IES Management College And Research Centre Bandra Reclamation Mumbai

QUESTION BOOKLET
Finance

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Q.1. What are Capital Expenditure (CAP-EX)?

Ans. Capital Expenditures are amounts spent to acquire or upgrade productive assets (such as buildings, machinery and equipment, vehicles) to increase the capacity or efficiency of a firm for more than one accounting period. A capital expenditure is always incurred with a view point of getting future benefits. These expenditures are termed as assets and always appear on asset side of balance sheet. Q.2. What is contribution margin? Ans. Contribution margin is the fraction of sales that contributes to offsetting fixed costs. Alternatively, unit contribution margin is the amount each unit sale adds to profit: it's the slope of the Profit line.Contribution margin is the marginal profit per unit sale. The Total Contribution Margin (TCM) is Total Revenue (TR, or Sales) minus Total Variable Cost (TVC): TCM = TR − TVC . Q.3. What is Depreciation? Ans. Depreciation is the reduction in the value of an asset due to usage, passage of time, wear and tear, technological outdating or obsolescence, depletion or other such factors. It is also classified as the allocation of the original cost of the asset over it’s useful life. It is a non cash expenditure that is tax deductible. It appears on the debit side of the profit and loss A/c Q.4. What are Futures? Ans. A futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price. Futures contracts are special types of forward contracts in the sense that the former are standardized exchange-traded contracts and can not be customized. Futures price is derived from the price of underlying. Underlying could be commodity, share, interest rate, currency etc Q.5. What is a Cost Unit? Ans. A Cost Unit is a unit of quantity of product , service or time ( or combinations of these) in relation to which costs are ascertained or expressed. Q.6. What are Capital Markets? Ans. The capital market is the market for securities, where companies and governments can raise long term funds. The capital market includes the stock market and the bond market. Financial regulators, such as the U.S. Securities and Exchange Commission, { In India SEBI ( Securities Exchange Board of India )}oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded Q.7. What is Market Capitalization or capitalized value? Ans. Market capitalization/capitalisation (capitalized/capitalized value) is a measurement of corporate or economic size equal to the current market price times the number of shares outstanding of a public company. Likewise, the capitalization of stock markets or economic regions may be compared to other economic indicators. The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in July 2008. Q.8. What is Free-Float Cap? Ans. The “open market” shares that are free for trading by anyone, are called the “free-float” shares. When we are calculating the Sensex, we are interested in these “free-float” shares!

A particular company, may have certain shares in the open market and certain shares that are not available for trading in the open market. Q.9. What is Deferred tax? Ans. Deferred tax is an accounting concept, meaning a future tax liability or asset, resulting from temporary differences between book (accounting) value of assets and liabilities and their tax value, or timing differences between the recognition of gains and losses in financial statements and their recognition in a tax computation Q.10. What is deferred tax liability? Ans. Deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense, or income is accrued but not taxed until received. Examples of such situations include:  a company claims tax depreciation at an accelerated rate relative to accounting depreciation  a company makes pension contributions for which tax relief is provided on a paid basis, whereas accounting entries are determined in accordance with actuarial valuations Q.11. What is deferred tax Asset? Ans. Deferred tax assets generally arise where tax relief is provided after an expense is deducted for accounting purposes. Examples of such situations include:  a company may accrue an accounting expense in relation to a provision such as bad debts, but tax relief may not be obtained until the provision is utilised  a company may incur tax losses and be able to "carry forward" losses to reduce taxable income in future years Q.12. What is a Scrip Issue? And what are its other names? Ans. Scrip issue is a form of secondary issue. A scrip issue is the process of creating new shares which are given free of charge to existing shareholders. To the individual investor, this is known as a scrip dividend. This would normally be done in place of paying a dividend. A Scrip issue is thus an issue where new shares are issued free of cost to the existing shareholders in proportion to their holdings. It is also known as "Capitalization issue" or "Bonus issue". Q.13. What is Direct cost and Indirect cost (overheads)? Ans. Direct Costs, however, are costs that can be associated with a particular cost object. They are cost that can be directly traced to producing specific goods or services. Indirect cost : Indirect costs are costs that are not directly accountable to a particular function or product; these are fixed costs. Indirect costs include taxes, administration, personnel and security costs. Q.14. What is a Balance Sheet? Ans. A balance sheet is often described as a snapshot of a company's financial condition. The balance sheet is a statement which applies to a single point in time. Balance sheet or statement of financial position is a summary of an organization's State of affairs as at a particular date as the end of its financial year. Q.15. What is the difference between cost accounting and financial accounting? Ans. Cost accounting is that part of management accounting which establishes budget and actual cost of operations, processes, departments or product and the analysis of variances, profitability or social use of funds. Managers use cost accounting to support decision making to reduce a company's costs and improve its profitability. Financial accountancy (or financial accounting) is the field of accountancy concerned with the preparation of financial statements for decision makers, such as

It may also be used as a synonym for the book value of a firm. who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings multiple". Q. suppliers. high-potential. or with a central bank. Q. Venture capital typically comes from institutional investors and high net worth individuals and is pooled together by dedicated investment firms. Price earning Ratio is A valuation ratio of a company's current share price compared to its per-share earnings. A variant of the P/E . The term is commonly used in relation to collective investment schemes. Venture capital (also known as VC or Venture) is a type of private equity capital provided to immature. and other stakeholders. CRR is Cash Reserve Ratio is a mandatory requirement for each and every bank. The current Cash Reserve Ratio is 8. borrowing. "P/E". the NAV is the total value of the fund's portfolio less its liabilities.The reciprocal of the PE ratio is known as the earnings yield. The cash reserve ratio is also known as the cash asset ratio or liquidity ratio. money market instruments and similar assets. and interest rates. Venture capital investments are generally made as cash in exchange for shares in the invested company . Q. employees. What is the meaning of Net Asset Value? Ans. Every Bank has to mantain a cash reserve as per Reserve Bank of India guideline.The reserve ratio is sometimes used as a tool in monetary policy. Financial Accounting is the process of summarizing financial data taken from an organization's accounting records and publishing in the form of annual (or more frequent) reports for the benefit of people outside the organization. A venture capital fund refers to a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. These reserves are designed to satisfy withdrawal demands.75%. Its liabilities may be money owed to lending banks or fees owed to investment managers.has also been developed wherein the current market price of the stock is divided by the expected future EPS. Q.20. The attempt to study P/E ratios in this manner reflects the effort to factor in the expected growth of a company. An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks. What is CRR? Ans. or simply "multiple". government agencies.18. or "PE") is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share. and would normally be in the form of fiat currency stored in a bank vault (vault cash). The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. banks. What is the meaning of Price Earning Ratio (PE Ratio)? Ans. influencing the country's economy. Net Asset Value (NAV) is a term used to describe the value of an entity's assets less the value of its liabilities. owners. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. A mutual fund is an investment tool that . Mutual funds are operated by money mangers. What is venture capital? Ans. Q.17.stockholders. What is a Mutual Fund? Ans. A higher P/E ratio means that investors are paying more for each unit of income. A cash reserve ratio (or CRR) is the percentage of bank reserves to deposits and notes.called the forward P/E .16.19. bonds. growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. For collective investment schemes.

What is gross block and net block? Ans. Q. The fund's Net Asset Value (NAV) is determined each day. and is simple to calculate and simple to collect. and presented . Q.23. Accouts receivable are Amounts Company has to collect when it has sells goods or srvices on credit to customers. bonds and other securities each shareholder participates in the gain or loss of the fund. Q.25. Q. A ratio is a mathematical relationship which compares quantities relative to each other in the financial statements . Net block is the gross block less accumulated depreciation on assets. It is an important tool in Analysis of the Financial Statements of Companies which aids in decisions of the Financial Manager regarding raising of funds.22. Gross block is the sum total of all assets of the company valued at their cost of acquisition. commercial paper and bankers' acceptances are bought and sold.allows small investors access to a well diversified portfolio of equities.24. Units are issued and can be redeemed as needed. Money market trades in short term financial instruments commonly called "paper. Ideally. A conventional or retail sales tax attempts to achieve this by charging the tax only on the final end user." This contrasts with the capital market for longer-term funding. is difficult to avoid. typically up to thirteen months. What is the difference between the CURRENCY FUTURE TRADING and FUTURE TRADING? And how would it help investors to hedge their losses? Ans. The tax is usually set as a percentage by the government charging the tax. What is the difference between accounts payable and accounts receivable? Ans. There is usually a list of exemptions. determined.21. Accounts payable are liabilities and Accounts receivable are assets. which is supplied by bonds and equity. is charged exactly once on any one item. What is ratio analysis? Ans. Participants borrow and lend for short periods of time. has a high compliance rate. Utilizing of funds and dividend policy decisions. Q. What is Money Market? Ans. It provides short-term liquid funding for the financial system. The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive). A Sales tax is a consumption tax charged at the point of purchase for certain goods and services. The money market is where short-term obligations such as Treasury bills. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Net block is actually what the asset are worth to the company Q. The money market is the financial market for short-term borrowing and lending. What is Sales Tax? Ans. Ratio analysis is a process by which relationship of items or group of items in financial statement are computed. a sales tax is fair. . Accounts payable are amounts company owes when it has purchases goods or services on credit from supplier or vendor.26.

What is Hedge Fund? . Q.32. It measures whether or not a firm has enough resources to pay its debts over the next 12 months. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. Q. Balance Sheet is the snapshot of what a company owes and owns at a particular point in time. Q. Why is current ratio calculated? Ans. Account or Ledger form.30. asset-backed securities are an alternative to investing in corporate debt. The Trial balance is prepared in each financial period as a summary of the closing of the previous ledger. For investors.29. What is GAAP? Ans. The Current ratio is calculated to know the short term Solvency position of the company. trading in derivative market using Futures as an instrument. the trial balance is a worksheet listing the balance of each ledger in two columns. Initial Public Offering is the First Issue of the Company’s Equity Stock to the public whereas the FPO is the subsequent Issue of Equity Stock to the public. Q. Q. at a price decided in the contract .28 When did exchange-based currency futures trading started in India ? Ans.A currency future is a forex derivative contract to buy or sell one currency against other on a specified future date.35. which may have occurred during the double-entry system of the ledger. Q.34. In accounting. rules and procedure necessary to define accepted accounting practice at a particular time. What are ABS (Asset Backed Securities) ? Ans. recently we have Currency futures also on stock exchange. The trial balance thus serves as a tool to detect arithmatical errors. Futures instrument available on NSE earlier were only for Stocks & Index future . Before this Currency futures market was OTC (over the Counter market . Started on 29th August 2008. What is Trial Balance? Ans.Future trading is nothing but. What do you mean by Capital Gains? Ans. lease or receivables against assets other than real estate and mortgage-backed securities.33. Q. The total of the debit side should always be equal to the total of the credit side. An Asset Backed Security is a financial security backed by a loan. namely debit and credit.31. GAAP means generally accepted accounting principles is a set of conventions. What information is provided by Balance Sheet and Profit and Loss Account? Ans.27. now it is exchange traded) NSE has introduced the currency futures trading on 29th Augus 2008. Trial Balance can be prepared in two waysStatement or Journal form. Q. Profit and Loss Accounts shows how much Revenue and Profit (or Expense and Losses) is incurred by a Company. What is an IPO? Ans. It is taxable under Chapter V of the Income Tax Act-1961 Q.

