Master Practice Set 3 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 active and passive funds**? Active funds aim to outperform the market, while passive funds track market indices. Passive funds invest only in government securities. Active funds have lower expense ratios than passive funds. Passive funds are more volatile than active funds. None 2. What is **weighted average cost of capital (WACC)**? The average rate of return on a company’s equity capital. The weighted average cost of equity and debt financing. The total cost of raising equity capital. The average dividend payout ratio. None 3. What is a **credit default swap (CDS)**? A type of government security. A derivative used to hedge against credit risk. A fixed-income investment. A speculative equity instrument. None 4. What is a **growth fund**? A fund that invests in established companies offering stable returns. A fund that focuses on companies with high potential for earnings growth. A fund that invests in government bonds. A fund that guarantees fixed returns. None 5. What does the **treasury yield curve** represent? The annual returns on corporate bonds. The relationship between interest rates and the maturity of government securities. The dividend payout trend of a stock. The price trends of stocks over time. None 6. What is **capital budgeting**? The process of managing short-term cash flows. The process of evaluating and selecting long-term investment projects. The method of setting dividend policies. The strategy for trading securities. None 7. What is a **money market fund**? A mutual fund that invests in long-term equities. A fund that invests in short-term, high-liquidity debt instruments. A fund that invests in short-term, high-liquidity debt instruments. A fund that guarantees tax-free returns. None 8. What is the **difference between ETFs and index funds**? ETFs trade on stock exchanges, while index funds are bought and sold through fund houses. Index funds are actively managed, while ETFs are passively managed. ETFs invest only in equities, while index funds include bonds. There is no difference between them. None 9. What is **portfolio rebalancing**? Adjusting the allocation of investments to maintain the desired risk-return profile. Selling underperforming securities to maximize returns. Investing exclusively in government bonds. Buying more shares during a market downturn. None 10. What is **yield to maturity (YTM)**? The interest rate paid by the bond annually. The total return expected on a bond if held until maturity. The market value of the bond. The dividend yield of the bond issuer. None 11. What is a **floating-rate bond**? A bond with a fixed interest rate. A bond with an interest rate that changes periodically based on a benchmark. A bond that pays no interest but is issued at a discount. A bond issued by international organizations None 12. What is the **primary benefit of diversification**? It eliminates all investment risk. It reduces portfolio risk by spreading investments across asset classes. It guarantees higher returns in the long run. It ensures investments are risk-free None 13. What is the **difference between systematic and unsystematic risk**? Systematic risk affects specific sectors; unsystematic risk affects the entire market. Systematic risk affects the entire market; unsystematic risk is specific to companies or sectors. Unsystematic risk can’t be mitigated, but systematic risk can. There is no difference between the two. None 14. What is **fundamental analysis**? Evaluating stock price trends and trading volumes. Assessing a company’s financial health, management, and industry conditions to determine its intrinsic value. Speculating on future price changes based on economic conditions. Studying market indices for stock valuation. None 15. What is **technical analysis**? Studying financial statements to assess a company’s performance. Analyzing past price patterns and trading volumes to predict future movements. Evaluating a company’s market capitalization. Assessing macroeconomic conditions for stock valuation. None 16. What is **market capitalization**? The total value of a company’s outstanding shares. The annual profit of a company. The number of shares issued by a company. The book value of the company. None 17. What is the **difference between equity shares and preference shares**? Equity shares have voting rights, while preference shares generally do not. Preference shares guarantee fixed returns; equity share Equity shares take priority in dividend payments. Preference shares are risk-free investments None 18. What is a **hedging strategy**? Speculating on future price movements. Investing in high-risk securities. Reducing investment risk using financial instruments like derivatives. Diversifying investments across asset classes. None 19. What is a **put option**? The right to buy an asset at a predetermined price. The right to sell an asset at a predetermined price. An obligation to buy an asset. An obligation to sell an asset None 20. What does **asset allocation** mean? Investing in a single asset class to maximize returns. Distributing investments across different asset classes to balance risk and return. Avoiding high-risk investments. Investing only in government securities None 21. What is **beta** in stock analysis? A measure of a stock’s risk relative to the overall market. The dividend yield of a stock. The annual return of a mutual fund. The face value of a stock. None 22. 