? . An order to buy or sell a stock at a specific price or better, once a trigger price is reached. An order executed immediately at the market price. A request to halt trading in a specific security. A guaranteed method for short selling None 7. What is **weighted average cost of capital (WACC)**? The average interest rate a company pays on its loans. The average cost of equity and debt financing, weighted by their proportion. The dividend payout ratio of a company. The cost of new investments only. None 8. What is **liquidity risk**? The risk of losing money due to market volatility. The risk of being unable to sell assets quickly without incurring losses. The risk of interest rate fluctuations. The risk associated with currency exchange rates None 9. What is the **difference between equity shares and preference shares**? Equity shares have fixed returns; preference shares do not. Preference shares have priority in dividend payments and liquidation. Equity shares do not carry ownership rights. Preference shares have voting rights, while equity shares do not None 10. What is **ALM (Asset-Liability Management)**? Managing company mergers and acquisitions. Aligning assets and liabilities to manage liquidity and interest rate risks. Tracking shareholder equity. Planning tax payments for corporations. None 11. What is the **role of SEBI in the Indian securities market**? To set interest rates on government bonds. To regulate and promote the development of securities markets. To manage investor trading accounts. To provide loans to public companies None 12. What is a **growth stock**? A stock that provides consistent dividends. A stock with potential for higher earnings growth. A government-issued stock. A stock with no ownership rights None 13. What does **earnings per share (EPS)** represent? The market price of a company's share. The net profit earned per outstanding share of a company. The total dividend paid by a company. The annual return on an investment. None 14. What is a **mutual fund NAV (Net Asset Value)**? The market value of all assets held by the fund. The per-unit value of a mutual fund. The total dividend payout by the fund. The annual growth rate of the fund. None 15. What is the **difference between a call and a put option**? A call option gives the right to buy; a put option gives the right to sell. A call option gives the right to sell; a put option gives the right to buy. Both are obligations to trade securities. There is no difference between them None 16. What is the **main purpose of hedging**? To guarantee profits in financial markets. To reduce the risk of adverse price movements. To speculate on future price changes. To increase the leverage of investments. None 17. What is the **difference between a futures contract and a forward contract**? Futures are standardized and traded on exchanges; forwards are customized and traded over the counter. Forwards are more liquid than futures. Futures are risk-free, while forwards carry market risk. There is no difference between them. None 18. What is a **diversified portfolio**? A portfolio consisting only of government securities A portfolio that spreads investments across various asset classes to reduce risk. A portfolio focused on a single industry A portfolio invested entirely in equity. None 19. What is **systemic risk**? Risk associated with specific companies or industries. Risk affecting the entire financial system or economy. Risk from speculative trading activities. Risk associated with derivative contracts None 20. What does the **price-to-book (P/B) ratio** indicate? The market price of a stock compared to its book value. The earnings generated per share. The dividend payout ratio. The annual return on investment None 21. What is a **credit default swap (CDS)**? A tool for investing in corporate bonds. A high-yield government bond. A derivative used to hedge against the risk of default on debt. An equity-linked investment product None 22. What is the purpose of **depositories like NSDL and CDSL**? To hold and transfer securities electronically. To hold and transfer securities electronically. To regulate stock exchanges. To determine stock prices None 23. What is the **difference between active and passive investing**? Active investing aims to outperform the market; passive investing tracks the market index. Passive investing involves higher fees than active investing. Active investing excludes equity investments. Passive investing is risk-free None 24. What is the **Sharpe ratio** used for? Measuring market volatility. Measuring risk-adjusted returns of an investment. Calculating dividend yields. Assessing creditworthiness. None 25. What is the purpose of **SEBI's prohibition of insider trading regulations**? To regulate foreign investments. To prevent trading based on confidential, non-public information. To set stock prices for listed companies. To restrict trading in derivatives None 26. What is **fundamental analysis**? Analyzing a stock's historical price trends. Evaluating a company’s financial and economic factors to determine its intrinsic value.ring stock prices during trading hours. Predicting future prices using statistical models. Monitoring stock prices during trading hours. None 27. What is **technical analysis**? Evaluating financial statements of a company. Studying past price trends and trading volumes to predict future price movements. Analyzing macroeconomic factors like GDP Determining a company’s intrinsic value. None 28. What does the **bid-ask spread** represent? The difference between the buying and selling price of a security The dividend payout ratio of a stock. The average market price of a stock. The annual return on an investment. None 29. What is the **difference between growth stocks and value stocks**? Growth