What is cost? Ans. It usually covers a period in the short term future. If the economic conditions are favorable and EBIT is increasing. This core principle of finance holds that.43. Q. When Debtors default to make the payment of credit sales done .37. Employees.Ans. Legally. What is the difference between shareholders and stakeholders? Ans. The depreciation saves the company's money in terms of tax shield on Depreciation. Government.42. interest and then tax. Time Value of Money means money available at the present time is worth more than the same amount in the future. What is Cash Budgeting? Ans. and so when that remaining income is taxed.38. Financial leverage (FL) takes the form of a loan or other borrowings (debt). How will depreciation affect PAT? Ans. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for at least one year. loan providers etc. The FL captures this relationship between EBIT and EPS. the proceeds of which are (re)invested with the intent to earn a greater rate of return than the cost of interest. short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark). A Hedge Fund is an aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged. provided money can earn interest.41. Shareholders are the owners of the company who are interested in the well being and profitability of the company whereas stakeholders are not only the owners of the company but also include all parties that are equally interested in the profitability of the company and have some direct or indirect relationship with the company eg. When depreciation is added back to PAT .39. Cost is the amount of resources given up in exchange for some goods or services. The cash flow budget is a prediction of future cash receipts and expenditures for a particular time period. Q. a higher financial leverage has a positive impact on the EPS. Debtors. Q. PAT is the result of the profit reduced by depreciation. Q.40. Q. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.44. long. What is leverage Finance? Ans. it is known as bad debts. When the company shows the depreciation the profit reduces to that extent. Q. Financial Leverage acts as a double-edged sword. due to its potential earning capacity. NATIONAL COMMODITIES AND DERIVATIVES EXCHANGE. creditors . What Is Bad Debts? Ans. hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. What is the full form of NCDEX? Ans. Q. tax amount to the extent of depreciation gets saved. What Is Derivatives? Ans. Q.Financial Leverage affects the EPS of the firm.36. . What is Time Value of Money ? Ans. Q. we get the Cash Flows. any amount of money is worth more the sooner it is received.

46. Q. Advanced investors sometimes purchase or sell derivatives to manage the risk associated with the underlying security. It is measured by solvency ratios. These techniques can be quite complicated and quite risky. Q.A financial instrument whose characteristics and value depend upon the characteristics and value of an underlier. Q. What Is debenture capital? Ans. What is contigent liability . DEMAT-Dematerialization Ans. Q. it is also called New Issue market. typically a commodity. Interest on debenture is a charge against profit.50. What do you mean by "Solvency"? Ans. and when the book is closed. What does Debt-Equity ratio indicates? At what ratio should investor invest in a company? Ans. bond.52.51. Debenture Capital is debt capital of the Company.That means if we buy an asset it gives revenue to the business. Why do we provide Depriciation? Ans. Equity is refered to own capital whereas the Debt refers to borrowed capital. Hence.this is termed as dematerialization & banks provide an account for this purpose which is called a DEMAT Account. Depriciation is the part of cost of asset which is periodically shown as an expense into revenue statement to equate with the income that asset generates. the issue price is determined by an underwriter by analyzing these values. Q.49.45. Q. or to profit from periods of inactivity or decline. What is book building ? Ans. The process of determining the price at which an Initial Public Offering will be offered. The primary market deals with those securities which are issued to the public for the first time. Q. It is a document. to protect against fluctuations in value. Debt-Equity ratio indicates what proportion of equity and debt that the company is using to finance its assets. Financial soundness of an entity that allows it to discharge its monetary obligations as they fall due. The book is filled with the prices that investors indicate they are willing to pay per share. What is Primary Market? Ans. Conversion of Physical certificates into electronic form. Thus debenture represents a liability & debenture-holder is creditors.47. Q. Primary market is a market for new issues or new financial claims. Debtlong term debt Equity ratio= Shareholders Equity If the ratio is high (financed more with debt) then the company is in a risky position especially if interest rates are on the rise. equity or currency. which either creates a debt or acknowledges the same under the seal of company.48. Examples of derivatives include futures and options.

Working Capital is the amount of current assets that is in excess of current liabilities. are private agreements between two parties and are not as rigid in their stated terms and conditions.g. A measure of a company's earning power from ongoing operations. This is a good measure of the short and medium-term financial health of a company. Generally. on the other hand. are standardised contracts. Q. . such as 60% stocks and 40% bonds.58. a "balanced fund" implies a fixed mixed of stocks and bonds. Working capital is calculated by subtracting current liabilities from current assets. Future contracts are exchange-traded and. therefore. Authorised share capital is the maximum limit that a company can issue in its life time whereas issued share capital is the capital that is already issued by the company which can be equal to or less than Authorised share capital.levied by governments to discourage individuals from partaking in such activities without making the use of the products illegal.55. or will have. Q. such as alcohol. tobacco and gambling.53. What is the difference between Authorised and Issued share capital? Ans.. Written at foot note of Balance Sheet.60. Q. bonds and cash equivalents .stocks. A state-sponsored tax that is added to products or services that are seen as vices. Q. What is the difference between futures and forward contracts? Ans. and may indicate by how much it can expand its operations without resorting to borrowing or another capital raising tactic. Some asset allocation funds maintain a specific proportion of asset classes over time. Forward contracts. one takes the value of all debts and obligations for the current year and subtracts that from the value of all cash and assets that might reasonably be converted into cash in the current year.54.57. whereas in case of forward contracts settlement of the contract occurs at the end of the contract. Q.. in a given year. A mutual fund that provides investors with a portfolio of a fixed or variable mix of the three main asset classes . Futures contracts are settled day by day until the end of the contract. What is an Operating Profit? Ans. What is prospectus? Ans. while others vary the proportional composition in response to changes in the economy and investment markets. level of risk) and requirements/expectations (e. Q. What is Portfolio Management? Ans. equal to earnings before deduction of interest payments and income taxes also called EBIT (earnings before interest and taxes) or operating income. What is SIN TAX Ans. Q. regular dividends and interest). That is. Q. In Portfolio Management assets are combined into a combination that fits the investor's preferences (e.59.Ans. Contingent liabilities are liabilities that may or may not be incurred by an entity depending on the outcome of a future event such as a court case.in a variety of securities.It is amount of money a company has on hand. What is a Working Capital? Ans. What is Asset Allocation Fund in terms of mutual funds? Ans.g. A prospectus is a document inviting deposits from the public or inviting offers from the public for the subscriptions of shares or purchase of debentures.56.State governments favor sin taxes because they generate an enormous amount of revenue and are usually easily accepted by the general public because they are indirect taxes that only affect those who use the products. Asset allocation mutual funds come in several varieties.

When a sum equal to the original full price plus interest has been paid in equal installments. WHAT IS BRIDGE FINANCE? Ans.Top line refers to sales shown on the top of the income statement Q.common stock. the issuer is secure that they will raise a certain minimum from the issue. the underwriter will guarantee a certain price for a certain number of securities to the party that is issuing the security (in exchange for a fee). EVA means Economic Value Added . Capital market is a long term market and includes stock market and government bond market.are included in a WACC calculation. the WACC of a firm increases as the beta and rate of return on equity increases.63. pending disbursement of loans sanctioned by financial institutions.It`s a financial measurement tool that determines if a business is earning more than it`s true cost. Money market is a short term market and includes Treasury Bill market. Q. What is Underwriting? Ans. Generally. Securities which have already passed through the new issue market are traded in this market. HP differs from a mortgage and the so-called buyer who has goods is not the legal owner during the term of the HP contract. What is WACC (weighted avearge cost of capital)?? Ans. bonds and any other long-term debt . Q.69. What Is Bottomline And What Is Topline? Ans. as an increase in WACC notes a decrease in valuation and a higher risk. a hire-purchase contract allows the buyer to hire the goods for a monthly rent. In such a case. Q. the rate of interest on bridge finance is higher as compared with that on term loans. Commercial Bill market and Call money market.68. preferred stock. What are capital markets and money markets? Ans.62. . the buyer can buy the goods at a predetermined price or return the goods to the owner. Share capital or issued capital or capital stock refers to the portion of a company's equity that has been obtained (or will be obtained) by trading stock to a shareholder for cash or an equivalent item of capital value. WACC = Kd * VD/ CE + Ke * VE/ CE Q..67.Q. Q. What is Secondary Market? Ans.Cost Of Capital.65. All else help equal. A calculation of a firm's cost of capital in which each category of capital is proportionately weighted.61. HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. while the underwriter bears the risk of the issue. What is a Share Capital? Answer. In cases where a buyer cannot afford to pay the asked price for an item of property as a lump sum but can afford to pay a percentage as a deposit. Q. Secondary market is a market for secondary sale of securities. The procedure by which an underwriter brings a new security issue to the investing public in an offering. Q. Thus. Formula for calculating EVA EVA = Net Operating Profit After Tax (NOPAT) .66. It refers to loans taken by a company normally from commercial banks for a short period. Bottom line refers to profit shown on the bottom of the income statement. What is Hire purchase? Ans.64. What is EVA ? Ans. All capital sources .

What is Marketable Assets? Ans. Q. Marketable assets are those which can be easily transferred from one person to another without much hindrance. Currency trading involves the exchange of one currency for another.76. Q.73. It is foreign exchange market where currencies are bought and sold against other currencies but with no brokerage charges unlike stock market. What is Financial planning? Ans. Q. Q." .72. Together . What is forex? Ans. Bonds of Public Sector Undertakings.79. such as a stock which has risen in value but is still being held. NPV : Net present value (NPV) or net present worth (NPV) is defined as the total present value (PV) of a time series of cash flows. The IRR is the annualized effective compounded return rate which can be earned on the invested capital.e. What is sub-prime? Ans. resulting in profits without risk. What is Currency Trading? Ans. for example. Currencies trade in pairs and a trader buys the currency that he thinks will appreciate in value relative to the other.77. Q.75. Sub-prime is any loan that does not meet "prime guidelines". Q. The amount invested to purchase a fixed asset and the benefits of the asset is used for more than 1 year then the amount spent is said to be of capital nature.74. What is the meaning of Arbitrage Ans. Also called unrealized gain or unrealized profit or paper gain or book profit. . The amount spent on repair and maintenance of fixed asset and the benefit for the expenditure is of less than 1 year then the amount spent is said to be of revenue in nature. Financial planning is the process of meeting as many of the investor's financial needs as possible with his saving potential. Currency trading. Examples: Shares of Listed Companies. The balance sheet showed what the investor owns and what he owes. The simultaneous buying and selling of a security at two different prices in two different markets. When we writeoff any intangible assets it is known as "amortisation of assets" eg:writenoff of "goodwill" Q.78. Profit which has been made but not yet realized through a transaction. What is the difference between IRR and NPV and How Companies determine IRR ? Ans.. Ans. The cash flow statement showed the money available for making investments. Define what is meant by the terms "capital" and "revenue" items in connection with fixed assets. i.71. etc. Some people take subprime loans with higher rates (even if they ave a better credit scores ) for reduced documentation requirement. these two statements tell the investor's financial circumstances and saving potential. Q.70. What is paper profit? Ans. also know as "forex trading. not having to pay off collection accounts etc.Q. What is amortisation of assests? Ans. Government Securities. US Dollars for Euros. the yield on the investment. Q.

It means the profit recorded in the income statement after deduction of taxes. What is Financial Statements? Ans. How many companies are listed in BSE SENSEX as of today? Ans. Thus liquidation is the process of ending while discussion is the end itself.81. A Sole Propietorship is a business with a single owner. What is Depreciation Recapture? Ans. Opportunity cost is the cost of selecting one course of action in terms of the opportunities which are given up to carry out that course of action.The shareholders are the owners of the organisation and it is managed by the Board of Directors. What is the difference between NIFTY and SENSEX? Ans.87. Q. This is a lenghty process and goes on for years.Sole Proprietorships tend to be a small retail establishments and individual professional business. Surplus has to be distributed among the shareholders. A Partnership is an organisation which involves two or more individuals acting as coowners. During this period the company is said to be in liquidation. The 50 companies cover 22 different sectors of the Indian economy. Depreciation recapture is the Internal Revenue Service (IRS) procedure for collecting income tax on a gain realized by a taxpayer when the taxpayer disposes of an asset that .82. Creditors have to be paid off.83. What is Oppurtunity Cost? Ans.Q. It is an index of 50 companies listed on the National Stock Exchange in India. The Sensex on the other hand refers to the sensitivity Index of the Bombay Stock Exchange.Partnerships and Corporation. What are the types of ownership? Ans. Opportunity cost is the cost of opportunity lost.A third statement is prepared to know how the management or flow of cash is made during an accounting period. The company pools clients' risks to make payments more affordable for the insured. Q. Q. from which the investors can choose their investments. What is meant by net profit? Ans.depreciation and other indirect expenses from capital.85. The end of the company's life is known as the dissolution of the company. What is insurance? Ans. Q. Opportunity cost is the benefit lost by rejecting the best competing alternative to the one chosen Q. A Corporation is otherwie known as a joint stock company.Before its dissolution.bseindia. The Profit and Loss a/c and the Balance Sheet provide us with information reguarding the income and the expenses and the current assets and the liabilities i the organization respectively They also help in executing imporatnt manegerial functions of the management. The Sensex comprises of the traded stock of the 30 most traded and active types. Q. What is Liquidation? Ans. Q. Q. Currently there are 4700 companies listed (source :www.80. Financial Statements are prepared at the last stage of the accounting process. There are 3 basis forms of ownership structures for business entities:Sole Proprietorships.88.86.84. The word Nifty is a combination of two words namely the "N" from national and "ifty" from fifty. the company has to wind off its affairs.com <in about us section>) in BSE SENSEX. A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. Assets have to be sold.

