Merchant Banking And Financial Services (306)
Internal Online Examination
Questions and Answers
- 1.
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 to potential investors before a registration statement becomes effective. It contains information about the offering but also includes a statement on its cover that the registration statement has not yet become effective. This type of preliminary prospectus is commonly referred to as a "red herring". The term "red herring" is used because the statement on the cover alerts investors that the information in the prospectus is subject to change and should not be relied upon as the final offering document.Rate this question:
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- 2.
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.Rate this question:
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- 3.
Which securities law requires that public offerings be registered with the federal government before they are sold?
- A.
Underwritten Rule 144a.
- B.
Blue Sky Laws.
- C.
Securities Exchange Act of 1933.
- D.
Securities Exchange Act of 1934.
Correct Answer
A. Underwritten Rule 144a. -
- 4.
What happens, according to the text, to the average common stock price immediately after the announcement of a new equity issue by a publicly traded firm?
- A.
The average stock price decreases a few percentage points.
- B.
The average stock price does not generally change because no new information is provided to investors.
- C.
The average stock price does not generally change because of asymmetric information.
- D.
The average stock price increases a few percentage points.
Correct Answer
A. The average stock price decreases a few percentage points.Explanation
According to the text, the average common stock price immediately decreases a few percentage points after the announcement of a new equity issue by a publicly traded firm. This suggests that investors react negatively to the news of a new equity issue, causing the stock price to decline. The decrease in stock price can be attributed to factors such as dilution of ownership, increased supply of shares, and potential concerns about the company's financial health.Rate this question:
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- 5.
The New York Stock Exchange (NYSE) can be considered as being a part of the __________ and the __________.
- A.
Secondary market for long-term securities; capital market
- B.
Capital market; money market
- C.
Capital market; primary market for long-term securities
- D.
OTC market; secondary market for long-term securities
Correct Answer
A. Secondary market for long-term securities; capital marketExplanation
The New York Stock Exchange (NYSE) is considered a part of the secondary market for long-term securities because it provides a platform for the buying and selling of previously issued stocks and bonds. It is also considered a part of the capital market because it facilitates the flow of capital between investors and companies, allowing companies to raise funds for investment and growth.Rate this question:
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- 6.
What is CRR?
- A.
Cash Reserve Ratio
- B.
Current Ratio Rate
- C.
Review Report
- D.
Credit Rating Record
Correct Answer
A. Cash Reserve RatioExplanation
CRR stands for Cash Reserve Ratio. It is a monetary policy tool used by central banks to control the liquidity in the economy. It refers to the percentage of a bank's total deposits that it must hold as reserves in the form of cash with the central bank. By increasing or decreasing the CRR, the central bank can influence the amount of money available for lending and spending in the economy. 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 in recent years. This could be due to various factors such as a decrease in inflation, a decrease in the central bank's policy rates, or increased competition among banks. Lower interest rates can incentivize borrowing and stimulate economic growth, as it reduces the cost of borrowing for individuals and businesses.Rate this question:
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- 8.
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 provides refinance for financing Self Help Groups up to 75% of the loan amount. This means that NABARD will provide funds to the banks or financial institutions that have provided loans to Self Help Groups, covering 75% of the loan amount. The remaining 25% is expected to be contributed by the banks or financial institutions themselves. This refinance facility helps in promoting and supporting the activities of Self Help Groups, enabling them to access the necessary funds for their development and empowerment.Rate this question:
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- 9.
Which of the following is NOT true?
- A.
Liquidity and risk are positively related.
- B.
Risk and yield are positively related
- C.
Liquidity and yield are inversely related.
- D.
All are true
Correct Answer
A. Liquidity and risk are positively related.Explanation
The statement "Liquidity and risk are positively related" is not true. Liquidity refers to the ease with which an asset can be bought or sold without causing significant price changes, while risk refers to the potential for loss or volatility. In general, higher liquidity reduces the risk because it allows for easier entry and exit from an investment, whereas lower liquidity increases the risk. Therefore, liquidity and risk are inversely related, making the given statement false.Rate this question:
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- 10.
The least liquid asset below is __________.
- A.
Treasury bond.
- B.
Money market mutual fund share.
- C.
Passbook savings account
- D.
Checking account deposit
Correct Answer
A. Treasury bond.Explanation
A treasury bond is considered the least liquid asset among the options provided. Liquidity refers to the ease with which an asset can be converted into cash without incurring significant losses. Treasury bonds are long-term debt securities issued by the government, typically with maturities of 10 years or more. Unlike money market mutual fund shares, passbook savings accounts, and checking account deposits, treasury bonds cannot be easily converted into cash on short notice without potentially incurring penalties or selling at a discount. Therefore, treasury bonds are less liquid compared to the other options listed.Rate this question:
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- 11.
It is normally true that, the longer the time to maturity of a Government Treasury bill _______.
- A.
The less liquid the asset
- B.
The lower the discount rate.
- C.
The lower the level of taxation on the Treasury bill.
- D.
The lower the market risk in the Treasury bill.
Correct Answer
A. The less liquid the assetExplanation
The longer the time to maturity of a Government Treasury bill, the less liquid the asset. This means that as the time to maturity increases, it becomes more difficult to sell the Treasury bill in the market at its full value. This is because the longer the time to maturity, the more uncertain the future cash flows associated with the Treasury bill become, making it less attractive to potential buyers. Therefore, the liquidity of the asset decreases as the time to maturity increases.Rate this question:
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- 12.
A sharp decline in market interest rates will:
- A.
Increase the price of existing bonds.
- B.
Increase the yield on existing bonds.
- C.
