Financial Markets Quiz 1

Financial Markets Quiz 1 1. Which of the following are key functions of financial markets? a. Raise capital for companies b. Allocate capital efficiently c. Transfer risk from risk averse to risk seeking investors 2. The banking industry facilitates movement of funds from the surplus sector of the economy to the deficit sector. This is called a. Dis-intermediation b. Intermediation c. Broking 3. Monetary policies framed by Central Banks focus on which of the following? a. Income taxes levied on individuals and corporates b. The surpluses / deficits of the government c. Controlling liquidity in the economy (money supply) d. B & C above 4. Interest earned by a bank on the loans made by it are reflected as in its financials. a. Assets b. Income c. Liabilities d. Expenditure 5. Which of the following is not the service of Wealth Management sector? a. Tailor banking products b. Investment management c. Trusts and Estate management d. Tax and Estate planning 6. When a company going public issues equity shares, it involves a. A promise to repay the principal invested b. A promise to pay interest on the money invested c. A guaranteed return 1

7. Primary markets provide a. Liquidity to the issuer b. Capital to the investor c. Liquidity to the investor d. Capital to the issuer 8. The record date is important from which perspective a. This is the last chance for holders to register securities in their name b. Only those investors whose names appear in the register on this date qualify for receiving investment benefits c. It is the date on which record number of investors contract the company. d. It is the date on which the management chooses to record certain facts. 9. Which of the following is not the function of an Investment Bank? a. Rating Debt b. Advising on M&A c. Raise equity and debt capital d. Sales & Trading 10. Collateralized Debt Obligations is an example of a a. Derivative b. Structure Credit Product c. Structure Investment Product 11. Equity linked note is an example of a. Equity b. Bond c. Structured Investment 12. Which of the following trade type offers guaranteed settlement? a. Exchange Trade b. OTC Trade 13. Which of the following trades are more comples by nature? a. Exchange Trades b. OTC Trades 2

14. Treasury Bonds issued by the government are typically debt. a. Short term b. Medium term c. Long term 15. An equity investor puts money in a project, which fails. He is likely to face a. No further losses than his initial investment b. Unlimited losses c. Many legal cases from suppliers to the company d. Many legal cases from the employees of the company 16. A distribution of profits of a company in cash is called and in kind is called a. Dividend / Bonus b. Dividend / Rights c. Spin-Off / Bonus d. Rights / Bonus 17. The market price of a share is likely to fall if a. The earnings / profit of the company increases b. Company reduces the number of shares through a buyback scheme c. The market assigns a lower P/E ratio to the stock d. The market assigns a higher P/E ratio to the stock 18. Preference shareholders have a. A preference over equity shareholders at the time of liquidation b. A right to receive their dividend at the time of liquidation before any other payment c. A preference over bondholders at the time of liquidation of the company d. A right to receive their dividend irrespective of company performance. 3

19. Mr. Fursat Ali Khan holds 100 shares of M/s. KPML (Khao, Piyo, Maze Karo) Ltd. He attends the Annual General Meeting (AGM) of shareholders. The company seeks the approval of shareholders on a proposal through a formal voting process (not by show of hands). Which of the following statements is true, in this particular instance? a. Mr. Khan is entitled to 100 votes b. Mr. Khan is entitled to 1 vote c. The number of votes he has is dependent on the total number of shareholders present in the meeting d. The number of votes he has is dependent on the total number of shares issued by the company 20. In the event of a company being liquidated, who will be paid last a. Preferred stockholders b. Banks (lenders) c. Common stockholders d. Bondholders 21. The feature that distinguishes a bond from any other kind of loan is that a. Bonds have interest rates higher than other loans b. Bonds are less risky than other loans c. Bonds offer repayment guarantee d. Bonds are tradable 22. The issuer of Bond is taking a a. Long-term loan b. Short-term risk c. Long-term risk d. Short-term loan 23. Interest rate on bonds when issued at par is known as a. Yield b. Dividend c. Coupon d. Yield to Maturity 24. If market interest rates are rising, what happens to the bond prices? a. Decrease b. Increase c. Remain unchanged d. Cannot say 4