stocks have higher dividend yields; value stocks have lower valuations. Growth stocks focus on earnings growth; value stocks trade below intrinsic value. Value stocks are riskier than growth stocks. There is no difference between them. None 30. What is the purpose of an **investment grade rating**? To classify stocks based on market capitalization. To indicate the creditworthiness of bonds and issuers. To determine a company’s profitability. To rate the growth potential of mutual funds. None 31. What does **leverage** mean in finance? Using borrowed funds to increase potential returns. Reducing investments to minimize risk. Investing only in government securities. Allocating funds across multiple asset classes None 32. What is **capital appreciation**? The income generated by dividends or interest. The increase in the value of an investment over time. The reduction in the value of an asset. The cash flow generated by a business. None 33. What is the **role of the secondary market**? Facilitate the issuance of new securities. Provide a platform for trading existing securities. Regulate mutual fund investments. Guarantee profits for investors. None 34. What is a **portfolio turnover ratio**? The ratio of portfolio earnings to investments. The frequency of buying and selling securities in a portfolio. The proportion of equity to debt in a portfolio. The allocation of funds across asset classes. None 35. What is the **face value** of a bond? The market price of the bond. The nominal value stated on the bond certificate. The total interest paid during the bond’s tenure. The value determined by the stock exchange. None 36. What is a **debt-to-equity (D/E) ratio**? The ratio of a company's debt to its equity capital. The percentage of retained earnings in a company’s capital. The proportion of dividends paid to shareholders. The ratio of assets to liabilities. None 37. What is the **difference between an IPO and an FPO**? IPOs are for issuing new shares; FPOs are for issuing additional shares. FPOs are for private companies only. IPOs are risk-free, while FPOs carry market risk. There is no difference between the two. None 38. What is the **repurchase agreement (Repo)**? An agreement where securities are sold with a commitment to repurchase them later. A loan provided to government institutions. A derivative product linked to equities. A type of mutual fund scheme. None 39. What is **yield to maturity (YTM)**? The dividend yield of an equity share. The total return expected on a bond if held until maturity. The face value of a bond. The coupon rate of a bond. None 40. What is the **difference between a fixed deposit (FD) and a mutual fund**? FDs offer fixed returns, while mutual funds provide market-linked returns. Mutual funds are risk-free, while FDs carry market risk. FDs cannot be withdrawn prematurely, but mutual funds can. FDs are managed by SEBI, while mutual funds are not regulated. None 41. What is the **efficient market hypothesis (EMH)**? A theory stating that stock prices reflect all available information. A method to predict stock prices using past trends. A hypothesis that guarantees consistent profits in the market. A formula to calculate intrinsic stock value. None 42. What is a **bull market**? A market characterized by falling stock prices. A market with minimal trading activity. A market experiencing a general upward trend in prices. A market focused on fixed-income securities. None 43. What is **beta** in stock analysis? A measure of a stock’s risk relative to the overall market. The dividend yield of a stock. A stock’s book value. None 44. What is the **role of the secondary market**? Facilitate the issuance of new securities. Enable trading of existing securities among investors. Set interest rates on bonds. Guarantee profits for traders. None 45. What is **liquidity risk**? The risk of losing money due to market fluctuations. The risk of being unable to sell assets quickly without a price impact. The risk associated with foreign currency exchange rates. The risk of losing dividends. None 46. What is a **load in mutual funds**? A penalty for early withdrawals. A fee charged by the fund for buying or selling units. A tax imposed on dividends. A method of calculating fund performance. None 47. What does **market capitalization** signify? The total earnings of a company. The total value of a company’s outstanding shares at the current market price. The annual dividend paid by a company. The book value of a company’s assets. None 48. What is the **difference between active and passive funds**? Active funds aim to outperform the market; passive funds track market indices. Passive funds are more expensive than active funds. Active funds invest only in equities. Passive funds guarantee fixed returns. None 49. What is a **derivative contract**? A contract for fixed-income securities. A financial instrument whose value is derived from an underlying asset. A method of calculating stock indices. A type of government bond. None 50. What is the purpose of a **financial ratio**? To determine stock prices. To analyze a company’s financial performance and stability. To calculate market trends. To predict future stock prices. None 51. What is a **money market instrument**? A short-term debt instrument with high liquidity. An equity-based financial product. A long-term investment in real estate. A derivative contract. None 52. What is the **face value of a share**? The price at which a share is traded in the market The original value assigned to a share by the company. The dividend paid per share. The book value of the company’s assets. None 53. What is **alpha** in mutual funds? A measure of a fund’s performance relative to its benchmark. The risk associated with a mutual fund. The annual return of a mutual