Finance PYQ

RBI Grade B questions
Question Number Answer

Question 1 Option B
Question 2 Option C
Question 3 Option C
Question 4 Option B
Section C
Explanation
Question 1 – Which of the following is the correct definition of annuity ? RBI Grade B – Phase 2 - 2017
A. NPVs of all the equal cash inflows for a finite period minus the NPVs of all the equal cash outflows during
that period
B. NPVs of all the equal cash flows which are equal for a finite period
C. NPVs of all the equal cash inflows for a finite period minus the NPVs of all the equal cash outflows during
that period
D. NPVS of all the equal cash flows which are equal for a invite period.
E. None of the above
Answer – Option B
Explanation –
An annuity is defined as a series of equal cash flow occur every period i.e., at equal time interval for a finite
number of periods It may occur at the beginning of the Period or Ending of the Period.
The goal of an annuity is to provide a steady stream of income, typically during retirement. Annuities are
intended as income-generating products and not typically meant for capital appreciation. Annuities are
therefore best suited for individuals who want to add retirement income later on, or who wish to convert a large
lump sum into a guaranteed stream of cash flows over time.
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If Every Cash Flow occurred at beginning of the Period, then it is called as Annuity Due and If Every Cash Flow
occurred at Ending of the Period, then it is called as Ordinary Annuity.
Question 2 – A person has deposited Rs 250 in the bank and he got compound interest at a certain rate of
interest. What would be the rate of return, if Rs 250 gets converted into 1000 in 16 Years. RBI - Grade B – Phase
2 - 2017
A. 8%
B. 7%
C. 9%
D. 6%
E. None of the above.
Answer – Option C
Explanation –
Here, Rs. 250 got converted into Rs. 1000 in 16 years which means that the initial amount has quadruple (4x)
in 16 years. Thereby, we can apply the rule of 144 and get the rate of interest.
Use formula, 144/N = R, where N is the number of years and R is the rate of return, in the question N is 16 years,
so when you substitute the value, it will be 144/16 = 9%. Thereby the correct answer will option C.
Question 3 – A amount of 1000 at 8% becomes 2000, find the number of years required using the rule of 72.
RBI Grade B – Phase 2 – 2017.
A. 7 Years
B. 8 Years
C. 9 Years
D. 8.5 Years
Answer – Option C
Explanation –
The question is very direct, and apply the formula for rule of 72, which can be expressed as below
Rate of Interest (r) = 72/Number of years (n), here R is 8%, substitute the values, you will get
Number of years = 72/8 = 9 Years.
Therefore, the correct answer will be option C

Question 4 – Suppose you invest 5000 at the end of each year for next 5 years with interest rate to be 5%. What
would be the total value of money at the end of 5 years? Assume, Future value of annuity factor at 5% interest
rate for 5 years to be 5.52. RBI Grade B – Phase 2 – 2017.
A. 24400
B. 27600
C. 25500
D. 28300
Answer – Option B
Explanation –
This question is based on the formula of Future value of annuity, which is
Future value of annuity = Present value * FVAF for 5 years at 5% rate of Interest
FVAF is short for , Future value of annuity factor, which is given is the question, as 5.52
So, future value of annuity = 5000*5.52 = 27600, therefore the correct answer will be option B

Section C
Explanation
Question 1 – There are various types of bonds, in the same regard, identify the bond which does not give any
coupon payment, such bonds are called as _________________? RBI Grade B – Phase 2 - 2017
A. No Coupon Bond
B. Annuity Bond
C. Zero - Coupon Bond
D. Debenture
E. All of the above
Answer – Option C
Explanation –
This question is based on the different types of bonds, and it’s the zero-coupon bonds, wherein no coupon is
paid. Zero coupon or accrual bonds do not pay a coupon. Instead, these types of bonds are issued at a deep
discount and pay the full-face value at maturity.
Key features of zero-coupon bonds
1. A zero-coupon bond is a debt security instrument that does not pay interest.
2. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity.
3. The difference between the purchase price of a zero-coupon bond and the par value indicates the
investor's return.
Question 2 – Which of the following is true about zero coupon Bonds? RBI Grade B – Phase 2 - 2017
A. They have fixed payments at regular intervals but no payment at maturity

B. They have variable payments at regular intervals but no payment at maturity
C. They have no payments till maturity but one final payment at maturity
D. They have fixed payment at regular intervals and one final payment at maturity
E. They have variable payment at regular intervals and one final payment at maturity
Answer – Option C
Explanation –
Zero coupon or accrual bonds do not pay a coupon. Therefore, there is no question regarding the fixed or
variable coupon to be paid.
Key features of zero-coupon bonds
1. A zero-coupon bond is a debt security instrument that does not pay interest.
2. Zero-coupon bonds trade at deep discounts, offering full face value (par) profits at maturity.
3. The difference between the purchase price of a zero-coupon bond and the par value indicates the
investor's return
Question 3 – Calculate the price of a zero-coupon bond that is maturing in 3 years, has a par value of $1000,
and a required yield of 8%.? RBI Grade B – Phase 2 – 2017.
A. 793
B. 743
C. 753
D. 763
E. 783
Answer – Option A
Explanation –
This question is based on the pricing of the zero-coupon bonds and the formula which we need to use is given
as –
Wherein, n = number of payments
M = value at maturity, or par value and i = interest rate, or required yield
In this question, M = 1000, N is 3 years and i = 8%
Substitute the values in the formula, Bond price = 1000/(1+0.08)^3
Bond price = 1000/1.2597 = 793, Therefore A is correct answer.
Question 4 – Which of the following statement is true about Consoles? RBI Grade B – Phase 2 – 2017.
A. Consol bond is a form of British Government bond that has large maturity and that pays a fixed coupon.
B. Consol bonds is a form of British Government bond that has lesser maturity and that pays a fixed coupon.
C. Consol bond is a form of British Government bond that has no maturity and that pays a fixed coupon
D. Consol bond is a form of British Government bond that has large maturity and that pays a floating coupon.
E. Consol bond is a form of British Government bond that has lesser maturity and pays a floating coupon.
Answer – Option C
Explanation –
Consol bond is a form of British government bond that has no maturity and that pays a fixed coupon. The value
of a console bond is equivalent to its face value. Consol is a type of a perpetual bond.
A perpetual bond, also known as a "consol bond" or "prep," is a fixed income security with no maturity date.
This type of bond is often considered a type of equity, rather than debt. One major drawback to these types of
bonds is that they are not redeemable. However, the major benefit of them is that they pay a steady stream
of interest payments forever. Some of the notable perpetual bonds in existence are those that were issued by
the British government.
Question 5 – In the most general sense, what is/are the assumption one has to make while calculating the YTM
of the bond. RBI Grade B – Phase 2 – 2017
A. It assumes that the money which received in any of the years is not reinvested in subsequent years
B. It assumes that the money which received in any of the years is reinvested in subsequent years at the rate
equivalent to yield to maturity
C. It assumes that the money which received in any of the years is reinvested in subsequent years at the
discount rate
D. It assumes that the money which received in any of the years is reinvested in subsequent years at the rate
equivalent to cost of capital
Answer – Option B
Explanation –
YTM determines the return an investor gains if the bond is held onto till it matures. YTM comprises of all
interest payments including interest on interest received.
YTM assumes that the security is purchased at the current market price and will be held until maturity.
Moreover, the interest received is reinvested at a constant rate.
YTM is calculated as below

Question 6 – Which of the following a characteristic of Bond and not a characteristic of Equity RBI Grade B –
Phase 2 – 2019
A. Dilution of Ownership
B. Fixed Income
C. Variable Income
D. Dividend
Answer – Option B
Explanation –
Please be informed that, bond is a type of debt security, therefore on debt an investor is eligible to get a fixed
rate of return, whereas in equity an investor is eligible to get fluctuating returns. Rest of all options represents
the features of equity, only option B represents the feature of bond. Therefore, the correct answer will be option
B.
By purchasing equity (stock) an investor becomes an owner in a corporation. Ownership comes with voting
rights and the right to share in any future profits. By purchasing debt (bonds) an investor becomes a
creditor/lender to the company and there is generally less risk in owning bonds than in owning stocks but this
comes at the cost of a lower return.
Question 7 – There are various types of bonds which are issued in the financial market, in the same regard,
identify the type of bond, which matures multiple time over a period of time and it can also be redeemed
multiple times ? RBI Grade B – Phase 2 – 2019
A. Serial Bond
B. Multiple Bond
C. Multi Period Bond
D. Single Period Bond
Answer – Option A
Explanation –
Serial bonds are issued by an organization with different maturity dates. This is done to enable the company
to retire the bonds in instalments rather than all together. It is less likely to disturb the cash position of the
firm than if all the bonds were retired together.
From the point of view of the bondholder, this gives him a chance to select a bond of the maturity date which
would suit his portfolio. He may select a short-term maturity bond if it meets his need or take a bond with a
long-term maturity if he already has too many shorter-term investments. For example, a $1,000,000, ten-year
serial bond will have $100,000 of bonds mature once a year for ten years.
Explanation
SEBI Grade A questions
Question 1 - _______________ is the return we get from a bond if the coupon payments are reinvested at the
same rate of Interest. SEBI Grade A – Phase 1 – 2018
A. Simple Interest
B. Compound Interest
C. Yield to maturity
D. IRR
Answer – Option C
Explanation –
YTM determines the return an investor gains if the bond is held onto till it matures. YTM comprises of all
interest payments including interest on interest received.
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YTM assumes that the security is purchased at the current market price and will be held until maturity.
Moreover, the interest received is reinvested at a constant rate.
YTM is calculated as below
Question 2 - Which of the following statement is false about bonds? SEBI Grade A – Phase 1 – 2018
A. When Prices increases, yield decreases

B. When price increases, yield increases
C. When Price decreases, yield increases
D. When Price decreases, yield remains constant
Answer – Option B
Explanation –
This question is completely based on the relationship between the bond prices and bond yields. The relationship
between bond price and bond yield is negative and in the same manner, the relationship between bond prices
and interest rate is also negative, but please be informed that, the relationship between interest rate and yield
rate is positive.
Summary of the key relationships between bond prices, interest rates and yield rates.
• Price of bond is inversely related to Interest Rates

• Price of Bond is inversely related to yields
• Yields are directly related to Interest Rate
Also please note that, statement D is true, because in case of Zero-Coupon bonds, the change in prices, will
not affect the yield and coupon rates. Thereby the most incorrect statement will be option B.
Question 3 - Call Risk is Associated with which of the following? SEBI Grade A – Phase 1 – 2018
A. Equity Holdings
B. Debt Securities
C. Stock Options
D. High Investment in one instrument
Answer – Option B
Explanation –
Call risk exists in callable debt securities. The investor may have planned to stay invested until bond maturity,
but the issuer may exercise the option to call the security earlier. Usually, securities are called back when
interest rates decline because issuers want to retire high-cost debt and re-issue fresh debt at lower rates. As
a result, investors are forced to reinvest at lower rates.

Question 6 Option D

Question 1 Option A
Question 2 Option B
Question 3 Option C
Question 4 Option B
Question 5 Option A
Question 6 Option D
Question 7 Option D
PFRDA Grade A questions

Question 1 Option E
Section C
Explanation
Question 1 – Derivatives derive its value from ___________________ ? RBI Grade B – Phase 2 - 2016
A. Underlying Assets
B. Future Price

C. Inflation
D. Nominal Rate
Answer – Option A
Explanation –
The term “derivatives” is used to refer to financial instruments which derive their value from some underlying
assets. Derivatives derive their names from their respective underlying asset. Thus, if a derivative’s underlying
asset is equity, it is called equity derivative.
A derivative is a risk management tool used commonly in transactions where there is risk due to an unknown
future value. For example, a buyer of gold faces the risk that gold prices may not be stable. When one needs to
buy gold on a day far into the future, the price may be higher than today. The fluctuating price of gold represents
risk.
Question 2 – Price risk is the risk of a decline in the value of a security or portfolio. How can one transfer price
risk? RBI Grade B – Phase 2 - 2017
A. Hedging
B. Speculation
C. Arbitrage
D. Callable strategy
Answer – Option A
Explanation –
Hedging is a technique or strategy that comes as a form of investment designed to avoid market volatility or
to protect another investment or portfolio against potential investment risk or loss.
Hedging is an important protection that investors can use to protect their investments from sudden and
unforeseen changes in financial markets.
Question 3 – Which of the following instruments are generally not traded off the exchange ? RBI Grade B –
Phase 2 – 2017.
A. Forwards
B. Futures
C. Forwards and Swaps
D. Swaps
Answer – Option B
Explanation –
This is very straightforward question, futures and options are two main types of derivatives which are traded
on the exchange, whereas swaps and forwards are traded off the stock exchange. Moreover, futures are the
standardized versions of the forward contract which takes place between two parties where they agree to
trade a particular contract at a specified time and at an agreed-upon price and futures contracts are traded on
the exchange
Question 4 – A person enters into two trades. In the first trade he buys the stock at the 400-spot price and sells
the same at 440. Whereas in the second trade, he buys the futures at 400 with 20% margin money and sells the
same at 440. What would be his profit percentage in both trade 1 and trade 2 respectively ? RBI Grade B –
Phase 2 – 2017.
A. 10% and !0%

B. 10% and 50%
C. 10% and 10%
D. 10% and 50%
Answer – Option D
Explanation –
In the first case, the trader buys the stock at Rs. 400 and sells the same at Rs. 440. Therefore, the overall profit
will be Rs. 40 (440-400) and the profit percentage will be profit/initial price*100, which will be 40/400*100,
which will be 10%.
So, in the first case, the overall profit will be 40%.
Now in the second case, trader pays initial margin of 20%, which will be 400*20/100, which will be Rs. 80. Now,
enters the contract with Rs. 400 but he only paid Rs. 80 and sells the contract at Rs. 440, therefore overall profit
will be, Rs. 40 and his profit margin, in this case will be calculated as, 40/80*100, which will be 50%.
Please be informed that, he paid only Rs. 80 to enter the contract, therefore we will have to calculate the profit
percentage on Rs. 80. Therefore the correct answer will be option D.

Question 5 – Derivatives are financial instruments to hedge risk. It derives its value from which of the following?
RBI Grade B – Phase 2 – 2017
A. Exchange determined
B. Fixed by SEBI
C. Underlying
D. Market determined
Answer – Option C
Explanation –
A derivative is a risk management tool used commonly in transactions where there is risk due to an unknown
future value. For example, a buyer of gold faces the risk that gold prices may not be stable. When one needs to
buy gold on a day far into the future, the price may be higher than today. The fluctuating price of gold represents
risk.
Question 6 – Which of the following risk can be eliminated by derivatives? RBI Grade B – Phase 2 – 2019
A. Market risk
B. Systematic risk
C. Systemic risk
D. Interest rate risk
Answer – Option D
Explanation –
Interest rate risk can be eliminated by using the interest rate swaps, wherein market risk can be mitigated, it
cannot be completely eliminated. Whereas systematic risk will stay there because of its nature, systematic risk
is also known as un-diversifiable risk and in the same manner, systemic risk will also stay because, its an
external risk.
Derivatives are contracts that allow businesses, investors, and municipalities to transfer risks and rewards
associated with commercial or financial outcomes to other parties. Holding a derivative contract can reduce the
risk of bad harvests, adverse market fluctuations, or negative events.

Explanation
Question 1 - What is name given to standardized Forward Contract to buy and sell at a predetermined rate in
future? SEBI Grade A – Phase 2 – 2018
A. Future
B. Forwards
C. Hedgers
D. Speculators
E. Swaps
Answer – Option A
Explanation –
Here, the key word will be to standardized Forward Contract, which are also called as futures. Futures are the
standardized versions of the forward contract which takes place between two parties where they agree to trade
a particular contract at a specified time and at an agreed-upon price and futures contracts are traded on the
exchange.
Question 2 - What is the name given to private agreement between two parties where the buyer has an
obligation to purchase an asset at future period? SEBI Grade A – Phase 2 – 2018
A. Future
B. Forwards
C. Hedgers
D. Speculators
E. Swaps
Answer – Option B
Explanation –

A forward contract is a customized derivative contract obligating counterparties to buy (receive) or sell (deliver)
an asset at a specified price on a future date. A forward contract can be used for hedging or speculation,
although its non-standardized nature makes it particularly useful for hedging.
Question 3 - Which of the following is not a Derivative? SEBI Grade A – Phase 2 – 2018
A. Future
B. Forwards
C. Credit Agreement
D. Options
E. Swaps
Answer – Option C
Explanation –
There are four types of Derivative Contracts
1. Futures – Futures are the standardized versions of the forward contract which takes place between two
parties where they agree to trade a particular contract at a specified time and at an agreed-upon price and
futures contracts are traded on the exchange.
2. Options - Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell
an underlying asset at an agreed-upon price and date
3. Forwards - A forward contract is a customized derivative contract obligating counterparties to buy (receive)
or sell (deliver) an asset at a specified price on a future date.
4. Swaps – A swap is a derivative contract through which two parties exchange the cash flows or liabilities
from two different financial instruments.

