MCQ - FM

51. If two firms in the same line of business merge together, it is

called __________ merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate
52. If two firms at different stages of production merge together, it is
called __________ merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate
53. If two firms in unrelated line of business merge together, it is
called __________ merger.
(A) horizontal
(B) vertical
(C) straight
(D) conglomerate
54. The measure for calculating how much two random variable
change together is called
(A) variance
(B) covariance
(C) skewness
(D) kurtosis
55. The normalized version of covariance is called
(A) regression
(B) correlation
(C) cross-section
(D) spread
56. Suppose our portfolio consists of two stocks A and B. What
should be the correlation between them so that we have no risk in
our portfolio?
(A) –1
(B) 0
(C) 1
(D) risk cannot be eliminated
57. In the beginning, some companies receive equity investment
from wealthy individuals. The wealthy individuals are called
(A) angel investors
(B) corporate investors
(C) venture capitalists
(D) venture capital firms
58. Firms that invest in new companies as they try to grow are
called
(A) spinning
(B) underwriters
(C) venture capitalists
(D) venture capital firms
59. An investor will receive $5,000 and $10,000 after one and two
years from today respectively. If the interest rate during this period
is 10% then what is the present value of this cash flow?
(A) $12000
(B) $12450
(C) $12810
(D) $13705
60. What is volatility if the duration of a bond is 4 years and yield to
maturity is 8%?
(A) 3.1%
(B) 3.4%
(C) 3.7%
(D) 4.0%
61. The success of a new company critically depends on
(A) managers
(B) board of directors
(C) shareholders
(D) venture capitalists
62. Companies go public in order to
(A) avoid taxes
(B) reduce management cost
(C) raise more cash
(D) get merge
63. Companies go public with the help of
(A) venture capital firms
(B) underwriters
(C) shareholders
(D) A, B and C
64. If beta of a stock is __________ then it tends to amplify the
overall market movement.
(A) 0
(B) 1
(C) greater than 1
(D) between 0 and 1
65. What is the real rate of interest if nominal rate is 10% and
inflation rate is 5%?
(A) 4.3%
(B) 4.8%
(C) 5.3%
(D) 5.8%
66. The relationship between short and long term interest rates is
called __________ of interest rates.
(A) yield to maturity
(B) duration
(C) volatility
(D) term structure
67. Financial managers are interested in __________ when see
bond market.
(A) yield to maturity
(B) duration
(C) volatility
(D) term structure
68. Underwriters are also called
(A) bookrunner
(B) venture capitalists
(C) subscribers
(D) angel investors
69. Which from the following is not the role of an underwriter?
(A) They provide procedural and financial advice
(B) They buy the issue
(C) They resell the issue to the public
(D) They provide funds to the corporation
70. Risk __________ with the duration of bond.
(A) remains same
(B) increases
(C) decreases
(D) multiplied

