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UGC COMMERCE (a) junk bond (b) treasury bills
Banking & Finance Test No. 1 (c) debenture (d) preference share
14. If a coupon bond is selling at discount, then which of the
1. In India, NIFTY and SENSEX are calculated on the basis following is true?
of (a) PQ < Par and YTM < coupon
(a) Market Capitalization (b) Paid up Capital (b) Po < Par and YTM > coupon
(c) Free-float Capitalization (d) Authorized Share Capital (c) Po > Par and YTM < coupon
2. .....funds do not have a fixed date of redemption. (d) Po > Par and YTM > coupon
(a) Open ended funds (b) Close ended funds 15. Deep Discount Bonds are issued at
(c) Diversified funds (d) Both 'a' and 'b' (a) Face Value (b) Maturity Value
3. The amount in unpaid dividend accounts of companies (c) Premium to Face Value (d) Discount to Face Value
shall be transferred to the 16. The type of collateral (security) used for short-term loan
(a) Dividend Equalisation Reserve of the company is
(b) Investor Education and Protection fund (a) real estate (b) plant and machinery
(c) Investor Protection Fund (c) stock of good (d) equity share capital
(d) General Revenue Account of the Central Government 17. Commercial paper is a type of
4. Assets Management company is formed (a) fixed coupon bond (b) unsecured short-term debt
(a) to manage bank's assets (c) equity share capital (d) government bond
(b) to manage mutual funds investments 18. Concept of Maximum Permissible Bank finance was
(c) to construct infrastructure projects introduced by
(d) to run a stock exchange (a) Kannan Committee (b) Chore Committee
5. A firm can acquire target firm by (c) Nayak Committee (d) Tandon Committee
(a) purchasing assets of target 19. Cash discount terms offered by trade creditors never be
(b) purchasing shares of target accepted because
(c) purchasing assets or shares (a) benefit in very small (b) cost is very high
(d) None of the above (c) no sense to pay earlier (d) None of these
6. Which of the following is a case of 'Spin off? 20. If A = Annual Requirement, O = Order Cost and C =
(a) Assets sold in the market Carrying Cost per unit per annum, then EOQ
(b) A division converted into a company (a) (2AO/C)2 (b) √2AO/C
(c) Assets transferred to lenders (c) 2A  OC (d) 2AOC
(d) None of the above 21. Which of the following is not included in cost of
7. If the Price-Earnings Ratio of two companies are same inventory?
and they merge on the basis of share swap ratio (EPS (a) Purchase Cost (b) Transport in Cost
based), which of the following will be protected for two (c) Import Duty (d) Selling Costs
groups of shareholders? 22. System of procuring goods when required, is known as,
(a) Market Value and Earnings (a) Free on Board (FOB)
(b) Earnings and Assets (b) Always Butter Control (ABC)
(c) Paid-up Capital and Earnings (c) Oust in Time (JIT)
(d) Paid-up Capital and Market Values (d) Economic Order Quantity
8. Merger of two companies under BIFR supervision is 23. 5Cs of the credit does not include
known as (a) collateral (b) character
(a) reverse merger (b) negotiated merger (c) conditions (d) None of these
(c) offer for sale (d) arranged merger 24. Which of the following is not an element of credit policy?
9. If a swap ratio is calculated on the basis of EPS, then (a) Credit Terms (b) Collection Policy
which of the following would be protected for two groups (c) Cash Discount Terms (d) Sales Price
of shareholders? 25. Bad debt cost is not borne by factor in case of
(a) Total Market Value (b) Total Earnings (a) pure factoring (b) without recourse factoring
(c) Total Assets (d) All of these (c) with recourse factoring (d) None of the above
10. YTM of a Bond is not affected by 26. Securitization is related to conversion of
(a) coupon rate (b) issue price (a) receivables (b) stock
(c) redemption value (d) interest amount (c) investments (d) creditors
11. An investor buys a bond today and sells after 3 months 27. If a company sells its receivable to another party to raise
the rate of return realised is known as funds, it is known as
(a) yield to maturity (b) current yield (a) securitization (b) factoring
(c) holding period return (d) required rate of return. (c) pledging (d) None of these
12. An investor should buy a bond if 28. Receivables Management deals with
(a) Intrinsic Value < Market Value (a) receipts of raw materials (b) debtors collection
(b) Intrinsic Value > Market Value (c) creditors management (d) inventory management
(c) Market Value < Redemption Value 29. Which of the following is related to receivables
(d) Market Value = Redemption Value management?