Question 4 – In the modern financial markets, market for Gold and Silver is known as ___________? SEBI Grade
A – Phase 1 – 2020
A. Gold and Silver Market

B. Bullion Market
C. Metal Market
D. Sona Market
E. Shine market
Answer – Option B
Explanation
A market through which buyers and sellers trade gold and silver as well as associated derivatives is called
bullion market. The London Bullion Market is known as the primary global bullion market trading platform for
gold and silver
Question 5 – Roles and Responsibilities of Forward Market Commission duties have been transferred to
____________ SEBI Grade A – Phase 2 – 2020
A. SEBI
B. RBI
C. SBI
D. NPCI
Answer – Option A
Explanation
The government of India, notified the merger of commodities market regulator Forward Markets Commission
(FMC) with Sebi with effect from September 28, 2015
"Forward Contracts Regulation Act (FCRA) 1952 gets repealed and Regulation of Commodity Derivatives Market
will shift to Securities and Exchange Board of India (Sebi) under Securities Contracts Regulation Act (SCRA) 1956
with effect from 28th September, 2015," the Finance Ministry said in a statement
Question 6 – Assume that the Stock Price of a particular company is Rs 60 and the regulatory Initial Margin is
40% and Maintenance Margin is 20%. At what price the Margin Call would be made if person has bought the
futures? SEBI Grade A – Phase 2 – 2020
A. Rs 24

B. Rs 36
C. Rs 48
D. Rs 45
E. None of Above
Answer – Option D
Explanation
A margin call occurs when the value of a margin account falls below the account’s maintenance margin
requirement. It is a demand by a brokerage firm to bring the margin account’s balance up to the minimum
maintenance margin requirement. To satisfy a margin call, the investor of the margin account must either
deposit additional funds or sell current positions.
Herein, we will use a formula
Stock price = 60, initial margin is 40% and maintenance margin is 20%, putting the value in formula, you will get
the following
Margin call price = 60*1-0.40/1-0.20, which will be, 60*0.60/0.80
On solving further, margin call price will be equal to, Rs. 45 therefore option D is the correct answer.
Question 7 – In the normal market scenario, the value of derivative ____________? SEBI Grade A – Phase 1 –
2022
A. Increases
B. Decreases
C. Remains constant
D. Fluctuates with the value of the underlying asset
Answer – Option D
Explanation

Therefore, its the value of underlying asset which decide the value of derivative, if the value of underlying
rises, then the value of derivative also rises and vice versa also holds true.
Explanation
Question 1 – Which of the following is not a derivative? PFRDA Grade A – Phase 2 – 2022
A. Forwards
B. Futures
C. Options
D. Swaps
E. Debentures
Answer – Option E
Explanation -
There are four types of Derivative Contracts
1. Futures – Futures are the standardized versions of the forward contract which takes place between two
parties where they agree to trade a particular contract at a specified time and at an agreed-upon price and
futures contracts are traded on the exchange.
2. Options - Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell
an underlying asset at an agreed-upon price and date
3. Forwards - A forward contract is a customized derivative contract obligating counterparties to buy (receive)
or sell (deliver) an asset at a specified price on a future date.
4. Swaps – A swap is a derivative contract through which two parties exchange the cash flows or liabilities
from two different financial instruments.


Question 1 Option C
Question 2 Option B
Question 3 Option C

Question 1 Option D
Section C
Explanation
Question 1 – Identify the type of option, wherein trader has the right to sell the security before maturity? RBI
Grade B – Phase 2 - 2019
A. Call Buyer
B. Put Buyer
C. Put Seller
D. Call Seller
Answer – Option B
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Explanation –
A put option is an option contract giving the owner

the right, but not the obligation, to sell a specified
amount of an underlying security at a specified
price within a specified time. This is the opposite of
a call option, which gives the holder the right to buy
shares
Buyer of the Put option believes that price of share

will decrease over the time.
Explanation
Question 1 - The general financial parlance, Open Interest indicates ___________SEBI Grade A – Phase 2 –
2020
A. The number of long contracts

B. The number of short contracts
C. The number of contracts outstanding
D. The number of contracts settled
Answer – Option C
Explanation – Open interest is the total number of outstanding contracts that are held by market participants
at the end of each day. Open interest measures the total level of activity into the futures market. Higher
number of open interest shows that, there are many contracts in the market which are yet to be settled or
these contracts are still open.
Question 2 - The Nifty Option Contract has 75 shares per lot. A person bought a call option on Nifty for 10 lots.
The premium per share was Rs 50. He exited the option contract when the premium per share was Rs 80. In the
whole transaction his total expenses were Rs 225.
Calculate the amount of net profit from the following given options SEBI Grade A – Phase 2 – 2020
A. Rs 22500
B. Rs 22275
C. Rs 22050
D. Rs 22000
E. None of Above
Answer – Option B
Explanation –
Here, there are 75 shares per lot and trader has bought a call option on Nifty for 10 lots, therefore total number
of shares will be 75*10, which will be 750 (75*10)
Moreover, The premium per share was Rs 50. He exited the option contract when the premium per share was
Rs 80, therefore the profit per share will be, 80-50 = 30, So, the trader is earning Rs. 30 as a profit, thereby the
total profit for 750 shares will be, 30*750, which will be 22,500.
At the end, he has also paid 225 as an expense, therefore the net profit will be 22,500-225, which will be
22,275 and thereby option B is correct.
Question 3 - If the strike price is higher than the market price under call option, that its will be called as
________________? SEBI Grade A – Phase 1 – 2022
A. At the money
B. In the money
C. Out of the money
D. Advance money
Answer – Option C
Explanation –
In the Money Options (ITM): In the Money Option is one with strike price better than the spot price for the
holder of option. A call option is said to be ITM, when spot price is higher than strike price. And a put option is
said to be ITM when spot price is lower than strike price.
Out of the Money (OTM) - Out of the money option is one with strike price worse than the spot price for the
holder of option. A call option is said to be OTM, when spot price is lower than strike price. And a put option is
said to be OTM when spot price is higher than strike price
At the Money (ATM) - At the money is a situation where an option's strike price is identical to the price of
the underlying security. Both call and put options are simultaneously at the money. For example, if XYZ stock is
trading at 75, then the call option of XYZ to buy/sell at 75 is at the money and so is put option of XYZ to buy/sell
at 75
Explanation
Question 1 – ________ measures the rate of decline in the value of an option due to the passage of time. PFRDA
Grade A – Phase 2 – 2022
A. Delta
B. Gamma
C. Rho
D. Theta
E. Vega
Answer – Option D
Explanation –
Option premiums change with changes in the factors that determine option pricing i.e., factors such as strike
price, volatility, term to maturity etc. The sensitivities most commonly tracked in the market are known
collectively as “Greeks” represented by Delta, Gamma, Theta, Vega, and Rho.
 Gamma (γ) - It measures change in delta with respect to change in price of the underlying asset. This is
called a second derivative option with regard to price of the underlying asset. It is calculated as the ratio
of change in delta for a unit change in market price of the underlying asset.
Gamma = Change in an option delta/ Unit change in price of underlying asset
 Theta (θ) - It is a measure of an option’s sensitivity to time decay. Theta is the change in option price
given a one-day decrease in time to expiration. Theta is generally used to gain an idea of how time decay
is affecting your option positions
Theta = Change in an option premium/ Change in time to expiry
 Vega (ν) - This is a measure of the sensitivity of an option price to changes in market volatility. It is the
change of an option premium for a given change (typically 1%) in the underlying volatility.
Vega = Change in an option premium/ Change in volatility
 Rho (ρ) - Rho is the change in option price given a one percentage point change in the risk-free interest
rate
 Rho = Change in an option premium/ Change in cost of funding the underlying

Question 12 Option A
Section C
Explanation
Question 1 – Choose the right statement about Primary and Secondary Markets? RBI Grade B – Phase 2 - 2017
A. Primary Markets Cater to new Issues of Capital whereas Secondary Markets Caters to new Issues of Debt
B. Primary Markets Cater to new issues of Capital whereas Secondary Markets Caters to transfer of ownership
among the existing Owners or from existing to new Owners
C. Primary Markets Cater to transfer of ownership among existing owners whereas secondary markets cater
to transfer from ownership from existing to new Owners
D. Primary Markets Cater to new Issues of Debt whereas Secondary Markets Caters to new Issues of Equity
E. None of the Above
Answer – Option B
Explanation –
Here, the question is testing you the difference between primary and secondary markets, When Company
issues shares to people or certain private individuals it is called Primary Market, whereas when one person
buy/sell from another person it is called secondary market. Company has no role in the secondary market

Question 2 – The process of a mutual company owned by its users/members converting into a company owned
by shareholders. RBI Grade B – Phase 2 – 2017
A. Demutualization
B. Mutualization
C. Co-Stocking
D. Mutual Listing
E. NOTA
Answer – Option A
Explanation –
Demutualization is the process by which any member-owned organization can become a shareholder owned
company. Such a company could either be listed on a stock exchange or be closely held by its shareholders.
Demutualization process is like a company-going public—owners will be given equity shares. The exchange
offers equity capital, either through dilution of existing promoters stake or by the fresh issue of capital. The
process seeks to give majority control (51per cent) of the exchange to investors who do not have trading rights.
This is to allow a better regulation of the exchange. Once listed as a public company, the exchange will be
governed by the corporate-governance codes to ensure transparency.
When more than 51% of the stake is owned by investors who have non-trading rights then it means that
members with trading rights will find it difficult to pass any resolution which is not in the interest of non-
trading investors
Question 3 – Given the Price per Share is 100 and Earning Per Share is 20 then find the P/E ratio? RBI Grade B
– Phase 2 – 2018
A. 120
B. 4
C. 5
D. 2000
E. .2
Answer – Option C
This question is very straight forward which is based on P/E Multiple (Price/Earnings Ratio) - The P/E ratio is
important factor to be analyzed when making a decision to invest in a stock. P stands for Price and E stands for
Earnings (Profits)
P/E ratio = Price per Share/Earnings per Share (EPS), herein Price is directly given in the question, which is Rs.
100 and the EPS is also given in the question, which is Rs. 20

Therefore P/E ratio = 100/20, which will be 5, thereby the correct answer will be option C.
Question 4 – If 1:1 Bonus issue s give then what would be the impact on Tangible Net worth? RBI Grade B –
Phase 2 – 2018
A. Tangible Net Worth would increase

B. Tangible Net Worth would Decrease
C. Tangible Net Worth would increase/Decrease depending on how the bonus issue is financed
D. Tangible Net Worth would remain the same
Answer – Option D
Explanation –
This question is based on the basic concept of bonus issue, even after issuing bonus shares, market
capitalization of the company would remain the same
the A bonus issue, also known as a scrip issue or a capitalization issue, is an offer of free additional shares to
existing shareholders. For example, a company may give bonus of 1:5 i.e. one share for every five shares held
Normally Companies give dividends which are paid in cash to the shareholders from the profits of the company.
If company does not want to part away with the cash then companies can issue Bonus Shares.
Bonus shares are issued according to each shareholder’s stake in the company. For example, a three-for-two
bonus issue entitles each shareholder three shares for every two they hold before the issue. A shareholder with
1,000 shares receives 1,500 bonus shares (1000 x 3 / 2 = 1500).
After the Bonus issue the stock price adjusts in the same ratio. So, for a share of Rs. 100 after the bonus issue
of 1:1 (1 for 1) the number of shares will double and price would become half (100/2 = 50). Hence market
Capitalization would remain the same
Question 5 – Capital market facilitates issuance of new securities & their trading. Which type of capital market
facilitates IPO? RBI Grade B – Phase 2 – 2019
A. Primary Market
B. Secondary Market
C. Primary and Secondary Markets
D. Primary and Forex Markets

Answer – Option A
Explanation –
Here, issuance of new securities is the key word, and its the primary market wherein the company directly
issues the securities to the investors. In Initial Public Offer (IPO), too company directly issues the shares to the
investors, therefore IPOs forms an integral part of the primary market.
Question 6 - According to a circular released by SEBI in 2018, as a part of ASBA process, applicants can also apply
for an IPO through ________. RBI Grade B – Phase 2 – 2021
A. UPI
B. NACH
C. IMPS
D. NEFT
Answer – Option A
Explanation –
UPI as a mode for Payment in ASBA, In 2018 SEBI decided to offer UPI as a means for making payment for retail
investors in the ASBA process. The idea was to further speed up the process and bring listing time from 6 days
to 3 days after closure of issue. UPI is an instant payment system developed by the National Payments
Corporation of India (NPCI). It allows instant transfer of money between any two person’s bank accounts.
Question 7 - ASBA applications can be made through _______? RBI Grade B – Phase 2 – 2021
A. POST OFFICE
B. SCSBs
C. Any Commercial Bank
D. Only through RBI
Answer – Option B
Explanation –
ASBA means “Application Supported by Blocked Amount”. ASBA is an application by an investor containing an
authorization to Self-Certified Syndicate Bank (SCSB) to block the application money in the bank account, for
subscribing to an issue. SCSB are nothing but the banks which have ASBA facility. If an investor is applying
through ASBA, his application money shall be debited from the bank account only if his/her application is
selected for allotment after the basis of allotment is finalized.
Question 8 - Which of the following is the regulator of Capital Market? RBI Grade B – Phase 2 – 2021
A. SEBI
B. RBI
C. NPCI
D. SBI
E. NSE
Answer – Option A
Explanation
This is the very straight forward question, The Securities and Exchange Board of India (SEBI) is the regulatory
authority established under the SEBI Act 1992 and is the principal regulator for Stock Exchanges in India.
Question 9 - Which of the following are depositories? RBI Grade B – Phase 2 – 2021
I. NSDL
II. CDSL
III. CCIL
IV. CRISIL
A. I and II only
B. I, II and III only
C. II and III only
D. III and IV only
E. All of the above
Answer – Option A
Explanation.
A Depositories is an institution which looks after the security to be eligible to traded in the secondary markets,
it should be held in electronic or dematerialized form. Issuers get their securities admitted to the depositories,
where they are held as electronic entries against investor names, without any paper certificate. National
Securities Depository Ltd (NSDL) and Central Depository Services Ltd (CDSL) are the two depositories in India
Explanation
Question 1 - Definition of Separation of Ownership from Trading Rights is called as _____________? SEBI Grade
A – Phase 1 – 2018
A. Demutualization
B. Mutualization
C. Co-Opting
D. Monetization
Answer – Option A
Explanation –
Demutualization is the process by which any member-owned organization can become a shareholder owned
company. Such a company could either be listed on a stock exchange or be closely held by its shareholders.
Demutualization process is like a company-going public—owners will be given equity shares. The exchange
offers equity capital, either through dilution of existing promoters stake or by the fresh issue of capital. The
process seeks to give majority control (51per cent) of the exchange to investors who do not have trading rights.
This is to allow a better regulation of the exchange. Once listed as a public company, the exchange will be
governed by the corporate-governance codes to ensure transparency.