A Company is said to be a solvent company . Q. If you buy a futures contract. Venture Capitalist Ans.96. What Is Pilot Fishing? Ans. What is the difference between commercial banking and investment banking? Ans.S. What is mean by American Depository Shares? Ans. consultant.93.Venture capitalists usually expect higher returns for the additional risks taken. What is insolvent company and solvent company? Ans.had previously provided an offset to ordinary income for the taxpayer through depreciation. because the IRS allows a taxpayer to deduct the depreciation of an asset from the taxpayer’s ordinary income. Pilot fishing has led to much controversy because it could undermine the role of investment bankers by providing advice to clients about the price the IPO is launched at. The underlying can be a stock issued by a company. Q. Gold etc. buying or subscribing to the securities as manager. A Company is said to be insolvent if it is unable to pay its creditors in full. arranging a merger. if it is unable to pay its creditors in full.91. it means that you promise to pay the . Q.92. the amount available with the liquidator is not sufficient to pay the creditors in full. Futures and options represent two of the most common form of "Derivatives". Q. Q. as opposed to normal individual members of the public (retail banking). not as a capital gain. Who is a Merchant Banker? Ans. ADR’s are dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange. It is also called as Corporate Sustainability Report Q. the entire issuance is called an American Depositary Receipt (ADR) and the individual shares are referred to as ADSs. What is the other name for Annual Report? Ans. a currency. Futures A 'Future' is a contract to buy or sell the underlying asset for a specific price at a predetermined time.In other words .90. An investor who either provides capital to startup ventures or supports small companies that wish to expand but do not have access to public funding. under agreement with the issuing foreign company. A type of pre-marketing of an initial public offering (IPO) that involves testing investor sentiment to receive feedback on how the market may respond to an issue.. An investment banker arranges for financing a business by selling its stock to the public. Q.89. Any person who is engaged in the business of issue management either by making arrangements regarding selling.95. or taking a business public whereas Commercial banking can refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses. American Depositary Shares (ADSs) are issued by depository banks in the U. Q. The derivative instrument can be traded independently of the underlying asset.94. the taxpayer has to report any gain from the disposal of the asset (up to the recomputed basis) as ordinary income. adviser or rendering corporate advisory service in relation to such issue management is known as a merchant banker. Derivatives are financial instruments that derive their value from an 'underlying'. In other words. What are options and futures? Ans.

What is Currency Risk? Ans.97. as well as any derivative products such as . For example. It is a general term for borrowings of subprime loans or debt made to people.98. Any dividends or capital gains collected from the underlying securities go back to the investors. you effectively make a promise to transfer the asset to the buyer of the future at a specified price at a particular time. A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. What is mean by participatory notes? Ans. for a premium/fee. What is a Debt/Equity Ratio ? Ans. Q.Subprime credit includes the original borrowing itself. In concept. Q. What is securitisation? Ans.99. Participatory notes means Financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India to invest in Indian securities.Arises from unfavourable market conditions Interest Rate Risk. Circulating capital can consist of operating expenses.Adverse movement in interest rates Liquidity Risk. An option can be a 'call' option or a 'put' option. also called exchange rate risk.A party to a contract may default Market Risk. The risk that a business' operations or an investment's value will be affected by changes in exchange rates. a bank – which has lent money to a company. inventories of finished goods or physical capital on hand. Circulating Capital: Ans. Q. In its simplest form. If you sell a future. its similar to you buying a fire protection policy from an insurance company to cover the house you own. A trust/ SPV may be appointed for this purpose and also to protect the interest of investors. This risk usually affects businesses. Credit default swaps (CDS) are insurance-like contracts where one party can buy “protection” against default on a loan from a seller of this protection.103. What are the different types of financial risks? Ans: Credit Risk. Options Options contracts are instruments that give the holder of the instrument the right to buy or sell the underlying asset at a predetermined price. if money must be converted into a different currency to make a certain investment. What Is Credit Default Swaps? Ans. can buy a CDS from a seller (could be an insurance company or any other willing seller of this protection) to protect itself against default by the borrower – for a fee that the CDS seller will charge Q. Q.104. Q. loans etc.101. What is Subprime Credit Ans. changes in the value of the currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back. The portion of an organization's investment that is continually used and replenished in ongoing operations. but it can also affect individual investors who make international investments. raw material stock. It indicates what proportion of equity and debt the company is using to finance its assets. Circulating capital is the opposite of constant (fixed) capital.Inability to sell in the secondary market Q.102.100. Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors.price of the asset at a specified time. It is a process through which business organisations transfer their assets or bills receivables. to other some other organisation against liquidity. Q.

Q. Refinancing may also involve issuing equity to pay off a percentage of debt.106. When the company starts to offer IPOs. or home loans to borrowers of questionable creditworthiness. The mechanism through which payments are effected between two countries having different currency systems is called foreign exchange. The Sensex is an indicator . young companies raising capital to finance growth. Q.A big portion of the total market for subprime credit is based on subprime mortgages. repayment of principal amount. they are usually required to reveal financial information about the company so that investors know whether the companies a good investment or not. What is Sensex Indices ? Ans. An IPO is effectively 'going public' or 'taking a company public'. For investors IPO's can risky as it is difficult to predict the value of the stock (shares) when they open for trading.105. An Initial Public Offering is the first sale of privately owned equity (stock or shares) in a company via the issue of shares to the public and other investing institutions. IPOs typically involve small. Q.112.109.110. Department Of Company Affairs (DCA). Q. etc Q. Q. although sometimes secondary shares are also sold as IPOs. What is an Investment Bank? Ans. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down. Generally.Usually management buys out all the outstanding shareholders and then take the company private because it feels it has the expertise to grow the business better if it controls the ownership. What does corporate refinancing mean? Ans. The actual sale of the shares is generally offered by stock exchange or by regulators.securitizations that are based on subprime loans and then sold to investors in the secondary markets. For a company to offer IPOs. Who regulates the securities market? Ans. and Securities and Exchange Board Of India (SEBI). management teams up with a venture capitalist to acquire the business because it's a complicated process that requires significant capital.108. Q. In other words an IPO is the first sale of stock by a private company to the public.111. What is Foreign Exchange? Ans. What is Management Buyout? Ans. The process through which a company reorganizes its debt obligations by replacing or restructuring existing debts is called corporate refinancing. What is initial public offering (ipo)? Ans. It is a collective term including all kinds of negotiable claims expressed in foreign money. Q. Debt instrument represents a contract whereby one party lends money to another on pre-determined terms related to rate and period of interest. The responsibility for regulating the securities market is shared by Department Of Economic Affairs (DEA). acting as an intermediary between an issuer of securities and the investing public. This includes underwriting. Quite often. What is a 'Debt instrument'? Ans.The role of the investment bank begins with pre-underwriting counseling and continues after the distribution of securities in the form of advice. and also acting as a broker for institutional clients. An index is basically an indicator. A financial intermediary that performs a variety of services. When the managers and/or executives of a company purchase controlling interest in a company from existing shareholders. the company offers primary shares this way.107. they need to hire a corporate lawyer as well as an investment banker to underwrite the offer. Reserve Bank Of India (RBI). facilitating mergers and other corporate reorganizations.

They provide a regular income to the investor. the Nifty represents the top stocks of the NSE. Just like the Sensex represents the top stocks of the BSE.114. Q. the interest rate will generally be considerably lower. Q.Splitting a stock may increase its liquidity. portfolio or account to reflect its current market value rather than its book value.117. This can often reduce your (the borrowers) monthly outgoing interest payments by paying only one loan which is secured on the property sometimes over a longer term. Q.119.but . Q. Because the loan is secured. The act of recording the price or value of a security. Q. What is Debt Consolidation Ans. to increase the potential return of an investment. The difference between the interest rate a bank charges a borrower and the interest rate a bank pays a depositor. such as margin. A stock split is a corporate action which splits the existing shares of a particular face value into smaller denominations so that the number of shares increase . it means that the prices of the stocks of most of the major companies on the BSE have gone up.120. but retained by the company to be reinvested in its core business or to pay debt is known as retained earnings. What is Mark to Market (MTM)? Ans.118. What is Leverage? Ans.It is known as a red herring because it contains a passage in red that states the company is not attempting to sell its shares before the registration is approved by the SEC. Q. this tells you that the stock price of most of the major stocks on the BSE have gone down.since more investors are able to afford the share and the toatl outstanding shares of the company also increase in the market. The amount of debt used to finance a firm's assets.113. the market capitalization or the value of shares held by the investors post split remains the same as that before the split. What are Debt/Income Funds? Ans.debentures. If the Sensex goes up.of all the major companies of the BSE. What is Retained Earnings? Ans. A preliminary registration statement that must be filed with the SEC describing a new issue of stock and the prospects of the issuing company. Q.government securities. It is recorded under shareholders' equity on the balance sheet and is calculated by adding net income to (or subtracting any net losses from) beginning retained earnings and subtracting any dividends paid to shareholders.116. Debt Consolidation is replacing multiple loans with a single loan that is normally secured on property. What is Stock Split? Ans. What is Bank Spread ? Ans.commercial paper and other money market instruments. A firm with significantly more debt than equity is considered to be highly leveraged or The use of various financial instruments or borrowed capital. The Nifty is an indicator of all the major companies of the NSE. These funds invest predominantly in high rated fixed-income-bearing instruments like bonds. What is Red Herring Ans. If the Sensex goes down. Q. The percentage of net earnings not paid out as dividends.115. .

They include banks. These are three important decisions taken in financial management. FII invest directly in stock exchange market. 3. What is financial management? Ans. What are the three important decision taken in financial management? Ans. insurance companies. From an organizational standpoint. Q. Dividend Policy: In dividend policy we have to decide about match between fund taking and fund investing. Q. retirement or . External Commercial Borrowings are being permitted by the Government for providing an additional source of funds toIndian corporates and PSUs for financing expansion of existing capacity and as well as for fresh investment. A ratio is an arithmetical relationship between two figures.126.121.etc 2. because every entity needs to look after its finances. while outflow is the record of the expenditure being made by the company in various sources. a financial ratio or accounting ratio is a ratio of two selected numerical values taken from an enterprise's financial statements . Financial planning seeks to quantify various financial resources available and plan the size and timing of expenditures. In India. Financial ratio analysis is a study of ratio between various groups of items in financial statement. 1. to augment theresources available domestically. Financial management seeks to plan for the future such that a personal or business entity has a positive flow of cash. Investing: In investing we decide about the purchasing of asset. External Commercial Borrowings (ECBs) include bank loans.125. The term 'financial management' has a number of meanings including the administration and maintenance of financial assets. Q. Institutional investors are organizations which pool large sums of money and invest those sums in companies.124. Q. the process of financial management is important at all levels of human existence. In finance. However. the process of financial management is the process associated with financial planning and financial control.123. What is Institutional Investors? Ans. FDI invest in different sectors in business. The inflow is the amount of money coming into a particular company. The process of financial management may also include identifying and trying to work around the various risks to which a particular project may be exposed. Q. Euro-issues include Euro-convertible bonds and GDRs. fixed and floating rate bonds (without convertibility) and borrowings from private sector windows of multilateral Financial Institutions such as International Finance Corporation.122. What is mean by External commercial borrowings? Ans.Q. ECBs can be used for any purpose (rupee-related expenditure as well as imports) except for investment in stock market and speculation in real estate. What is Ratio? What is Financial Ratio? Ans. Some experts refer to financial management as the science of money management – the primary usage of the term being in the world of financing business activities. suppliers' and buyers' credits. In the business world.or any long term or short term investment. Financial Decisions: Financial decision regarding long term and short term. What is difference between FII & FDI ? Ans. this means closely monitoring cash flow.

