Merchant Banking & Financial Service (306 Fin)
By Dr Tanaji V Chavan
Questions and Answers
- 1.
A market for relatively long-term (greater than one year original maturity) financial instruments (e.g., bonds and stocks) is known as the __________ market.
- A.
Secondary
- B.
Primary
- C.
Tertiary
- D.
Capital
Correct Answer
A. SecondaryExplanation
A market for relatively long-term financial instruments such as bonds and stocks is known as the secondary market. In this market, these instruments are bought and sold by investors who are not the original issuers. The secondary market provides liquidity to investors, allowing them to easily buy or sell these financial instruments. This market is distinct from the primary market, where new securities are issued and sold for the first time. The tertiary market and capital market are not relevant to the given question.Rate this question:
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- 2.
Which of the following is a short-term option to buy a certain number of securities from the issuing corporation
- A.
Right
- B.
Red herring
- C.
Initial public offering
- D.
Letter stock
Correct Answer
A. RightExplanation
A "right" is a short-term option to buy a certain number of securities from the issuing corporation. It is typically offered to existing shareholders as a way to maintain their ownership percentage when the company issues new shares. This allows shareholders to purchase additional shares at a discounted price before they are offered to the general public, giving them the right to maintain their proportional ownership in the company.Rate this question:
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- 3.
A temporary combination of investment banking firms formed to sell a new security issue, can be referred to as a (an) __________.
- A.
Underwriting syndicate
- B.
Red herring
- C.
Registration statement
- D.
Standby arrangement
Correct Answer
A. Underwriting syndicateExplanation
An underwriting syndicate is a temporary combination of investment banking firms that come together to sell a new security issue. This arrangement allows for the distribution of the securities to a wide range of investors. The underwriting syndicate helps to mitigate the risk associated with selling the securities by spreading it among the participating firms. This collaboration ensures a successful offering and helps to maximize the proceeds for the issuer.Rate this question:
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- 4.
Which of the following is privately placed common stock that cannot be immediately resold?
- A.
Letter stock
- B.
Red herring
- C.
Initial public offering
- D.
Right
Correct Answer
A. Letter stockExplanation
Letter stock refers to privately placed common stock that cannot be immediately resold. This means that the shares are issued to a specific individual or group of investors, and there are restrictions on selling or transferring the shares to others. Letter stock is typically used to provide ownership rights to certain individuals within a company, such as founders or key executives, while limiting their ability to sell the shares on the open market. This allows the company to maintain control and stability in its ownership structure.Rate this question:
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- 5.
The preliminary prospectus, which has a statement on its cover that the registration statement has not yet become effective, is referred to as a (an) __________.
- A.
Red herring
- B.
Registration statement
- C.
Underwriting syndicate
- D.
Standby arrangement
Correct Answer
A. Red herringExplanation
A preliminary prospectus is a document that is issued before the registration statement becomes effective. It includes a statement on its cover indicating that the registration statement is not yet effective. This document is commonly known as a "red herring" because it contains all the necessary information about the offering, but it is not yet complete or final. It is used to generate interest and solicit potential investors, but it cannot be used to make actual sales until the registration statement becomes effective.Rate this question:
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- 6.
What is CRR?
- A.
Cash Reserve Ratio
- B.
Current Ratio Rate
- C.
Credit Rating Record.
- D.
Cash Review Report
Correct Answer
A. Cash Reserve RatioExplanation
CRR stands for Cash Reserve Ratio, which is a monetary policy tool used by central banks to regulate the amount of cash commercial banks need to maintain as reserves. It is a percentage of the total deposits that banks must keep with the central bank. By increasing or decreasing the CRR, the central bank can control the liquidity in the banking system and influence lending and inflation rates. Therefore, the correct answer is Cash Reserve Ratio.Rate this question:
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- 7.
Interest rates being charged by Banks in India has shown trend in recent years
- A.
Falling
- B.
Rising
- C.
Stable
- D.