When more than 51% of the stake is owned by investors who have non-trading rights then it means that
members with trading rights will find it difficult to pass any resolution which is not in the interest of non-
trading investors
Question 2 - Limit for Retail Investor in Public issue is __________________ SEBI Grade A – Phase 2 – 2018
A. 1 lakh
B. 2 lakhs
C. 3 lakhs
D. 5 lakhs
E. None of Above
Answer – Option B
Explanation –
A public offer is categorized as offer being made to public. There are 3 types of investors under public - Retail,
QIBs and Non-Institutional Investor
Under Offer to public there are 3 types of Investors
1. Retail Investor: The one which invests less than 2 lakhs

2. QIBs: Qualified Institutional Buyers (QIB) are those institutional investors who are generally perceived
to possess expertise and the financial muscle to evaluate and invest in the stock markets.
3. Non-Institutional Investor: The investor which is neither a retail investor nor a QIB would be called Non-
Institutional Investor
Question 3 - ADRs are Listed on Which Stock Exchange? SEBI Grade A – Phase 2 – 2018
A. India
B. European Stock Exchange
C. USA
D. Germany
E. Any of the above
Answer – Option C
Explanation -

Depository receipts (DRs) are financial instruments that represent shares of a local company but are listed and
traded on a stock exchange outside the country. DRs are issued in foreign currency, usually dollars.
DRs are called American Depository Receipts (ADRs) if they are listed on a stock exchange in the USA such as
the New York Stock Exchange (NYSE). If the DRs are listed on a stock exchange outside the US, they are called
Global Depository Receipts (GDRs). The listing requirements of stock exchanges can be different in terms of
size of the company, state of its finances, shareholding pattern and disclosure requirements.
When DRs are issued in India and listed on stock exchanges here with foreign stocks as underlying shares,
these are called Indian Depository Receipts (IDRs)
Question 4 - Which of the following is false regarding Depositories ? SEBI Grade A – Phase 2 – 2018
A. Depositories are integrated part of stock market

B. Depositories are used to store securities in demat form
C. Depositories providing trading platform for trading of securities
D. NSDL and CDSL are an example of depositories in India.
E. None of the above is false
Answer – Option C
Explanation –
Option A, B and D are completely true about Depositories but statement D is false, because its the BSE or NSE
or to an extent SEBI provides the trading platform for securities to trade.
For a security to be eligible to trade in the secondary markets, it should be held in electronic or dematerialized
form. Issuers get their securities admitted to the depositories, where they are held as electronic entries against
investor names, without any paper certificate. National Securities Depository Ltd (NSDL) and Central
Depository Services Ltd (CDSL) are the two depositories in India.
Question 5 - Which act provides for direct and indirect control of virtually all aspects of the securities trading
including the running of stock exchanges which aims to prevent undesirable transaction in securities? SEBI
A. Depositories Act
B. Stock Exchange Act
C. Securities Contract Regulation Act
D. Payment and Settlement Act
Answer – Option C
Explanation –
Here the key words are direct and indirect control of virtually all aspects of the securities trading including the
running of stock exchanges and the same has been provided in the Securities Contract Regulation Act, 1956
Securities Contracts (Regulation) Act, 1956, the act I provides for direct and indirect control of virtually all
aspects of securities trading and the running of stock exchanges and aims to prevent undesirable transactions
in securities.
It gives Central Government regulatory jurisdiction over -
(a) stock exchanges through a process of recognition and continued supervision,

(b) contracts in securities, and
(c) listing of securities on stock exchanges.
As a condition of recognition, a stock exchange complies with conditions prescribed by Central Government.
Organized trading activity in securities takes place on a specified recognized stock exchange. The stock
exchanges determine their own listing regulations which have to conform to the minimum listing criteria set
out in the Rules
Question 6 - What it the minimum amount to be invested by Anchor Investor? SEBI Grade A – Phase 1 – 2018
A. 5 crores
B. 10 crores
C. 15 crores
D. 25 crores
Answer – Option B
Explanation –
The SEBI introduced the concept of anchor investor on June 18, 2009, to enhance issuer’s ability to sell the
issue, generate more confidence in the minds of retail investors and better price discovery in the issue process.
The anchor investor subscribes to the issue prior to its public opening, pay an upfront margin of 25 per cent
and follows it up with the remaining 75 per cent within two days of the closure of the public issue, and holds
the shares for at least one month which instills confidence in retail investors and boosts the primary market.

The anchor investor would be a qualified institutional buyer (QIB) and an issuer can allot up to 60 per cent
of the Quota for QIBs. The anchor investor/s cannot be related to the promoter or promoter group or the lead
managers. The minimum application value for an investor to be an anchor investor is 10 crores.
Question 7 - Dematerialization of Securities is Covered under which Act? SEBI Grade A – Phase 1 – 2018
A. Depositories Act
B. Stock Exchange Act
C. Securities Contract Regulation Act
D. Payment and Settlement Act
Answer – Option A
Explanation –
The key words here are, Dematerialization of Securities which in return is done by two depositories which are
running in India and all the regulatory requirements of the same are listed in Depositories Act, 1996
The Depositories Act, 1996 provides for the establishment of depositories in securities, dematerialization of
securities with the objective of ensuring free transferability of securities with speed, accuracy, and security by
(a) Making securities of public limited companies freely transferable subject to certain exceptions;
(b) Dematerializing the securities in the depository mode; and
(c) Providing for maintenance of ownership records in a book entry form.
In order to streamline the settlement process, the Act envisages transfer of ownership of securities
electronically by book entry without making the securities move from person to person. The Act has made
the securities of all public limited companies freely transferable, restricting the company’s right to use
discretion in effecting the transfer of securities, and the transfer deed and other procedural requirements
under the Companies Act have been dispensed with.
Question 8 - Which is True regarding Preference Shares? SEBI Grade A – Phase 1 – 2018
A. Preference shareholders are shareholders and not creditors of the company

B. Preference shareholders have voting rights
C. Preference shareholders are guaranteed dividends provided even if company does not make profits
D. Preference shareholders are given dividend after giving dividend to common shareholders
Answer – Option A

Explanation –
In preferential issue, the stocks are issued to parties which are given some preference over other shareholders
and preferred shareholders are usually guaranteed a fixed dividend forever.
The following are the features of preference shares:
 Preferential dividend option for shareholders.

 Preference shareholders do not have the right to vote.
 Shareholders have a right to claim the assets in case of a wind up of the company.
 Fixed dividend payout for shareholders, irrespective of profit earned.
 Acts as a source of hybrid financing.
Question 9 – In most general language, EPS means ______________ ? SEBI Grade A – Phase 2 – 2018
A. Earning of the company

B. Earning previously shared with shareholders
C. Expected permanent number of shareholders
D. Earning per Share
Answer – Option D
Explanation –
EPS (Earnings per Share) = Total Earnings of the Company/Number of Shares
It is important because it gives us earnings on per unit basis just like stock price.
Example: Company XYZ has Earnings (Profits) of Rs. 10000 and Number of Shares are 100 then EPS would be =
10000/100 = Rs. 100
EPS of 100 means that per each share the profit generated is Rs. 100
Question 10 - BSE is headquartered at __________ ? SEBI Grade A – Phase 1 – 2020
A. Nariman Point, Mumbai

B. Dalal Street, Mumbai
C. Colaba, Mumbai
D. Churchgate, Mumbai
E. Connaught Place, New Delhi
Answer – Option B
Explanation –
Bombay Stock Exchange (BSE) - BSE is the oldest stock exchange of India set up in 1875. It is first stock exchange
to get recognition from SEBI. The Head Quarter of BSE is at Dalal Street, Mumbai.
BSE has the SENSECX Index for reflecting its overall performance, the SENSEX stands for sensitivity Index was
introduced by the Bombay stock exchange on January 1, 1986. It comprises of 30 stocks from different sectors
such as IT, Automobile, Cement, Pharma, Electronic Goods etc. These are large, well-established and financially
sound companies from main sectors. The Sensex is designed to reflect the overall market sentiments. The value
of Sensex is calculated from the price of shares of the companies included in Sensex.
Question 11 - Which of the following would be given least priority at the time of liquidation of company? SEBI
A. Preference Shareholders
B. Debenture Holders
C. Both A and B
D. Equity Shareholders
E. Environment
Answer – Option D
Explanation –
Distribution of assets in liquidation is done as per Section 53 of the IBC Code, popularly known as 'waterfall
mechanism'. The order of priority in distribution of proceeds from liquidation estate is as follow
1. Liquidation costs paid in full: This includes Fee of Liquidator as well as costs incurred in engaging advisers,
in protecting the assets, running the business, interest on interim finance.
2. Debts of the secured creditor where he opts to relinquish security and dues of the workmen for 24
months immediately preceding commencement of liquidation shall rank equally
3. Wages and unpaid dues owed to employees other than workmen for the period of twelve months
preceding the liquidation commencement date.
4. Financial debts owed to unsecured creditors.
5. Any other debts and dues;
6. Preference shareholders, if any; and
7. Equity shareholders or partners, as the case may be in the end.

Question 12 - Which instrument is used by foreign entities not registered with SEBI to invest in India markets
via registered brokers. SEBI Grade A – Phase 2 – 2020
A. Participatory Notes
B. IDR
C. GDR
D. Both B and C
Answer – Option A
Explanation –
Here, the key words will be, that a foreign entities which are not registered with SEBI to invest in India markets
via registered brokers, that can be done through the help of Participatory Notes (PNs)
People living outside India other than NRIs and Person of Indian Origin are not allowed to invest in Indian
markets. Their involvement in Indian Capital Market has to be carried out through a foreign institution, which
in turn is requited to be registered with SEBI as a Foreign Institutional Investor (FII).
FIIs issue participatory notes to people living outside India so that they can invest in Indian markets without
getting registered with SEBI. Participatory notes are often referred to as PNs or P-Notes. The FIIs would take
money from investor, invest in Indian markets and issue p-notes to them. The value of p-notes would be derived
from the underlying share that have been bought by FII. Hence, in a way P-notes act as derivatives. Investments
made though PNs are beneficial to the Indian economy as they can provide quicker means of raising funds for
the benefit of the Indian listed companies and economy.
Please be informed that FIIs cannot issue participatory notes to Indian Nationals, Person of Indian Origin, NRIs
to ensure that this route is not used for money laundering activities.


Question 1 Option C
Question 2 Option C
Section C
Explanation
Question 1 – Clearing Corporation of India Limited is used to clear what type of Trades? RBI Grade B – Phase
2 - 2018
A. Primary Market Transactions in Shares

B. Transactions in Government Securities
C. Primary Market Transaction in IPOs
D. All the above
E. Only A and C
Answer - Option B
Explanation
The Clearing Corporation of India (CCIL) is the clearing agency for G-Secs, Foreign Exchange, and Derivatives
Market. It acts as a Central Counter Party (CCP) for all transactions in G-Secs by interposing itself between two
counterparties. In effect, during settlement, the CCP becomes the seller to the buyer and buyer to the seller
of the actual transaction. All outright trades on the NDS-OM platform are cleared through the CCIL.
That means, during the settlement process, if any participant fails to provide funds/ securities, CCIL will make
the same available from its own means. For this purpose, CCIL collects margins from all participants and
maintains ‘Settlement Guarantee Fund’, so that if any party refuses to give funds then they will be deducted
from this margin money collected from the participant. This process where CCIL acts a counter party to both
the seller and the buyer is called novation

Question 2 - Repo and Reverse Repo are tools used as part of Liquidity Adjustment Facility. Which one among
them injects or sucks Liquidity? RBI Grade B – Phase 2 – 2018
A. Repo and Reverse Repo both Suck Liquidity

B. Reverse Repo Injects Liquidity and Repo Sucks Liquidity
C. Repo Injects Liquidity and Reverse Repo Sucks Liquidity
D. Repo and Reverse Repo both Inject Liquidity
Answer – Option C
Explanation
"Repo" means an instrument for borrowing funds by selling securities with an agreement to repurchase the
securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
Reverse repo" means an instrument for lending funds by purchasing securities with an agreement to resell
the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent."
When any other entity sells the security to RBI in the first leg to get some cash then it is a case of Repo from the
other entity perspective. So, repo helps RBI Injecting liquidity in the system.
When any other entity buys the securities from RBI in the first leg then it is the case of Reverse Repo from the
perspective of other entity. In reverse repo the other entity will give cash to RBI and hence cash in system will
decrease. So Reverse Repo helps in absorbing/decreasing liquidity in the system
Question 3 - Treasury Bills is a financial instrument, which is a ________________? RBI Grade B – Phase 2 –
2019
A. Corporate issued securities

B. RBI securities
C. Government securities issued by RBI for managing short term funding requirements
D. Security issued and managed by government
Answer – Option C
Explanation –
T-bills are money market instruments offered to finance the short-term debt obligation of government of India.
There are three types of T-bills – 91 Day, 182 day and 364 days.
T-bills are short-term securities that mature in one year or less from their issue date. T-bills are purchased for
a price that is less than their par (face) value; when they mature, the government pays the holder the full par

value. Effectively, your interest is the difference between the purchase price of the security and what you get
at maturity. So, they are zero coupon securities.
Question 4 - Commercial papers are issued for which of the following purpose ? RBI Grade B – Phase 2 – 2019
A. By banks for managing liquidity requirement

B. By government for managing short term requirements
C. By companies for short term
D. By local government bodies
Answer – Option C
Explanation
Commercial paper was introduced in India in 1990 to allow highly rated corporate borrowers to diversify their
sources of short-term borrowings and to provide an additional instrument to investors. Subsequently, primary
dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their short-
term funding requirements for their operations.
Companies, Primary Dealers and All India FIs are eligible to issue CPs subject to the condition that any fund-
based facility availed of from bank(s) and/or financial institutions is classified as a standard asset i.e., it is not a
stressed asset
Read the following paragraph and answer the question which follows
Commercial paper is an unsecured, short-term loan taken by a corporation, typically for financing accounts
receivable and inventories. It is usually issued at a discount, reflecting current market interest rates. It is also
called unsecured promissory note since in this issuer makes a promise to pay back the face value after the
maturity period, but that promise is unsecured in the sense there is no guarantee that your money will come
back.
For the most part, commercial paper is a very safe investment because the financial situation of a company can
easily be predicted over a few months. Furthermore, typically only companies with high credit ratings and credit
worthiness issue commercial paper.
Question 5 - Commercial Paper can be issued for a minimum of ____________ number of days ? RBI Grade B –
Phase 2 – 2022
A. 2 days
B. 7 days
C. 15 Days
D. 14 Days
Answer – Option B
Explanation –
Commercial Paper (CP) was introduced in India in 1990 to allow highly rated corporate borrowers to diversify
their sources of short-term borrowings and to provide an additional instrument to investors. Subsequently,
primary dealers and all-India financial institutions were also permitted to issue CP to enable them to meet their
short-term funding requirements for their operations.
CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the
date of issue. However, the maturity date of the CP should not go beyond the date up to which the credit
rating of the issuer is valid.
CP can be issued in denominations of Rs. 5 lakh or multiples thereof.
back.
Question 6 - Commercial Paper can be issued for a maximum duration of ____________ days? RBI Grade B –
Phase 2 – 2022
A. 366 Days
B. 365 Days
C. 150 Days
D. 225 Days
Answer – Option B
Explanation

back.
Question 7 - In India commercial paper are issued in denominations of Rs. ________ lakh or multiples ? RBI
Grade B – Phase 2 – 2022
A. 1 Lakh
B. 2 Lakh
C. 3 Lakh
D. 4 Lakh
E. 5 Lakh
Answer – Option E
Explanation –

back.
Question 8 - Commercial paper are issued in India in which of the following forms ? RBI Grade B – Phase 2 –
2022
A. Participatory Notes
B. Promissory Note
C. Debt bills
D. Equity Bills
Answer – Option B
Explanation
back
CP can be issued in denominations of Rs. 5 lakh or multiples thereof

Explanation
Question 1 - Certificate Of Deposits are Issued by Whom? SEBI Grade A – Phase 1 – 2018
A. RBI
B. SEBI
C. Banks
D. Ministry of Finance
Answer – Option C
Explanation
A certificate of deposit (CD) is a time deposit with a bank. CDs are generally issued in dematerialized form or as
a Usance Promissory Note against by commercial banks; and select financial institutions in lieu of the money
that is deposited. They can be bought through brokerages.
Certificates of deposit are like fixed deposits (FDs) but the biggest difference between the two is that CDs, being
in bearer form, are transferable and tradable while FDs are not. They bear a specific maturity date, a specified
interest rate. Like all time deposits, the funds may not be withdrawn on demand like those in a checking account
Question 2 – Who can Issue Government Securities on behalf of Government ? SEBI Grade A – Phase 1 – 2018
A. Ministry Finance
B. Department of Economic Affairs
C. Reserve Bank of India
D. National Stock Exchange and Bombay Stock Exchange
Answer – Option C
Explanation
Since its inception, the Reserve Bank of India has undertaken the traditional central banking function of
managing the government’s banking transactions. The Reserve Bank of India Act, 1934 requires the Central
Government to entrust the Reserve Bank with all its money, remittance, exchange and banking transactions
in India and the management of its public debt. The Government also deposits its cash balances with the