Decrease the price of existing bonds
- D.
Do none
Correct Answer
A. Increase the price of existing bonds.Explanation
A sharp decline in market interest rates will increase the price of existing bonds. This is because when interest rates decrease, the fixed interest payments provided by existing bonds become more attractive compared to newly issued bonds with lower interest rates. As a result, investors are willing to pay a higher price for existing bonds in order to secure higher yields. This increased demand drives up the price of existing bonds.Rate this question:
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- 13.
Which of the following assets is most liquid?
- A.
2 year Treasury bonds
- B.
Shares of common stock
- C.
Passbook savings accounts
- D.
Gold bars
Correct Answer
A. 2 year Treasury bondsExplanation
2 year Treasury bonds are considered the most liquid asset among the options given. Liquidity refers to the ease and speed at which an asset can be converted into cash without significant loss in value. Treasury bonds are highly liquid because they are backed by the government and have an active secondary market where they can be bought and sold easily. On the other hand, shares of common stock may have liquidity but can be subject to market fluctuations and may not be as easily converted to cash. Passbook savings accounts are also liquid, but may have withdrawal restrictions or penalties. Gold bars, while valuable, may not be as easily converted to cash due to the need for finding a buyer and determining its value.Rate this question:
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- 14.
When borrowers have superior information about the potential returns and risks associated with an investment project, it results in the problem referred to as __________
- A.
Moral hazard
- B.
Adverse selection
- C.
Direct finance
- D.
Direct transformation
Correct Answer
A. Moral hazardExplanation
When borrowers have superior information about the potential returns and risks associated with an investment project, it results in the problem referred to as moral hazard. This means that borrowers may take on more risk or engage in risky behavior because they know that they will not bear the full consequences of their actions. This can lead to a misallocation of resources and increased financial instability.Rate this question:
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- 15.
Lisa wants to add a new room to her house. What type of finance company will she deal with in getting the loan to finance the room addition?
- A.
Housing finance company
- B.
Sales finance company
- C.
Business finance company
- D.
Public finance company
Correct Answer
A. Housing finance companyExplanation
Lisa will deal with a housing finance company in order to get a loan to finance the room addition. A housing finance company specializes in providing loans for housing-related purposes, such as home renovations or additions. They have expertise in understanding the specific needs and requirements of homeowners and offer loan options tailored to those needs. Therefore, Lisa would approach a housing finance company to secure the necessary funds for adding a new room to her house.Rate this question:
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- 16.
A bond denominated in a currency other than that of the country in which it is sold is called a_________
- A.
Eurobond
- B.
Foreign bond
- C.
Equity bond
- D.
Currency bond
Correct Answer
A. EurobondExplanation
A bond denominated in a currency other than that of the country in which it is sold is called a Eurobond. Eurobonds are issued in a currency different from the currency of the country where the bond is sold, allowing investors to diversify their currency exposure. Eurobonds are typically issued by multinational corporations or governments to attract international investors and raise funds in foreign markets. They provide flexibility in terms of currency choice and can be an attractive investment option for investors looking for exposure to different currencies and markets.Rate this question:
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- 17.
Which of the following is a short-term financial instrument?
- A.
Treasury bill.
- B.
Share of Tata Finance Ltd.
- C.
Government bond with a maturity of 2 years
- D.
Residential mortgage
Correct Answer
A. Treasury bill.Explanation
A Treasury bill is a short-term financial instrument issued by the government to raise funds for a short period, typically less than a year. It is considered a safe and liquid investment option as it is backed by the government. On the other hand, shares of Tata Finance Ltd. and government bonds with a maturity of 2 years are long-term investments. Residential mortgages are loans taken for the purchase of a property and are not considered financial instruments. Therefore, the correct answer is Treasury bill.Rate this question:
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- 18.
Which of the following is traded in a money market?
- A.
Treasury bills
- B.
Preference shares
- C.
Mortgages
- D.
Common stocks
Correct Answer
A. Treasury billsExplanation
Treasury bills are traded in the money market because they are short-term debt instruments issued by the government to finance its short-term cash needs. They have a maturity period of less than one year, making them highly liquid and low-risk investments. Money market instruments like treasury bills are typically traded among financial institutions, corporations, and government entities to manage their short-term liquidity requirements and earn a modest return on their excess cash. Preference shares, mortgages, and common stocks are not typically traded in the money market as they are associated with longer-term investments and different types of markets.Rate this question:
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- 19.
A sharp decrease in the growth rate of the money supply is most likely to be followed by
- A.
A decline in economic activity
- B.
An upswing in the business cycle
- C.
Inflation.
- D.
All
Correct Answer
A. A decline in economic activityExplanation
A sharp decrease in the growth rate of the money supply is most likely to be followed by a decline in economic activity. This is because when the money supply decreases, there is less money available for businesses and consumers to spend, which can lead to a decrease in demand for goods and services. This decline in demand can then lead to a decrease in production and overall economic activity.Rate this question:
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- 20.
Money appears to have a major influence on ________.
- A.
All
- B.
Inflation
- C.
The business cycle
- D.
Interest rates
Correct Answer
A. AllExplanation
Money appears to have a major influence on all aspects of the economy. It affects inflation by increasing the overall price level, as more money in circulation can lead to higher demand and prices. Money also plays a crucial role in the business cycle, as it affects investment, consumption, and overall economic activity. Additionally, interest rates, which are influenced by the supply and demand for money, have a direct impact on borrowing costs and investment decisions. Therefore, money has a pervasive influence on all these factors.Rate this question:
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Mar 21, 2023Quiz Edited by
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Oct 13, 2015Quiz Created by
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