Volatile
Correct Answer
A. FallingExplanation
The correct answer is "Falling". This suggests that the interest rates being charged by banks in India have been decreasing over the recent years. This could be due to various factors such as changes in monetary policy, decreased inflation rates, or increased competition among banks. Lower interest rates can have implications for borrowing and investment activities in the economy.Rate this question:
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- 8.
Gilt edged securities refer to
- A.
Securities issued by first class companies
- B.
Government Securities
- C.
Securities issued by municipal corporations
- D.
Securities issued by NBFCs.
Correct Answer
A. Securities issued by first class companiesExplanation
Gilt edged securities refer to securities issued by first class companies. These are considered to be very safe and low-risk investments because they are backed by financially stable and reputable companies. Investors are confident in the ability of these companies to fulfill their financial obligations, making these securities highly sought after.Rate this question:
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- 9.
Which of these is not a credit rating agency?
- A.
Price water house
- B.
Moody
- C.
Standard & Poors
- D.
ICRA
Correct Answer
A. Price water houseExplanation
Price water house is not a credit rating agency. It is a multinational professional services network and one of the "Big Four" accounting firms. Credit rating agencies are responsible for assessing the creditworthiness of individuals, companies, and governments, while Price water house provides auditing, tax, and consulting services.Rate this question:
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- 10.
NABARD refinance for financing Self Help Groups is to the extent of
- A.
75%
- B.
25%
- C.
50%
- D.
100%
Correct Answer
A. 75%Explanation
NABARD refinance for financing Self Help Groups is to the extent of 75%. This means that NABARD provides financial support to Self Help Groups by refinancing 75% of their loan amount. This refinance helps SHGs to access funds at a lower interest rate and with more favorable terms, enabling them to carry out their activities and promote self-employment and entrepreneurship among group members.Rate this question:
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- 11.
Full form of SLR is
- A.
Statutory Liquidity Ratio
- B.
State Level Recovery
- C.
Sundry Leverage Ratio
- D.
State Liquidity Reserve
Correct Answer
A. Statutory Liquidity RatioExplanation
SLR stands for Statutory Liquidity Ratio. This is a regulatory requirement imposed by the central bank of a country on commercial banks to maintain a certain percentage of their net demand and time liabilities in the form of liquid assets such as cash, gold, or government securities. The purpose of SLR is to ensure the stability of the banking system and to control inflation by limiting the ability of banks to create credit. Therefore, the correct answer is Statutory Liquidity Ratio.Rate this question:
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- 12.
C. R. A. In banking parlance stands for
- A.
Credit Risk Assessment
- B.
Credit Rating Association
- C.
Credit Rating Agency
- D.
None of these
Correct Answer
A. Credit Risk AssessmentExplanation
The correct answer is Credit Risk Assessment. In banking parlance, C.R.A. refers to Credit Risk Assessment. This term is used to evaluate and measure the potential risk of default by a borrower or counterparty. It involves analyzing various factors such as the borrower's credit history, financial stability, and ability to repay the loan. By conducting a credit risk assessment, banks can make informed decisions about lending money and managing their overall credit exposure.Rate this question:
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- 13.
The full form of RBS is
- A.
Risk Based Supervision
- B.
Rating by System
- C.
Role Based Supervision
- D.
Rating Bank Security
Correct Answer
A. Risk Based SupervisionExplanation
RBS stands for Risk Based Supervision. This approach involves assessing and managing risks within a supervisory framework to ensure the stability and soundness of the financial system. It focuses on identifying and addressing potential risks that banks may face, such as credit risk, operational risk, and market risk. By adopting a risk-based approach, supervisors can allocate their resources effectively and prioritize their supervisory activities based on the level of risk posed by individual banks. This helps in enhancing the overall effectiveness and efficiency of the supervision process.Rate this question:
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- 14.
What should be the method of valuation for advances against shares/debenutres/ bonds? you like?
- A.
Market price
- B.
Face value
- C.
