Financial Market MCQ Quiz - Objective Question with Answer for Financial Market - Download Free PDF

The correct answer is 4) Medicine.

Key Points

• Intermediate Goods:
  • Intermediate goods are products used as inputs in the production of other goods. They are not final goods and are typically transformed or assembled into final products.
• Hard Drive: This is an intermediate good.
  • A hard drive is used in the production of computers and other electronic devices. It is not sold as a final product but as a component of a final product.
• Steel: This is an intermediate good.
  • Steel is used in the production of various products like cars, machinery, and buildings. It is a raw material that gets transformed into finished goods.
• Paint: This is an intermediate good.
  • Paint is used in manufacturing and construction processes to finish and protect surfaces. It is not a final product by itself but is used in the production of finished goods.
• Medicine: This is not an intermediate good.
  • Medicine is a final good that is consumed directly by individuals for health purposes. It is not used as an input in the production of other goods.

Additional Information

• Examples of Intermediate Goods:
  • Other examples of intermediate goods include flour used in baking, wood used in furniture making, and glass used in window manufacturing.

The correct answer is AGRIDEX.

Key Points

• AGRIDEX is India's first agricultural Futures Index introduced for trading in agricultural products.
• It was launched by the National Commodity and Derivatives Exchange (NCDEX) in May 2020.
• AGRIDEX is designed to track the performance of the top 10 liquid agricultural commodity futures traded on NCDEX.
• The index includes products such as soybean, mustard seed, guar seed, chana, and others, providing a benchmark for agricultural commodity trading.
• The index value is derived using a weighted methodology based on liquidity and trading volume of the selected commodities.

Additional Information

• Commodity Futures Trading:
  • Commodity futures are contracts to buy or sell a specific quantity of a commodity at a predetermined price on a future date.
  • This trading mechanism helps in price risk management and acts as a price discovery tool for participants.
• NCDEX:
  • The National Commodity and Derivatives Exchange (NCDEX) is India's leading commodity exchange, established in 2003.
  • It specializes in agricultural commodity futures trading and aims to create a fair and transparent platform for farmers and traders.
• Index Futures:
  • Index futures are derivative instruments that allow traders to speculate or hedge based on the performance of an index, such as AGRIDEX.
  • They are used to manage portfolio risk and provide liquidity to the market.
• Importance of Agricultural Indexes:
  • Agricultural indexes like AGRIDEX help in benchmarking commodity performance, aiding decision-making for investors and policymakers.
  • They provide insights into market trends and help ensure better price realization for farmers.

The correct answer is 3 and 4 only.

Key Points

• The market of an economy where funds are transacted between the fund-surplus and fund-scarce individuals and groups is known as the financial market.
• The basis of the transaction is either interest or dividend. This market might have its organized (institutionalized) as well as non-organized (unregulated/non-institutionalized) segments in an economy.
• Financial markets in every economy are having two separate segments today, one catering to the requirements of short-term funds and the other to the requirements of long-term funds.
• The short-term financial market is known as the money market, while the long-term financial market is known as the capital market. Hence option 1 and 2 are incorrect
• The money market Prime regulator is RBI. Capital market Prime regulator is SEBI, IRDA, PFRDA (Pension Fund Regulatory Authority) Hence option 3 and 4 are correct

Important Points

Difference between Money Market & Capital Market

Key Points

• ​SEBI (Securities and Exchange Board of India) is the body which is accountable for the efficient functioning of the share market of our country.
• The Securities and Exchange Board of India (SEBI) was established on 12 April 1992 as per the provisions of the Securities and Exchange Board of India Act, 1992 with its headquarters in Mumbai, India.
• SEBI has regional offices in the capital of India, Chennai, Kolkata and Ahmedabad together with other local regional offices across prominent cities in India.
• Role of SEBI:
• Issuers of securities
• Investor
• Financial Intermediaries

Important Points

• Powers and Functions of SEBI
  • To protect the interests of Indian investors within the stock exchange.
  • To promote the event and hassle-free functioning of the stock exchange.
  • To regulate the business operations of the stock market.