13. A long-term bond issued with collateral is called (a) Cash Budget (b) Economic Order Quantity
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(c) Ageing schedule (d) All of the above (c) allocate savings efficiently
30. What is the beta factor for corporate finance under (d) control inflation
standardized approach? 43. The first area of study to benefit from the focus in the
(a) 15% (b) 18% 1950's to a more analytical, decision oriented approach
(c) 12% (d) None of these was
31. Which of the following is not a type of credit risk? (a) cash and inventory management
(a) Default risk (b) Credit spread risk (b) capital budgeting (allocating financial capital to the
(c) Intrinsic risk (d) Basis risk purchase of plant and equipment)
32. Eight per cent Government of India security is quoted at 2 (c) capital structure formulation (the balance between
120/- the current yield on the security, will be liabilitie
(a) 12% (b) 9.6% (d) dividend policy (the relationship between dividends
(c) 6.7% (d) 8% and earnings)
33. Risk of a portfolio with over exposure in steel sector will 44. For calculating weighted average cost of capital, cost of
be each source of capital is multiplied by proportion
(a) more than systematic risk applicable to it. The proportion may be based on
(b) equal to intrinsic risk (a) book values only (b) target capital structure only
(c) less than intrinsic risk (c) market values only (d) All of the above
(d) None of these 45. Which of the following are not among the daily activities
34. An increase in cash reserve ratio will cause yield curve to of financial management?
(a) shift downward (b) remain unchanged (a) sale of shares and bonds (b) credit management
(c) become steeper (d) become flatter (c) inventory control
35. When interest rates interest bonds (d) the receipt and disbursement of funds
(a) go up (b) go down 46. Financial markets
(c) become steeper (d) None of these (a) exist as a vast global network of individuals and
36. Bond with 'BBB' rating will carry lower interest rate than financial institutions
one with 'AR rating (b) include a broad group representing lenders, borrowers,
(a) false (b) true owners, institutional investors, corporations, government
(c) difficult to say (d) can't say units and others
37. A transaction where financial securities are issued against (c) circulate information quickly that affects prices of
the cash flow generated from a pool of assets is called securities
(a) securitization (b) credit default swaps (d) All of the above
(c) credit linked notes (d) total return swaps 47. A bank expects fall in price of a security if it sells it in the
38. Operational Risk arises from market. What is the risk that the bank is facing?
(a) inadequate or failed internal processes (a) Market risk (b) Operational risk
(b) people and systems (c) Asset liquidation risk (d) Market liquidity risk
(c) external events 48. Beta in the context of security analysis indicates
(d) defaults (a) systematic risk (b) unsystematic risk
Which of the following is true? (c) total risk (d) All of these
(a) All of them (b) None of them 49. Internal rate of return method applied for capital
(c) (a), (b) and (c) (d) (a), (b) and (e) budgeting decision
39. Other things being equal, stocks which highly liquid (a) allows to take different discount factors
command (b) uses cost of capital as discount factor
(a) higher dividend pay-out ratio (c) may give more than one IRR
(b) lower dividend pay-out ratio (d) distinguishes between the IRR for lending and
(c) higher P/E multiples borrowing decision
(d) lower P/E multiples 50. Theoretically, with the issue of rights share the value of
40. When a firm proposes to acquire another firm, the merger existing shares
proposal may be viewed as (a) will increase (b) will not range
(a) working capital management proposal (c) will reduce (d) may increase or decrease
(b) capital budgeting proposal 51. A high risk, high yield often unsecured bond rated below
(c) financing decisions investment grade is known as
(d) dividend decision (a) income bond (b) subordinated debentures
41. A major advantage of the corporate form of organization (c) junk bond (d) serial bond
is 52. A fall in interest rates will make prices of Government
(a) reduction of double taxation Securities –
(b) limited owner liability (a) go down (b) ro up
(c) legal restrictions (c) remain unchanged (d) None of these
(d) ease of organization 53. The project whose acceptance precludes the acceptance of
42. The purpose of financial markets is to one or More alternative projects is known as
(a) increase the price of common stocks (a) independent project (b) dependent project
