Finance Question Bank

1. What is difference between Balance Sheet and Profit and Loss a/c?

Ans. Key Differences between Balance Sheet and Profit & Loss Account
a. The Balance Sheet is prepared at a particular date, usually the end of the financial year while the
Profit and Loss account is prepared for a particular period.
b. The Balance Sheet reveals the entity’s financial position, whereas the Profit and Loss account
discloses the entity’s financial performance.
c. A Balance Sheet is a gives an overview of assets, equity, and liabilities of the company, but the Profit
and Loss account is a depiction of entity’s revenue and expenses.
d. The significant difference between the two entities are is that the Balance Sheet is a statement while
the Profit and Loss account is an account.
e. The Balance sheet is prepared on the basis of the balances transferred from the Profit and Loss
account.

2. What is Contingent Liability?

A contingent liability is a potential liability. It depends on a future event occurring or not occurring.
For example, if a parent guarantees a daughter's first car loan, the parent has a contingent liability. If
the daughter makes her car payments and pays off the loan, the parent will have no liability. If the
daughter fails to make the payments, the parent will have a liability.

3. What are the sources of corporate finance? (Short Term and Long Term)

The sources of short-term finance; - Trade credit

- Bank credit
- Loans and advances
- Cash credit
- Overdraft
- Discounting of bill

- Customers’ advances
- Loans from co-operatives
- Installment credit

The sources of long term finance

- Shares
- Venture Capital
- Government Grant
- Bank Loans
- Mortgage
- Owner’s capital
- Retained profit
- Selling Assets
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4. What is Marginal Costing?

A technique of cost accounting pays special attention to the behavior of costs with changes in the
volume of output. This definition lays emphasis on the ascertainment of marginal costs and also the
effect of changes in volume or type of output on the company's profit.

5. What is Capital Budgeting? And Different Methods of CB.

Capital budgeting is a tool for maximizing a company's future profits since most companies are able
to manage only a limited number of large projects at any one time. Capital budgeting usually
involves the calculation of each project's future accounting profit by period, the cash flow by period,
the present value of the cash flows after considering the time value of money, the number of years it
takes for a project's cash flow to pay back the initial cash investment, an assessment of risk, and
other factors.

Methods of Capital Budgeting are:-

- Pay Back
- Discounted Pay Back
- NPV
- IRR
- ARR

6. What difference between Warranty and Guarantee?

Both the guarantee and the warranty are used to safeguard the rights of a consumer. The difference
while in a guarantee a seller is reliable for replacement of a purchased item for free, in a warranty
the consumer pays for the rights and has the rights to sue the seller. A guarantee is provided by
manufactures but a warranty is proved by sellers and distributors.

7. What are the functions of Treasury Department in a Company?

Total Working Capital Management

Emphasis on managing all CA & CL accounts
Management of the Entire Balance Sheet
Expanding Role and Responsibilities of Treasury
Collaboration with Other Departments
Greater Technological Expertise

8. What is Ratio Analysis? Discuss ratios mentioned below:

Debt/Equity, EPS, P/E Ratio, PEG Ratio.

Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of

a firm's financial performance in several key areas.
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Debt/Equity:- Debt/Equity Ratio is a ratio used to measure a company's financial leverage,

calculated by dividing a company’s total liabilities by its stockholders' equity. The D/E ratio indicates
how much debt a company is using to finance its assets relative to the amount of value represented
in shareholders’ equity.

EPS: Earnings per share (EPS) is the portion of a company's profit allocated to each outstanding
share of common stock. Earnings per share serves as an indicator of a company's profitability.

P/E Ratio:- The price-earnings ratio (P/E Ratio) is the ratio for valuing a company that measures its
current share price relative to its per-share earnings.

PEG Ratio:- The price/earnings to growth ratio (PEG ratio) is a stock's price-to-earnings (P/E) ratio
divided by the growth rate of its earnings for a specified time period. The PEG ratio is used to
determine a stock's value while taking the company's earnings growth into account, and is
considered to provide a more complete picture than the P/E ratio.

9. What is EVA?
Economic value added (EVA) is a measure of a company's financial performance based on the
residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for
taxes on a cash basis.