The aim is to align as nearly as possible the interests of individuals. which is increasingly widespread today. Q. What is Corporate Governance? Ans.133. products. Q. Open market operations are the means of implementing monetary policy by which a central bank controls its national money supply by buying and selling government securities.127. such as the Board.Mortgage thus means the transfer of an interest in property (or in law the equivalent . What are GDRs .129. managers. What are open market operations? Ans. Negative equity is calculated simply by taking the value of the asset less the balance on the outstanding loan. Changes in the bank rate are often used by central banks to control the money supply. are used to guide this implementation. or other financial institutions. Negative equity often occurs when a homeowner purchases a house using a mortgage and then the economy starts to slow or home prices start to drop. and spells out the rules and procedures for making decisions on corporate affairs. It is used to determine what type of a streategy a company should undertake. corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. Q. What do you mean by mortgage? Ans. After the house purchase. and competition. What is SPACE MODEL? How it is helpful? Ans.128. Q. What is a bank rate? Ans. debt.131. also referred to as the discount rate. Their role in the economy is to act as highly specialized investors on behalf of others. causing negative equity. A method of security valuation which involves examining the company's financials and operations. management. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the organization. especially sales.132. Mortgage is the security for the loan that the lender makes to the borrower. Q. Q.pension funds.134. growth potential. such as interest rates or exchange rates. Monetary targets.a charge) to a lender as a security for a debt usually a loan of money. What is negative equity? Ans. Fundamental analysis takes into consideration only those variables that are directly related to the company itself. corporations and society. Q. Q. Fundamental analysis Ans. The SPACE matrix is a management tool used to analyze a company. The system by which business corporations are directed and controlled. In the broadest sense. the value of the home decreases below the value of the amount owed on the mortgage. Security here means one unit of commodity can be exchanged for the another or a negotiable instrument representing financial value. is the rate of interest which a charges on the loans and advances that it extends to central bank commercial bank and other financial intermediaries. hedge funds and mutual funds.130. shareholders and other stakeholders. rather than the overall state of the market or technical analysis data. Bank rate. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. assets. earnings.

What is cost accounting? Ans. and what to compute is instead decided pragmatically.S. What is Amortization? Ans. but has not yet been received. The working capital ratio is calculated as: working capital= current assets. processes. accounts receivable and inventory). Q. Accrued interest is added to the contract price of a bond transaction. A depository receipt(DR) is any negotiable instrument in the form of a certificate denominated in US dollars. exchanges. cost accounting need not follow standards such as GAAP. profitability or social use of funds. Such payments must be sufficient to cover both principal and interest. Q.2) Act. What Does Working Capital Mean? Ans. in regular payments over a specified period of time. A receipt for the shares of a foreign-based company held by a U. departments or product and the analysis of variances. Q. As a form of management accounting. More specifically. What Does Accrued Interest Mean? Ans. rather than external users.135. entered into a recognised stock exchange or a sale of a unit of an equity oriented fund to the Mutual Fund.S. instead of through an overseas exchange. It is a measure of both a company's efficiency and its short-term financial health. Accrued Interest is the interest due on a bond or other fixed income security since the last interest payment was made.The certificates are issued by an overseas depository bank against certain underlying stock/shares.Ans. and provide a way for Americans to invest in foreign-based companies by buying their shares in the U. Q.137. bank that entitles the shareholder to all dividends and capital gains of the underlying stock. Cost Accounting is that part of management accounting which establishes budget and actual cost of operations.S. What do you understand by the term liquidity ratio? Ans. technically this is an incorrect practice because amortization refers to intangible assets and depreciation refers to tangible assets. While amortization and depreciation are often used interchangeably.138.A DR represents a particular bunch of shares on which the receipt holder has the right to receive dividend. ADRs trade similar to stocks on U. other payments and benefits which company announces from time to time for the share holders. it is also known as "net working capital" Q. Q. What is an American Depositary Receipt (ADR)? Ans. Chapter VII of Finance(No. Q.141.140. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash.136. . because its primary use is for internal managers. Managers use cost accounting to support decision making to reduce a company's costs and improve its profitability. The gradual elimination of a liability such as a mortgage. Accrued interest receivable occurs when interest on an outstanding receivable has been earned by the company. this method measures the consumption of the value of intangible assets.current liabilities Positive working capital means that the company is able to pay off its short-term liabilities. but not yet paid or received. Amortization is the periodical payment of debt. Securities Transaction Tax Ans. It's a term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized. 2004 has introduced a tax on taxable securities transactions of purchase or sale of an equity share in a company or a derivative or a unit of an equity oriented fund.139. such as a patent or a copyright.

Earnings per share. With primary issuances. suppliers.144.143. Calculated as: = (net income . or the primary market. In companies with a large amount of convertibles. The use of various financial instruments or borrowed capital. Earnings per share serves as an indicator of a company's profitability.Liquidity mean ability to clear the current liabilities. The convertibility feature usually allows for the bond to have a lower interest rate when it is issued. The holder of the bond enjoys the potential for a gain if the stock price increases. After the initial issuance. such as margin. to increase the potential return of an investment is known as leverage. What is secondary market? Ans. unexercised warrants. policies.148. Q. management and the board of directors. The arithmatical expression between the current liabilities and current assets is called liquidity ratio. What is meant by Leverage? Ans. investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement. and some convertible debt. diluted earnings per share are usually a more accurate measure of the company's real earning power than earnings per share. options and futures are bought and sold. Ethical companies are said to have excellent corporate governance.g. Q. The portion of a company's profit allocated to each outstanding share of common stock. unexercised stock options. What is Diluted Earnings Per Share? Ans. A bond (long term note) that can be exchanged by the holder for a specified number of shares of stock in the company.145. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The secondary market is the financial market where previously issued securities and financial instruments such as stocks. Q. administered or controlled. regulators. Corporate governance is the set of processes customs.. What do you mean by corporate governance? Ans. Q. What is convertible bond? Ans.142. What is debt equity ratio? Ans. Other stakeholders include customers.147. investors can purchase from other investors in the secondary market. bond holders). creditors (e. or directly from the government in the case of treasuries. and the community at large. the ideal ratio is 2:1 Q. sometimes called the after market.dividend on preferred stock)/average outstanding shares Q. Explain the term EPS Ans. . bonds. banks. laws and institutions affecting the way a corporation is directed. Q. preferred stock. including common stock. employees. The principal stakeholders are the shareholders. warrants and stock options.146.

A company can be endowed with assets and profitability but short of liquidity if its assets cannot readily be converted into cash. The influence of government deficits upon a national economy may be very great. sold. Rated. What is Commercial paper? Ans. It is widely believed that a budget balanced over the span of a business cycle should replace the old ideal of an annually balanced budget. Q. It is performed by professionals who prepare reports using ratios that make use of information taken from financial statements and other reports.151. These reports are usually presented to top management as one of their bases in making business decisions. the term usually refers to a conscious attempt to stimulate the economy by lowering tax rates or increasing government expenditures. What are Corporate Bonds? Ans. and is worked out by dividing total debt. management may: • • • • • • Continue or discontinue its main operation or part of its business. Q. A Corporate Bond is a bond issued by a corporation. sub-business or project. bought. Make decisions regarding investing or lending capital other decisions that allow management to make an informed selection on various alternatives in the conduct of its business. by NET WORTH. also known as net working capital.152. Working capital. accounts receivable and payable and cash. stability and profitability of a business. Q. also called a working capital deficit. It is calculated as current assets minus current liabilities. Promissory note (issued by financial institutions or large firms) with very-short to short maturity period (usually. is a financial metric which represents operating liquidity available to a business.153. 2 to 30 days. and not more than 270 days). What is Working Capital Management Ans. Q. Q. The term is usually applied to . It is a structural ratio that gauges the level of debt financing. Positive working capital is required to ensure that a firm is able to continue its operations and that it has sufficient funds to satisfy both maturing short-term debt and upcoming operational expenses. If current assets are less than current liabilities. the difference being made up by borrowing or minting new funds.149. Make or purchase certain materials in the manufacture of its product. Although budget deficits may occur for numerous reasons.150. short-term and long-term. working capital is considered a part of operating capital. considering it inadequate as a criterion of public policy.This ratio is used to analyze FINANCIAL LEVERAGE. The denominator would comprise total equity of common stockholders and PREFERENCE capital. Issue stocks or negotiate for a bank loan to increase its working capital. and secured only by the reputation of the issuer. Along with fixed assets such as plant and equipment. What is Deficit Financing? Ans. commercial paper is a popular means of raising cash. an entity has a working capital deficiency. The management of working capital involves managing inventories. Based on these reports. It is a practice in which a government spends more money than it receives as revenue. Financial analysis refers to an assessment of the viability. Acquire or rent/lease certain machineries and equipments in the production of its goods. and is offered generally at a discount instead of on interest bearing basis. Some economists have abandoned the balanced budget concept entirely. What is financial analysis? Ans. and traded like other negotiable instruments.

Q. municipalities. What is Interest Coverage Ratio? Ans. The return to the investor is the difference between the maturity value and issue price. First. generally with a maturity date falling at least a year after their issue date. each new sale contributes less to fixed costs and more to profitability.157. they are simply not additive Q. in turn. it can be magnified into large errors in cash flow projections.156.. Q. is said to be less leveraged. (The term "commercial paper" is sometimes used for instruments with a shorter maturity. many of the historical numbers appearing on financial statements are not economically relevant because prices have changed since they were incurred. A business that makes few sales. . What Does Bond Mean? Ans. This is done by taking a position in the futures market that is opposite to the one in the physical market with the objective of reducing or limiting risks associated with price changes. Q. A business that makes many sales. Inflation accounting is a term describing a range of accounting systems designed to correct problems arising from historical cost accounting in the presence of inflation. with each sale providing a very high gross margin. Inflation accounting is used in countries experiencing high inflation or hyperinflation. states to finance a variety of projects and activities. What Is Hedging? Ans. in countries experiencing hyperinflation the International Accounting Standards Board requires corporate financial statements to be adjusted for changes in purchasing power using a price index. What are Treasury Bills? Ans. Under a historical cost-based system of accounting. A measurement of the degree to which a firm or project incurs a combination of fixed and variable costs.) Q. As the volume of sales in a business increases.155.158. For example. The higher the degree of operating leverage. The opposite is true for businesses that are less leveraged. Q.. the greater the potential danger from forecasting risk. embody different amounts of purchasing power.160. Treasury Bills are money market instruments to finance the short term requirements of the Government of India. Q. The market for short term financial claims is referred to as the money market and the market for the long term financial claims is called as capital market. is said to be highly leveraged. inflation leads to two basic problems. Second. if a relatively small error is made in forecasting sales. Bonds are used by companies. That is.. A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.154. These are discounted securities and thus are issued at a discount to face value. What Does Operating Leverage Mean? Ans. Hedging means reducing or controlling risk. since the numbers on financial statements represent dollars expended at different points of time and.longer-term debt instruments. The interest coverage ratio is a measurement of the number of times a company could make its interest payments with its earnings before interest and taxes. What is inflation Accounting Ans. with each sale contributing a very slight margin. What is money market and capital market? Ans.159.