Additional Information

• When you make trades within the forex market, you're basically buying the currency of a specific country and simultaneously selling the currency of another country
• The private sector is the part of the economy sometimes brought up because the citizen sector, which is owned by private groups, usually as a way of multinational for profit or non-profit, instead of being owned by the govt.
• The Healthcare and Public Health sectors protect all sectors of the economy from hazards like terrorism, communicable disease outbreaks, and natural disasters.

The correct answer is Both 1 and 2.

Key Points

Financial Market

• Financial markets consist of two major segments:
• Money Market:
  • The market for short term funds.
• Capital Market:
  • The market for long and medium-term funds.
• According to the RBI, the money market is the center for dealing mainly of short character, in monetary assets; it meets the short term requirements of borrowers and provides liquidity or cash to the lenders.
• It is a place where short term surplus investible funds at the disposal of financial and other institutions and individuals are bid by borrowers, comprising of institutions and individuals and government.
• The money market provides non-inflationary sources of finance to the government. Hence, Statement 1 is correct.
  • It is possible by issuing treasury bills to raise short loans. However, this does not lead to increases in prices.
• Money Market consists of all the organizations and institutions which deal or facilitate dealings in short-term debt instruments.
• These institutions include RBI, commercial banks, cooperative banks, non-banking financial companies like LIC, GIG, UTI, and special institutions like Discount and Finance House of India (DFHI).
• The important money market instruments or securities (financial assets) are as follows.
• The capital market is the market for medium and long-term funds.
• It consists of all the financial institutions, organizations, and instruments which deal with lending and borrowing transactions of over one year of maturity. Hence, Statement 2 is correct.

The correct answer is 30.

Key Points

• SENSEX(SENSitve indEX) is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange.
• It was introduced by the Bombay stock exchange on 1 January 1986.
• The index is widely reported in both domestic and international markets through print as well as electronic media.
• The index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003.
• The SENSEX is the benchmark index with wide acceptance among individual investors, institutional investors, foreign investors and fund managers.
• The objectives of S&P BSE SENSEX-
  • To measure Market Movements
  • Benchmark for Funds Performance
  • For Index Based Derivatives Products
• Blue Chip companies refer to equity shares of companies with larger market capitalisation. These companies have entrenched market operations running for many years.

The correct answer is Costs which do not vary with output.

Key Points

• Fixed overhead costs are costs that do not vary with output.
  • Fixed overhead costs are needed in order to operate a business.
  • Fixed overhead costs are easy to predict and they do not change substantially.
  • Examples of fixed overhead costs are:
    • Utilities.
    • Taxes.
    • Insurance.
    • Depreciation on production equipment.
    • Rent.
    • Administrative salaries.

Additional Information

• Variable overhead costs are the costs that vary with output.
  • Examples of variable overhead costs are:
    • Equipment utilities.
    • Materials handling wages.
    • Wages for handling.
    • Shipping of the product.

The correct answer is option 4, i.e. all of the above.

Key Points

• Call Money - 
  • It’s money borrowed or lent on demand for a very short period of time.
  • When money is borrowed or lent for more than a day and up to 14 days it is called call money.
  • No collateral is required to cover transactions of this nature.
• Term Money - 
  • Deposits with maturity period beyond 14 days are generally referred to as the term money. 
• Treasury Bills - 
  • Short term (up to one year) borrowing instruments of the union government issued at a discount to the face value, and on maturity, the face value is paid to the holder. 
• Certificate of Deposits - 
  • Negotiable money market instrument and is issued in a dematerialized form or as a Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period.
  • It can be issued by - 
    • Scheduled commercial banks.
    • Select pan India financial institutions that have been permitted by RBI to raise such loan.
• Commercial Paper - 
  • It is a note in evidence of the debt obligation of the issuer. 

The correct answer is 4) Medicine.