Reserve Bank. The Reserve Bank may also, by agreement, act as the banker and debt manager to State
Governments. Currently, the Reserve Bank acts as banker to all the State Governments in India.
Question 3 – What is the maximum maturity Period of Commercial paper? SEBI Grade A – Phase 1 – 2018
A. 240 Days
B. 1 Year
C. 3 Years
D. 5 Years
Answer – Option B
Explanation
Question 4 – Government uses which of the following debt instrument for Short-Term Borrowing ?SEBI Grade
A – Phase 1 – 2018
A. Debentures
B. Bonds
C. T-Bills
D. Repo and Reverse Repo
Answer – Option C
Explanation
T-bills are money market instruments offered to finance the short-term debt obligation of government of India.
There are three types of T-bills – 91 Day, 182 day and 364 days.
T-bills are short-term securities that mature in one year or less from their issue date. T-bills are purchased for
a price that is less than their par (face) value; when they mature, the government pays the holder the full par

value. Effectively, your interest is the difference between the purchase price of the security and what you get
at maturity. So, they are zero coupon securities
Question 5 – Which of the following are not Money market instruments? SEBI Grade A – Phase 1 – 2018
A. Commercial paper
B. Commercial Bill
C. Certificate of Deposit
D. Govt. Ownership in PSU’s
Answer – Option D
Explanation
Money markets are used for a short-term basis, usually for assets up to one year and the government
ownership in PSUs is held for more than one year. Thereby the correct answer will be option D
Question 6 – In the financial world, FCCB are notified by whom ? SEBI Grade A – Phase 1 – 2018
A. RBI
B. SEBI
C. Ministry of Finance
D. Both RBI and SEBI
Answer – Option A
Explanation –
Foreign Currency Convertible Bonds (FCCBs): FCCBs are a foreign currency (usually dollar) denominated debt
raised by companies in international markets, but which have the option of converting into equity shares of the
company before they mature. The payment of interest and repayment of principal is in foreign currency. FCCBs
are regulated by RBI notifications under the Foreign Exchange Management Act (FEMA).
Question 7 – In the financial world, FCCB are a type of _________________ ? SEBI Grade A – Phase 1 – 2018
A. Equity Instrument
B. Debt Instrument
C. Hybrid Instrument
D. Debenture

Answer – Option C
Explanation –
Foreign Currency Convertible Bonds (FCCBs): FCCBs are a foreign currency (usually dollar) denominated debt
raised by companies in international markets, but which have the option of converting into equity shares of the
company before they mature. The payment of interest and repayment of principal is in foreign currency. FCCBs
are regulated by RBI notifications under the Foreign Exchange Management Act (FEMA).
Foreign Currency Convertible Bond (FCCB)is a foreign currency denominated convertible bond issued by an
Indian company abroad, which the holder can convert into equity shares. It is a hybrid instrument (debt/
equity) issued to a borrower by corporate to obtain funds.
Question 8 – From the following options, identify the Inter bank Call money market participants SEBI Grade A
– Phase 2 – 2018
A. Scheduled Commercial Banks

B. Primary Dealers
C. Small Finance Banks
D. Payment Banks
E. All of the above
Answer – Option E
Explanation
The entities permitted to participate in Inter bank Call money market, both as a lender and borrower in these
markets are
1. All scheduled Commercial Banks and RRBs

2. All Cooperative Banks other than Land Development banks
3. All Primary Dealers (Non-banking institutions other than primary dealers are not allowed)
4. Payment Banks
5. Small Finance banks
Question 9 – LAF uses _____to absorb liquidity and _____to release Liquidity SEBI Grade A – Phase 2 – 2018
A. Repo, SLA
B. Reverse Repo, Repo
C. Repo, Reverse Repo
D. SLA, Repo
Answer – Option B
Explanation
"Repo" means an instrument for borrowing funds by selling securities with an agreement to repurchase the
securities on a mutually agreed future date at an agreed price which includes interest for the funds borrowed.
Reverse repo" means an instrument for lending funds by purchasing securities with an agreement to resell
the securities on a mutually agreed future date at an agreed price which includes interest for the funds lent."
When any other entity sells the security to RBI in the first leg to get some cash then it is a case of Repo from the
other entity perspective. So, repo helps RBI Injecting liquidity in the system.
When any other entity buys the securities from RBI in the first leg then it is the case of Reverse Repo from the
perspective of other entity. In reverse repo the other entity will give cash to RBI and hence cash in system will
decrease. So Reverse Repo helps in absorbing/decreasing liquidity in the system
Question 10 – Which of the following would be given least priority at the time of liquidation of company?SEBI
A. Preference Shareholders
B. Debenture Holders
C. Both A and B
D. Equity Shareholders
E. Environment
Answer – Option D
Explanation
The waterfall mechanism lays down that at the time of the company’s liquidation and while distributing the
assets of the company the secured financial creditors shall be given the priority and the amount belonging to
them shall be paid fully according to their admitted claim before initiating any distribution to unsecured financial
creditors.
On the same lines, equity shareholders are paid in the last because they are un-secured financial creditors of
the company.
Question 11– Debenture holders are paid ____________? SEBI Grade A – Phase 1 – 2020
A. Dividends
B. Interest
C. Tax
D. Both A and B

Answer – Option B
Explanation
Debenture and bonds are a type of debt instrument and all the debt instruments are paid interest, thereby the
correct answer will be option B. On all equity instruments companies pay dividends.
Question 12– When the company dissolves, which of the following the debenture holders have the right to
receive? SEBI Grade A – Phase 2 – 2020
A. Principal and Interest

B. Principal
C. Interest
D. Dividend
E. None of Above
Answer – Option A
Explanation
The waterfall mechanism lays down that at the time of the company’s liquidation and while distributing the
assets of the company the secured financial creditors shall be given the priority and the amount belonging to
them shall be paid fully according to their admitted claim before initiating any distribution to unsecured financial
creditors.
On the same lines, Debenture holders are paid first because they are secured financial creditors of the
company and whole amount is paid including the interest along with interest.
Explanation
Question 1– The Corporate debt market is regulated by ________? PFRDA Grade A – Phase 1 – 2021
A. RBI
B. NABARD
C. SEBI
D. PFRDA
E. SIDBI

Answer – Option C
Explanation
RBI regulates the long-term government securities while the long-term corporate debt market comes under
the purview of the Securities Exchange and Board of India (SEBI). The procedure and mechanism of settlement
of both government and corporate long-term securities on stock exchanges should be as per regulation of SEBI.
For example: The long-term bonds owned by government will be regulated by RBI and the long-term bonds
issued by corporates shall be regulated by SEBI. The settlement procedure for both on stock exchange shall
be regulated by SEBI
Question 2 – What is the tenure of cash management bills ___________? PFRDA Grade A – Phase 1 – 2021
A. Less than 14 days

B. 7 to 14 days
C. Less than 91 days
D. 91 to 182 days
E. Up to 364 days
Answer – Option C
Explanation
The Reserve Bank of India on behalf of the Government of India issues a new short-term instrument, known as
Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government. The
CMBs have the generic character of T-bills but are issued for maturities less than 91 days

Section C
Explanation
Question 1 – Given the Price per Share is 100 and Earning Per Share is 20 then find the P/E ratio? RBI Grade B
– Phase 2 - 2018
A. 120
B. 4
C. 5
D. 2000
E. 0.2
Answer – Option C
Explanation –
This question is very straight forward which is based on P/E Multiple (Price/Earnings Ratio) - The P/E ratio is
important factor to be analyzed when making a decision to invest in a stock. P stands for Price and E stands for
Earnings (Profits)
P/E ratio = Price per Share/Earnings per Share (EPS), herein Price is directly given in the question, which is Rs.
100 and the EPS is also given in the question, which is Rs. 20
Therefore P/E ratio = 100/20, which will be 5, thereby the correct answer will be option C.
Question 2 – Two banks Fuddy and Guddy has the same number of outstanding shares, equity capital, dividend
and earning. But the Market price of Fuddy is 1800 and of Guddy is 600. Which of the following is true? RBI
Grade B – Phase 2 – 2021
A. P/E of one is Higher than the other

B. EPS of one is Higher than other
C. Book value of one is Higher than other
D. Dividend of one is Higher than other

Answer – Option A
Explanation –
Here, you will have to compare two cases, its clearly given that outstanding shares for both persons are same
and equity capital, dividend and earning are also same.
Which means the only deciding factor will be market price, for Market price of Fuddy is 1800 and of Guddy
is 600.
Now if you see the options, it is only P/E ratio, which uses market price in the formula, the formula for PE ratio
is Price per Share/Earnings per Share (EPS)
Market price of Fuddy is 1800 and of Guddy is 600, which means PE ratio for Fuddy will be more than Guddy,
because EPS is same (as given in the question).
Explanation
Question 1 - What is the meaning of EPS? SEBI Grade A – Phase 2 – 2018
A. Earning Per Investment

B. Earning Per Stock
C. Earning per Satisfaction
D. Earning Per share
Answer – Option D
Explanation –
EPS stands or Earning per Share Ratio
EPS (Earnings per Share) = Total Earnings of the Company/Number of Shares
It is important because it gives us earnings on per unit basis just like stock price.
Example: Company XYZ has Earnings (Profits) of Rs. 10000 and Number of Shares are 100 then EPS would be =
10000/100 = Rs. 100
EPS of 100 means that per each share the profit generated is Rs. 100

Section C
Explanation
Question 1 – In India, Who Regulates Mutual Funds? RBI Grade B – Phase 2 - 2016
A. RBI
B. SEBI
C. Govt. of India
D. IRDAI
Answer – Option B
Explanation –
Mutual funds in India are regulated and monitored by the Securities and Exchange Board of India (SEBI), which
strives to protect the interests of investors.
Please be informed that, The Association of Mutual Funds in India (AMFI) is dedicated to developing the Indian
Mutual Fund Industry on professional, healthy and ethical lines and to enhance and maintain standards in all
areas with a view to protecting and promoting the interests of mutual funds and their unit holders. AMFI is not
the regulator of mutual funds, instead AMFI is the professional body, which looks after the orderly
development of mutual funds.
Explanation
Question 1 - Full form of NAV is terms of Mutual Fund is __________ SEBI Grade A – Phase 1 – 2020
A. Net Acquired Value

B. Non-Attractive Valuation
C. Net Appraised Value
D. Net Asset Value
Answer – Option D
Explanation –
This is a very basic question regarding Mutual funds, NAV stands for Net Asset Value, the performance of a
particular scheme of a Mutual Fund is denoted by Net Asset Value (NAV).
In simple words, NAV is the market value of the securities held by the scheme. Mutual Funds invest the money
collected from investors in securities markets. Since market value of securities changes every day, NAV of a
scheme also varies on day to day basis.
The NAV per unit is the market value of securities of a scheme divided by the total number of units of the scheme
on any particular date.
Question 2 - Identify the open mutual fund scheme where there is a 3-year lock-in period. SEBI Grade A – Phase
1 – 2022
A. ELSS
B. Blue Chip Mutual funds
C. Large Cap Mutual Funds
D. Small Cap Mutual Funds
Answer – Option A
Explanation
Equity Linked Savings Scheme (ELSS) is a kind of mutual fund scheme that predominantly invests in equity and
equity related instruments to generate high returns.
What makes ELSS different from other equity mutual fund schemes is that investment upto ₹1.5 lakh in ELSS
is eligible for deduction from taxable income in a financial year. The scheme comes with a statutory lock-in
period of 3 years for each SIP. It is the only mutual fund scheme that qualifies for tax deduction under Section
80(C) of the IT Act.

Section C
Explanation
Question 1 - Which of the following does not come under the Financial services for Financial Inclusion? RBI
Grade B – Phase 2 - 2017
A. Saving Account
B. Subsidies
C. Micro Credit
D. Insurance
E. Financial Advice
Answer – Option B
Explanation –
Financial Inclusion is the availability of financial services to the poor people not only in urban areas but also in
the remote areas like villages far away from the city.
The subsidies that we give to farming sector, industries etc. is not part of financial inclusion. Subsidies make
thinks cheap for public, but they do not help in financial Inclusion. Therefore, option B is the correct answer.

Question 2 - Which of the following type of banks, act as government of India agent for financial inclusion in
rural area? RBI Grade B – Phase 2 - 2019
A. BCs
B. Private Banks
C. PSBs
D. RRBs
E. Financial Advice
Answer – Option D
Explanation –
Here, the key word are financial inclusion in rural area and Regional Rural Banks (RRBs) play a crucial role in
the financial inclusion.
The RRBs were established “with a view to developing the rural economy by providing, for the purpose of
development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit
and other facilities, particularly to small and marginal farmers and agricultural laborers' and for the same, the
Priority Sector Lending (PSL) targets is of 75%.
Question 3 - Which of the following is not a scheme/measure related to financial inclusion? RBI Grade B – Phase
2 - 2019
A. Jan Dhan Scheme

B. Easy KYC norms
C. MUDRA Scheme
D. Banking Correspondence
Answer – Option C
Explanation –
This is a debatable question and if we see all the options, then yes all of the options are very seems an important
part of financial inclusion. But please be informed that under Financial Inclusion, efforts are made to reach to
the un-banked population, moreover, efforts are also made to reach to the remote areas, where there is dearth
of financial services, but under MUDRA, a bank will not offer loans to everyone, a proper credit history is
evaluated under MUDRA scheme. So, MUDRA scheme is the “Directly” not related to the Financial Inclusion,
therefore the best possible answer for this question is MUDRA scheme.

Question 4 - Which of the following acts as agent of Micro- Financial institutions? ? RBI Grade B – Phase 2 -
2019
A. Insurance Companies
B. NBFCs
C. Self-Help Groups
D. Regional Rural Banks
Answer – Option C
Explanation
Self-Help Groups are informal associations of people who choose to come together to find ways to improve
their living conditions. They help to build Social Capital among the poor, especially women.
The most important functions of a Self-Help Groups are
• To encourage and motivate its members to save

• To persuade them to make a collective plan for generation of additional income
• To act as a conduit for formal banking services to reach them.
Self-Help Groups have emerged as the most effective mechanism for delivery of micro-finance services to the
poor. The range of financial services may include products such as deposits, loans, money transfer and
insurance.