10. Comment: Derivatives as investment instrument.

Derivatives means indirect investments in the assets. The derivatives market is growing at a
tremendous speed. The important benefit of investing in derivatives is that it leverages the
investment, manages the risk and helps in doing speculation. Derivatives include:

 Forwards
 Futures
 Options
 Swaps etc

11. Discuss the Inventory Valuation Techniques.

- EOQ
- ABC analysis
- Setting up of levels of Inventory

12. What is Financial Risk Management?

The FRM is a qualification for risk management professionals, particularly those who are involved in
analyzing, controlling, or assessing potential credit risk, market risk, and liquidity risk as well as non-
market related financial risks.
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13. What is Working Capital?

Working capital is the amount of funds which are necessary to an organization to continue its
ongoing business operations, until the firm is reimbursed through payments for the goods or
services it has delivered to its customers. [27] Working capital is measured through the difference
between resources in cash or readily convertible into cash (Current Assets), and cash requirements
(Current Liabilities). As a result, capital resource allocations relating to working capital are always
current, i.e. short term.

14. What are SLR and CRR? What are the current rates?

Both CRR and SLR are instruments in the hands of RBI to regulate money supply in the hands of
banks that they can pump in economy
SLR restricts the bank’s leverage in pumping more money into the economy. On the other hand,
CRR, or cash reserve ratio, is the portion of deposits that the banks have to maintain with the Central
Bank to reduce liquidity in banking system. Thus CRR controls liquidity in banking system while SLR
regulates credit growth in the country.
Current Rates are
1. CRR- 4 %
2. SLR- 21%
3. REPO rate – 6.25%
4. Reverse Repo rate – 6.00%
15. What is the meaning of the term financial inclusion?
Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to
sections of disadvantaged and low-income segments of society, in contrast to financial exclusion
where those services are not available or affordable. An estimated 2.5 billion working-age adults
globally have no access to the types of formal financial services delivered by regulated financial
institutions. For example in Sub-Saharan Africa only 24% of adults have a bank account even though
Africa's formal financial sector has grown in the recent years. [1] It is argued that as banking services
are in the nature of public good; the availability of banking and payment services to the entire
population without discrimination is the prime objective of financial inclusion public policy.

16. What does the capital adequacy ratio mean? How is it important for banks?
Capital adequacy ratios (CARs) are a measure of the amount of a bank's core capital expressed as a
percentage of its risk-weighted asset.

Capital adequacy ratio is defined as:

17. Discuss in brief about fixed income instruments.

A fixed-income security is an investment that provides a return in the form of fixed
periodic payments and the eventual return of principal at maturity. Unlike a variable-income
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security, where payments change based on some underlying measure such as short-term interest
rates, the payments of a fixed-income security are known in advance.

18. What is Cost Benefit Analysis?

A cost-benefit analysis is a process by which business decisions are analyzed. The benefits of a given
situation or business-related action are summed, and then the costs associated with taking that
action are subtracted. Some consultants or analysts also build the model to put a dollar value on
intangible items, such as the benefits and costs associated with living in a certain town, and most
analysts will also factor opportunity cost into such equations.

19. What are the Types of financial markets?

Within the financial sector, the term "financial markets" is often used to refer just to the markets that are
used to raise finance: for long term finance, the Capital markets; for short term finance, the Money
markets. Another common use of the term is as a catchall for all the markets in the financial sector, as
per examples in the breakdown below.
 Capital markets which consist of:
o Stock markets, which provide financing through the issuance of shares or common stock,
and enable the subsequent trading thereof.
o Bond markets, which provide financing through the issuance of bonds, and enable the
subsequent trading thereof.
 Commodity markets, which facilitate the trading of commodities.
 Money markets, which provide short term debt financing and investment.
 Derivatives markets, which provide instruments for the management of financial risk.
 Futures markets, which provide standardized forward contracts for trading products at some future
date; see also forward market.
 Insurance markets, which facilitate the redistribution of various risks.
 Foreign exchange markets, which facilitate the trading of foreign exchange.