Key Points

• Intermediate Goods:
  • Intermediate goods are products used as inputs in the production of other goods. They are not final goods and are typically transformed or assembled into final products.
• Hard Drive: This is an intermediate good.
  • A hard drive is used in the production of computers and other electronic devices. It is not sold as a final product but as a component of a final product.
• Steel: This is an intermediate good.
  • Steel is used in the production of various products like cars, machinery, and buildings. It is a raw material that gets transformed into finished goods.
• Paint: This is an intermediate good.
  • Paint is used in manufacturing and construction processes to finish and protect surfaces. It is not a final product by itself but is used in the production of finished goods.
• Medicine: This is not an intermediate good.
  • Medicine is a final good that is consumed directly by individuals for health purposes. It is not used as an input in the production of other goods.

Additional Information

• Examples of Intermediate Goods:
  • Other examples of intermediate goods include flour used in baking, wood used in furniture making, and glass used in window manufacturing.

The correct answer is Option 3. 

Key Points

•  In India, the primary financial institution that protects investors in the stock market is the Securities and Exchange Board of India (SEBI).
• SEBI is a regulatory body that was established in 1988 to protect the interests of investors in the Indian securities market and to promote the development of the securities market.
• SEBI regulates and supervises the activities of various market participants, including stock exchanges, brokers, mutual funds, and other intermediaries, and it also enforces rules and regulations related to trading, disclosure, and transparency in the securities market.
• SEBI plays a critical role in maintaining the integrity and stability of the Indian securities market and in safeguarding the interests of investors by ensuring fair and transparent trading practices, promoting investor education and awareness, and enforcing laws and regulations to prevent fraud and malpractice.

Additional Information

•  The Bombay Stock Exchange (BSE) is a major stock exchange located in Mumbai, India.
  • It was established in 1875, making it one of the oldest stock exchanges in Asia.
  • The BSE is a popular platform for trading in stocks, bonds, and other financial instruments, and it is known for its role in shaping the Indian capital market.
  • The BSE has a market capitalization of over $2 trillion, making it one of the largest stock exchanges in the world.
  • The BSE also serves as an important source of financing for Indian companies, allowing them to raise capital by issuing stocks and bonds to investors.
  • The BSE is regulated by the Securities and Exchange Board of India (SEBI), which is responsible for ensuring fair and transparent trading practices in the Indian securities market.
  • The BSE has played a significant role in the growth and development of the Indian economy, and it continues to be a major hub for investment and trading activity in India.
• The Reserve Bank of India (RBI) is the central bank of India, responsible for regulating the monetary policy of the country and supervising the banking system.
  • The RBI was established in 1935 and is headquartered in Mumbai. Its main functions include formulating and implementing monetary policy, regulating and supervising banks and other financial institutions, managing the foreign exchange market, and issuing currency.
  • The RBI is governed by a central board of directors, headed by a Governor who is appointed by the Indian government.
  • The RBI plays a crucial role in maintaining financial stability and promoting economic growth in India.
  • Its policies and decisions have a significant impact on the banking and financial sectors in the country, as well as on the broader economy.
  • The RBI also serves as a lender of last resort, providing liquidity to banks and other financial institutions in times of crisis.
• The National Stock Exchange (NSE) is one of the major stock exchanges in India, located in Mumbai.
  • It was established in 1992 and has since become one of the largest stock exchanges in the world by market capitalization.
  • The NSE provides a platform for trading in a wide range of financial instruments, including equities, futures and options, currencies, and debt securities. It is known for its advanced electronic trading platform and has been a pioneer in introducing technology-driven innovations in the Indian securities market.
  • The NSE is regulated by the Securities and Exchange Board of India (SEBI) and operates under strict rules and regulations to ensure fair and transparent trading practices.
  • The NSE has played a significant role in the development of the Indian capital market, providing investors with access to a wide range of investment opportunities and contributing to the growth and development of Indian businesses.
  • The NSE has also been a driving force behind the growth of the Indian economy and has helped to promote economic stability and growth by facilitating the flow of capital to businesses and entrepreneurs.

The correct answer is option 1.

Key Points

• Goods and Services Tax is an indirect tax used in India on the supply of goods and services.
• It is a value-added tax levied on most goods and services sold for domestic consumption.
• It was launched in India on 1 July 2017 as a  comprehensive indirect tax for the entire country.
• It is a comprehensive, multistage, destination-based tax comprehensive because it has subsumed almost all the indirect taxes except a few state taxes. Hence option 1 is correct.
• It is paid by the consumers and is remitted to the government by the businesses selling the goods and services.