Explanation
Question 1 - What is the name of app launched for financial services touch point? SEBI Grade A – Phase 2 –
2018
A. Marg Darshak
B. Sabka Saath
C. Jan Dhan Darshak
D. Uday Mitra
Answer – Option C
Explanation –
The Jan Dhan Darshak application provides an interface for

Citizen to view the Banking infrastructure in India consisting of
Bank Branches, ATMs, Bank Mitra, Post office and CSC
locations. The data is collated by Department Of Financial
Services from Scheduled Commercial Banks both in Public and
Private Sector.
Question 2 - Financial goods and services is provided to economically weaker sections at affordable price by
financial institutions then it is called? SEBI Grade A – Phase 2 – 2020
A. Financial Inclusion
B. Fiscal Deficit
C. Tax Exemption
D. Subsidies
Answer – Option A
Explanation –

Financial Inclusion is the availability of financial services to the poor people not only in urban areas but also in
the remote areas like villages far away from the city.
The subsidies that we give to farming sector, industries etc. is not part of financial inclusion. Subsidies make
thinks cheap for public, but they do not help in financial Inclusion. Therefore, option B is the correct answer.
Explanation
Question - Which of the following is an important part of the Financial Inclusion - Access to Banking Services?
PFRDA Grade A – Phase 1 – 2021
A. Basic Savings Bank Deposit Account (BSBDA)

B. Car Loan
C. Credit Card
D. Salary Account
Answer – Option A
Explanation –
Here, the key word is Access to Banking Services, so you are required to identify that component of financial
inclusion which deals with the Access of Banking Services. Thereby the correct answer will be, The Basic Savings

Bank Deposit (BSBD) Account, BSBDA has been designed as a savings account which will offer certain minimum
facilities, free of charge, to the holders of such accounts
The ‘Basic Savings Bank Deposit Account’ should be considered a normal banking service available to all.
• This account shall not have the requirement of any minimum balance.
• The following basic minimum facilities will be offered in the BSBD Account, free of charge, without any
requirement of minimum balance.
• The deposit of cash at bank branch as well as ATMs/CDMs
• Receipt/ credit of money through any electronic channel or by means of deposit /collection of cheques
drawn by Central/State Government agencies and departments
• No limit on number and value of deposits that can be made in a month
• Minimum of four withdrawals in a month, including ATM withdrawals
• ATM Card or ATM-cum-Debit Card

Section B
Answer Key

Question 1 Option B
Question 2 Option C
Section C
Explanation
Question 1 - Which of the following statement is false with respect to peer to peer lending? RBI Grade B – Phase
2 - 2017
A. Peer to Peer lending gives higher rate of return for the lender S
B. Peer to Peer lending is not regulated by RBI
C. It leads to lower rate of interest for the borrower and higher rate of interest for the lender
D. Peer to Peer lending is legal in India
Answer – Option B
Explanation –
RBI issued directions related operating as Peer-to-Peer lending companies. So, Peer to Peer lending companies
are now regulated by RBI and they are designated as NBFCs- P2P. The regulations passed by RBI related to this

are called Non-Banking Financial Company – Peer to Peer Lending Platform (Reserve Bank) Directions, 2017.
Therefore statement, B is incorrect.
Question 2 - What are the ways to raise capital via online mode where you can bypass the regulations RBI Grade
B – Phase 2 - 2018
A. Peer to Peer Lending

B. Lending to NRI’s
C. Crowdsourcing
D. Financial lease
E. Venture Capitalist
Answer – Option C
Explanation
Crowd funding is the practice of funding a project or venture by raising money from a large number of people,
in modern times typically via the Internet. Crowd funding is a form of crowdsourcing and Crowdsourcing is
becoming a popular method to raise capital for special projects. As an alternative to traditional financing
options, crowdsourcing taps into the shared interest of a group, bypassing the conventional gatekeepers and
intermediaries required to raise capital.

Section B
Answer Key

Question 1 Option C
Question 2 Option D
Question 3 Option C

Question 1 Option B
Section C
Explanation
Question 1 - Public Private Partnership is used to fund which type of Projects? RBI Grade B – Phase 2 - 2018
A. Small Highway Projects

B. Medium Scale Public Welfare Projects
C. Large Scale Infrastructure Projects
D. Projects with Foreign Investment

Answer – Option C
Explanation –
A public-private partnership (P3) is a contractual arrangement between a public agency (federal, state or local)
and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are
shared in delivering a service or facility for the use of the general public.
Public-private partnerships allow large-scale government projects, such as roads, bridges, or hospitals, to be
completed with private funding. These partnerships work well when private sector technology and innovation
combine with public sector incentives to complete work on time and within budget.
Read the following paragraph and answer the questions that follow
Introduced in January 2016 to revive investments in road infrastructure projects, ________”X”__________ has
seen good initial success. It is a mix of the EPC (engineering, procurement, and construction) and BOT (build,
operate, transfer) models. Under the EPC model, NHAI pays private players for their expertise to lay roads. The
private player has no role in the road’s ownership, toll collection or maintenance (it is taken care of by the
government). Under the BOT model though, private players have an active role, they build, operate, and
maintain the road for a specified number of years, say 10-15 years, before transferring the asset back to the
government.
Question 2 – Which model (“X”) of the Public Private Partnership (PPP) is being discussed above - RBI Grade B
– Phase 2 - 2021
A. BOT
B. BOOT
C. DBFO
D. HAM
E. NONE OF THE ABOVE
Answer – Option D
Explanation
The government has decided to introduce Hybrid Annuity Model (HAM) to revive PPP in highway construction.
By features the HAM is a mix between the existing two models – BOT Annuity and EPC. Under,

• The Build Operate and Transfer (BOT) Annuity Model: Under BOT annuity, a developer builds the highway,
operates it for a specified duration and transfers it back to the government. The government starts
payment to the developer after the launch of commercial operation of the project. Payment will be made
on a six-month basis.
• Engineering, Procurement and Construction (EPC) Model: Under this model, the cost is completely borne
by the government. Government invites bids for engineering knowledge from the private players.
Procurement of raw material and construction costs are met by the government. The private sector’s
participation is minimum and is limited to the provision of engineering expertise.
Moreover, following are the additional features of HAM model
• In India, the new HAM is a mix of BOT Annuity and EPC models. As per the design, the government will
contribute to 40% of the project cost in the first five years through annual payments (annuity).
• The remaining payment will be made on the basis of the assets created and the performance of the
developer. Here, hybrid annuity means the first 40% payment is made as fixed amount in five equal
installments whereas the remaining 60% is paid as variable annuity amount after the completion of the
project depending upon the value of assets created.
• As the government pays only 40%, during the construction stage, the developer should find money for the
remaining amount. Here, he has to raise the remaining 60% in the form of equity or loans.
Read the following paragraph and answer the questions that follow
Introduced in January 2016 to revive investments in road infrastructure projects, __________________ has seen
good initial success. It is a mix of the EPC (engineering, procurement, and construction) and BOT (build, operate,
transfer) models. Under the EPC model, NHAI pays private players for their expertise to lay roads. The private
player has no role in the road’s ownership, toll collection or maintenance (it is taken care of by the government).
Under the BOT model though, private players have an active role, they build, operate, and maintain the road
for a specified number of years, say 10-15 years, before transferring the asset back to the government.
Question 3 – In the above model, the support provided by the government during the construction phase and
later in annuities during the operation phase will be in the ratio of ___________________. RBI Grade B – Phase
2 - 2021
A. 20:80
B. 50:50
C. 40:60
D. 70:30
E. 10:90

Answer – Option C
Explanation
The government has decided to introduce Hybrid Annuity Model (HAM) to revive PPP in highway construction.
By features the HAM is a mix between the existing two models – BOT Annuity and EPC. Under,
• The Build Operate and Transfer (BOT) Annuity Model: Under BOT annuity, a developer builds the highway,
operates it for a specified duration and transfers it back to the government. The government starts
payment to the developer after the launch of commercial operation of the project. Payment will be made
on a six-month basis.
• Engineering, Procurement and Construction (EPC) Model: Under this model, the cost is completely borne
by the government. Government invites bids for engineering knowledge from the private players.
Procurement of raw material and construction costs are met by the government. The private sector’s
participation is minimum and is limited to the provision of engineering expertise.
Moreover, following are the additional features of HAM model
• In India, the new HAM is a mix of BOT Annuity and EPC models. As per the design, the government will
contribute to 40% of the project cost in the first five years through annual payments (annuity).
• The remaining payment will be made on the basis of the assets created and the performance of the
developer. Here, hybrid annuity means the first 40% payment is made as fixed amount in five equal
installments whereas the remaining 60% is paid as variable annuity amount after the completion of the
project depending upon the value of assets created.
• As the government pays only 40%, during the construction stage, the developer should find money for the
remaining amount. Here, he has to raise the remaining 60% in the form of equity or loans.
Explanation
Question 1 - Under the Viability Gap Funding Scheme, the total viability gap funding, from the government side
shall not exceed __________ percent of the total project cost. PFRDA Grade A – Phase 2 – 2021
A. Ten
B. Twenty
C. Thirty
D. Forty
E. Fifty
Answer – Option B
Explanation -
Some projects may not be financially viable though they are economically justified and necessary due to long
gestation periods and small cash flows. For the successful completion of such projects, the government has
designed Viability Gap Funding (VGF).
Viability Gap Finance means a grant to support projects that are economically justified but not financially
viable. Such a grant under VGF is provided as a capital subsidy to attract the private sector players to participate
in PPP projects that are otherwise financially unviable. VGF up to 40% of the Total Project Cost (TPC) is provided
by the Government of India (Gol) and the sponsoring authority in the form of capital grant at the stage of
project construction (20%+20%).

Question 1 - Rupee has been weakening off late and has breached a level of 70. Under these circumstances
what action can be executed by RBI? RBI Grade B – Phase 2 - 2018
A. Sell Dollars
B. Buy Dollars
C. Print More Currency in rupee
D. Advice government to put curb on exports
Answer – Option A
Explanation –
The Reserve Bank of India intervenes in the currency market to support the rupee as a weak domestic unit can
increase a country’s import bill. In contrast, a weak rupee is considered good for exports, which is why exports-
dependent nations love to keep the currency low. There are a variety of methods by which RBI intervenes. It
can intervene directly in the currency market by buying and selling dollars. If RBI wishes to prop up rupee value,
then it can sell dollar and when it needs to bring down rupee value, it can buy dollars.
In this question too, Rupee is weakening off, which means there are many foreign investors who are selling
Rupee dominated securities and they are demanding more and more dollars, so to keep up the supply of dollars
up to the mark, RBI will sell dollars, which in-turn pacify the demand of dollars and this selling of dollars will
prevent rupee to fall sharply.
Explanation
Question 1 - Which of the following statement regarding the Interest rate parity is true ? SEBI Grade A – Phase
2 – 2022
A. The same goods must sell for the same price across countries.
B. Interest rates across countries will eventually be the same
C. There is an offsetting relationship between interest rate differentials and differentials in the forward & spot
exchange market.
D. There is an offsetting relationship provided by costs and revenues in similar market environments.

Answer – Option C
Explanation –
The interest rate parity (IRP) is a theory regarding the relationship between the spot exchange rate and the
expected spot rate or forward exchange rate of two currencies, based on interest rates. The theory holds that
the forward exchange rate should be equal to the spot currency exchange rate times the interest rate of the
home country, divided by the interest rate of the foreign country.

Section C
Explanation
Question 1 – Which of the following is/are typical component(s) of a government’s fiscal policy? RBI Grade B -
Phase 2 - 2016
A. Budget expenditure
B. Resource Mobilization
C. Deficit financing
D. Fiscal transfer to lower levels of government
E. All of the above
Answer – Option E
Explanation
The question is conceptual. It requires a proper understanding of the fiscal policy and its tool to answer the
question.
Fiscal policy, in simple terms, is an estimate of taxation and government spending that impacts the economy.
Types of fiscal policy
There are two types of fiscal policy:

1. Expansionary fiscal policy: This policy is designed to boost the economy. It is mostly used in times of high
unemployment and recession. It leads to the government lowering taxes and spending more or one of the
two. The aim is to stimulate the economy and ensure consumers' purchasing power does not weaken.
2. Contractionary fiscal policy: As the term suggests, this policy is designed to slow economic growth in case
of high inflation. The contractionary fiscal policy raises taxes and cuts spending.
The tools of fiscal policy
There are two key tools of the fiscal policy:

1. Taxation: Funds in the form of direct and indirect taxes, capital gains from investment, etc., help the
government function. Taxes affect the consumer's income and changes in consumption lead to changes in
the real gross domestic product (GDP).
2. Government spending: It includes welfare programmes, government salaries, subsidies, infrastructure, etc.
Government spending has the power to raise or lower real GDP, hence it is included as a fiscal policy tool.
Fiscal policy objectives: Some of the key objectives of fiscal policy are economic stability, price stability, full
employment, optimum allocation of resources, accelerating the rate of economic development, encouraging
investment, and capital formation and growth.
Who sets fiscal policy?

In India, the Union finance minister formulates the fiscal policy.
What is the importance of fiscal policy?
• Fiscal policy is a crucial part of the economic framework. In India, it plays a key role in elevating the rate of
capital formation, both in the public and private sectors.
• The fiscal policy helps mobilize resources for financing projects. The central theme of fiscal policy includes
development activities like expenditure on railways, infrastructure, etc. Non-development activities include
spending on subsidies, salaries, pensions, etc. It gives incentives to the private sector to expand its activities.
• Fiscal policy aims to minimize income and wealth inequalities. Income tax is charged on all salaried persons
directly proportioned to their income. Likely indirect taxes are also more in the case of semi-luxury and
luxury items than that necessary consumable items. In this way, the government generates a good amount
of revenue and that also leads to a reduction in wealth inequalities.
• A prudent fiscal policy stabilizes prices and helps control inflation.
• Fiscal policy planning gives a larger chunk of funds for regional development to achieve balanced regional
development. It aims to reduce the deficit in the balance of payment.
Question 2 – What are the objectives of the FRBM Act? RBI Grade B - Phase 2 - 2017
A. Introduce transparency in India's fiscal management systems.
B. The Act’s long-term objective is for India to achieve fiscal stability.
C. Give the Reserve Bank of India (RBI) flexibility to deal with inflation in India.
D. Introduce a more equitable distribution of India's debt
E. All of the above
Answer – Option E
Explanation
The objectives of the N.K.Singh Committee were the following:

• Review comprehensively the FRMB Act in light of the current changes, historical outcomes, international
economic developments, and global best practices.
• Give a future fiscal framework and roadmap for the country.
• Later on, the terms of reference for the committee were widened to seek its views on some
recommendations of the 14th Finance Commission and the Expenditure Management Commission.
Question 3 – FRBM Review Committee of 2016 is headed by _________RBI Grade B - Phase 2 - 2017
A. Rathin Roy
B. Urjit Patel
C. Arvind Subramanian
D. Sumit Bose
E. NK Singh
Answer – Option E
Explanation
The question is fact-based; these kinds of questions are the usual dimensions in the examination.
• The FRBM Act was enacted in 2003 and in 2016, the government felt that a lot of time had elapsed since
the act had come into force and there was a need to review it. Since the time the act was enacted, there
were a lot of changes in the Indian economy, which had grown and also been more conducive to foreign
investment than it had been in 2003.
• The FRBM Review Committee was formed under the chairmanship of a former Revenue and Expenditure
Secretary Nand Kishore Singh. The other members of the committee included former RBI Governor Urjit
Patel, and former Finance Secretary Arvind Subramanian, among others.
• The committee submitted its report in 2017.
Question 4 – Fiscal deficit is equal to ___________RBI Grade B - Phase 2 - 2018

A. Total expenditure minus total receipts excluding borrowing
B. Revenue deficit plus capital expenditure minus non-debt creating capital receipts
C. Total borrowing
D. All of the above
Answer – Option D
Explanation
The question is definition based and is testing the basics of the subject.

• When the balance of the government’s total receipts (i.e., revenue + capital receipts) and total
expenditures (i.e., revenue + capital expenditures) turns out to be negative, it shows the situation of fiscal
deficit, a concept being used since 1997- 98 in India.
• The situation of Fiscal deficit indicates that the government is spending beyond its means. To be simpler,
we may say that the government is spending more than its income.
• Fiscal deficit may be shown in quantitative form (i.e., the total currency value of the deficit) or in the
percentage form of the GDP for that particular year (Percentage of GDP). In general, the percentage form is
used for domestic or international studies and analyses.
• India has been a country of not only regular but higher fiscal deficits.
Question 5 – Which of the following is not an example of fiscal policy? RBI Grade B - Phase 2 - 2018
A. Additional government spending
B. A reduction in the budget deficit
C. An increase in the minimum wage
D. Relaxing credit conditions
E. All of the above are examples of fiscal policy
Answer – Option D
Explanation
The question is conceptual and is testing the basic understanding of fiscal policy.
Fiscal policy, in simple terms, is an estimate of taxation and government spending that impacts the economy.
Types of fiscal policy
There are two types of fiscal policy:

1. Expansionary fiscal policy: This policy is designed to boost the economy. It is mostly used in times of high
unemployment and recession. It leads to the government lowering taxes and spending more or one of the
two. The aim is to stimulate the economy and ensure consumers' purchasing power does not weaken.
2. Contractionary fiscal policy: As the term suggests, this policy is designed to slow economic growth in case
of high inflation. The contractionary fiscal policy raises taxes and cuts spending.
The tools of fiscal policy
There are two key tools of the fiscal policy:

1. Taxation: Funds in the form of direct and indirect taxes, capital gains from investment, etc., help the
government function. Taxes affect the consumer's income and changes in consumption lead to changes in
the real gross domestic product (GDP).
2. Government spending: It includes welfare programmes, government salaries, subsidies, infrastructure, etc.
Government spending has the power to raise or lower real GDP, hence it is included as a fiscal policy tool.
Fiscal policy objectives: Some of the key objectives of fiscal policy are economic stability, price stability, full
employment, optimum allocation of resources, accelerating the rate of economic development, encouraging
investment, and capital formation and growth.
Who sets fiscal policy?