71. The difference between the public-offer price and the price paid
by the underwriter is called
(A) underpricing
(B) spread
(C) commission
(D) margin
72. The underwriters receive their payments in the shape of
(A) underpricing
(B) spread
(C) commission
(D) margin
73. Rights issues are for
(A) managers
(B) directors
(C) existing shareholders
(D) new shareholders
74. The interest rate earned if a financial asset is held until its
maturity is called
(A) term structure
(B) spinning
(C) yield
(D) spread
75. The price of a stock is $100, and it could be $95 or $115 the
next year. What is the expected return?
(A) 5%
(B) 6%
(C) 7%
(D) 7.5%
76. The price of a stock is $100, and there are 40% chances that it
would be $95 and 60% chances that it would be $115 the next year.
What is the expected return?
(A) 5%
(B) 6%
(C) 7%
(D) 7.5%
77. A company’s agreement with the underwriter include
(A) spread
(B) greenshoe option
(C) A and B
(D) whiteshoe option
78. The long-run returns of Initial Public Offerings (IPOs) tend to
__________ the market.
(A) underperform
(B) accelerate
(C) amplify
(D) none of these
79. Spread is __________ for IPOs.
(A) highest
(B) lowest
(C) average
(D) uncertain
80. The value of a financial derivative depends on the
(A) maturity
(B) duration
(C) forward interest rate
(D) underlying
81. Which from the following statements is incorrect?
(A) A European option can only be exercised at expiry
(B) An American option can only be exercised at expiry
(C) A European option is a right but not obligation
(D) An American option is a right but not obligation
82. An agreement on a telephone or email to buy/sell an asset at an
agreed future time for an agreed price is called
(A) spot contract
(B) forward contract
(C) future contract
(D) swap
83. When forward contract is traded on an exchange, it is called
(A) spot contract
(B) future contract
(C) call option
(D) put option
84. On 1 January you enter a contract to buy 1 million barrel of oil
for $80 per barrel to be delivered on 1 March. The price on 1 March
is $82 per barrel. Your gain is
(A) $200
(B) $20000
(C) $200000
(D) $2000000
85. Allocating stock in popular new issues to manager of their
important corporate clients is called
(A) subscription
(B) under-performance
(C) rights
(D) spinning
86. Which from the following issues has the lowest total direct cost?
(A) straight bonds
(B) corporate stocks
(C) all issues have same cost
(D) none of these
87. An option that allows the underwriter to increase the number of
shares bought by 15% is called
(A) spread
(B) spinning
(C) whiteshoe
(D) greenshoe
88. A four year zero-coupon bond has 6% yield. What is its duration
in years?
(A) 4
(B) 5
(C) 6
(D) 7
89. Changes in interest rates have a __________ impact on the
prices of long-term bonds than the short-term bonds.
(A) greater
(B) smaller
(C) both have same impact
(D) interest rate does not matter
90. An investment of $9,000 today will yield $10,000 after one year.
What is the Net Present Value if the interest rate is 10%?
(A) $71
(B) $81
(C) $91
(D) $101
91. The return that is forgone by investing in the project rather than
investing in financial markets at the same level of risk is called
(A) internal rate of return
(B) capital saving
(C) opportunity cost
(D) opportunity saving
92. The party that agrees to buy the underlying asset in a forward
contract is said to assumes
(A) forward position
(B) backward position
(C) long position
(D) short position
93. The party that agrees to sell the underlying asset in a forward
contract is said to assumes
(A) forward position
(B) backward position
(C) long position
(D) short position
94. If the spot price is $1200 and the exercise price is $1000 then
the payoff of a party assuming a long position is
(A) -$200
(B) $0
(C) $1
(D) $200
95. If the spot price is $1200 and the exercise price is $1000 then
the payoff of a party assuming a short position is
(A) -$200
(B) $0
(C) $1
(D) $200
96. If the co-variance between stock A and market returns is 12,
and the standard deviation of market returns is 3 then what is the
value of beta?
(A) 0.96
(B) 1.0
(C) 1.33
(D) 1.45
97. Difference between strike price and stock price is called
(A) intrinsic value
(B) option premium
(C) time premium
(D) none of these
98. Option value at expiration is a function of:
(I) interest rate
(II) volatility
(III) stock price
(IV) exercise price
(A) I only
(B) III only
(C) I and II
(D) III and IV
99. If market price of the share at expiration is $100 and exercise
price is $80, then value of a call option at expiration is
(A) -$20
(B) $0
(C) $1
(D) $20

100. If market price of the share at expiration is $100 and exercise

price is $80, then value of a put option at expiration is
(A) -$20
(B) $0
(C) $1
Business Law & Corporate Governance

1. A contract of sale of goods is a contract whereby the seller transfers

or agrees to transfer the property:
a) for a price
b) in goods
c) in goods to the buyer for a price
d) none of the options provided

2 According to Section 2(7) of Sale of Goods, ‘goods’

means:
a) every kind of movable property,
b) property other than actionable claims and money
c) every kind of property
d) every kind of movable property, other than actionable claims
and money

3 The goods which form the subject of a contract of sale:

a) may be either existing goods, owned or possessed by the seller,
or future goods.
b) are goods which are owned or possessed by the
seller
c) are existing goods only
d) none of the options provided

4 where trees are sold to be cut and then taken away by the buyer;
a) that will be a contract for sale of immovable
property.
b) that will be a contract for sale of movable
property.
c) that will be a contract of existing goods
d) that will be a contract of future goods

5 A contract of sale may be made:

a) in writing
b) by word of mouth,
c) may be implied from the conduct of the parties.
d) all options are correct
6 where the transfer of the property in the goods is to take place at a
future time, the contract is called:
a) sale
b) an agreement to sell.
c) provisional sale
d) conditional sale