Book Value
- D.
Average Value
Correct Answer
A. Market priceExplanation
The method of valuation for advances against shares/debentures/bonds should be based on the market price. This is because the market price reflects the current value of the securities in the market, taking into account factors such as demand, supply, and market sentiment. It provides a more accurate representation of the actual worth of the securities, compared to the face value or book value which may not consider market conditions. Therefore, using the market price as the method of valuation ensures that the advances are assessed at their current market value.Rate this question:
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- 15.
Plastic Cards implanted with computer chip to the data is known as
- A.
Smart Card
- B.
SME Card
- C.
Credit Card
- D.
ATM Card
Correct Answer
A. Smart CardExplanation
A plastic card implanted with a computer chip that stores and processes data is known as a smart card. Smart cards are used for various purposes such as identification, authentication, and transaction processing. The embedded chip allows for secure storage and processing of information, making smart cards more advanced and secure compared to traditional magnetic stripe cards. They are commonly used for access control, payment systems, and public transportation.Rate this question:
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- 16.
The VSAT communication network for banks and financial institutions launched by RBI is known as
- A.
INEINET
- B.
SWIFT
- C.
SBI NET
- D.
BANK NET
Correct Answer
A. INEINETExplanation
The correct answer is INEINET. INEINET stands for Indian Banks' Network for Electronic Transfer. It is a VSAT communication network launched by the Reserve Bank of India (RBI) specifically for banks and financial institutions. This network facilitates secure and efficient electronic transfer of funds and other financial transactions between banks and their customers.Rate this question:
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- 17.
_____________is not a major cause of systematic (undiversified)risk
- A.
Company management change
- B.
World energy supply
- C.
A worldwide recession
- D.
A world war
Correct Answer
A. Company management changeExplanation
Company management change is not a major cause of systematic (undiversified) risk because it is a specific event that affects only one company. Systematic risk refers to risks that affect the entire market or a large segment of it, such as economic factors, political events, or natural disasters. While a change in company management can impact the performance of that particular company, it does not have a widespread impact on the entire market or economy. Therefore, it is not considered a major cause of systematic risk.Rate this question:
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- 18.
_______________is/are not a major cause of unsystematic risk
- A.
Worldwide inflation
- B.
Wildcat strikes
- C.
New competitors
- D.
New product management
Correct Answer
A. Worldwide inflationExplanation
Worldwide inflation is not a major cause of unsystematic risk because it affects all companies and industries uniformly. Unsystematic risk refers to risks that are specific to a particular company or industry and can be diversified away through portfolio diversification. Inflation, on the other hand, affects the entire economy and is a systematic risk that cannot be eliminated through diversification. Therefore, it is not considered a major cause of unsystematic risk.Rate this question:
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- 19.
A portfolio that incurs the smallest risk for a given level of return is called
- A.
The efficient portfolio
- B.
The market portfolio
- C.
The efficient frontier
- D.
The optimal portfolio
Correct Answer
A. The efficient portfolioExplanation
The efficient portfolio is the correct answer because it refers to a portfolio that offers the lowest possible level of risk for a given level of return. This means that, among all possible portfolios, the efficient portfolio provides the best risk-return trade-off. It is constructed by combining different assets in a way that maximizes returns while minimizing risk. By diversifying investments, the efficient portfolio aims to achieve the highest possible return for a given level of risk, making it an optimal choice for investors.Rate this question:
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- 20.
According to a study by Levy and Lerman, an investment in U. S. Bonds compared to internationally diversified bond portfolios is _________
- A.
Less efficient
- B.
More efficient
- C.
About the same
- D.
Relatively efficient
Correct Answer
A. Less efficientExplanation
According to the study by Levy and Lerman, investing in U.S. Bonds is considered less efficient compared to internationally diversified bond portfolios. This suggests that the returns or benefits from investing in U.S. Bonds may be lower or less favorable compared to the potential returns from investing in internationally diversified bond portfolios.Rate this question:
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