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 only on government securities. None 23. What is the **difference between systematic and unsystematic risk**? Systematic risk affects the entire market; unsystematic risk is specific to a company or sector. Systematic risk can be diversified away; unsystematic risk cannot. Unsystematic risk affects all asset classes equally. There is no difference between the two. None 24. What is the **P/E ratio** used for? To measure a stock’s earnings growth potential. To compare a company’s current stock price to its earnings per share. To evaluate the book value of a company. To determine the dividend payout of a stock. None 25. What is **NAV in mutual funds**? The total value of all assets held by the fund. The per-unit value of the fund’s assets after deducting liabilities. The annual dividend paid by the fund. The fund’s expense ratio. None 26. What is a **zero-coupon bond**? A bond that pays periodic interest. A bond issued at a discount and redeemed at face value without periodic interest payments. A bond with a floating interest rate. A tax-free bond. None 27. What is **dollar-cost averaging**? Investing a fixed amount at regular intervals regardless of market conditions. Investing in high-performing stocks only. Selling assets during a market downturn. Avoiding investments in volatile markets. None 28. What is **yield to maturity (YTM)**? The coupon rate of a bond. The total return expected on a bond if held until maturity. The market value of the bond. The dividend yield of the issuer. None 29. What is the **difference between futures and options contracts**? Futures are obligations; options give the right but not the obligation to trade. Options are obligations; futures provide trading flexibility. Futures are always more expensive than options. There is no difference between the two. None 30. What is **tracking error in ETFs**? The deviation between the ETF’s performance and its benchmark index. The error in calculating the ETF’s NAV. The fluctuation in trading volumes. The tax impact on ETF earnings. None 31. What is a **rights issue**? Issuance of new shares to the general public. Issuance of additional shares to existing shareholders at a discounted price. Issuance of bonds to institutional investors. A method of issuing shares without regulatory approval. None 32. What is the **ex-dividend date**? The date dividends are paid to shareholders. The date a stock starts trading without the value of the next dividend. The date dividends are announced. The record date for dividend eligibility. None 33. What is **liquidity in financial markets**? The availability of funds in a company. The ease of converting assets into cash without significantly affecting their price. The stability of a company’s stock price. The volume of shares traded on an exchange. None 34. What is the **difference between ETFs and mutual funds**? ETFs are traded on stock exchanges; mutual funds are transacted through fund houses. Mutual funds track indices, while ETFs are actively managed. ETFs are risk-free, while mutual funds are not. Mutual funds have lower expense ratios than ETFs. None 35. What is **alpha in portfolio management**? A measure of a portfolio’s return relative to its benchmark. The total risk of a portfolio. The cost of managing the portfolio. The average return of a mutual fund. None 36. What is a **floating-rate bond**? A bond with a fixed interest rate. A bond whose interest rate changes based on a benchmark. A bond issued at a discount A zero-coupon bond None 37. What is **compounding** in finance? Earning returns only on the principal investment. Earning returns on both the principal and previously earned returns. Reducing risk by reinvesting profits. A method to avoid taxes on earnings. None 38. What is **dollar-cost averaging**? Adjusting investments based on market conditions. Investing a fixed amount at regular intervals, regardless of market prices. Investing only during market upswings. Investing in multiple currencies. None 39. What is **yield to maturity (YTM)**? The coupon rate of a bond. The total return expected if a bond is held until maturity. The market value of the bond. The dividend yield of a company. None 40. What is the **role of a custodian in the securities market**? Set stock prices for investors. Hold and safeguard securities for institutional and retail investors Manage corporate announcements. Provide trading advice to investors. None 41. What is **market risk**? Risk specific to an individual company. Risk associated with market-wide factors like economic or political changes. Risk of default by a borrower. Risk from fraudulent activities. None 42. What is the **time value of money (TVM)**? Money’s value decreases over time regardless of investment. Money today is worth more than the same amount in the future due to its earning potential. Future cash flows always hold higher value than present cash flows. Inflation does not affect money’s value. None 43. What is the **difference between systematic and unsystematic risk**? Systematic risk impacts the entire market; unsystematic risk is company-specific. Unsystematic risk affects the overall market; systematic risk is sector-specific. Systematic risk is diversifiable; unsystematic risk is not Both are non-diversifiable risks. None 44. What is a **debenture**? A short-term debt instrument issued by governments. A long-term debt instrument issued by companies, often unsecured. A type of equity share. A derivative product. None 45. What is **portfolio diversification**? Investing in multiple securities to reduce risk. Avoiding investments in high-risk sectors. Allocating all funds to government bonds. Focusing solely on equity investments. None 46. What is the **difference between primary and secondary markets**? Primary markets trade new securities; secondary markets trade existing securities. Secondary markets deal with government bonds only. Primary markets regulate stock exchanges. There is no difference between them. None 47. What is a **rights issue**? Issuing shares to institutional investors. Offering additional shares to existing shareholders at a discount. Issuing bonds to the general public. Issuing shares without any cost. None 48. What is **yield in bonds**? The fixed interest rate paid by the bond. The annual return earned on a bond’s purchase price. The face value of the bond. The market price of the bond. None 49. What is **NAV (Net Asset Value)** in mutual funds? The per-unit value of the fund’s assets after liabilities. The total assets held by the fund. The annual dividend paid by the fund. The average return of the fund. None 50. What is