20. What are the different ways of Business Valuation?

The five most common ways to value a business are

 asset valuation,
 historical earnings valuation,
 future maintainable earnings valuation,
 relative valuation (comparable company & comparable transactions), discounted cash flow (DCF)
valuation
21. Different types of Mergers and Acquisitions.
There are five commonly-referred to types of business combinations known as mergers:
conglomerate merger, horizontal merger, market extension merger, vertical merger and product
extension merger.

22. What is Hedging?

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Hedging, a common practice of farming cooperatives, insures against a poor harvest by purchasing
futures contracts in the same commodity. If the cooperative has significantly less of its product to
sell due to weather or insects, it makes up for that loss with a profit on the markets, assuming that
the overall supply of the crop is short everywhere that suffered the same conditions.

23. What is Venture Capital?

A third usual source of capital for startup companies has been venture capital. This source remains
largely available today, but the maximum statistical amount that the venture company firms in
aggregate will invest in any one company is not limitless (it was approximately $15 million in 2001
for a biotechnology company).At those level, venture capital firms typically become tapped-out
because the financial risk to any one partnership becomes too great.

24. Explain Corporate Governance.

By having a wide and varied scope of owners, companies generally tend to improve management
standards and efficiency to satisfy the demands of these shareholders, and the more stringent rules
for public corporations imposed by public stock exchanges and the government. Consequently, it is
alleged that public companies (companies that are owned by shareholders who are members of the
general public and trade shares on public exchanges) tend to have better management records than
privately held companies (those companies where shares are not publicly traded, often owned by
the company founders and/or their families and heirs, or otherwise by a small group of investors).

25. Difference between monetary and fiscal policy?

Monetary policy and fiscal policy refer to the two most widely recognized "tools" used to influence a
nation's economic activity. Monetary policy is primarily concerned with the management of interest
rates and the total supply of money in circulation and is generally carried out by central banks such
as the Federal Reserve. Fiscal policy is the collective term for the taxing and spending actions of
governments. In the United States, national fiscal policy is determined by the Executive and
Legislative Branches.

26. Which is better for a firm debt or equity financing?

Formal equity financing is difficult to secure especially for small, early-stage startups. Venture
capitalists are looking for companies with global reach. Angel investors, those who fund on a smaller
scale, are often looking to invest a minimum of Rs. 300,000 and possibly a 50% stake in the
company, especially if it is in the very beginning stages. If your company is a startup serving a local
market and does not need large-scale funding, debt financing is probably your best, and perhaps
only, option. Larger startups often combine debt and equity financing to reduce the downside of
both types.

27. Explain Different types of cost.

Some types of costs in cost accounting are direct, indirect, fixed, variable and operating costs.
- Direct
- Indirect
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- Fixed
- Variable
- Operating Cost

28. Export Financing

Export finance offers a way for businesses to release working capital, specifically from overseas
transactions, that might otherwise remain tied up in invoices for long periods of time. This type of
trade finance is very specific, tailored to suit the financial demands of companies who export trades.
It allows business to grow overseas. It also increases your trade with large foreign multinationals.
There are a lot of benefits to a business selling invoices overseas, but there can also be many
financial risks as well. It is important to fully understand the risks and the government regulations
before selling overseas.

29. E Banking
Online banking (or Internet banking or E-banking) allows customers of a financial institution to
conduct financial transactions on a secure website operated by the institution, which can be a retail
or virtual bank, credit union or building society.

30. Discuss Fundamental and Technical Analysis.

These terms refer to two different stock-picking methodologies used for researching and forecasting
the future growth trends of stocks. Like any investment strategy or philosophy, both have their
advocates and adversaries. Here are the defining principles of each of these methods of stock
analysis:
 Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic
value of a stock. Fundamental analysts study everything from the overall economy and industry
conditions to the financial condition and management of companies.
 Technical analysis is the evaluation of securities by means of studying statistics generated by
market activity, such as past prices and volume. Technical analysts do not attempt to measure a
security's intrinsic value but instead use stock charts to identify patterns and trends that may
suggest what a stock will do in the future.

Question Bank for Finance on Current affairs: (20)

1. How do you see the current movement in Sensex and what can you say about current Indian
economy status?
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2. What are Subprime Crises?

