AS 05 (iv) - Finance and Investment Mock Test 16
This section explains important concepts of the Indian debt market, derivatives, investment planning, real estate, commodity futures, business organizations, bond valuation, and mutual funds. It covers Certificates of Deposit (CDs), debentures, features of forward contracts, investment time horizon in need analysis, bond yield spreads, benefits of commodity futures markets, major uses of real estate investments, advantages of sole proprietorships, the inverse relationship between bond prices and interest rates, and the operation of open-ended mutual fund schemes. These concepts help investors understand financial instruments, investment strategies, market functioning, business structures, and effective portfolio management.
1. Which of the following is a 'Certificate of Deposit' as an Instrument in the Indian Debt Market?
A. A deposit with the Post Office
B. A security issued by commercial banks with a maturity of 91 days to 1 year
C. A Government Security issued by the RBI
D. A bond issued by Public Sector Undertakings (PSUs)
E. A deposit certificate issued by Non-Banking Financial Companies (NBFCs)
2. What is a 'Debenture' in the context of the Indian Debt Market?
A. A government-backed bond
B. A corporate fixed-interest instrument representing a loan taken by a company
C. A type of Treasury Bill
D. A fixed deposit at a commercial bank
E. An equity instrument with fixed dividends
3. What is the forward contract feature that 'the price is generally not available in the public domain'?
A. It means forward contracts are fully transparent and publicly published
B. It is a feature whereby the contract price is generally not publicly disclosed, making it difficult for market participants to know prevailing rates
C. It means forward prices are regulated by the government and kept confidential
D. It means only the buyer can know the forward contract price
E. It means forward prices are published only after settlement
4. In the context of Need Analysis, 'Investment Time Horizon' refers to:
A. The maximum amount of loss an investor can tolerate
B. The length of time funds can remain invested before they are required to meet financial obligations
C. The expected annual return from a diversified portfolio
D. The duration of the investment policy statement
E. The time needed to research and select securities
5. According to the chapter, what is the 'Yield Spread' for a bond?
A. The difference between the bid price and ask price
B. The difference between the highest and lowest yield in the market
C. The additional yield above a comparable default-free bond that compensates investors for the risks associated with the bond
D. The difference between nominal yield and current yield
E. The difference between domestic and international bond yields
6. What is 'Flexibility, Certainty and Transparency' as a benefit of commodity futures markets?
A. A benefit available only to large institutional traders
B. Transparent pricing and standardized contracts facilitate commodity-backed financing by giving banks greater confidence in lending against commodities
C. A benefit available only to government agencies
D. A benefit available only to foreign traders
E. A benefit only for speculators
7. What are the THREE MAIN USES of investment in real estate according to the chapter?
A. Capital preservation, tax benefits, and liquidity
B. It provides income, scope for capital appreciation, and leverage opportunities for the investor
C. Price discovery, speculation, and arbitrage
D. Physical security, rental income, and resale value
E. Diversification, inflation hedge, and yield
8. What is a key advantage of a Sole Proprietorship?
A. Limited liability protection for business debts
B. Ability to raise equity capital easily
C. No public disclosure of business affairs
D. Multiple shareholders can invest
E. No personal responsibility for business debts
9. Which of the following correctly states the inverse relationship between bond prices and interest rates?
A. When interest rates increase, bond prices increase
B. When interest rates decrease, bond prices decrease
C. When interest rates increase, bond prices decrease; when interest rates decrease, bond prices increase
D. Bond prices and interest rates move independently
E. Bond prices are inversely related to coupon rates, not interest rates
10. In an Open-Ended Mutual Fund scheme, how does an investor buy or sell units?
A. Only through the stock exchange during trading hours
B. Investors can buy and sell units directly from the mutual fund at NAV-related prices on any business day, subject to applicable terms and conditions
C. Units can only be sold after a 3-year lock-in period
D. Units can only be purchased during the initial offer period
E. Units can only be sold through an authorized broker