If there is a fall in price. Cash settlement entails paying/receiving the difference between the price at which the contract was entered and the price of the underlying asset at the time of expiry of the contract. What is Statutory Liquidity Ratio? Ans. It is the amount which a bank has to maintain in the form of cash. Q. What is a futures contract? Ans. The contract expires on a pre-specified date which is called the expiry date of the contract. and would normally be in the form of fiat currency stored in a bank vault (vault cash). What do you mean by core competency? Ans. To ensure solvency of banks. In other words.166. The reserve requirement (or required reserve ratio) is a bank regulation that sets the minimum reserves each bank must hold to customer deposits and notes. On expiry. A reduction of SLR rates looks eminent to support the credit growth in India. It is not easy for competitors to imitate 3. To augment the investment of the banks in Government securities. It provides consumer benefits 2. linked for the purpose of contract fulfillment to the value of a specified real or financial asset or to an index of securities. Q.167. Q. The term "Derivative" indicates that it has no independent value. The underlying asset can be securities. These reserves are designed to satisfy withdrawal demands. bullion.165. the loss in the cash market position will be countered by a gain in futures position.164. i. To restrict the expansion of bank credit. Future contracts are the organized/standardized contracts in terms of quantity. Q. quality (in case of commodities). future. It can be leveraged widely to many products and markets.Hedging is a two-step process. delivery time and place for settlement on any date in future. Statutory Liquidity Ratio (SLR) is a term used in the regulation of banking in India. currency. Derivative means a forward. commodities. The objectives of SLR are: 1. Core competency is something that a firm can do well and that meets the following three conditions: 1. What Are Derivatives? Ans. 2. 3. What is arbitrage? Ans. Q. Futures contract means a legally binding agreement to buy or sell the underlying security on a future date. or with a central bank. What is meant by Dividend Yield? Ans.163. livestock or anything else. option or any other hybrid contract of pre determined fixed duration. A gain or loss in the cash position due to changes in price levels will be countered by changes in the value of a futures position. For instance.161. . futures can be settled by delivery of the underlying asset or cash. a wheat farmer can sell wheat futures to protect the value of his crop prior to harvest. What is Cash Reserve Ratio? Ans.162. gold or approved securities. its value is entirely "derived" from the value of the underlying asset. Q. Q.e. Dividend Yield gives a relationship between the current price of a stock and the dividend paid by its issuing company during the last 12 months.

is the acquisition of a public company by a private company to bypass the lengthy and complex process of going public.g. Insider trading Ans. CDOs are unique in the sense they represent different types of debt and credit risk. Q. the more the CDO pays. (opposite : bear market. Each slice has a different maturity and risk associated with it. The higher the risk. when there is a difference in the price of something on two different markets the arbitrageur simultaneously buys at the lower price in 1 market and sells at the higher price in another market.172. These financing needs usually don't match conventional financial products such as a loan. What is the difference between reverse Takeover? Ans. What is a Hybrid Security? Ans. The Securities and Exchange Board of India's (SEBI) regulation for prohibiting insidertrading states that in its illegal form this happens when an insider buys or sells the shares of a listed company when in possession of any unpublished price-sensitive information. What is Collateralized Debt Obligation (CDO) ? Ans. Q. What is Structured Finance Ans. bonds or stock options) by individuals with potential access to non-public information about the company. What Is Bull Market? Ans. Structured finance generally involves highly complex financial transactions. Eg :Convertible Bond.171. Shareholders of the private company purchase control of the public Shell company and then merge it with the private company. Reverse takeover.173. Q.168. equity markets grew at their fastest pace ever. that has features of an ordinary bond. or investor psychology. An investment-grade security backed by a pool of bonds. but is heavily influenced by the price movements of the stock into which it is convertible.174. loans and other assets. Q. A security that combines two or more different financial instruments. Bull market is result of an economic recovery in economic boom. What is the difference between Closing price and Settlement price . The longest and most famous bull market is the one that began in the early 1990s in which the U.170. A service offered by many large financial institutions for companies with very unique financing needs.S. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.Arbitrage is a kind of hedged investment meant to capture slight differences in price. Insider trading is the trading of a corporation's stock or other securities (e. In the case of CDOs. The private company shareholders receive a substantial majority of the shares of the public company and control of its board of directors. Hybrid securities generally combine both debt and equity characteristics.) Q. The publicly traded corporation is called a "shell" since all that exists of the original company is its organizational structure.169. Q. The prolonged period for which investment prices rise faster than their historical average. Eg :CBOs and syndicated loans. these different types of debt are often referred to as 'tranches' or 'slices'. Q.

A fee or charge assessed to an investor for withdrawing money prior to a previously stipulated date. Carbon credits are earned by reducing carbon emissions from plants etc. Debt Syndication is a process involving arrangement of various fund needs. This is almost always expressed and charged as a percentage of assets rather than a flat fee. What is carbon credit trading? Ans. In case of reserves. also known as the Du Pont Identity or Dupont Analysis. What Does Credit Crisis Mean? Ans. making it difficult for debtors to find creditors. is a representation that splits Return On Equity (ROE) into three segments: • Financial Leverage (calculated using an equity multiplier) • Asset use efficiency (calculated using asset turnover) • Operating efficiency (calculated using the profit margin) Return On Equity or ROE is calculated with the help of the following formula: ROE = (Net profit/Sales) × (Sales/Assets) × (Assets/Equity) = (Profit margin) × (Asset turnover) × (Equity multiplier) This assessment permits the financial analyst to comprehend where greater or lower return is coming from in relation to other firms in similar industries. Q. This is followed by a period in which financial institutions redefine the riskiness of borrowers. the liability is not known. Q. but the amount of liability cannot be determined with substantial accuracy.Ans.175. Q.177.178. What is the difference between Bonds & Stocks? . Q. Indian companies can also profit by selling their carbon credits in dedicated exchanges in Europe and the US at a much higher price Q. A crisis that occurs when several financial institutions issue or are sold high-risk loans that start to default. Provisions are those where the liability existence is certain. As borrowers default on their loans. private equity placement. but some amount of profits are kept aside for meeting the contingencies that might become actual liabilities. The Du Pont Analysis is not useful in some industries. The Du Pont Analysis.179. What is Du Pont analysis? Ans. The need could be short. Settlement price is the weighted average price of a security in the last half an hour of trading before closure time. Q. Trading in carbon credits is an emerging business globally as the cost of purchasing carbon credits from developing countries like India or China is much less than earning the credit through emission reduction in the developed countries. banks. Q. What Does Exit Fee Mean? Ans. What is the difference between Reserves and Provisions? Ans. medium or long term.181.176. Closing price is the last traded price of a security before the closure of trading hours. The method that can be used for this can be securitization. including the banking sector. etc.180. the financial institutions that issued the loans stop receiving payments. What is Debt Syndication? Ans.

Feedback of implementation results to the strategic planning process. which is calculated by multiplying the number of a company's outstanding shares by its current stock price.Ans. Q. after each payment the equity increases within his or her property. then the real interest rate you are receiving is 1% (4% . Communication of the strategy to everybody in the firm. An interest rate that has been adjusted to remove the effects of inflation to reflect the real cost of funds to the borrower. What Does Auction Market Mean? Ans. Q.184. In a conventional mortgage the homeowner makes a monthly amortized payment to the lender. The Balanced Scorecard is a management system that maps an organization's strategic objectives into performance metrics in four perspectives: financial.182. Q. A market in which buyers enter competitive bids and sellers enter competitive offers at the same time. These perspectives provide relevant feedback as to how well the strategic plan is executing so that adjustments can be made as necessary. when purchasing power is taken into consideration Q. The term "cap" is shorthand for capitalization. Real Interest Rate = Nominal Interest Rate .185. Matching bids and offers are then paired together and the orders are executed . medium or large. and learning and growth. Real Interest Rate Ans. internal processes customers. if you are earning 4% interest per year on the savings in your bank account.186. 30 years) the mortgage has been paid in full and the property is released from the lender. the home owner makes no payments and all interest is added to the lien on the property. If a property has increased in value after a reverse mortgage is taken out. What is Reverse Mortgage? Ans. The investment community measures a company's size by its market capitalization. bonds are loans made by investors to corporations or governments. it is possible to acquire a second (or third) reverse mortgage over the increased equity in the home.. and inflation is currently 3% per year.Inflation (Expected or Actual) For example.g.3% = 1%). The price a stock is traded represents the highest price that a buyer is willing to pay and the lowest price that a seller is willing to sell at. then the debt on the property increases each month.183. Stocks give investors part ownership of a company. The real interest rate of an investment is calculated as the amount by which the nominal interest rate is higher than the inflation rate. In a reverse mortgage. Some of the benefits of the Balanced Scorecard system include: • • • Translation of strategy into measurable parameters. If the owner receives monthly payments. What Does All-Cap Fund Mean? Ans. and the real yield to the lender. The real value of your savings will only increase by 1% per year. A stock mutual fund that invests in equity securities without regard to whether a company is characterized as small. or a bulk payment of the available equity percentage for their age. Is Balanced Scorecard a good strategy in accounting terms ? Ans. Q. and typically after the end of the term (e.

the exchange rate (the Canadian dollar price of euros) rises .188. Open-end funds also buy back shares when investors wish to sell. For instance. Payout Ratio is the amount of earnings paid out in dividends to shareholders. The practice of discriminating monopoly pricing in the area of foreign trade is described as DUMPING It implies different prices in the domestic and foreign markets. Q.189. What is carbon Finance? Ans. Calculated as: Payout Ratio = Dividends per Share Earnings per Share Q. such as the dollar. What is Payout Ratio? Ans.7). What are Forex Reserves Ans.g. Q.190. What is Merchant Banking? Ans. by the government or financial institutions Q. euro and yen. the fund will continue to issue shares no matter how many investors there are. Currency depreciation is the loss of value of a country's currency with respect to one or more foreign reference currencies. taking account of differences in transport costs. if the Canadian dollar depreciates relative to the euro.193. Financial risks and opportunities impact corporate balance sheets. the local currency issued. Q. What is Currency Depreciation? Ans. and used to back its liabilities. Issues regarding climate change and GHG emissions must be addressed as part of strategic management decision-making. e. A type of mutual fund that does not have restrictions on the amount of shares the fund will issue. Foreign exchange reserves (also called Forex reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. What Does Open-End Fund Mean? Ans.192.Q. Haberler defines dumping as the sale of a good at a price which is lower than the selling price of the same good at the same time circumstances at home.187. and market-based instruments are capable of transferring environmental risk and achieving environmental objectives. Carbon finance is a new branch of Environmental finance.5 → 1 EUR/CAD=1. Q. What is dumping? Ans. typically in a floating exchange rate system. If demand is high enough. Carbon finance explores the financial implications of living in a carbon-constrained world. These are assets of the central bank held in different reserve currencies. Investors can use the payout ratio to determine what companies are doing with their earnings.191. The general term is applied to investments in GHG emission reduction projects and the creation (origination) of financial instruments that are tradeable on the carbon market. . a world in which emissions of carbon dioxide and other greenhouse gases (GHGs) carry a price.it takes more Canadian dollars to purchase 1 euro (1 EUR/CAD=1. and the various bank reserves deposited with the central bank. The depreciation of a country's currency refers to a decrease in the value of that country's currency.

or is determined by a formula such as a certain percentage of sales revenue. that a manager may eliminate or postpone without disrupting the firm's operations or affecting its productive capacity in the short run.State Government Bonds are issued by the State Government. What is 'Stamp duty'? Ans. A Bond represents a contract under which a borrower promises to pay interest and principal an specific dates to holder of the bonds. The term can also be used to describe the private equity activities of banking.) A debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. What is Discretionary Cost? Ans. preventive maintenance. Q. and money going out from the business is called cash outflow. The statement shows how changes in balance sheet and income accounts affect cash and cash equivalents and breaks the analysis down to operating. However.195. Trading an exotic currency can be expensive. a bond holder has a greater claim on an issuer's income than a shareholder in the case of financial distress (this is true for all creditors).199. The money coming into the business is called cash inflow. he/she becomes a creditor of the issuer.198. a bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity). Q. lack market depth and trade at low volumes. What Does Equity Mean? . Generally. Q. What does Exotic Currency mean?? Ans. A foreign exchange term for a thinly traded currency.200.194.201. A foreign exchange term for a thinly traded currency. Q. Q. as the bid-ask spread is usually large. Stamp duty refers to a form of tax levied on documents. and many other types of institutions sell bonds.Bonds issued by the central government are called Treasury bonds. investing. research and development. Cost such as that of advertising. Exotic currencies are illiquid.196. Explain cash flow Ans. On the hand. What Does Gilt Fund Mean? Ans. When an investor buys a bond. A discretionary cost is usually specific in amount. Trading an exotic currency can be expensive. Q. Q. The Federal government. cities. What do you mean by Exotic Currency? Ans.(maturity ranging from 3 to 20 years). Q. Merchant banks do not provide regular banking services to the general public. It is necessary to make documents legally effective. Some bonds do not pay interest. A mutual fund that invests in several different types of medium and long-term government securities in addition to top quality corporate debt. unlike in the case of equities. lack market depth and trade at low volumes. states.( Maturity ranging from 3 to 20 years. the buyer does not gain any kind of ownership rights to the issuer. but all bonds require a repayment of principal. corporations. A bank that deals mostly in (but is not limited to) international finance. and financing activities. In financial accounting is a cash flow statement or statement of cash flows is a financial statement that shows a company's flow of cash. as the bid-ask spread is usually large.. long-term loans for companies and underwriting. Exotic currencies are illiquid.197.A merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and wealthy individuals on how to use their money. What is a bond Ans.