3. Brexit a term for the potential or hypothetical departure of the United Kingdom from the European
Union
4. GST
GST, or Goods and Services Tax, will subsume central indirect taxes like excise duty, countervailing
duty and service tax, as also state levies like value added tax, octroi and entry tax, luxury tax.
5. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there
are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself;
iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.
6. Budget

7. Non-Performing Assets:
A nonperforming asset (NPA) refers to a classification for loans on the books of financial institutions
that are in default or are in arrears on scheduled payments of principal or interest. In most cases,
debt is classified as nonperforming when loan payments have not been made for a period of 90
days.

8. Exchange Rate Fluctuation.

Exchange rates float freely against one another, which means they are in constant fluctuation.
Currency valuations are determined by the flows of currency in and out of a country. A high demand
for a particular currency usually means that the value of that currency will increase.

9. What is direct investment outside India?

Direct investment outside India means investments, either under the Automatic Route or the
Approval Route, by way of contribution to the capital or subscription to the Memorandum of a
foreign entity or by way of purchase of existing shares of a foreign entity either by market purchase
or private placement or through stock exchange, signifying a long-term interest in the foreign entity
(JV or WOS).

10. Expand IMPS, NEFT and RTGS.

Immediate mobile payment service (24x7 instant transfer), National electronic fund transfer ( no limit
criteria ), Real time gross settlement (can transfer 2lakh and above) RTGS is more faster payment
mode as compared to NEFT.
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11. If Sensex is associated to India than which country CAC is associated to: France

12. Name the new RBI governor & his last designation.
Urjit patel / last designation was deputy governor RBI.

13. Which bank IPO was floated recently and at what price the share were offered?
RBL (Ratnakar Bank Ltd.) at Rs 225/ share

14. What is a Deferred Tax Liability and why might one be created?
Deferred tax liability is a tax expense amount reported on a company’s income statement that is not
actually paid to the IRS in that time period, but is expected to be paid in the future. It arises because
when a company actually pays less in taxes to the IRS than they show as an expense on their income
statement in a reporting period.
Differences in depreciation expense between book reporting (GAAP) and IRS reporting can lead to
differences in income between the two, which ultimately leads to differences in tax expense reported
in the financial statements and taxes payable to the IRS.

15. Barometer of the economy

At the stock exchange, share prices rise and fall depending, largely, on economics forces. Share
prices tend to rise or remain stable when companies and the economy in general show signs of
stability and growth. An economic recession, depression, or financial crisis could eventually lead to a
stock market crash. Therefore the movement of share prices and in general of the stock indexes can
be an indicator of the general trend in the economy.

16. Personal Taxation Slabs

17. What are White Label ATMs (WLAs)? What is the difference between ATM and WLA (White
Label ATM)?
ATMs set up, owned and operated by non-banks are called White Label ATMs. i) In White Label ATM
scenario, logo displayed on ATM machine and in ATM premises pertain to WLA Operator instead of
a bank. However, for a customer, using WLA is just like using the ATM of other bank (bank other
than card issuing bank). ii) Acceptance of cash deposits at the WLAs is not permitted at present.

18. What is Beta?

A measure of the volatility of a stock relative to the market index in which the stock is included. A
low beta indicates relatively low risk; a high beta indicates a high risk.

19. What is SPV?

SPVs are entities created for a specific, limited and normally temporary purpose. They are limited
companies or partnerships to which the debt of another company is transferred. By transferring its
debt off its balance sheet into an SPV a company is able to isolate itself from any risk that the debt
might pose. SPVs are often used in the securitization of loans or other instruments. For example, a
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bank may issue a mortgage-backed security (MBS), the income from which is derived from
repayments from a pool of mortgage loans. The bank may wish to legally separate itself from the
loans and does so by setting up an SPV and transferring the loans to it.

20. What are the different categories under priority sector?

Priority Sector includes the following categories:
(i) Agriculture
(ii) Micro, Small and Medium Enterprises
(iii) Export Credit
(iv) Education
(v) Housing
(vi) Social Infrastructure
(vii) Renewable Energy
(viii) Others