fund. The expense ratio of the fund. None 54. What is a **fixed income instrument**? An equity share with high returns. A security that provides regular, fixed payments like interest. A derivative contract. A risk-free investment product. None 55. What is **yield** in bonds? The price of the bond. The interest rate offered by the bond. The annual return earned on the bond’s purchase price. The face value of the bond. None 56. What is **dividend yield**? The percentage of a company’s earnings paid out as dividends. The annual dividend expressed as a percentage of the stock’s market price. The total dividends paid by a company in a year. The fixed dividend declared by a company. None 57. What is a **blue-chip stock**? Shares of startups with high growth potential. Shares of established companies with a history of stable performance. A highly speculative stock. A stock with no dividend history. None 58. What is the **expense ratio** in mutual funds? The ratio of dividends paid to total earnings. The annual fee charged by the fund manager as a percentage of the fund’s average assets. The proportion of equity and debt in the portfolio. The percentage of cash reserves held by the fund None 59. What is the **difference between equity and preference shares**? Equity shares guarantee fixed dividends; preference shares do not. Preference shares have priority in dividend payments and repayment during liquidation. Equity shares are non-tradable; preference shares are tradabld There is no difference between them. None 60. What is **capital gains tax**? Tax levied on the total earnings of a company. Tax imposed on the profit earned from the sale of capital assets. Tax on dividends paid to shareholders. Tax on retained earnings of a company. None 61. What is **systematic risk**? Risk specific to a single company or industry. Market-wide risk that cannot be eliminated through diversification. Risk associated with speculative trading. Risk arising from management decisions. None 62. What is the **coupon rate** of a bond? The rate at which the bond’s value changes in the market. The fixed annual interest rate paid by the bond issuer to bondholders. The market yield of the bond. The tax rate applied to bond earnings. None 63. What is the **role of a custodian in the securities market**? Facilitate trading of securities. Hold and safeguard securities on behalf of investors Provide loans to investors. Set stock prices in the market. None 64. What is a **stock split**? Issuing additional shares to shareholders without changing the total market capitalization. Merging a company’s shares to increase their value. Reducing the number of shares outstanding. Buying back shares from the market. None 65. What is **portfolio diversification**? Investing in a single sector for higher returns. Allocating investments across different asset classes to reduce risk. Avoiding high-risk investments altogether. Investing only in government securities. None 66. What is the **time value of money (TVM)**? Money’s value remains constant over time. A rupee today is worth more than a rupee in the future due to its earning potential. Future cash flows are always more valuable than present cash flows. Inflation has no impact on the value of money. None 67. What is the **purpose of credit rating agencies**? To determine stock prices in the market. To assess the creditworthiness of debt instruments and their issuers. To provide loans to corporate borrowers. To regulate mutual funds. None 68. What is **yield to maturity (YTM)**? The fixed annual interest rate of a bond. The total return earned on a bond if held until maturity. The market price of a bond. The dividend yield of an equity share. None 69. What is the **function of a stock exchange**? Provide loans to retail investors. Facilitate the trading of securities between buyers and sellers. Issue new securities on behalf of companies. Set fixed prices for stocks. None 70. What is a **market index**? A benchmark that represents the performance of a segment of the stock market The price of a single stock. The average trading volume of stocks. A government-issued debt instrument. None 71. What is the **difference between primary and secondary markets**? Primary markets issue new securities; secondary markets trade existing ones. Primary markets trade government bonds only. Secondary markets issue securities directly to investors. There is no difference between the two. None 72. What is the **net asset value (NAV)** of a mutual fund? The total dividends paid by the fund. The per-unit value of the fund’s total assets minus liabilities. The total market value of all the fund’s assets. The management fees of the fund. None 73. What is **arbitrage**? Buying and selling securities to profit from price differences in different markets. Speculating on future price changes. - Holding securities for long-term gains. Investing exclusively in government bonds. None 74. What is the purpose of **depositories like NSDL and CDSL**? To trade stocks on behalf of investors. To hold and transfer securities in electronic form. To manage corporate loans. To regulate mutual funds. None 75. What is the **Sharpe ratio** used for? To measure risk-adjusted returns of an investment. To calculate stock dividends. To evaluate market volatility. To determine a company’s profitability. None 76. What does **systematic investment plan (SIP)** refer to? A one-time investment in a mutual fund. Regular investments in mutual funds over a period of time. An investment plan with guaranteed returns. An exclusive plan for institutional investors. None 77. What is the **difference between futures and options contracts**? Futures are obligations; options provide the right but not the obligation. Options are obligations; futures provide the right to buy