Additional Information

It is of three types i.e. 

• CGST to be levied by the Centre, 
• SGST to be levied by the States and 
• IGST is a tax levied on all Inter-State supplies of goods and/or services.  
• All these taxes are levied at rates mutually agreed upon by the Centre and the States. 
• The GST Council headed by the Union Finance Minister is the governing and key decision-making body for GST. 

The correct answer is the Lending of money to the public.

Key Points

• The lending of money to the public is not the function of RBI.
• Reserve Bank of India
  • The Reserve Bank of India is India's central bank and regulatory body under the jurisdiction of the Ministry of Finance, Government of India.
  • It is responsible for the issue and supply of the Indian rupee and the regulation of the Indian banking system.
• Key functions of RBI are, banker's bank, the custodian of the foreign reserve, controller of credit, and managing the printing and supply of currency notes in the country.

• Major functions of the RBI are as follows:

  • Issue of Bank Notes
  • Banker to Government
  • Custodian of Cash Reserves of Commercial Banks
  • Custodian of Country's Foreign Currency Reserves
  • Lender of Last Resort
  • Central Clearance and Accounts Settlement
  • Controller of Credit (Controlling Inflation) Banking Supervision

The correct answer is Both I and II.
Key Points

• Government Securities-
  • A Government Security (G-Sec) is a tradable instrument issued by the federal or state governments. (Hence, statement I is correct)
  • Government Securities are of two types-
    • Short term: With original maturities of less than one year. They are currently issued in three tenures: 91 days, 182 days, and 364 days. Example- Treasury Bills.
    • Long-term: With original maturity of one year or more. Example- Government bonds (dated securities).
  • Treasury bills and bonds, also known as dated securities, are both issued by the central government.
  • State governments issue only bonds or dated securities, which are known as State development loans.
  • They are known as Risk-free gilt-edged instruments because they are issued by the government and hence there is no danger of default. (Hence, statement II is correct)
  • FPIs (Foreign Portfolio Investment) are authorized to trade in G-Secs as long as they stay within the quantitative limits that are set from time to time.
  • The Reserve Bank of India has allowed retail investors to invest in G-Secs from November 2021.

Important Points

• RBI-
  • RBI was established in India on 1st April, in Kolkata in 1935 under the Reserve Bank Of India Act, 1934.
  • It was set up on the recommendation of the Hilton Young Commission.
  • RBI is the central bank of India and is responsible for the issue and supply of Indian currency.

The correct answer is the National Payments Corporation of India.

• National Financial Switch (NFS) is the largest network of shared automated teller machines (ATMs) in India.
• It was designed, developed, and deployed by the Institute for Development and Research in Banking Technology (IDRBT) in 2004, with the goal of inter-connecting the ATMs in the country and facilitating convenience banking.
• It was taken over by NPCI from Institute for Development and Research in Banking Technology (IDRBT) on December 14, 2009.
  • Now, it is run by the National Payments Corporation of India (NPCI). 
• NPCI is an umbrella organization for all retail payments in India. 
• It was set up with the guidance and support of the Reserve Bank of India (RBI) and the Indian Banks Association (IBA).

The correct answer is GST is a common law and procedure throughout the country under single administration..

Key Points

• GST is a destination-based tax. This means that the tax is levied on the final consumption of goods and services, in the state where they are consumed, rather than in the state where they are produced.
• There are multiple levies of tax on goods and services. While GST subsumed many indirect taxes, there are still some other levies like stamp duty and octroi that are not part of GST.
• GST is a common law and procedure throughout the country under single administration. While GST aims for uniformity, each state has its own GST legislation and administration, leading to some variations. Hence, statemnt of option 3 is incorrect.
• GST is a comprehensive levy and collection on both goods and services at the same rate with benefit of input tax credit or subtraction of value. While GST applies to a wide range of goods and services, there are different tax rates for different items. Additionally, the input tax credit benefit is not available on all purchases.
• Hence, the correct answer for the above question is 3.