the **ex-dividend date**? The date a company announces its dividends. The date dividends are paid to shareholders. The date when new investors are no longer eligible for the dividend. The date dividends are taxed. None 51. What is **systematic risk**? Risk specific to a single company or sector. Risk affecting the entire market or economy. Risk associated with insider trading. Risk that can be eliminated through diversification. None 52. What is a **call option**? The right to sell an asset at a specified price. The right to buy an asset at a specified price. An obligation to buy an asset. An obligation to sell an asset. None 53. What is **tracking error** in ETFs? The deviation between an ETF’s returns and its benchmark index. An error in calculating an ETF’s NAV. The fluctuation in ETF trading volumes. A tax implication of ETF investments. None 54. What is **alpha** in portfolio management? The percentage of returns from dividends. The excess return of a portfolio compared to its benchmark. The average market return. The cost of managing a portfolio. None 55. What is **beta** in stock analysis? The annual return of a stock. A measure of a stock’s volatility compared to the market. The dividend payout ratio of a company. The book value of a company. None 56. What is the **Sharpe ratio**? A measure of a stock’s dividend yield. A ratio that evaluates risk-adjusted returns of an investment. The ratio of debt to equity in a company. A metric for market capitalization. None 57. What is a **bull market**? A market experiencing a general upward trend in prices. A market characterized by declining stock prices. A market with minimal trading activity. A market focused only on government securities. None 58. What is a **floating-rate bond**? A bond with a fixed interest rate. A bond with an interest rate that changes periodically based on a benchmark. A bond issued at a discount. A zero-coupon bond. None 59. What is **dollar-cost averaging**? Investing a fixed amount at regular intervals, regardless of market prices. Adjusting investments based on market conditions. Investing only during market downturns. Selling shares to average out profits. None 60. What is a **money market fund**? A mutual fund that invests in long-term government bonds. A fund that invests in short-term, high-liquidity debt instruments. A fund that focuses on equity shares. A fund with no regulatory oversight. None 61. What is **yield to maturity (YTM)**? The annual dividend yield of a stock. The total return earned on a bond if held until maturity. The fixed interest rate paid by a bond. The market value of the bond. None 62. What is **portfolio rebalancing**? Adjusting the portfolio to increase exposure to risky assets. Realigning the portfolio to maintain the desired asset allocation. Selling all underperforming assets in the portfolio Converting all equity investments into debt. None 63. What is **arbitrage**? Speculating on future price movements. Simultaneously buying and selling an asset to profit from price differences. Investing in high-risk, high-return securities. Diversifying investments across asset classes. None 64. What is **fundamental analysis**? Analyzing past stock price patterns to predict future movements. Evaluating a company’s financial health, management, and industry conditions. Speculating on stock price trends. Assessing government policies for stock valuation. None 65. What is a **zero-coupon bond**? A bond that pays periodic interest. A bond issued at a discount and redeemed at face value with no periodic interest payments. A bond with floating interest rates. A bond that pays dividends instead of interest. None 66. What is **market capitalization**? The annual earnings of a company. The total value of a company’s outstanding shares. The number of shares issued by a company. The market value of the company’s total assets. None 67. What is the **Sharpe ratio**? A measure of the total risk of a portfolio. A ratio that evaluates risk-adjusted returns. The return on equity for a company. The debt-to-equity ratio of a company. None 68. 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 trading flexibility. Futures are only for commodities; options are only for equities. - **Option D**: There is no difference between them. There is no difference between them. None 69. What is **liquidity risk**? The risk of losing money in stock market investments. The risk of being unable to sell an asset quickly without affecting its price. The risk of fluctuations in foreign currency rates. The risk of not receiving expected dividends. None 70. What is a **floating-rate bond**? A bond with a fixed interest rate. A bond whose interest rate changes based on a benchmark. A bond issued at a discount. A bond that pays dividends instead of interest. None 71. What is **beta** in stock analysis? A measure of a stock’s earnings. : A measure of a stock’s volatility relative to the market. The annual dividend of a stock. The face value of a stock. None 72. What is **alpha in portfolio management**? A measure of a portfolio’s absolute return. A portfolio’s return compared to its benchmark. The percentage of portfolio risk. The cost of managing the portfolio. None 73. What is **tracking error** in ETFs? The deviation of an ETF’s returns from its benchmark index. The error in trading prices of the ETF. The administrative cost of managing the ETF. The tax impact on ETF investments None 74. What is **asset allocation**? Investing solely in equities. Diversifying investments across asset classes to manage risk. Allocating all investments to fixed-income securities. Investing only in high-risk instruments for higher returns. None 75. What is the **P/E ratio** used for? To compare a stock’s price to its earnings per share. : To evaluate a stock’s dividend yield. To measure the risk of a stock. To calculate a company’s market capitalization. None 76. What is a **blue-chip stock**? A stock of a startup with high growth potential. A stock of a well-established company with a history of stable performance. A stock that is highly