or sell. Futures are always more expensive than options. There is no difference between the two. None 78. What is a **zero-coupon bond**? A bond that pays periodic interest but no principal. A bond issued at a discount and redeemed at face value without periodic interest payments. A bond that provides tax-free returns. A bond with variable interest rates. None 79. What is the **difference between mutual funds and ETFs (exchange-traded funds)**? Mutual funds trade on stock exchanges; ETFs do not. ETFs trade on stock exchanges; mutual funds do not. ETFs are actively managed; mutual funds are passively Mutual funds have lower expense ratios than ETFs. None 80. What does the **ex-dividend date** signify? The date dividends are paid to shareholders. The date a stock begins trading without the value of the next dividend payment. The date a company announces its dividends. The date dividends are declared tax-free. None 81. What is **market liquidity**? The ability to convert an asset into cash quickly without affecting its price. The number of shares issued by a company. The annual returns generated by a mutual fund. The volatility of a stock. None 82. What is the **function of credit rating agencies**? To regulate bond markets. To evaluate and rate the creditworthiness of debt instruments and issuers. To set interest rates for corporate bonds. To provide loans to businesses. None 83. What is **yield to maturity (YTM)**? The fixed annual interest rate of a bond. The total return earned on a bond if held until maturity. The dividend yield of a stock. The annual growth rate of a mutual fund. None 84. What is the purpose of **stop-loss orders**? To lock in profits when prices rise. To limit potential losses by selling a security at a predetermined price. To buy additional shares during a price drop. To protect dividends from taxation. None 85. What is a **hedge fund**? A mutual fund that guarantees fixed returns. A pooled investment fund that uses advanced strategies to maximize returns. A fund that invests only in government securities. A low-risk investment option for retail investors. None 86. What is a **margin account**? An account used for cash transactions only. An account that allows investors to borrow funds to purchase securities. An account exclusively for trading government bonds. A savings account with higher interest rates None 87. What is **compounding in investment**? Earning interest only on the principal amount. Earning returns on the principal and the accumulated interest. Investing only in high-growth sectors. Avoiding taxes on investment gains None 88. What is the **difference between SIP and lump sum investment**? SIP involves regular, periodic investments, while lump sum is a one-time investment. SIP guarantees higher returns than lump sum. Lump sum investments are less risky than SIPs. SIP is available only for equity investments. None 89. What is **equity capital**? Funds borrowed from financial institutions. Funds raised by issuing shares to investors. Long-term government bonds. Funds generated from retained earnings None 90. What is the **price-to-earnings (P/E) ratio**? The market price of a stock divided by its earnings per share (EPS). The annual dividend yield of a stock. The book value of a company’s assets. The total revenue of a company. None 91. What is **financial leverage**? Using equity to finance assets. Using debt to increase potential returns on investment. Diversifying investments across asset classes. Reducing risk by avoiding high-risk securities. None 92. What is a **convertible bond**? A bond that can be converted into equity shares. A bond with a floating interest rate. A bond that pays no interest. A bond issued only by the government. None 93. What is the **difference between open-ended and closed-ended mutual funds**? Open-ended funds can issue new units anytime; closed-ended funds have a fixed number of units. Closed-ended funds offer higher returns than open-ended funds Open-ended funds invest only in equities. Closed-ended funds do not trade on stock exchanges. None 94. 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. The obligation to sell an asset. None 95. What is **dollar-cost averaging**? Investing a fixed amount at regular intervals, regardless of market conditions. Adjusting investments based on market fluctuations Buying assets only during a market downturn. Selling assets at a higher price to average profits None 96. What is **systematic withdrawal plan (SWP)**? A plan to withdraw funds periodically from an investment. A method to invest fixed amounts regularly. A government retirement plan. A savings plan for fixed deposits. None 97. What is a **money market**? A market for trading long-term securities. A market for trading short-term financial instruments. A platform for trading derivatives. A market for investing in real estate. None 98. What is the **ex-rights date**? The date on which a stock starts trading without the value of the rights issue. - The date rights are issued to shareholders. The date a rights issue is announced. The date dividends are paid. None 99. What is **yield in bonds**? The market price of the bond. The annual return earned on a bond’s purchase price. The fixed interest rate of the bond. The face value of the bond. None 100. What is **tracking error** in ETFs? The difference between the ETF’s performance and its benchmark index. The error in trading volumes. The deviation in a stock’s price from its intrinsic value The tax implications of ETF investments. None Thank you for participating in our test series! We hope it boosted your knowledge and prepared you well for finance job interviews. Keep leveraging what you've learned to build confidence and excel. Wishing you great success in your career journey! Time's upTime is Up!