25. The amount of interest that a bondholder receives, expressed, as a percentage of its market value is known as a. Coupon b. Yield c. Dividend d. Premium 26. Most trading in bonds in the United States and throughout the world occurs on a. Exchanges b. OTC Markets c. Specially Designated Offices d. At the place of bond issuer s registrar 27. Bond issuer s privilege of redeeming its bonds early is referred to as a. Call option on the bond b. Put option on the bond c. Convertibility of bond d. Disability of bond 28. are the types of bonds issued by foreigndomiciled issuers who register with the SEC and borrow dollars via issues underwritten by a U.S. syndicate for delivery in the United States. a. Samurai Bonds b. Yankee Bonds c. Bulldog Bonds d. Crimped Bonds 29. are the Eurobonds that have their coupon levels reset periodically, with reference to a money market rate usually LIBOR (London Interbank Offer Rate) a. Medium Term Notes b. Floating Rate Notes c. Fixed Rate Bonds 30. are ones where the coupon and the redemption amount are increased by the amount of inflation over the life of the bond. a. Conventional Gilts b. STRIPS c. Index-linked bonds d. Trips 5

31. A convertible bond is attractive for an investor because a. It converts the coupon to match the current market interest rates b. If the company prospers, its share price will rise and, if it does so sufficiently, conversion may lead to capital gains c. Investors will pay a lower price for a bond that is convertible because of the possibility of a capital gain 32. Bonds issued by USA government are known as a. Gilts b. Treasury Bonds c. Government Bonds d. Federal Bonds 33. Junk bonds are also known as a. Accrual bonds b. Registered bonds c. High-yield bonds d. Surety bonds 34. Money market instruments typically have the following maturity period a. Less than 1 year b. 1 to 10 years c. Greater than 10 years d. Are perennial in nature 35. A bond with a par value of $1,000 being quoted at 91.75. What is the current price of the bond in dollar terms? a. 913.40 b. 917.50 c. 916.66 d. 9175.00 36. Which of the following most accurately describes a derivative security; a derivative a. Always increases risk b. Has no expiration date c. Has a payoff based on another asset. 6

37. These contracts give the owner the right but not the obligation to buy or sell an asset a. Forward b. Future c. Options d. Swaps 38. Which of the following is most likely to be a purpose served by derivatives markets? a. Arbitrage b. Price Discovery c. Risk Management d. Speculation 39. If I have a very specific requirement for a derivatives contract, I should go for a. Exchange Trade b. OTC Trade c. No choices available for specific requirements d. Go to the respective government 40. A is a legally binding obligation between two parties for one to buy and the other to sell a pre-specified amount of an asset at a pre-specified price on a pre-specified future date. a. Forward contract b. Call option c. Put option d. Futures contract 41. A margin used in certain types of derivative transactions is an example of a. A cost b. A deposit c. A profit 42. Which of the following constitutes market abuse? a. The behavior is based on information that is not generally available to those using the market and, if it were available, it would have an impact on the price. b. The behavior is likely to give a false or misleading impression of the supply, demand or value of the investment concerned c. The behavior is likely to distort the market in the investments 7

43. A director of the company buying shares of the same company and it is in his knowledge that the company s last six months of trade was better than the market expected. The director of the company is most likely involved in a. Riding information b. Inside dealing c. Rogue trading d. Opportunist trading 44. refers to any platform or method by which the firm completes buy / sell orders in the market place a. Order systems b. Trading systems c. Listing systems d. Settlement systems 45. The process of taking data from different sources and producing one set of cogent intelligible reports is done under a. Client Management System b. Client Reporting System c. Client Reporting Management 46. Under the EU regulation known as MiFID all clients must be classified into broad categories at the time of onboarding. a. 2 b. 3 c. 4 d. 5 47. Terms such as SEDOL, CUSIP refer to a. Securities Regulators b. Securities Identifiers c. Securities Numbers 48. DTC in the USA and CSDL/NSDL in India are examples of a. Commodity Exchanges b. Stock Exchanges c. Futures and Options Exchanges d. Depositories 8