speculative. A stock with no dividend history. None 77. What is the **role of a clearing corporation**? Issue securities in the primary market. Manage mutual fund investments. Manage mutual fund investments. Set market prices for securities. None 78. What is a **mutual fund’s expense ratio**? The annual dividend payout by the fund. The proportion of fund assets spent on administrative and management costs. The total market capitalization of the fund. The annual return generated by the fund. None 79. What is a **money market instrument**? A short-term debt instrument with high liquidity. A long-term bond issued by corporations. An equity security with high volatility. A mutual fund focused on equities. None 80. What is **market liquidity**? The ability to buy or sell assets without significantly affecting their price. The total number of shares issued by a company. The annual returns of a mutual fund. The volatility of a stock in the market. None 81. What is a **bond’s coupon rate**? The annual interest rate paid on the bond’s face value. The current market price of the bond. : The total return earned by holding the bond to maturity. The dividend yield of the bond issuer. None 82. What is the **price-to-book (P/B) ratio**? The market price of a stock compared to its earnings per share. The market price of a stock compared to its book value The total revenue of a company divided by its equity. The annual growth rate of a company’s profits. None 83. What is **dollar-cost averaging**? - **Option A**: Adjusting investments based on market conditions. - **Option B**: Investing a fixed amount at regular intervals, regardless of market prices. - **Option C**: Speculating on market upswings to maximize returns. - **Option D**: Selling assets to maintain portfolio balance. Investing a fixed amount at regular intervals, regardless of market prices. - **Option C**: Speculating on market upswings to maximize returns. - **Option D**: Selling assets to maintain portfolio balance. Speculating on market upswings to maximize returns. Selling assets to maintain portfolio balance. None 84. What is **diversification** in portfolio management? Investing all funds in one asset class. Allocating investments across various asset classes to reduce risk. Avoiding investments in high-growth sectors. Investing exclusively in government securities. None 85. What is **capital gains tax**? Tax on a company’s total earnings. Tax on profits earned from selling capital assets like stocks or real estate. Tax on dividend income. Tax on retained earnings of a company. None 86. What is a **stop-loss order**? An order to buy additional shares at a low price. An order to sell a security if it falls below a specified price to limit losses. A strategy to lock in profits during market upswings An order to restrict the trading of a security. None 87. What is the **difference between equity and debt financing**? Equity financing involves borrowing money; debt financing involves issuing shares. Debt financing creates an obligation to repay; equity financing does not. Equity financing is risk-free; debt financing carries significant risk. Debt financing is only available to government entities. None 88. What is **market risk**? Risk specific to a company or sector. Risk affecting the entire market, such as economic or political events. Risk from fraudulent activities. Risk of mismanagement by fund managers None 89. What is **alpha in investment analysis**? A measure of an investment’s return relative to its benchmark. The total risk of a portfolio. The cost of managing a portfolio. The average return of a mutual fund. None 90. What is a **fixed-income instrument**? A security that provides regular fixed payments, like bonds. An equity investment with high growth potential. A derivative product. A security th A high-risk investment. None 91. What is a **call option**? The right to buy an asset at a specified price. The right to sell an asset at a specified price. An obligation to buy an asset. An obligation to sell an asset. None 92. What is **yield to maturity (YTM)** in bonds? The fixed interest rate paid by the bond. The total return expected on a bond if held until maturity. The annual dividend yield of the issuing company. The market price of the bond. None 93. What does **beta** measure in stock analysis? The dividend yield of a stock. The volatility of a stock relative to the market. The volatility of a stock relative to the market. The intrinsic value of a company. None 94. What is **systematic investment plan (SIP)**? A one-time investment in mutual funds. Regular, periodic investments in mutual funds over time. Investing exclusively in government bonds. A guaranteed fixed return investment. None 95. What is **NAV in mutual funds**? The market value of all the assets in the fund. The per-unit value of the fund’s assets minus liabilities. The dividend payout by the fund. The total earnings generated by the fund. None 96. What is **capital gains tax**? Tax on dividend income. Tax levied on profits earned from selling capital assets like stocks or real estate. Tax on interest income. Tax on corporate revenue. None 97. What is **market risk**? Risk specific to a single company or sector. Risk associated with market-wide factors like economic or political events. - Risk from fraudulent activities. Risk of losing dividends. None 98. What is a **bull market**? A market experiencing a general downward trend in prices. A market with limited trading activity. A market characterized by rising prices and investor optimism. A market focused on government securities. None 99. What is **diversification**? Investing all funds in one sector. Spreading investments across different asset classes to minimize risk. Avoiding investments in equities. Investing exclusively in government bonds. None 100. What is a **floating-rate bond**? A bond with a fixed interest rate. A bond whose interest rate changes based on a benchmark. A bond that pays dividends instead of interest. A bond with no maturity date. 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!