In India, the Union finance minister formulates the fiscal policy.
What is the importance of fiscal policy?
• Fiscal policy is a crucial part of the economic framework. In India, it plays a key role in elevating the rate of
capital formation, both in the public and private sectors.
• The fiscal policy helps mobilize resources for financing projects. The central theme of fiscal policy includes
development activities like expenditure on railways, infrastructure, etc. Non-development activities include
spending on subsidies, salaries, pensions, etc. It gives incentives to the private sector to expand its activities.
• Fiscal policy aims to minimize income and wealth inequalities. Income tax is charged on all salaried persons
directly proportioned to their income. Likely indirect taxes are also more in the case of semi-luxury and
luxury items than that necessary consumable items. In this way, the government generates a good amount
of revenue and that also leads to a reduction in wealth inequalities.
• A prudent fiscal policy stabilizes prices and helps control inflation.
• Fiscal policy planning gives a larger chunk of funds for regional development to achieve balanced regional
development. It aims to reduce the deficit in the balance of payment.
Difference between monetary policy and fiscal policy
• Monetary policy is concerned with the management of interest rates and the total supply of money in
circulation. It is generally carried out by the RBI.
• Fiscal policy, on the other hand, estimates taxation and government spending. It should ideally be in line
with the monetary policy, but since it is created by lawmakers, people's interest often takes precedence
over growth.
Question 6 – Which of the following is not one of the recommendations made by the FRBM Review Committee?
RBI Grade B - Phase 2 - 2018
A. A debt-to-GDP ratio of 60% should be targeted with a 40% limit for the centre and a 20% limit for the states.
B. It proposed to create an autonomous Fiscal Council with a Chairperson and two members appointed by the
centre.
C. It proposed to bring the revenue deficit down to zero by 2023.
D. It suggested that grounds on which the government can deviate from the targets set under FRBM Act should
be specified, and the government should not be allowed to notify other circumstances.
E. All of the above are recommendations made by the FRBM Review Committee.
Answer – Option C
Explanation
The question is detailed in nature and it was in news in that particular year.
The committee submitted its report in January 2020 and it was made public in April that year. The major
recommendations of the N.K.Singh Committee is discussed below.
• It proposed to replace the FRBM Act, 2003 with a Debt Management and Fiscal Responsibility Bill, 2017.
• Debt to GDP Ratio: The debt to GDP ratio should be 38.7% for the central government, and 20% for the
state governments together by the FY 2022 – 23.
• Fiscal deficit: By FY 2022 – 23, the fiscal deficit should be 2.5% of GDP. The committee recommended
achieving the above targets by a ‘glide path’, that is, steady progress towards them, by achieving annual
targets until 2023.
• Fiscal Council: It recommended the setting up of an autonomous Fiscal Council, whose role would be:
➢ To prepare multi-year fiscal forecasts.
➢ To improve fiscal data quality.
➢ To suggest changes to the fiscal strategy.
➢ To advise the government on fiscal matters.
• The committee recommended that the government could deviate from the targets in the following
scenarios:
➢ National calamity, war, considerations of national security, and agricultural collapse affect incomes and
outputs.
➢ Structural reforms in the economy have fiscal implications.
➢ A decline in real output growth of at least 3% below the average of the previous four quarters.
• The 15th Finance Commission should recommend the debt trajectory for each state based on their track
record of fiscal health and prudence.
• The Centre should borrow from the Reserve Bank of India only when:
➢ It has to meet a temporary shortfall in receipts.
➢ RBI subscribes to g-secs to fund any deviation from the prescribed targets.
➢ RBI buys g-secs from the secondary market.
Question 7 – Excess of total expenditure over total receipts less borrowings and interest payment is _________
A. Fiscal Deficit
B. Budget Deficit
C. Revenue Deficit
D. Primary Deficit
Answer – Option D
Explanation
The question is conceptual. The topic of deficits is very important.
Fiscal Deficit
• When the balance of the government’s total receipts (i.e., revenue + capital receipts) and total expenditures
(i.e., revenue + capital expenditures) turns out to be negative, it shows the situation of fiscal deficit, a
concept being used since 1997- 98 in India.
• The situation of Fiscal deficit indicates that the government is spending beyond its means. To be simpler, we
may say that the government is spending more than its income.
• Fiscal deficit may be shown in quantitative form (i.e., the total currency value of the deficit) or in the
percentage form of the GDP for that particular year (Percentage of GDP). In general, the percentage form is
used for domestic or international studies and analyses.
• India has been a country of not only regular but higher fiscal deficits.
Primary Deficit
• The fiscal deficit excluding the interest liabilities for a year is the primary deficit, a term India started using
since the fiscal 1997-98.
• Primary Deficit indicates the borrowing requirements of the government, excluding interest. It is the amount
by which the total expenditure of a government exceeds the total income.
• Primary Deficit is the difference between the current year’s fiscal deficit (total income – total expenditure of
the government) and the interest paid on the borrowings of the previous year.

Explanation
Question 1 – Which of the following constitutes fiscal deficit? SEBI Grade A - Phase 2 - 2020
A. Total expenditure
B. Revenue received – total expenditure
C. Loan expenditure
D. Total Expenditure - Total revenue receipts + Recovered loans by government
E. Total Borrowings
Answer – Option D
Explanation -
Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding
borrowing.
Total Receipts = Revenue Receipts + Capital Receipts
• The above formula can also be written as:

• Total Receipts = Revenue Receipts + non-debt creating capital receipts + Debt-creating capital receipts
• Borrowing is nothing but Debt-creating capital receipt
The formula for fiscal deficit is:
Fiscal Deficit = Total Expenditure – (Total Receipts excluding borrowing)
Fiscal deficit = Total expenditure – (Revenue receipts + non-debt creating capital receipts)
OR
Fiscal deficit = Total expenditure of the government (capital and revenue expenditure) – Total income of the
government (Revenue receipts + recovery of loans + other receipts)
Non-debt creating capital receipts are those receipts which are not borrowings and, therefore, do not give
rise to debt. Examples are recovery of loans and the proceeds from the sale of PSUs.
The gross fiscal deficit will have to be financed through borrowing. Thus, it indicates the total borrowing
requirements of the government from all sources.
Question 2 – Non-Plan Expenditure constitutes the biggest proportion of the government’s total expenditure.
Which of the following is not a non-planned expenditure? SEBI Grade A - Phase 2 - 2022
A. Defense Expenditure
B. Debt servicing
C. Expenditure on Electricity generation
D. Interest Payments
E. Subsidies
Answer – Option C
The government's total spending can be divided into two broad sub-heads — plan and non-plan — with the
latter constituting the bulk of expenditure.
Non-plan expenditure is what the government spends on the so-called non-productive areas and is mostly
obligatory in nature. It includes interest payments, pensions, statutory transfers to States and Union Territories
governments salaries, subsidies, loans and interest. Debt service refers to the money required to pay the
principal and interest on outstanding debt for a particular period of time which is also considered as non-
productive.
Plan expenditure, on the other hand, pertains to the money set aside for productive purposes like various
projects of ministries. It is spent on productive asset creation through Centrally-sponsored programmes and
flagship schemes.
Thus, Non Planned expenditure is largely the revenue expenditure of the government, although it also includes
capital expenditure. It covers all expenditures not included in the Plan Expenditure.
Non-Plan Expenditure constitutes the biggest proportion of the government’s total expenditure.
• Non-plan revenue expenditure is accounted for by interest payments, subsidies (mainly on food and
fertilizers), wage and salary payments to government employees, grants to States and Union Territories
governments, pensions, police, economic services in various sectors, other general services such as tax
collection, social services, and grants to foreign governments.
• Non-plan capital expenditure mainly includes defense, loans to public enterprises, loans to States, Union
Territories, and foreign governments.

Question 3 – Economic theory and good practice suggest that a government should run deficits during
recessions — when tax revenues are low and government spending is high and deficits should be balanced by
surpluses during booms and when spending needs are low. The theory which explains the process when the
government try to align its expenditure with revenue is termed as ______. SEBI Grade A - Phase 2 - 2022
A. Fiscal Prudence
B. Fiscal Deficit
C. Fiscal Analysis
D. Primary Deficit
Answer – Option A

Fiscal prudence is defined as the ability of a government to sustain smooth monetary operation and long-
standing fiscal condition. Fiscal prudence theory explains the process when the government try to align its
expenditure with revenue. Government will not irrationally increase its own spending causing an upward
pressure on inflation. Government will increase its own spending and\or decrease taxes even leading to
deficit budget when needed that is in case of recession to help generate additional demand and boost the
rate of economic growth and vice versa in case of boom.
The difference between total revenue exclusive of borrowings and total expenditure of the government is
termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating
the total revenue, borrowings are not included.
Fiscal Analysis involves activities such as formulating budget and cost estimates to support plans, programs
and activities. Fiscal Analysts review and evaluate budget requests, review requests for apportionment and
allotments and review, control and report obligations and expenditures.
Primary deficit refers to the difference between the current year's fiscal deficit and interest payment on
previous borrowings. It indicates the borrowing requirements of the government, excluding interest. It also
shows how much of the government's expenses, other than interest payment, can be met through
borrowings.
Explanation
Question 1 – What is the term called when the Government’s expenditure is higher than revenue? PFRDA Grade
A - Phase 1 - 2021
A. Budget Deficit
B. Current Account Deficit
C. No Deficit
D. Both A and B
Answer – Option A

Explanation -
A government budget is said to be a deficit budget if the estimated government expenditure exceeds the
expected government revenue in a particular financial year. This type of budget is best suited for developing
economies, such as India. Especially helpful at times of recession, a deficit budget helps generate additional
demand and boost the rate of economic growth. Here, the government incurs the excessive expenditure to
improve the employment rate. This results in an increase in demand for goods and services which helps in
reviving the economy. The government covers this amount through public borrowings (by issuing government
bonds) or by withdrawing from its accumulated reserve surplus.

Section C
Explanation
Question 1 – Monetary Policy Committee of the Reserve Bank of India is headed by _________RBI Grade B -
Phase 2 - 2016
A. Union Finance Minister
B. Union Minister of State for Finance
C. Governor of Reserve Bank of India
D. Deputy Governor of Reserve Bank of India in charge of monetary policy
E. An eminent economist
Answer – Option C
Explanation
The question is factual.
Monetary Policy was implemented with an initiative to provide reasonable price stability, high employment,
and a faster economic growth rate. The major four objectives of the Monetary Policy are mentioned below:
1. To stabilize the business cycle.
2. To provide reasonable price stability.
3. To provide faster economic growth.
4. Exchange Rate Stability.
How was the Monetary Policy Committee formed?

• Urjit Patel Committee first proposed the idea for the formation of a five-member Monetary Policy
Committee. Later, the government proposed the setting up of a seven-member committee.
• MPC is assisted by the Monetary Policy Department (MPD) of the Reserve Bank in the formulation of the
policy. The Monetary Policy Committee came into force on 27th June 2016.
• The Financial Markets Operations Department (FMOD) operationalizes the monetary policy, mainly through
day-to-day liquidity management operations.
Structure of the Monetary Policy Committee
Email – hello@edutap.co.in, M - 8146207241 5|P a ge http://www.edutap.co.in

• Monetary Policy Committee (MPC) was constituted as per Section 45ZB under the RBI Act of 1934 by the
Central Government. The first meeting of MPC was conducted on 3rd October 2016 in Mumbai.
• The committee determines the policy interest rate required to achieve the inflation target.
• The MPC is required to meet at least four times a year.
• The quorum for the meeting of the MPC is four members.
• Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second
or casting vote.
• Once every six months, the Reserve Bank is required to publish a document called the Monetary Policy
Report to explain the sources of inflation and the forecasts of inflation for 6-18 months ahead.
Question 2 – Monetary Policy Committee of the Reserve Bank of India is headed by_________ RBI Grade B -
Phase 2 - 2017
A. Union Finance Minister
B. Union Minister of State for Finance
C. Governor of Reserve Bank of India
D. Deputy Governor of Reserve Bank of India in charge of monetary policy
E. An eminent economist
Answer – Option C
Explanation
Monetary Policy was implemented with an initiative to provide reasonable price stability, high employment,
and a faster economic growth rate. The major four objectives of the Monetary Policy are mentioned below:
1. To stabilize the business cycle.
2. To provide reasonable price stability.
3. To provide faster economic growth.
4. Exchange Rate Stability.
How was the Monetary Policy Committee formed?

• Urjit Patel Committee first proposed the idea for the formation of a five-member Monetary Policy
Committee. Later, the government proposed the setting up of a seven-member committee.
• MPC is assisted by the Monetary Policy Department (MPD) of the Reserve Bank in the formulation of the
policy. The Monetary Policy Committee came into force on 27th June 2016.
• The Financial Markets Operations Department (FMOD) operationalizes the monetary policy, mainly through
day-to-day liquidity management operations.

Structure of the Monetary Policy Committee
• Monetary Policy Committee (MPC) was constituted as per Section 45ZB under the RBI Act of 1934 by the
Central Government. The first meeting of MPC was conducted on 3rd October 2016 in Mumbai.
• The committee determines the policy interest rate required to achieve the inflation target.
• The MPC is required to meet at least four times a year.
• Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second
or casting vote.
• Once every six months, the Reserve Bank is required to publish a document called the Monetary Policy
Report to explain the sources of inflation and the forecasts of inflation for 6-18 months ahead.
Question 3 – Under the present Monetary Policy Framework Agreement signed on 20 February 2015, the RBI
will be responsible for containing inflation targets at ___________ RBI Grade B - Phase 2 - 2017
A. 4% (with a standard deviation of 0.5%)
B. 6% (with a standard deviation of 1%)
C. 4% (with a standard deviation of 1%)
D. 4% (with a standard deviation of 2%)
E. 2% (with a standard deviation of 4%)
Answer – Option D
Explanation
The question is fact-based; these kinds of questions are the usual dimensions in the examination.
The correct answer is within the specified target level of 4% with a band of +/- 2%.
Key Points
• The Monetary Policy Committee (MPC) is a committee of the Reserve Bank of India, headed by its
Governor. The MPC is a statutory and institutionalized framework under the RBI Act, 1934, for maintaining
price stability, while keeping in mind the objective of growth.
• It is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to contain inflation within
the specified target level of 4% with a band of +/- 2%.
• There are six members of the Monetary Policy Committee, three Members will be from the RBI and the
other three members will be appointed by the Central Government.
• The panel is required to meet at least four times a year.
• It should submit a report to the central government within one month from the date that the bank has failed
to meet the inflation target.
• There are two types of Monetary Policy instruments. They are
➢ Qualitative Instrument: Moral Suasion, Change in margin money, and direct action.
➢ Quantitative Instrument: Cash Reserve Ratio, Repo Rate, Bank Rate, Statutory Liquidity Ratio, Liquidity
Adjustment Facility, and Marginal Standing Facility.

Question 4 – In the context of the Monetary Policy Committee (MPC) of the Reserve Bank of India, which of the
following statements is not correct? RBI Grade B - Phase 2 - 2017
A. Altogether, the MPC has six members.
B. The central government nominees of the MPC appointed by the search cum selection committee will hold
office for a period of four years and will not be eligible for re-appointment.
C. RBI Act prohibits appointing any Member of Parliament or Legislature or public servant, or any employee /
Board/committee member of RBI or anyone with a conflict of interest with RBI or anybody above the age
of 70 to the MPC.
D. Quorum for a meeting shall be four Members.
E. RBI has to organize at least three meetings of the MPC in a year.
Answer – Option E
Explanation
• Under Section 45ZB of the amended RBI Act, 1934, the central government is empowered to constitute a
six-member Monetary Policy Committee (MPC) to determine the policy interest rate required to achieve the
inflation target. The first such MPC was constituted on September 29, 2016.
• Section 45ZB lays down that “the Monetary Policy Committee shall determine the Policy Rate required to
achieve the inflation target”, and that “the decision of the Monetary Policy Committee shall be binding on
the Bank”.
• Section 45ZB says the MPC shall consist of the RBI Governor as its ex officio chairperson, the Deputy
Governor in charge of monetary policy, an officer of the Bank to be nominated by the Central Board, and
three persons to be appointed by the central government.
• The last category of appointments must be from “persons of ability, integrity, and standing, having
knowledge and experience in the field of economics or banking or finance or monetary policy”. (Section
45ZC).
• As per the RBI Act, external members can hold office for a period of four years and are not eligible for re-
appointment.
• RBI Act prohibits appointing any Member of Parliament or Legislature or public servant, or any employee /
Board/committee member of RBI or anyone with a conflict of interest with RBI or anybody above the age
of 70 to the MPC.
• The panel is required to meet at least four times a year. Hence option E is the answer.
Question 5 – In the context of the terms ‘repo’ and ‘repo rate’, which of the following statements is/are correct?