(b) lower the yield on bonds (c) mutually exclusive project (d) contingent project
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54. When merger is in the nature of consolidation, the (d) source of credit from the owners of the business
accounting approach will be 67. The technique used for classifying inventory according to
(a) purchase method (b) pooling of interest method the value of usage is called
(c) combination (d) None of these (a) XYZ analysis
55. As per pecking order theory of capital structure (b) DCF analysis
(a) Internal equity is preferred over external debt (c) ABC analysis
(b) External debt is preferred over internal equity (d) DEF analysis
(c) External equity is preferred over external debt 68. Money market mutual funds
(d) None of the above (a) enable individuals and small businesses to indirectly
56. Systemic risk the risk of in money-market instruments
(a) failure of a bank, which is not adhering to regulations (b) are available only to high net-worth individuals
(b) failure of two banks simultaneously due to bankruptcy (c) are involved in acquiring and placing mortgages
of one bank (d) are also known as finance companies
(c) where a group of banks fail due to contagion effect 69. EOQ, is the quantity that minimizes
(d) failure of entire banking system (a) Total Ordering Cost (b) Total Inventory Cost
57. A formal legal commitment to extend credit up to some (c) Total Interest Cost (d) Safety Stock Level
maximum amount over a stated period of time is known 70. Under profit maximization goal, which of the following
as decisions does not fall under the purview of financial
(a) line of credit (b) revolving credit agreement management?
(c) commitment charge (d) secured term loan (a) Investment decision (b) Debt-equity mix decision
58. Premature payment of a term loan will result in interest (c) Dividend decision (d) Capitalization decision
rate risk of type 71. While computing the average cost of capital of the firm,
(a) basis risk (b) yield curve risk the cost of which of the following sources of funds is
(c) embedded option risk (d) mismatch risk considered almost equal to the cost of equity?
59. Daily volatility of a stock is 1%. What is its 10 days (a) Perfect capital (b) Retained earnings
volatility approximately? (c) Public deposits (d) Loan from financial institutions
(a) 3% (b) 10% 72. The mix of debt and equity in a firm is referred to as the
(c) 1% (d) 4% firm's
60. A rise in Government securities prices will make yield (a) primary capital (b) capital composition
curve (c) cost of capital (d) capital structure
(a) slope upward (b) shift downward 73. The three primary sources of capital to the firm are
(c) remain stable (d) shift upward (a) net income, retained earnings, and bank loans
61. One of the goal's of financial management is (b) bondholders, preferred shareholders, and common
(a) wealth maximization shareholders
(b) hostile take over (c) operating profits, extraordinary gains, dividends
(c) to raise funds from outsiders (d) amortization cash flow, net income, and retained
(d) None of the above earnings
62. The basic goal of financial management is 74. Corporate control is maintained intact by issuing shares
(a) maximizing the profit through
(b) maximizing the shareholder's wealth (a) public offer (b) rights issue
(c) maximizing the rate of dividend (c) book building (d) none of these
(d) minimizing the business risk
63. Objective of liquidity management is to Answers
(a) ensure profitability (b) ensure liquidity 1. C 2. A 3. B 4. B 5. B
(c) either of two (d) both 6. B 7. A 8. D 9. B 10. B
64. "Shareholder wealth" in a firm is represented by 11. C 12. B 13. C 14. B 15. D
(a) the number of people employed in the firm 16. C 17. B 18. D 19. D 20. B
(b) the book value of the firm's assets less the book value 21. D 22. C 23. D 24. D 25. C
of its liabilities 26. A 27. B 28. B 29. C 30. B
(c) the amount of salary paid to its employees 31. B 32. C 33. A 34. D 35. B
(d) the market price per share of the firm's common stock 36. A 37. A 38. C 39. B 40. B
65. A company's is (are) potentially the most effective 41. B 42. C 43. C 44. B 45. D
instrument of good corporate governance. 46. A 47. D 47. D 48. C 49. A
(a) Common stock shareholders
50. B 51. C 52. C 53. B 54. A
(b) Board of directors
55. B 56. B 57. D 58. B 59. C
(c) Top executive officers
60. A 61. B 62. D 63. A 64. D
(d) Finance manager'
66. Trade credit is a 65. D 66. B 67. A 68. A 69. A
(a) negotiated source of finance 70. A 71. D 72. B 73. D 74. C
(b) hybrid source of finance 75. B
(c) spontaneous source of finance