7 A stipulation collateral to the main purpose of the contract of sale

of goods, is called:
a) a condition
b) warranty
c) guarantee
d) stipulation

8 In a contract of sale of goods, Breach of a condition gives the

aggrieved party right to:
a) repudiate the contract
b) claim damages
c) repudiate the contract and also claim damages
d) none of the options provided
9 The implied conditions, in a sale by sample include:
a) The bulk shall correspond with the sample in
quality
b) The buyer shall have a reasonable opportunity of comparing the
bulk with the sample
c) The goods shall be free from any defects rendering them un-
merchantable, which would not be apparent on reasonable
examination of the sample.
d) all points given as option A, B and C

10 In a contract for sale of goods, Buyer may have an action, in

respect of physical injuries caused by defect in the goods;
a) against the manufacturer
b) against the dealer
c) aginast the dealer as also the manufacturer
d) none of the options is correct

11 In a contract for sale of goods, When the seller is bound to weigh,

measure, test or do some other act for ascertaining the price, the
property in the goods:
a) passes at the time of agreement
b) passes at the time of payment
c) does not pass until such act is done and the buyer has a notice of
it.
d) does not pass until a fresh agreement is made

12 The maxim is “nemo det quod non habet” which means that:
a) no one can be the owner unless he makes payment
b) no one can give what he has not got.
c) no one can get title of goods unless given in writing
d) giving is better than taking

13 The fundamental principle of the law on sale of goods is, that:

a) the seller is bound to point out defects of his goods
b) The seller is not bound to point out defects of his own
goods.
c) the buyer must inspect the goods to find out if they will suit
his purpose.
d) both options at B and C are correct
14 ‘Negotiable’ means transferable. In the case of a negotiable
instrument Negotiation can take place from one person to
another:
a) by mere delivery or by endorsement and
delivery.
b) only by endorsement and delivery.
c) all negotiable instruments cannot be negotiated
d) negotiation of a negotiable instrument cannot take place by mere
delivery

15 A promissory note, bill of exchange or cheque is payable to bearer

which is:
a) expressed to be so payable
b) on which the only endorsement is an endorsement in
blank.
c) on which the last endorsement is an endorsement in
blank.
d) expressed to be so payable or on which the only or last
endorsement is an endorsement in blank.

16 Money orders; Postal orders; Fixed Deposit receipts; share

certificates; Letters of Credit are examples of:
a) Negotiable Instruments
b) Non-negotiable instruments
c) some of these are negotiable instruments while others are
not
d) none of given options is correct
17 bills of lading; dock warrants; railway receipts and wharfinger
certificates are examples of:
a) negotiable Instruments
b) non-negotiable instruments
c) quasi- negotiable instruments
d) none of the options

18 A Bill of Exchange, not payable on demand, is entitled to

get:
a) 3 days grace period.
b) 7 days of grace period
c) grace period only if the maturity fals due on a bank
holiday
d) none of the options

19:- An accommodation bill is not supported by consideration or a

trading transaction. It is drawn with the object of providing financial
help either to drawer or to both drawer and the drawee. Which of the
options is true in case of an accommodation bill?
a) An accommodation bill creates no obligation of payment between
the parties to the transaction.
b) The accommodation party is liable on the bill to any subsequent
‘holder for value’.
c) both option A and B are correct
d) none of the given options is correct
20 Section 31 of Reserve Bank of India, Act overrides the Negotiable
Instruments Act. which of the options mentions the provisions of the
Section 31 0f RBI Act?
a) No person in India, other than RBI or the Central
Government can make or issue a promissory note “payable to
bearer”. No person in India other than RBI or the Central
Government can draw or accept a bill of exchange ‘payable to
bearer on demand’.
b) A cheque ‘payable to bearer on demand’ can be drawn on a
person’s account with the banker.
c) both the options A and B are correct
d) none of the given options is correct

21 which of the options is correct in respect of a negotiable

instrument bearing "NOT NEGOTIABLE" crossing?
a) mean that the cheque is not transferable
b) It is still transferable, but the transferee cannot get title better than
what transferor had.
c) cheque will be credited only after verification from the
drawer
d) banker is required to keep a separate record of such
instruments
22 In case of dishonor of a negotiable instrument, notice is required
to be given to:
a) drawer only
b) all earlier endorsees.
c) drawer and all earlier endorsees.
d) all options are correct

23 Where a person receives a negotiable instrument without

consideration, he may be:
a) called ‘holder in due course’.
b) a holder
c) beneficiary
d) assignee
24 If a cheque is dishonored for insufficiency of funds, the penalty
can be up to:
a) two years imprisonment or fine up to twice the amount of
cheque or both.
b) no imprisonment but fine up to twice the amount of
cheque
c) three years imprisonment or fine up to twice the amount of cheque
or both.
d) two years imprisonment or fine up to five times the amount of
cheque or both.