Going Concern Value represents the amount that can be realised if the firm is sold as a continuing operating entity.204. Q. What is liquidation value? Ans. What Does Blend Fund Mean? Ans. Q. The estimated amount of money that an asset or company could quickly be sold for. Q. In terms of investment strategies. Also referred to as "shareholders' equity". although this is uncommon.202. 1. What is Going Concern Value? Ans. procedures and activities with the goal of highlighting organizational problems and recommending solutions.205. it must borrow funds from another source to facilitate growth. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.203. What is Internal Audit? Ans. because an ongoing operation has the ability to continue to earn profit. Q. equity (stocks) is one of the principal asset classes. It is the maximum growth rate that a firm can achieve without restoring to external equity finance.Ans. The intrinsic value of a security is the present value of the cash flow stream expected from the security. It does this by utilizing a systematic methodology for analyzing business processes. 2. intrinsic value refers to the value of a security which is intrinsic to or contained in the security itself. Q. Internal auditing is a profession and activity involved in helping organisations achieve their stated objectives. In finance. the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Free cash flow is important because it allows a company to pursue opportunities that enhance shareholder value. and discounting it to the present value. A category of equity mutual funds with portfolios that are made up of a mix of value and growth stocks. Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base. while a liquidated company does not. It is ordinarily calculated by summing the future income generated by the asset. What is free cash flow? Ans.207. Q. What is the sustainable growth rate? Ans. This value differs from the value of a liquidated company's assets. The sustainable growth rate is a measure of how much a firm can grow without borrowing more money. make .208. This is also referred to as a "hybrid fund". Internal auditing frequently involves measuring compliance with the entity's policies and procedures. A stock or any other security representing an ownership interest. On a company's balance sheet. If the liquidation value per share for a company is greater than the current share price. Without cash. it's tough to develop new products. 3. A measure of financial performance calculated as operating cash flow minus capital expenditures. Q. The value of a company as an ongoing entity. discounted at a rate of the return appropriate for the risk associated with the security. then it usually means that the company should go out of business (or that the market is misvaluing the stock). It is also frequently called fundamental value. After the firm has passed this rate. What is intrinsic value? Ans.206. The other two are fixed-income (bonds) and cash/cash-equivalents. such as if it were to go out of business.

a proposition. An IPO is effectively 'going public' or 'taking a company public'. you can profit from it Different technical analysts use different techniques. Patterns repeat themselves 3. While there are many other factors besides a positive NPV which influence investment decisions. pay dividends and reduce debt. he buys shares or call options. Underpinning technical analysis are three core principles which are central to the TA faith: 1. Q.210.211. What is IPO (Initial Public Offering)? Ans. or an entire business). If a trend indicates that the price of a share is due to go down. For investors IPO's can risky as it is difficult to predict the value of the stock (shares) when they open for trading. An Initial Public Offering (IPO being the Stock Exchange and corporate acronym) is the first sale of privately owned equity (stock or shares) in a company via the issue of shares to the public and other investing institutions. Technical analysis is a method of investing which focuses on past price movements and attempts to identify trends that indicate future price movement. Share prices move in patterns 2. In other words an IPO is the first sale of stock by a private company to the public. identifies patterns. Logically if a proposition has a positive NPV then it is profitable and is worthy of consideration. but for the most part they rely on the same raw data: • • Price (whether share prices. NPV is essentially a measurement of all future cashflow (revenues minus costs. • • If a trend indicates that the price of a share is due to go up. a new product line. WHAT IS NET PROFIT VALUE (NPV)? Ans. FCF is calculated as: It can also be calculated by taking operating cash flow and subtracting capital expenditures Q. commodity prices or option prices) Volume (the number of shares or other instrument traded per day) Using historical data of these two variables.acquisitions. minus the cost of the investment. NPV is a significant measurement in business investment decisions. IPOs typically involve small. There are different . If you anticipate a pattern correctly. and trades on the basis of what they tell him. be sells shares or buys put options. the analyst creates a chart (usually on a computer using special software). NPV provides a consistent method of comparing propositions and investment opportunities from a simple capital/investment/profit perspective. What is Technical Analysis? Ans. young companies raising capital to finance growth. also referred to as net benefits) that will be derived from a particular investment (whether in the form of a project. Q.209. If negative then it's unprofitable and should not be pursued.

Entry load are those charges which are levied on the investor when he buys any mutual fund from distributor companys and exit load charges are those when investor surrender their mutual fund to distributor companies Q. It refers to a portfolio management strategy wherein the manager makes specific investments with the goal of outperforming an investment benchmark index. exchanges representing a fixed number of shares of a foreign company that is traded in the foreign country. Q. What is demutualization ? Ans.S.217. In effect. Net Asset Value (NAV) is the cumulative market value of the assets of the funds net of its liabilities. the users/members exchange their rights of use for shares in the demutualized company. When a mutual company owned by its users/members converts into a company owned by shareholders. What is stock split? Ans.and complex ways to construct NPV formulae. highpotential. What do you mean by ratio analysis? Ans. growth companies in the interest of generating a return through an eventual realization event such as an IPO or trade sale of the company. Stock split or stock divide increases the number of shares in a public company. including discount rate. The ADR route enables companies to . Demutualization is the process by which a customer-owned mutual organisation or cooperative changes legal form to a joint stock company. Q. " Ratio analysis of financial statements is a study of relationship among various financial factors in a business as disclosed by a single set of statements and a study of trend of these factors as shown in a series of statements. Q.214. The price is adjusted such that the before and after market capitalization of the company remains the same and dilution does not occur. Q. Venture capital is a type of private equity capital typically provided to early-stage. ownership of the mutual company is separated from the exclusive right to use the services provided by the company.219. In demutualization. What is entry/exit load? Ans.216. What is Venture Capital Funds? Ans. It is an instrument traded at U. Corporations generally develop their own rules for NPV calculations. ADR – is an acronym for American Depository Receipt. Ratio analysis is one of the techniques of financial analysis to evaluate the financial condition and performance of a business concern. largely due to the interpretation of the 'discount rate' used in the calculations to enable future values to be shown as a present value. What is NAV? Ans. Q. An open end Scheme NAV should be disclosed on daily basis where as an close ended NAV should be disclosed on weekly basis. investors manage to avoid some of the problems of dealing in foreign securities markets. What is ADR? Ans. According to Myers. Q.212. Simply. By trading in ADRs.215. ratio means the comparison of one figure to other relevant figure or figures.S.213. What is active fund management? Ans. A mutual company (not to be confused with a mutual fund) is a company created to provide specific services at the lowest possible price to benefit its users/members. U. NPV is not easy to understand for non-financial people.218." Q.

all serve to increasing the number of shares outstanding. and are issued/sponsored in the U. convertible debentures. convertible preferred shares. Each fund will have its own strategy which determines the type of investments and the methods of investment it undertakes.Diluted EPS Mean? Ans. commodities and so forth. Remember that earnings per share is calculated by dividing the company's profit by the number of shares outstanding. the earnings per share is reduced (the same profit figure is used in the numerator). For this reason.220. an American depositary receipt (ADR) is a stock that trades in the United States but represents a specified number of shares in a foreign corporation. A hedge fund is an investment fund open to a limited range of investors that is permitted by regulators to undertake a wider range of activities than other investment funds and also pays a performance fee to its investment manager. ADRs are bought and sold on American markets just like regular stocks. by a bank or brokerage. What are hedge funds? Ans. An asset on a company's balance sheet that may be used to reduce any subsequent period's income tax expense.222. As a shareholder. banks simply purchase a bulk lot of shares from the company. ADRs were introduced as a result of the complexities involved in buying shares in foreign countries and the difficulties associated with trading at different prices and currency values. U. National Exchange for Automated Trading is the trading system of the NSE. Unless the company has no additional potential shares outstanding (a relatively rare circumstance) the diluted EPS will always be lower than the simple EPS. debt. What is NEAT? Ans. this is a bad thing. Hedge funds as a class invest in a broad range of investments extending over shares. Introduced to the financial markets in 1927. bundle the shares into groups. Q. Q.225. What is Capital Gains Tax? Ans.S. financial markets. International Securities Identification Number (ISIN) is a unique identification number for a security.S. and reissues them on either the New York Stock Exchange (NYSE). stock options (primarily employee based) and warrants. Commodity derivatives market trade contracts for which the underlying asset is commodity. What does Deferred Tax Asset mean?? Ans.224. .221. provided they meet the stringent regulatory norms for disclosure and accounting.S. stock options. which are only recorded as assets if it is deemed more likely than not that the asset will be used in future fiscal periods. Q. American Stock Exchange (AMEX) or the Nasdaq. Convertible securities refers to all outstanding convertible preferred shares. Deferred tax assets can arise due to net loss carryovers. Q. What is an ISIN? Ans. It is the state of the art client server based application. etc.223. Q.226. If the denominator in the equation (shares outstanding) is larger. Warrants. What is the commodity derivatives market? Ans. Q. Q.raise funds in the U. What Does Diluted Earnings Per Share . A performance metric used to gauge the quality of a company's earnings per share (EPS) if all convertible securities were exercised.

228.234. and may represent significantly more risk to the bondholder. What does Short selling mean? Ans. What is Gross Profit Margin ratio and what is its importance? Ans. Q. A debt security issued by a national government within a given country and denominated in a foreign currency. The foreign currency used will most likely be a hard currency.227. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.Gross Profit Margin = Gross Profit * 100 Sales Gross Profit =Sales . or cost of goods sold. What does Tax Liability mean?? Ans. Because of default risk. . So we should have a much higher gross profit margin than net profit margin.230. The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to the investors.232. What is screen based trading? Ans. a fiscal year-end or an inheritance. selling costs and so on.229.Cost of Sales The gross profit margin ratio tells us the profit a business makes on its cost of sales. The selling of a security that the seller does not own. Exotic options traded on the over-the-counter market. Taxable events include. Tax liability can be calculated by applying the appropriate tax rate to the taxable event's tax base. Capital gains are the profits that an investor realizes when he or she sells the capital asset for a price that is higher than the purchase price. Gross profit is the profit we earn before we take off any administrative costs.1 of turnover our business is earning. A. When buying/selling of securities is done using computers and matching of trades is done by a stock exchange computer. The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable event.233. but are not limited to. Q. What is OTC Options? Ans. Q. What does Subprime mean ? Ans. sovereign bonds tend to be offered at a discount. Q. What is Securitization? Ans. Q. The process can encompass any type of financial asset and promotes liquidity. What is a Sovereign Bond? Ans.231. Q. Q. Q.A type of tax levied on capital gains incurred by individuals and corporations. The government of a country with an unstable economy will tend to denominate its bonds in the currency of a country with a stable economy. the sale of an asset. where participants can choose the characteristics of the options traded. or any sale that is completed by the delivery of a security borrowed by the seller. It is a very simple idea and it tells us how much gross profit per Re. annual income.