49. Trade Capture is process / function a. Front office b. Middle office c. Back office d. Head office 50. Settlement as a process is always handled by a. Front office b. Middle office c. Back office d. Head office 51. Trade Confirmation is a process a. Pre trade b. Pre settlement c. Post settlement d. B & C both 52. Straight through processing refers to a. Automated processing of order and trade execution b. Execution and booking of trade is simultaneous c. All activities relating to a trade are working with the same business date 53. Who among the following is typically not a Buy side firm? a. Pension funds b. Mutual funds c. Investment banks d. Insurance companies 54. Which parties are involved in the clearing and settlement process? a. Exchange and Clearing corporation b. Depositories / Banks c. Clearing Members 55. The is the first formal document that reflects the details of a trade a. Agreement b. Confirmation c. Settlement Date d. Deal Reference Number 9

56. Which of the following functions is carried out by the Custodian? a. Confirmation and Settlement b. Asset Servicing 57. Trade matching can be carried out at a. At the level of the trading platform b. By specialist providers of matching facilities prior to submission for clearing and settlement c. By the relevant clearing and settlement system itself d. Any of the above 58. is a process which involves one party providing the relevant details of the trade to the other, which then verifies that information, resulting in an agreed trade? a. Trade matching b. Trade verification c. Trade affirmation d. A & C 59. Trade enrichment exists to add specific trade data to the basic trade details to allow downstream processing. a. True b. False 60. Which of the following is usually not associated with OTC trades? a. Trade confirmation b. Trade settlement c. Trade clearing d. Trade capture 61. The institution of Central Clearing Counterparty (CCP) is being championed in OTC markets to reduce a. Operational risks b. Market risks c. Liquidity risk 62. With respect to Standard Settlement Instructions, which of the following is most accurate? a. Causes delay in the confirmation process b. Reduction in the likelihood of errors in settlement c. Increase in processing costs d. Increased vulnerability to fraud 10

63. Which of the following is not a function of the clearing process? a. Trade matching b. Multilateral netting c. Post netting confirmation d. Delivery vs Payment 64. When a bank gives SSI s to a counterparty, it should be in a. Exchange format b. Bank format c. SWIFT format d. Trade format 65. What is the first step in the reconciliation process? a. Knowing the item-wise causes of differences b. Matching the balances c. Preparation of balance in bank/securities account per our books 66. Trades fail for which of the following reasons? a. Insufficient securities b. Insufficient time for settlement c. Instructions not received by the custodian d. A & C 67. When the firm s traders actively trade financial instruments with its own money as opposed to its customers money, so as to make a profit for itself. This is referred to as a. Self-trading b. Trader trading c. Proprietary trading d. Profit trading 68. Which among the following activities are crucial for reconciliation to be successful? a. Straight Through Processing b. Manual Matching c. Investigation 11

69. There are two parties, in which Party A lent securities to B, and those are returnable by B to A. Which of the following business situation implies to the above statement? a. Securities / Stock Lending b. Margin Trading c. OTC Trade d. Exchange Trade 70. The Life Cycle of an OTC is different from that of an exchange in terms of a. Trading systems could be electronic or manual b. Every trade needs to be backed by an agreement and hence the need for standards in documentation c. Clearing and settlement needs to be done by the parties one on one 71. The settlement risk in OTC trades is being mitigated by a. Making the exchange guarantee OTC trades for a fee b. The clearing corporation takes the responsibility of clearing the OTC trades in addition to exchange trades c. Using the services of the Central Clearing Counter Party d. Trades in OTC markets restrict deals to only those counterparties who deposit 100% margin with them. 72. ISDA s focus has been making safe and efficient a. The accounting and reconciliation b. The over-the-counter (OTC) derivatives market c. Stock exchanges d. Trading in commodities 73. Bank and Nostro Account Reconciliation refers to Cash Activity and Balance reconciliation of an organization against the accounts held with a. Brokers b. Dealers c. Banks d. Exchanges 74. Information that reconciliation tools cannot automatically match, results in, what is known as a. Blips b. Bridges c. Breaks d. Bumps 12