25 Company is called a legal person or and artificial person, it implies

that:
a) is not a human being.
b) It is created with the sanction of law, and is clothed with certain
rights and obligations
c) company cannot file a suit in a court of law
d) Only options A and B are correct

26 In case of a dishonest and fraudulent use of the facility of

incorporation, the law lifts the corporate veil. What does this phrase
mean?
a) company is not a legal person
b) company will be managed by Board of Directors appointed by the
Government
c) The law will identify the persons who are behind the scene for
perpetration of fraud.
d) none of the options is correct

27 under the Companies Act 1956, contracts entered into by public

company after obtaining the certificate of incorporation, but before
getting the certificate to commence business are termed as:
a) pre-incorporation contracts
b) Provisional contracts
c) preliminary agreements
d) contracts at arm's length

28 The articles of a company contain:

a) the regulations for management of the company
b) the objects for which the company is proposed to be
incorporated
c) the State in which the registered office of the company is to be
situated;
d) all options are correct
29 Any transaction which is outside the scope of the powers specified
in the objects clause of the Memorandum:
a) requires prior sanction of the central government
b) must be informed to the members in the annual
report
c) is ultra-vires the company and therefore void
d) requires unanimous consent of the Board of
Directors
30 Every person dealing with the company is presumed to have read
The Memorandum and Articles and understood them in their true
perspective. This is known as Doctrine of:
a) indoor management
b) Constructive Notice
c) Ultra vires
d) Caveat Emptor
31 The legal term for tangible property is:
a) trust
b) chattel
c) mortgage
d) private property

32 Law is enforced by
a) Parliament
b) Legislature
c) Executive
d) Society

33 Ignorance of Law is:

a) a good excuse
b) cannot be excused
c) no excuse
d) always an excuse

34 Substantive Law defines:

a) methods by which law is made
b) the legal rights/ obligations
c) principle underlying a decision
d) decision of the judge

35 An artificial person is also called:

a) Corporation
b) Company
c) Office
d) legal entity
3 6 An offer made to a specific person is called:
a) express offer
b) implied offer
c) specific offer
d) general offer

37 An agreement of a purely social nature is:

a) a valid contract
b) a void contract
c) a voidable contract
d) not a contract

38 The parties to a contract must be competent to contract. The flaw

in capacity to contract may be due to-
a) minority
b) lunacy
c) idiocy
d) any of the three mentioned as options A,B,C

3 9 At the time of entering into a contract, parties must be thinking of

the same thing in the same sense. This is also known as:
a) intention to create a legal relationship
b) lawful consideration
c) consensus-ad-idem
d) free and genuine consent

40 Which option is a true statement?

a) All contracts must be reduced to writing
b) No contract need to be in writing
c) If a particular type of contract is required by law to be in
writing it must comply with the necessry formalities
d) None of the given Options is correct

41 In the context of consideration for a contract, the Rule is that:

a) Consideration need not be adequate
b) Consideration must be real and competent
c) both the options i.e. A and B are correct
d) none of the options is correct

42 A saves B's life. B promises to pay A Rs. One lac out of

gratitude.
a) There is no consideration, hence the contract is
void
b) It is a void contract as Rs. One lac is too little for saving
life.
c) it is a valid contract because the consideration for B's promise is
present consideration
d) it is a valid contract because the consideration for B's promise is
past consideration

43 A dealer enters into an agreement to sell a smuggled item to X.

import of such type of goods is illegal. A refuses to deliver the item as
promised. What are the rights of X?
a) sue the dealer for breach of a contract.
b) wait till such imports become legal and then sue the
dealer.
c) it is a voidable contract.
d) it is a void contract

44 A' signed a promissory note which he was told was a letter of

guarantee. Will he be bound to honor the Promissory Note?
a) Yes, he affixed his signatures on the promissory
note
b) No, he did not know how to sign properly.
c) He is not bound as there was no consent to the agreement entered
into by him
d) He could have made a verbal agreement