Lenders will use a credit scoring system to determine which loans a borrower may qualify for. A debenture is a long-term debt instrument used by governments and large companies to obtain funds.. In the case of bankruptcy. If RBI decides to increase the percent of this. What are Debentures? Ans.237. A debenture is usually unsecured in the sense that there are no liens or pledges on specific assets. debenture holders are considered general creditors. What is GDR? Ans. The net operating loss for the company can generally be used to recover past tax payments or reduce future tax payments. WACC= W*C W=Weight of debt and equity C=Cost of debt and equity.236. owners. Calculation of WACC. RBI is using this method (increase of CRR rate). .239." It is similar to a bond except the securitization conditions are different. Subprime loans carry more credit risk. Global Depository Receipt means any instrument in the form of a depository receipt or certificate created by the overseas depository bank outside India and issued to nonresident investors against the issue of ordinary shares or Foreign Currency Convertible Bonds of issuing company. A bank certificate issued in more than one country for shares in a foreign company. CRR is CASH RESERVE RATIO. Q. Q. not by a lien on any specific asset. however. to drain out the excessive money from the banks. What is WACC? How is it calculated? Ans..238. The reasoning behind this is that because corporations are required to pay taxes when it earns money. and thereby leave them open for subsequent financing. Debenture holders have no voting rights and the interest given to them is a charge against profit Q. but are offered for sale globally through the various bank branches. It is defined as "a debt secured only by the debtor’s earning power. and as such. A debenture is defined as a certificate of agreement of loan which is given under the company's stamp and carries an undertaking that the debenture holder will get a Fixed return and the principal amount whenever the debenture matures.A classification of borrowers with a tarnished or limited credit history. . will carry higher interest rates as well. This generally occurs when a company has incurred more expenses than revenues during the period. It is. Q. The shares are held by a foreign branch of an international bank. WACC is the minimum return that a company must earn on existing asset base to satisfy its creditors. Q. secured by all properties not otherwise pledged. the available amount with the banks comes down. resulting in a negative taxable income. The advantage of debentures to the issuer is they leave specific assets burden free. What is Net Operating Loss? Ans. it deserves some form of tax relief when it loses money. SIGNIFICANCE: It is the amount of funds that the banks have to keep with RBI. The shares trade as domestic shares. WHAT IS CRR? AND WHAT IS ITS SIGNIFICANCE? Ans.235. Debentures are generally freely transferrable by the debenture holder. and other providers of capital. A period in which a company's allowable tax deductions are greater than its taxable income. The weighted average cost of capital (WACC) is the rate that a company is expected to pay to finance its assets.

What Does Working Capital Mean? Ans. What is a syndicated loan? Ans. The worst-case scenario is bankruptcy. SENSEX is the index of Bombay stock Exchange(BSE)& NIFTY is the index of National Stock Exchange(NSE). or by renegotiating a long-term loan receivable. What is P/E ratio? Ans.And when the CRR rates are slashed it implies that the RBI is trying to inject liquidity (capital) into the markets. by liquidating a long-term investment. usually many millions of dollars. This is generally done during the economic slowdown. if a stock is trading at RS 24 and the earnings per share for the most recent 12 month period is RS 3. a firm has these alternatives: 1) it can convert a long-term asset into a current asset-for example. by selling a piece of equipment or a building.245. A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan. A measure of both a company's efficiency and its short-term financial health. (3) it can borrow long term. (4) it can obtain additional equity through a stock issue or other sources of paid-in capital. the purchaser of the stock is paying RS 8 for every Rupee of earnings The formula to calculated P/E ratios is: P/E Ratio = Price per earning ratio/Annual earnings per share Q.243. its accounts receivables number continues to get smaller and smaller. by negotiating the substitution of a current account payable with a long-term note payable. Q. it could be that the company's sales volumes are decreasing and. a syndicate of banks can each agree to put forward a portion of the principal sum.241.240. (2) it can convert short-term liabilities into long-term liabilities-for example. so the stock is more expensive compared to one with lower P/E ratio.244. accounts receivable and inventory). What do you mean by earning per share and what is its significance? . Also known as "net working capital". If a company's current assets do not exceed its current liabilities. For example: For example. then stock A has a P/E ratio of 24/3 or 8. Q. Put another way. Q. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of income. then it may run into trouble paying back creditors in the short term. Q. What is the difference between SENSEX and NIFTY? Ans. In such a case. The working capital is calculated as: Working Capital = Current Asset .242.Current Liabilities Positive working capital means that the company is able to pay off its short-term liabilities. How can a firm handle the situation of negative working capital? Ans. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash. or the "working capital ratio". The P/E ratio (price-to-earnings ratio) of a stock is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share. Q. as a result. To remedy a negative working capital position. For example. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis.

not knowing that part of that price is due to this tax. Exchange Traded Funds Ans. What is Budget? Ans. Hidden taxes are levied upon the goods at some point during the production process and therefore raise the cost of the goods sold.e. 2. What is Accounts Payable? Ans. What are Hidden Taxes? Ans. Unlike regular open-end mutual funds. which can be a significant drawback for those who trade frequently or invest regular sums of money. It also helps to know whether the company is able to use its equity share capital effectively with compare to other companies. Q. ETFs are just what their name implies: baskets of securities that are traded. In other terms. Q. Tax and Preference Dividend/No. construct a model of how our business might perform financially speaking if certain strategies. In summary. the purpose of budgeting is to: 1. A budget is an important concept in microeconomics. Q. like individual stocks. It also tells about the capacity of the company to pay dividends to its equity shareholders. Earning Per Share = Net Profit after Interest. either have been or will be entered. this tax is never revealed directly to the consumer.Ans. A. one must pay a brokerage to buy and sell ETF units. a budget is an organizational plan stated in monetary terms. Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall. as with stocks. the same number of shares at the same time and at the same price. It is a plan for saving and spending. Provide a forecast of revenues and expenditures i.248.249. However.247. ETFs can be bought and sold throughout the trading day like any stock.251. Of Equity Shares Significance: Earning per share helps in determining the market price of the equity share of the company. events and plans are carried out. who simply pays a higher price for the good. most often commodity-based businesses. Most ETFs charge lower annual expenses than index mutual funds. An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. What Does Circular Trading Mean? Ans.246. Accounts payable are debts that must be paid off within a given period of time in order to avoid default. which uses a budget line to illustrate the trade-offs between two or more goods. Taxes that are indirectly assessed upon consumer goods without the consumer's knowledge. Accounts payable are often referred to as "payables". Budget generally refers to a list of all planned expenses and revenues. . Enable the actual financial operation of the business to be measured against the forecast Q. The accounts payable entry is found on a balance sheet under the heading current liabilities. A fraudulent trading scheme where sell orders are entered by a broker who knows that offsetting buy orders.Earning Per Share: Earning per share is calculated by dividing the net profit (after interest.250. However. What is windfall tax? Ans. Q. Q. on an exchange. A tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits. tax and preference dividend) by the number of equity shares.

which are set aside for investment purposes that will benefit the country's economy and citizens. Ad valorem taxes can be property tax or even duty on imported items.. analyzing the execution cost of algorithms over a sequence of operations. CAGR = (ending value /starting value)1/(number of years) . particularly intangible assets.257. and debt. They tend to be large and. Q. It shows the cost of each additional dollar of capital. The funding for a Sovereign Wealth Fund (SWF) comes from from central bank reserves that accumulate as a result of budget and trade surpluses. Particular instances of the term includes Amortization (business). an amortization schedule where the loan amount actually increases through not paying the full interest Amortized analysis. Negative amortization. Hence. Weighted average of the component costs of common stock (ordinary shares). Q.256. A tax based on the assessed value of real estate or personal property. to compute weighted average cost of capital. and even from revenue generated from the exports of natural resources. low risk returns over investment horizons that are typically much longer term than traditional fund managers. SWFs invest Government money in financial assets. The year-over-year growth rate of an investment over a specified period of time. Amortization is the process of increasing or accounting for. Property ad valorem taxes are the major source of revenue for state and municipal governments. Amortization of capital expenditures of certain assets under accounting rules.252. Q. What is amortisation? Ans. as opposed to the average cost of the total capital raised. they typically seek stable. Each component of capital is given a relative importance (weight) on the basis of its associated interest rate. What is CAGR (Compound Annual Growth Rate ) Ans. management's loss of control. etc. What is EVA(Economic Value Added)? Ans.255. Q. as generated by an amortization calculator. an amount over a period of time. And they are typically not highly leveraged.Q. What is Composite Cost of Capital? Ans. preferred stock (preference shares). the allocation of a lump sum amount to different time periods. risk exposure. Q.254. EVA is financial performance method used to calculate the true economic profit of corporation. Sovereignity wealth fund (SWF) Ans. unlike most money managers. Pools of money derived from a country's reserves. EVA is calculated as Net operating profit after TAX. What is Ad Valorem Tax? Ans. Municipal property ad valorem taxes are also known as "property taxes". particularly for loans and other forms of finance including related interest or other finance charges. a table detailing each periodic payment on a loan (typically a mortgage). Amortization schedule. in a manner analogous to depreciation.253. they have minimal short-term risk of their funds being withdrawn.1 Interest rate at which a given present value would "grow" to a given future value in a given amount of time.Opportunity cost of capital .

The average daily volume in the global foreign exchange and related markets is continuously growing. the FX market is one of the largest and most liquid financial markets in the world. It is where banks and other official institutions facilitate the buying and selling of foreign currencies. Q. has stimulated strong interest in euro-denominated bonds as well. Such an accommodation is usually arranged at the time of a PUBLIC ISSUE. A short-term loan granted to a borrower to tide over a temporary funds shortage.. and other institutions. when expenditures on a project lead to a DEFICIT. central banks.259. Privatization is the incidence or process of transferring ownership of business from the public sector (government) to the private sector (business).. or FX) market is where currency trading takes place. Q. Q. privatization refers to transfer of any government function to the private sector including governmental functions like revenue collection and law enforcement Q. some observers warn that new European Union tax harmonization policies may lessen the bonds' appeal. but often denominated in non-European currencies such as dollars and yen. Q. HNWI is a classification used by the financial services industry to denote an individual or a family with high net worth. The Eurobond market is made up of investors.265. The categorization is relevant because high net worth individuals generally qualify for separately managed investment accounts instead of regular mutual funds. and transfer Eurobonds.263. resulting from temporary differences between book (accounting) value of assets and liabilities and their tax value. borrowers. Today. What is Eurobond markets Ans. and includes trading between large banks. What is the full form of CNX? Ans. and trading agents that buy.. What is meant by bridge loan? Ans. Q. Q. The exact amount differs by financial institution and region. High net worth individuals . Although there is no precise definition of how rich somebody must be to fit into this category. governments. or timing differences between the recognition of gains and losses in financial statements and their recognition in a tax computation.264.Q. The foreign exchange market (Currency.. What is privatisation? Ans. What is Foreign Exchange Market? Ans. The creation of the unified European currency. thereby necessitating a bridge loan. however. Explain Deferred Tax. They are also issued by international bodies such as the World Bank. Eurobonds are a special kind of bond issued by European governments and companies. sell. high net worth is generally quoted in terms of liquid assets over a certain figure. Ans. It indicates the ratio of number of shares of the merged comapny to be converted into shares of the parent company during a merger .262. It is Crisil Nse Index. Forex. The foreign exchange market that we see today started evolving during the 1970s when worldover countries gradually switched to floating exchange rate from their erstwhile exchange rate regime.258. Deferred tax is an accounting concept. In a broader sense. What is HNWI? Ans. which remained fixed as per the Bretton Woods system till 1971. What do you mean by swap ratio? Ans.261. [1]FX transactions typically involve one party purchasing a quantity of one currency in exchange for paying a quantity of another. corporations. the euro. meaning a future tax liability or asset. currency speculators.260. banks.