75. Breaks can occur for which of the following reasons. a. Data records missing from either of the data sources b. Changes to the external or internal data sources c. Errors in the compare process 76. Records from the two data sources are compared using a set of data elements called a. Source data b. Prima data c. Key data d. Critical data 77. Which of the following is the feature of trade data? a. Trade specific b. Counterparty specific c. Externally generated d. Universally accepted 78. Which of the following is a feature of static data? a. Trade specific b. Counterparty specific c. Externally generated d. Universally applicable 79. Which of the following is the feature of reference data? a. Externally generated and universally accepted b. Changes every day 80. Which of the following is the feature of market data? a. Externally generated & universally applicable b. Changes everyday 81. The capital market consists of which of the following asset classes? a. Money and Bond b. Money and Equity c. Fixed Income and Equity d. Money and FX 13

82. In Exchange market, brokers are involved for a. Trade execution b. Trade settlement 83. The bifurcation of OTC market into cleared OTC and non-cleared (or bilateral) OTC is mandated by a. Dodd-Frank Act b. EMIR 84. Which of the following can be a party to the trade/ a. Exchange b. Custodian c. Depository 85. What is the most serious risk from the counterparty in a derivative trade? a. Credit risk b. Settlement risk c. Market risk d. Counterparty credit risk 86. In which of the following markets are derivative products traded? a. Exchange b. Cleared OTC c. Bilateral (or non-cleared) OTC 87. Bank of America Merrill Lynch, a major derivative dealer and member of Fed-16 and a globally and systemically important bank (G-SIB), has done a trade with Alliance Bernstein, which is an integrated investment management and research firm that also runs retail funds. This trade will be classified as a. Interdealer trade b. Institutional trade c. Commercial trade d. Retail trade 14

88. Which of the following statements is true? (I) Brokers are always involved in Cleared OTC trades. (II) Brokers are always involved in Exchange trades (III) Brokers may or may not be involved in bilateral OTC trades a. I and II b. II and III c. I and III 89. In the novation of CCP clearing, who novates to whom? a. Buyer to CCP b. Seller to CCP 90. Which of the following forms of clearing provide trade guarantee? a. Ring Clearing b. CCP Clearing 91. Which of the following services are provided by Custodian? a. High end mid office services b. Cash lending to client c. Securities lending to client 92. Which of the following utility is involved in processing of every trade in both cash and derivatives markets? a. Depository b. Trade Repository c. Payment system d. Clearing corporation 93. In CCP clearing, for a particular settlement day, Party A has to pay 1,000 to Party B; pay 2,500 to Party C; and receive 3,000 from Party D. What is the net obligation of Party A after clearing? a. Pay 500 to Party B b. Pay 500 to Party C c. Pay 500 to Clearing Corporation d. Receive 500 from Clearing Corporation 15

94. Which of the following processes occur during client on-boarding stage? a. Due diligence b. Documentation c. Account setup 95. Checking various limits and product suitability is carried out in which of the following stages? a. Pre-trade analytics b. Trade review / validation c. Both A and B by independent teams 96. The process in which of the following stages in trade life cycle are mostly internal with little interaction with external entitles? a. Client on boarding b. Pre trade c. Post trade settlement d. Post settlement 97. Which of the following is true about position? a. It is a measure of market risk b. It is the holdings in instrument c. It is a measure of exposure to market risk 98. The economic purpose of an exchange is to a. To provide liquidity to investors b. Indicate the rate at which a company can plan a FPO c. To access the policies of the government 99. Delivery of securities is a part of a. Clearing b. Settlement c. Payment System d. Reporting 100. In OTC agreements, the terms and conditions that are specific to the particular transaction are a part of a. Confirmations b. Schedule c. Master d. Standards 16