A. “Repo" means an instrument for borrowing funds by selling securities with an agreement to repurchase
the securities on a mutually agreed future date at an agreed price which includes interest for the funds
borrowed
B. Repo is a money market instrument, which enables collateralized short-term borrowing
C. Repo rate is the rate at which the Reserve Bank of India lends money to commercial banks in India.
D. All of the above
Answer – Option D
Explanation
The question is conceptual and is testing the basic understanding regarding the tools of monetary policy.
• Repo or repurchase option is collateralized lending i.e., banks borrow money from the Reserve bank of
India to meet short-term needs by selling securities to RBI with an agreement to repurchase the same at a
predetermined rate and date.
• The rate charged by RBI for this transaction is called the repo rate. Repo operations, therefore, inject liquidity
into the system.
• To put it in very simple terms: It is the rate at which RBI lends money to commercial banks against securities
in case commercial banks fall short of funds.
• A high repo rate signals that access to money is expensive for banks and lesser credit will flow into the
system.
• Repo Rate in India is the primary tool in the RBI’s Monetary and Credit Policy.
• Repo Rate is the most significant rate for the common man too. Everything from interest rates on loans to
returns on deposits is influenced by this crucial rate set by the RBI, which is why interest rates on home
loans, car loans, and other kinds of borrowings go up and down based on the direction of the Repo Rate
change. Similarly, banks adjust savings accounts and fixed deposit returns based on this benchmark.
Question 6 – Which among the following defines Marginal Standing Facility Rate? RBI Grade B - Phase 2 - 2019
A. The rate at which banks place their surplus funds with the RBI
B. The rate at which banks can borrow against their excess SLR securities to meet additional liquidity
requirements
C. The rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial
paper eligible for purchase
D. The rate at which banks borrow funds from the Reserve Bank against eligible collaterals
Answer – Option B

Explanation
The question is definition based.
• Banks can borrow a certain amount of money from the RBI under the repo mechanism. But what if banks
need even greater liquidity than what is available through the repo mechanism? Is there any facility that
banks can tap and get access to this additional liquidity? Yes, there is. It is called Marginal Standing Facility.
• Marginal Standing Facility (MSF) is a new scheme announced by the RBI in its Monetary Policy (2011-12)
and refers to the penal rate at which banks can borrow money from the central bank over and above what
is available to them through the LAF window.
• It is a facility under which scheduled commercial banks can borrow an additional amount of overnight
money from the Reserve Bank by pledging their Statutory Liquidity Ratio (SLR) portfolio up to a limit at a
penal rate of interest.
• MSF, being a penal rate, is always fixed above the repo rate. The MSF would be the last resort for banks
once they exhaust all borrowing options including the liquidity adjustment facility by pledging government
securities, where the rates are lower in comparison with the MSF.
• This provides a safety valve against unanticipated liquidity shocks to the banking system.
• MSF represents the upper band of the interest corridor with repo rate in the middle and standing deposit
facility as the lower band.
Explanation
NABARD Grade A questions
Question 1 – Reserve Bank of India is considered to be the lender of the last resort. This implies _________
NABARD Grade A- 2016
A. RBI advances money to the central government whenever there is an emergency.
B. RBI advances money to the public whenever there is an emergency.
C. RBI advances necessary credit against eligible securities to financial institutions
D. All of the above
Answer – Option C
Explanation
The question is conceptual. It requires a proper understanding of the term to answer the question.
• As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort. It can come to the rescue
of a bank that is solvent but faces temporary liquidity problems by supplying it with much-needed liquidity
when no one else is willing to extend credit to that bank. The Reserve Bank extends this facility to protect

the interest of the depositors of the bank and to prevent possible failure of the bank, which in turn may
also affect other banks and institutions and can hurt financial stability and thus the economy.
Question 2 – RBI adopted CPI combined as the indicator for inflation targeting on the recommendation of
___________ NABARD Grade A - 2018
A. Raghuram Rajan Committee
B. Bimal Jalan Committee
C. Vijay Kelkar Committee
D. Urjit R. Patel Committee
E. Rakesh Mohan Committee
Answer – Option D
Explanation
• The Reserve Bank of India (RBI) under Governor, Raghuram Rajan had adopted the new Consumer Price
Index (CPI) (combined) as the key measure of inflation.
• Earlier, RBI had given more weightage to the Wholesale Price Index (WPI) than CPI as the key measure of
inflation for all policy purposes.
• “Some recommendations of Urjit R. Patel Committee report have been implemented, including the
adoption of the new CPI (combined) as the key measure of inflation,” said Dr. Rajan, while addressing a
press conference here to announce the first bi-monthly monetary policy for 2014-15.
• This also includes explicit recognition of the glide path for disinflation, transition to a bi-monthly monetary
policy cycle, progressive reduction in access to overnight liquidity at the fixed repo rate, and a corresponding
increase in access to liquidity through term repos, and introduction of longer-tenor term repos as well as,
going forward, term reverse repos.

Section C
Explanation
Question 1. The base year for Revised series of WPI is _________________? RBI Grade B – Phase 2 - 2018
A. 2010-11
B. 2011-12
C. 2013-2014
D. 2009-2010
E. 2012-2013
Answer – Options B
Explanation –
The Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods. It consists of 3
categories: (IN DECREASING ORDER OF WEIGHT)
1. Manufacturing goods
2. Primary articles
3. Fuel and power
Please be informed that WPI contains no data related to services and the basket of WPI has 697 items (earlier
676) and The BASE YEAR is 2011-12 (earlier 2004-05 ). The data for WPI is released by the OFFICE OF
ECONOMIC ADVISOR, Dept of Industrial Policy and Promotion, Ministry of Commerce and Industry.
Question 2. What is the target set by RBI for Consumer Price based inflation till 2021? RBI Grade B – Phase 2 –
2018
A. 4 +/- 2 %
B. 3 +/- 1 %
C. 4 +/- 1 %
D. 6 +/- 3 %
Answer – Option A
Explanation
In 2016, The Government has amended the Reserve Bank of India Act, 1934. The amended Act provides for
inflation target to be set by the Government, in consultation with the Reserve Bank, once in every five years and
further provides for a statutory basis for the constitution of an empowered Monetary Policy Committee (MPC).
In the same regard, As per the revised monetary policy framework, the Government has fixed the inflation
target of 4 per cent with tolerance level of +/- 2 per cent for the period beginning from 5th August 2016 to
March 31, 2021 and as per the recent reports, the same target has been extended till FY 2026.
Question 3. Which of the following phenomenon includes High inflation & high unemployment? RBI Grade B –
Phase 2 – 2019
A. Hyperinflation
B. Deflation
C. Disinflation
D. Stagflation
Answer – Option D
Explanation –
Stagflation is a situation in an economy when inflation and unemployment both are at higher levels, contrary
to conventional belief.
Conventional thinking that a trade-off existed between inflation and unemployment (i.e., Phillips Curve) was
falsified and several economies switched over to alternative ways of economic policies, such as monetaristic
and supply-side economics.
When the economy is passing through the cycle of stagnation (i.e., long period of low aggregate demand in
relation to its productive capacity) and the government shuffles with the economic policy, a sudden and
temporary price rise is seen in some of the goods—such inflation is also known as stagflation. Stagflation is
basically a combination of high inflation and low growth
Explanation
Question 1. The Phillips Curve is a relationship between ___________? SEBI Grade A – Phase 2 – 2020
A. Inflation and unemployment
B. Inflation and quantity demand
C. Quantity demand and price
D. Demand and Supply
Answer – Option A
Explanation
Phillips Curve - During the 1960s, this idea was among the most important theories of the modern economists.
This concept is known after the economists who developed it—Alban William Housego Phillips (1914–75).
It is a graphic curve which advocates a relationship between inflation and unemployment in an economy. As per
the curve there is a ‘trade off’ between inflation and unemployment, i.e., an inverse relationship between
them. The curve suggests that lower the inflation, higher the unemployment and higher the inflation, lower
the unemployment.

Questions asked in phase 1 and phase 2 of the PFRDA Grade A exam, starting from 2021 onwards
No questions were asked in PFRDA Grade A exam from this topic
Section B
Answer Key

Question 1 Option C
Question 2 Option E
Question 3 Option E
Section C
Explanation
Question 1 - Which of the following institution is also known as lender of last resort? SEBI Grade A – Phase 1 -
2020
A. SBI
B. HDFC Bank
C. RBI
D. NABARD
E. ICICI Bank
Answer – Option C
Explanation
As a Banker to Banks, the Reserve Bank also acts as the 'lender of the last resort'. It can come to the rescue of
a bank that is solvent but faces temporary liquidity problems by supplying it with much needed liquidity when
no one else is willing to extend credit to that bank.
The lender of last resort facility as well as Central Bank experience in ensuring price and exchange rate stability
makes the Central Banks’ role in maintaining financial stability even more significant
Question 2 - The Reserve Bank of India (RBI) pays interest on the CRR balance to the banks at _______? SEBI
Grade A – Phase 1 - 2022
A. 2% above repo rate

B. Repo rate
C. 2% below bank rate
D. Bank Rate
E. No interest is paid on the CRR balance
Answer – Option E
Explanation
The Reserve Bank of India (Amendment) Act, 2006 was enacted in June 2006. Therein it was decided that RBI
will not pay any interest on the eligible CRR balances maintained by scheduled banks with effect from the
fortnight beginning June 24, 2006.
Question 3 - Which of the following is not a method of quantitative control by RBI? SEBI Grade A – Phase 2 -
2022
A. CRR
B. SLR
C. Marginal Standing Facility
D. Repo and Reverse Repo
E. Credit Rationing
Answer – Option E
Explanation

Section C
Explanation
Question 1. Which of the following statement is correct regarding payment and Small Finance Bank? RBI Grade
B – Phase 2 – 2017
A. Small Finance bank requires paid-up capital of 500 crores whereas Payment banks have paid-up capital of
350 crore
B. Payment Banks cannot lend money whereas Small Finance banks can lend money
C. Payments Banks have a minimum capital requirement of 15% whereas Small Finance bank has a minimum
capital requirement of 20%
D. Payment Banks cannot accept deposits whereas Small Finance Banks can accept deposits
Answer – Option B
Explanation
Payment Banks
A payment bank is a differentiated bank that will undertake only certain restricted banking functions that the
Banking Regulation Act of 1949 allows. These activities include acceptance of deposits, payments and
remittance services but cannot lend money.
Features of Payment Banks
• Every Payment bank must have the words – payment bank -- in its name
• Payment banks can accept deposits restricted to Rs. 2 lakh per customer, and can pay customers
interest on the money that is being deposited
• Payment banks cannot lend money to the people. However, it will be able to offer financial products
like loans, insurance, mutual funds, pension funds etc. by partnering with other financial institutions and
banks
• Payment banks can issue ATM cards but cannot issue credit cards. They can have their own ATM’s
Small Finance Banks

On 16 September, RBI gave in-principal licenses to 10 entities to set up so-called small finance banks in a move
towards expanding access to financial services in rural and semi-urban areas. Small finance banks will offer basic
banking services, accepting deposits and lending to unserved and underserved sections, including small business

units, small and marginal farmers, micro and small industries, and entities in the unorganized sector. They will
not be able to offer all the products serviced by the Commercial banks
Features of Small Finance Banks

• Every small finance bank must have the words -- small finance bank -- in its name
• They can accept deposits and lend money also
• They can issue both credit and Debit cards and can have their own ATM’s. They can also issue passbooks
Question 2 - Consider the following statements about UPI is correct.

1. UPI is regulated by NPCI
2. UPI is regulated by UIDAI
3. One need bank details of the receiver of the payment while transferring the amount
4. One need virtual detail (address) of the receiver of the payment while transferring the amount
Which of the above statements are true ? RBI Grade B – Phase 2 – 2017
A. 1 and 2
B. 1 and 4
C. 2 and 4
D. 2 and 3
E. 1 and 3
Answer – Option B
Explanation
UPI is an online payments solution which will facilitate the transfer of funds instantly between person and
person (or peer to peer) using a smartphone. UPI can be used both to send and receive funds. The National
Payments Corporation of India (NPCI), the umbrella organization for all retail payments systems in India,
which was set up with the guidance and support of the RBI and Indian Banks’ Association (IBA), is pushing the
solution
How does UPI Work ?
• Let us assume a person named ‘Ram’ must make payments using UPI (let us explain this with an example).
• To make UPI money transfer, Ram needs 2 basic things:
o A smartphone with UPI application (app),
o A bank account.
• Ram must download the UPI app and get a UPI ID by registering on the app with his bank details.
• UPI ID is a virtual identity (a payment identifier) like an email address.
• It can be a name or a mobile number along with the name of your bank. For example-
o Ram@sbi or Ram@icici
o 9900000099@hdfc or 9900000099@axis
• The payment is verified instantly through the smart phone, without needing to rely on debit card payment
or net banking.
• Ram must buy a book online. He can initiate the e-commerce purchase by selecting UPI as the payment
mode and providing his UPI ID Ram@sbi.
• He then receives a pop-up notification on his smartphone through the ‘UPI App’ requesting confirmation of
the payment.
• He must enter his secure pin on the app to authenticate the purchase transaction.
• He will then receive a confirmation of a successful online purchase from the merchant within seconds.
Question 3. Clearing Corporation of India Limited is used to clear what type of Trades? RBI Grade B – Phase 2 –
2018
A. Primary Market Transactions in Shares
B. Secondary Market Transactions in Government Securities
C. Primary Market Transaction in IPOs
D. All the above
E. Only A and B
Answer – Option B
Explanation
Clearing Corporation of India (CCIL) was set up in April 2001 by banks, financial institutions, and primary dealers,
to function as an industry service organization for clearing and settlement of trades in money market,
government securities and foreign exchange markets. The Clearing Corporation plays the crucial role of a
Central Counter Party (CCP) in the government securities, USD –INR forex exchange (both spot and forward
segments) and Collateralized Borrowing and Lending Obligation (CBLO) markets.
CCIL plays the role of a central counterparty whereby, the contract between buyer and seller gets replaced by
two new contracts - between CCIL and each of the two parties. This process is known as ‘Novation’. Through
novation, the counterparty credit risk between the buyer and seller is eliminated with CCIL subsuming all
counterparty and credit risks
Question 4 - UPI is Monitored by which of the following institution ? RBI Grade B – Phase 2 – 2018
A. National Payment Corporation of India
B. National Payment Management Council
C. Reserve Bank of India
D. Ministry of Communication and Technology
Answer – Option A
Explanation

UPI is an online payments solution which will facilitate the transfer of funds instantly between person and
person (or peer to peer) using a smartphone. UPI can be used both to send and receive funds. The National
Payments Corporation of India (NPCI), the umbrella organization for all retail payments systems in India,
which was set up with the guidance and support of the RBI and Indian Banks’ Association (IBA), is pushing the
solution for UPI.
The Reserve Bank encouraged the setting up of National Payments Corporation of India (NPCI) to act as an
umbrella organization for operating various Retail Payment Systems (RPS) in India. NPCI became functional in
early 2009. NPCI is expected to bring greater efficiency by way of uniformity and standardization in retail
payments. “Rupay” is country’s own card payment system network developed by NPCI. UPI is also developed
by NPCI. NPCI is responsible for creating a robust Payment and settlement infrastructure in the Country
Question 5 - Which of the following is of Micro- Finance institution is a universal bank now? RBI Grade B – Phase
2 – 2019
A. ESAF Finance Bank
B. Bandhan Financial service
C. Ujjivan Finance Bank
D. AU Small Finance Bank
Answer – Option B
Explanation
This is a current affairs related question, in 2019 Bandhan Financial service was converted to a universal bank.
Question 6 - Name of the Organization formed in 2008 and responsible for creating a robust payment and
settlement infrastructure in the country? RBI Grade B – Phase 2 – 2021
A. NPCI
B. CCIL
C. Paytm
D. BBPS
Answer – Option A
Explanation
National Payments Corporation of India (NPCI) was incorporated in 2008 as an umbrella organization for
operating retail payments and settlement systems in India. NPCI is expected to bring greater efficiency by way
of uniformity and standardization in retail payments. “Rupay” is country’s own card payment system network
developed by NPCI. UPI is also developed by NPCI.