In simple words it indicates the number of times average debtors (receivable) are turned over during a year. Q.271. A venture capital fund refers to a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capitals market or bank loans. Although they are often uttered in the same breath and used as though they were synonymous. Q. What is Green Shoe Option Ans. From a legal point of view. even if it is technically an acquisition. Green Shoe option is a term used in public issue for the purpose of acting as a price stablising mechanism which gives the company right to issue extra 15% shares of initial stated amount in case post listing price is highly fluctuating in market. Q. often of about the same size. EXPLAIN DEBTORS TURNOVER RATIO Ans.272.270. as part of the deal's terms.Q. What is Venture Capital? Ans. What is Private Placement? Ans.268. insurance companies. EXPLAIN INVENTORY TURNOVER RATIO Ans. therefore. DaimlerChrysler. What does zero coupon bond means? Ans. What does coupon mean? Ans. was created. Debt security that doesn't pay interest (a coupon) but is traded at a deep discount. . agree to go forward as a single new company rather than remain separately owned and operated. and a new company. simply allow the acquired firm to proclaim that the action is a merger of equals. What is Distinction between Mergers and Acquisitions? Ans. This is also referred to as the "coupon rate" or "coupon percent rate". and pension funds. a merger happens when two firms. however. both Daimler-Benz and Chrysler ceased to exist when the two firms merged. the purchase is called an acquisition. The result is the sale of securities to a relatively small number of investors. deal makers and top managers try to make the takeover more palatable Q. actual mergers of equals don't happen very often. rendering profit at maturity when the bond is redeemed for its full face value.266. The interest rate stated on a bond when it's issued. one company will buy another and. Debtors turnover ratio indicates the velocity of debt collection of a firm. Investors involved in private placements are usually large banks.273. by describing the deal euphemistically as a merger.267. Usually. The coupon is typically paid semiannually.269. the buyer "swallows" the business and the buyer's stock continues to be traded. Raising of capital via private rather than public placement. This kind of action is more precisely referred to as a "merger of equals". mutual funds. Q. A ratio showing how many times a company's inventory is sold and replaced over a period. Q. the The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days". For example. Q. When one company takes over another and clearly established itself as the new owner. In the pure sense of the term. the target company ceases to exist. Both companies' stocks are surrendered and new company stock is issued in its place. In practice. Being bought out often carries negative connotations. the terms merger and acquisition mean slightly different things.

A convertible bond is a mix between a debt and equity instrument.280. What is liquidity risk? Ans. An important instrument of credit control. Consequently. a leveraged loan is more costly to the borrower.281. but these bonds also give the bondholder the option to convert the bond into stock. Preferred stock that includes an option for the holder to convert the preferred shares into a fixed number of common shares. In finance.276. Q. Q. Q. It acts like a bond by making regular coupon and principal payments. The risk that arises from difficulty of selling of an asset in secondary market is called liquidity risk. Issue of Foreign Currency Convertible Bonds (FCCBs) more commonly known as Euro Issues . usually anytime after a predetermined date. Swaps can be used to hedge certain risks such as interest rate risk. Lenders consider these loans to carry a higher risk of default and.282. the money being raised by the issuing company is in the form of a foreign currency. In other words. Q. or to speculate on changes in the underlying prices. Q.275. In times of inflation. What doesEuro Bond Means? Ans.Q. Q. What are leveraged loans? Ans. since counterparties can earn the profit or loss from movements in price without having to post the notional amount in cash or collateral. the Reserve Bank of India purchases and sells securities in open market operations.277. swaps can be used to create unfunded exposures to an underlying asset. What is SWAP? Ans. What are Open Market Operation Ans. What is meant by Gold ETF? Ans. a swap is a derivative in which two counterparties agree to exchange one stream of cash flows against another stream. The cash flows are calculated over a notional principal amount. 1. What does convertible preferred stock means ? Ans. Which are the two sources through which Indian Companies are permitted to raise foreign currencies? Ans. ETF stands for exchanged traded fund where an investor can invest in gold through these gold etf's. Leveraged loans are loans extended to companies or individuals that already have considerable amounts of debt. which is usually not exchanged between counterparties. as a result. A type of convertible bond issued in a currency different than the issuer's domestic currency.278. RBI purchases securities in OMO. What Is An FCCB? Ans. RBI sells securities to mop up the excess money in the market.279. Similarly.274. Q. These streams are called the legs of the swap. to increase the supply of money. Q. A bond issued in a currency other than the currency of the country or market in which it is issued.

Oils. with the goal of sustaining and growing long-term wealth. The key objectives are to provide high net worth individuals and families with tailored retail banking services.2. A Canadian dollar denominated bond that is sold in Canada by foreign financial institutions and companies. An option that has the ability to change its structure. Platinum etc Other Metals: Nickel. one must already have accumulated a significant amount of wealth for the wealth management . as in equities. processor. Silver. What are the different segments in Commodities market? Ans. Natural Gas. samurai bond and the matilda bond. A fund (or something similar) that does not have a designated purpose. one will find that a market exits for almost all the commodities known to us. What Does Maple Bond Mean? Ans. Corn. Q. What is Risk of Ruin? Ans. Soft Commodities: Coffee. The commodities market exits in two distinct forms namely the Over the Counter (OTC) market and the Exchange based market. Q. taxation advice and investment management. Issue of ordinary equity shares through depository receipts. Q.283. wholesaler etc. Pork Bellies etc Energy: Crude Oil. Derivative trading takes place through exchangebased markets with standardized contracts. What is Wealth Management? Ans. Wealth Management is an advanced investment advisory discipline that incorporates financial planning and specialist financial services.289. These commodities can be broadly classified into the following: Precious Metals: Gold. Also known as the "probability of ruin". American Depository Receipts (ADR) to foreign investors Q. legal resources. Cotton. namely Global Depository Receipts (GDR). Gasoline etc Q.285. there exists the spot and the derivatives segment. Q. These types of funds are often illegal. settlements etc.288. the probability of incurring losses. The spot markets are essentially over the counter markets and the participation is restricted to people who are involved with that commodity say the farmer. Aluminum. Information on a person's credit report that can be legally used to turn down a loan application. it includes late payments. What Does Chameleon Option Mean? Ans. The maple bond gives domestic investors the opportunity to invest in foreign companies without worrying about the effects of currency exchange fluctuations. Cocoa.284.286. Risk of ruin is calculated by taking into account the probability of winning (or making money on a trade). What does Derogatory Information mean? Ans. Copper etc Agro-Based Commodities: Wheat. such as the bulldog bond.287. Q. The probability of an individual losing sufficient trading or gambling money (known as capital base) to the point at which continuing on is no longer considered an option to recover losses. Similar to other foreign bonds. What are the Different types of commodities traded ? Ans. World-over. charge-offs and bankruptcies. A good example would be a politician siphoning off money for side investments or to help friends. Oilseeds. estate planning. Q. and the portion of an individual's capital base that is in play or at risk. Also. What Does Slush Fund Mean? Ans.290. should certain pre-determined terms of the contract be met. Sugar etc Live-Stock: Live Cattle. Whereas financial planning can be helpful for individuals who have accumulated wealth or are just starting to accumulate wealth.

basically an indicator. In finance. offshore derivatives instruments (ODIs) are investment vehicles used by overseas investors for an exposure in Indian equities or .292. the FICO score takes into account various factors in each of these five areas to determine credit risk: payment history. Q. What Does FICO Score Mean? Ans. types of credit used and length of credit history. Participants borrow and lend for short periods of time. commercial paper and bankers' acceptances are bought and sold. In general. using commercial paper. The purchaser pays a non-refundable. which is supplied by bonds and equity.293. The money market is where short-term obligations such as Treasury bills. typically up to thirteen months. Q. one time fee (option premium) to the seller (writer) to acquire this right.291. WHAT ARE OPTIONS? Ans.294. repurchase agreements and similar instruments.e. People with scores below 620 will often find it substantially more difficult to obtain financing at a favorable rate. These instruments are often benchmarked (to i. The potential loss to the option writer is therefore unlimited.process to be effective. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. the Nifty represents the top stocks of the NSE. What do you mean by SENSEX and NIFTY? Can you identify difference between them? Ans. In the context of the Indian market. It gives you a general idea about whether most of the stocks have gone up or have gone down. A person's FICO score will range between 300 and 850. If the holder chooses to exercise the right to buy or sell the asset. The Sensex is an "index". What is Money market? Ans. Just like the Sensex represents the top stocks of the BSE. Money market trades in short-term financial instruments commonly called "paper. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency Q. the creators of the FICO score A type of credit score that makes up a substantial portion of the credit report that lenders use to assess an applicant's credit risk and whether to extend a loan. The holder of an option contract has the right but not the obligation to buy (call option) or sell (put option) a specific quantity of a given asset at a specified price at or before a specified date in the future. What are Off shore derivatives instruments? Ans. a FICO score above 650 indicates that the individual has a very good credit history. While Nifty is an indicator of all the major companies of the NSE. It provides short-term liquidity funding for the global financial system. Wealth management can be provided by independent financial advisers or large corporate entities whose services are designed to focus on high-net worth retail customers.295. The Sensex is an indicator of all the major companies of the BSE. current level of indebtedness." This contrasts with the capital market for longer-term funding. the writer of the option has to deliver or take delivery of the asset. The core of the money market consists of banks borrowing and lending to each other. and new credit. Using mathematical models. Q. the money market is the global financial market for short-term borrowing and lending. FICO is an acronym for the Fair Isaac Corporation. Q.

298. such as financial covenants. Q. What Does Write-Off Mean? Ans.equity derivatives. or have been incurred in the operation of the business and detract from retained revenues For example. This uncollectible debt would then be written-off by your company and recorded as an expense by accountants. This is calculated with the help of the following formula: ROI = Net Profit / Invested Capital * 100 In simple. Corporate Cannibalism: Corporate cannibalism occurs when companies introduce new products into a market where these products are already established. or due to regulatory restrictions.301. you made a sale on credit to a customer. What does Open-End Credit mean? Ans. Q. Suppose. Also. The FII makes purchases on behalf of those investors and the FII’s affiliate issues them ODIs. but two weeks later the client's business declared bankruptcy and became completely unable to pay off the credit account with you. What Does Credit Cliff mean? Ans. The amount of income that an individual has after all personal debts. A term referring to the compounding of a company's credit deterioration caused by provisions. A reduction in the value of an asset or earnings by the amount of an expense or loss. It is calculated as ratio of net divisional profit (before tax) to the net assets(at book values) employed in the division. including the mortgage. These can put pressure on the company's liquidity or its business to a material extent. who is already registered with SEBI.297. Q. Q. Q. or events that trigger a change in the company's credit rating.300.296. for another example. calculate return on investment: % ROI = (benefits / costs) x 100 . The pre-approved amount will be set out in the agreement between the lender and the borrower. that meal is a possible write-off towards your income because you presumably discussed business opportunities during the dinner. have been paid.299. These investors are not registered with SEBI. if you spend money on dinner to take out a client. when a mortgage has been paid off in its entirety. the income that individual had been putting toward the mortgage becomes residual income. the new products are competing against their own incumbent products. Meaning of Return on Investment Ans. either because they do not want to. These investors approach a foreign institutional investor (FII). Companies are able to write off certain expenses that are required to run the business. The most common form of performance evaluation in divisionalised companies is Return on Investment method. A pre-approved loan between a financial institution and borrower that may be used repeatedly up to a certain limit and can subsequently be paid back prior to payments coming due. Meaning of Residual Income Ans. Q. This calculation is usually made on a monthly basis. In effect. What is Corporate Cannibalism? Ans. after the monthly bills and debts are paid. The underlying asset for the ODI could be either stocks or equity derivatives like Nifty futures.

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