45 With respect to causing any person to enter into an agreement,

"Coercion" is-
a) the committing any act forbidden by Indian Penal
Code
b) threatening to commit any act forbidden by Indain Penal
Code
c) unlawful detaining any property to the prejudice of any
person
d) all the three options under A, B, and C

46 The party to contract aggrieved or wronged by 'misrepresentation'

can:
a) avoid the performance of the contract
b) avoid the contract and sue for damages
c) neither avoid the contract, nor can he sue for
damages
d) none of the given option is correct

47 A clause in agreement provides that no action should be brought

after two years. The Limitation Act, 1963, however an action for
breach of contract may be brought within three years from the date of
breach. In view of given facts, the correct position is:
a) parties are free to agree upon any terms they like, the clause in the
Agreement is operative.
b) the clause in the Agreement is valid, as there is no ambiguity in
the language, and both the parties have agreed upon it
c) the clause in the Agreement is void, as it is opposed to the
provisions of the Limitation Act
d) none of the given option is correct

48 A agrees to sell to B 100 tons of oil.

a) the agreement is void for uncertainty, as it does not show what
kind of oil was intended
b) this agreement is valid
c) this agreement s voidable at the option of A
d) this agreement is voidable at the option of B

49:- A agrees to pay B Rs. Ten lacs if B's house is burnt.

a) It is not a valid agreement
b) it is a void agreement being 'uncertain'
c) it is a void agreement being 'contingent 'upon happening or non-
happening of the event
d) it is a valid 'contingent' contract

50 Quasi contract' is a situation in which law imposes upon one

person an obligation similar to that which arises from a true contract.
It is based on natural justice. In view of these provisions which of the
option is a quasi-contract?
a) A supplies B, a lunatic, with necessaries suitable to his condition
in life
b) A tradesman leaves goods at B's house by mistake
c) a party pays to another money by mistake, which is not due to
him
d) all the three cases mentioned under varios options ar quasi
contracts
51 the phrase “quantum meruit” means:
a) as much as earned
b) to each according to his need
c) to each according to his condition
d) none of the options is correct

52 Section 10 of the Contract Act enumerates some essentials of a

valid contract. Which if the options is thus enumerated in Section
10?
a) agreements made by free consent of parties, competent to
contract
b) agreements made for a lawful consideration and with lawful
object
c) agreements not expressed declared by law to be
void
d) All given the options are enumerated in
Section10

53 A promisor offers performance of his obligation under the

contract, at the proper time and place, but the promisee refuses to
accept the performance. This is called:
a) Tender
b) Attempted performance
c) both A, and B options are correct
d) none of the options is correct

54 A contract is deemed to have become impossible of performance

under the circumstances that the subject matter of a contract is
destroyed for no fault of the promisor. Such circumstances are
called:
a) inherent impossibility
b) supervening impossibility
c) Expected impossibility
d) all given options are correct

55 A contract is discharged by death of the promisor, by insolvency of

the promisor, by entering into a new contract where inferior rights
under the previous agreement are merged in the new one; such
discharge of a contract is called: discharge by
a) Operation of law
b) by breach
c) supervening impossibility
d) all given options are correct

56 A contract to perform the promise or discharge the liability of a

third person in case of his default is called:
a) a contract of insurance
b) a contract of guarantee
c) a contact of bailment
d) none of the given options is correct

57 In a contract of guarantee the person for whom the guarantee is

given is called:
a) surety
b) principal debtor
c) creditor
d) none of the options is correct

58 Which of the options is correct, about a contract of guarantee?

a) a contract of guarantee is not a cotract 'uberrimae
fidei'
b) the creditor must inform the surety about all his previous dealings
with the debtor
c) both options A and B are correct
d) none of the options is correct

59 Which of the options is correct, about a contract of guarantee?

a) a contract of guarantee may either be oral or in
writing
b) a contract of guarantee must be in writing
c) both options A and B are correct
d) none of the options is correct

60 which of the options is correct with regard to rights of a creditor

in a contract of guarantee?
a) all remedies against the principal debtor should be exhausted by
the creditor before proceeding against the surety
b) the creditor is entitled to demand payment from the surety as soon
as the principal debtor refuses to pay or makes a default in
payment
c) both options A and B are correct

d) none of the options is correct

NOTE: The answers are boldly marked.