Explanation
Question 1 - The Financial Stability and Development Council (FSDC) is headed by _________ PFRDA Grade A –
Phase 1 – 2021
A. Finance Minister of India
B. Governor of RBI
C. Finance Secretary
D. Prime Minister of India
E. Chairman of SEBI
Answer – A
Explanation
Financial Stability and Development Council (FSDC) is an apex-level body constituted by the government of
India. The idea to create such a super regulatory body was first mooted by the Raghuram Rajan Committee in
2008.
Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up such an autonomous
body dealing with macro prudential and financial regularities in the entire financial sector of India. An apex-
level FSDC is not a statutory body.
What is FSDC Composed of?
Chairperson: The Union Finance Minister of India , Hence option A is correct
Members:
• Governor Reserve Bank of India (RBl),

• Finance Secretary and/ or Secretary, Department of Economic Affairs (DEA),
• Secretary, Department of Financial Services (DFS),
• Secretary, Ministry of Corporate Affairs,
• Secretary, Ministry of Electronics, and Information Technology,
• Chief Economic Advisor, Ministry of Finance,
• Chairman, Securities and Exchange Board of India (SEBI),
• Chairman, Insurance Regulatory and Development Authority (IRDA),
• Chairman, Pension Fund Regulatory and Development Authority (PFRDA),
• Chairman, Insolvency and Bankruptcy Board of India (IBBI),
• Additional Secretary, Ministry of Finance, DEA, will be the Secretary of the Council
The Chairperson may invite any person whose presence is deemed necessary for any of its meetings.
SEBI grade A questions

Question 1 Option B
Section C
Explanation
Question 1. Bank X has a foreign account with Bank Y in Bank Y's home currency. For X, this account is called as?
A. Vostro Account
B. Potro Account
C. Loro Account
D. Nostro Account
Answer – Option D
Explanation –
1. Nostro Account - Italian word 'nostro' means 'ours'.
Hence, Nostro account points at - "Our account with you" Nostro accounts are generally held in a foreign
country (with a foreign bank), by a domestic bank (from our perspective, our bank). It obviates that account is
maintained in that foreign currency.
2. Vostro Account - Italian word 'Vostro' means 'yours'.
Hence, Vostro account points at - "Your account with us". Vostro accounts are generally held by a foreign bank
in our country (with a domestic bank). It generally maintained in Indian Rupee (if we consider India)
For example, HSBC account is held with SBI in India.
3. LORO Account - Again, Italian word 'loro' means 'theirs'.
Therefore, it points at - "Their account with them". Loro accounts are generally held by a 3rd party bank, other
than the account maintaining bank or with whom account is maintained.
For example, BOI wants to transact with HSBC, but doesn't have any account, while SBI maintains an account
with HSBC in U.K. Then BOI could use SBI account.
Question 2 - Which of the following type of banks, act as Government of India agent for financial inclusion in
rural areas? RBI Grade B – Phase 2 – 2019
A. 2 BCs
B. Private Banks
C. PSBs
D. RRBs
E. CRR balance
Answer – Option D
Explanation
Read the following paragraph and answer the following questions

The world over, banks are increasingly using outsourcing, as a means of both reducing cost and accessing
specialist expertise, not available internally and achieving strategic aims.
Outsourcing' may be defined as a bank's use of a third party (either an affiliated entity within a corporate group
or an entity that is external to the corporate group) to perform activities on a continuing basis that would
normally be undertaken by the bank itself, now or in the future.
Question 3 - Typically outsourced financial services include applications processing, loan origination, credit card
and ______________________ ? RBI Grade B – Grade B – 2022
A. Document processing
B. Investment management
C. Supervision of loans
D. Data processing
E. All of the above
Answer – Option E

Explanation
Typically outsourced financial services include applications processing (loan origination, credit card),
document processing, investment management, marketing and research, supervision of loans, data processing
and back office related activities etc .
Here is the link to the RBI notification - https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2655

Question 4 - There are certain activities which cannot be outsourced by bank, some of them are
_________”A”__________ and ________”B”________.
Identify A from the following option ? RBI Grade B – Grade B – 2022

A. Investment management
B. Core management functions
C. Marketing and research
D. Supervision of loans
Answer – Option B
Explanation
Banks cannot outsource core management functions like corporate planning, Organisation, management and
control and decision-making functions like determining compliance with KYC norms for opening deposit
accounts, according to sanction for loans and management of investment portfolio.
accounts, according sanction for loans and management of investment portfolio.


_________”A”__________ and ________”B”________.
Identify B from the following option ?RBI Grade B – Grade B – 2022

A. Investment management,
B. Determining compliance with KYC norms
C. Data processing
D. Document processing
Answer – Option B
Explanation
Explanation
Question 1 - Which of the following is a non-negotiable instrument? SEBI Grade A – Phase 1 – 2020
A. Demand Drafts
B. Currency Note
C. Bills of Exchange
D. Promissory Note
E. Cheque
Answer – Option B
Explanation -
To solve this question, first let’s understand the concept behind negotiable instrument,
A negotiable instrument is a document “guaranteeing the payment of a specific amount of money”, either on
demand, or at a set time, whose payer is usually named on the document. More specifically, it is a document
contemplated by or consisting of a contract, which promises the payment of money without condition, which
may be paid either on demand or at a future date.
Negotiable instruments can be characterized by the presence of the following features:

➢ Transferrable: These instruments can be easily transferred by the holder to another person either by
delivery or by making a lawful endorsement.
➢ Right to Receive Payment: If the negotiable instrument is not honored on the specified date and the holder
of the instrument doesn’t get the payment then the holder becomes entitled to take legal action against the
payer. This applies even if the instrument was not initially issued to the holder but instead transferred.
➢ Title of Transferee: The transferee of the negotiable instrument gets a clear title to the instrument and is
known as a “holder in due course”. This means that the title of such a transferee who acquired the
instrument by legal means shall not be affected due to the flaw or illegality in the title on account of the
transferor or any other previous holder.
The negotiable instruments can be broadly classified into three types of namely promissory notes, cheques,
and bills of exchange.
Kindly note that a Currency Note is not a negotiable instrument as per section 21 of the Indian Currency Act.
Therefore, the correct option will be option B.

Section C
Explanation
Question 1. Bank X has a foreign account with Bank Y in Bank Y's home currency. For X, this account is called as?
A. Vostro Account
B. Potro Account
C. Loro Account
D. Nostro Account
Answer – Option D
Explanation –
1. Nostro Account - Italian word 'nostro' means 'ours'.
Hence, Nostro account points at - "Our account with you" Nostro accounts are generally held in a foreign
country (with a foreign bank), by a domestic bank (from our perspective, our bank). It obviates that account is
maintained in that foreign currency.
2. Vostro Account - Italian word 'Vostro' means 'yours'.
Hence, Vostro account points at - "Your account with us". Vostro accounts are generally held by a foreign bank
in our country (with a domestic bank). It generally maintained in Indian Rupee (if we consider India)
For example, HSBC account is held with SBI in India.
3. LORO Account - Again, Italian word 'loro' means 'theirs'.
Therefore, it points at - "Their account with them". Loro accounts are generally held by a 3rd party bank, other
than the account maintaining bank or with whom account is maintained.
For example, BOI wants to transact with HSBC, but doesn't have any account, while SBI maintains an account
with HSBC in U.K. Then BOI could use SBI account.
Question 2 - Which of the following type of banks, act as Government of India agent for financial inclusion in
rural areas? RBI Grade B – Phase 2 – 2019
A. 2 BCs
B. Private Banks
C. PSBs
D. RRBs
E. CRR balance
Answer – Option D
Explanation

Question 3 - Typically outsourced financial services include applications processing, loan origination, credit card
and ______________________ ? RBI Grade B – Grade B – 2022
A. Document processing
B. Investment management
C. Supervision of loans
D. Data processing
E. All of the above
Answer – Option E
Explanation
Typically outsourced financial services include applications processing (loan origination, credit card),
document processing, investment management, marketing and research, supervision of loans, data processing
and back office related activities etc.
Here is the link to the RBI notification - https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=2655

_________”A”__________ and ________”B”________.
Identify A from the following option ? RBI Grade B – Grade B – 2022
A. Investment management
B. Core management functions
C. Marketing and research
D. Supervision of loans
Answer – Option B
Explanation

_________”A”__________ and ________”B”________.
Identify B from the following option ?RBI Grade B – Grade B – 2022
A. Investment management,

B. Determining compliance with KYC norms
C. Data processing
D. Document processing
Answer – Option B
Explanation
accounts, according sanction for loans and management of investment portfolio

Section C
Explanation
Question 1. GST has rates are levied in many brackets, which of the following is the maximum GST rate
applicable? RBI Grade B – Phase 2 – 2018
A. 5%
B. 18%
C. 28%
D. 32%
E. 35%
Answer – Option C
Explanation
There are four GST tax slabs 5%, 12%, 18% and 28%.
Question 2. A council which governs all the issues related to GST is headed by __________?. RBI Grade B –
Phase 2 – 2019
A. Prime Minister
B. Finance Minister
C. Finance Secretary
D. Revenue Secretary
Answer – Option B
Explanation
GST Council - is a constitutional body (Article 279A)for making recommendations to the Union and
State Government on issues related to Goods and Services Tax
GST council is a governing body to regulate and direct each and every step for the implementation
of goods and service tax in the nation with decisions over tax rates and further implementation measures.
Question 3. Which of the following items doesn’t come under GST? RBI Grade B – Phase 2 – 2019
A. Gold
B. Petroleum Products
C. Salt
D. Milk
Answer - Option B
Explanation
Article 366(12A)of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the
Goods and Services tax (GST) as a tax on supply of goods or services or both, except supply of alcoholic liquor
for human consumption. So, alcohol for human consumption is kept out of GST by way of definition of GST in
constitution. Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural
gas and aviation turbine fuel have temporarily been kept out and GST Council shall decide the date
from which they shall be included in GST. Furthermore, electricity has been kept out of GST.GST does not
subsume stamp duty or registration charges
Explanation
Question 1. Which tax was replaced by GST and how many slabs are there in GST? SEBI Grade A – Phase 2 –
2018
A. Vat, 3 slabs
B. Service Tax, 5 slabs
C. VAT, 4 Slabs
D. Service Tax, 3 Slabs
Answer – Option C
Explanation
GST has replaced VAT and there are 4 tax slabs in GST, which are 5%, 12%, 18% and 28%.
Question 2. Which type of Tax is handled by the CBDT? SEBI Grade A – Phase 1 – 2020
A. Direct Tax
B. Indirect Tax
C. Both A and B
D. None of A and B

E. There is no such body/organization as CBDT
Answer – Option A
The Central Board of Direct Taxes (CBDT) is the nodal national agency responsible for administering Direct Taxes
in India. While The Central Board of Indirect Taxes and Customs (CBIC) is the nodal national agency responsible
for administering Customs, GST, Central Excise, Service Tax & Narcotics in India.
Question 3. GSTIN is allotted based on _______? SEBI Grade A – Phase 1 – 2020

A. Passport
B. Aadhaar Card
C. Driving License
D. PAN
Answer - Option D
Explanation
The Goods and Service Tax Identification Number (GSTIN) is the unique number each taxpayer will
receive once registered on the common portal. It is based on a taxpayer’s PAN
Question 4. GST is applicable to ____________ ? SEBI Grade A – Phase 1 – 2020

A. Whole of India
B. Whole of India excluding the Union Territories of Jammu & Kashmir and Ladakh
C. Whole of India excluding the north-eastern states
D. Whole of India excluding the Union Territories of Jammu & Kashmir and Ladakh and the north-eastern states
E. None of above
Answer – Option A
Explanation
GST is applicable to all the states and UTs of India.
Question 5. ITNS 281 challan form is used for __________ ? SEBI Grade A – Phase 1 – 2020
A. E-filing of taxes of individual taxpayer
B. Depositing Advance Tax every quarter
C. Refund of taxes
D. Depositing TDS/TCS amount
Answer – Option D
Explanation
Following are some important Challan as issues in India -
• Challan ITNS 280–issued for depositing income tax (includes self-assessment tax, advance tax, tax on
regular assessment)
• Challan ITNS 281–issued for depositing Tax Deducted at Source (TDS) and Tax Collected at Source (TCS)
• Challan ITNS 282–issued for depositing gift tax, wealth tax, Securities Transaction Tax (STT) and other
direct taxes.
• Challan ITNS 283-issuedfor any taxes relating to fringe benefits or banking cash transactions
• Challan ITNS 285-Issuedfor payment of equalization levy
• Challan ITNS 286–Issued for payment under Income Declaration Scheme, 2016.
Question 6. DT in DTAA stands for __________SEBI Grade A – Phase 1 – 2020

A. Double Taxation
B. Direct Tax
C. Discounted Tax
D. Designated Tax
Answer – Option A
Explanation
DTAA stands for Double Taxation Avoidance Agreement.

The Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more countries to help
taxpayers avoid paying double taxes on the same income. Following are additional features of DTAA -
A DTAA becomes applicable in cases where an individual is a resident of one nation but earns income in another.
India has comprehensive double taxation avoidance agreement with 88 countries, out of which 85 have entered
into force.
This means that there are agreed rates of tax and jurisdiction on specified types of income arising in a country
to a tax resident of another country.
Under the Income Tax Act 1961 of India, there are two provisions, Section 90, and Section 91, which provide
specific relief to taxpayers to save them from double taxation.

Question 7. If a hotel provides complimentary breakfast to its guests, then what kind of supply is this in the
context of GST? SEBI Grade A – Phase 2 – 2020
A. Composite Supply
B. Mixed Supply
C. Exempt Supply
D. No Supply
Answer - option A
Explanation
Composite supply means a supply is comprising two or more goods/services, which are naturally bundled and
supplied in with each other in the ordinary course of business, one of which is a principal supply. It means that
the items are generally sold as a combination. The items cannot be supplied separately.
Question 8. Which of the following is applicable on Dynamic QR code on B2C invoices under GST applicable
from 1st July 2021? SEBI Grade A – Phase 2 – 2022
A. All taxpayers with an annual turnover of more than Rs.500 crore in any preceding financial year (starting
from 2017-18) to compulsorily generate a Dynamic QR code on their B2C invoices
B. An insurer or a banking company or a financial institution, including a non-banking financial company
C. A goods transport agency supplying services in relation to transportation of goods by road in a goods carriage
D. Supplying passenger transportation service
E. Supplying services by way of admission to exhibition of cinematograph in films in multiplex screens
Answer – Option A
Explanation
There are two types of QR codes. Static and Dynamic. Static QR
codes do not allow you to change your data to another file once
generated. Therefore, it will redirect you permanently to the
information you have entered.
On the other hand, dynamic QR codes are different. Using this type
of QR code, you can change the content behind it to another
information
Applicability of Dynamic Quick Response Code (QR)

Dynamic Quick Response Code QR is applicable whose aggregate turnover exceeds Rs 500 crores rupees in any
of the financial year from 2017-18 onwards. Hence option A is correct.
Exclusions: – Supplier of taxable services
I. An insurer or a banking company or financial institution, a non- banking financial company. Hence option
B is incorrect.
II. A goods transport agency supplying services in relation to transportation of goods by roads in a goods
carriage. Hence option C is incorrect.
III. Supplying passenger transportation services. Hence option D is incorrect.
IV. Supplying services by way of admission to exhibition of cinematograph in films in multiplex screens.
Hence option E is incorrect
Therefore, the correct answer will be option A.
Explanation
Question 1. The tax structure phenomena under which GST paid on output/final product is lower than the taxes
on input is known as ________ PFRDA Grade A – Phase 1 - 2021
A. Inverted Duty Structure
B. Duplicate Credit
C. Exempt Supply
D. NIL Credit
Answer – Option A
Explanation
The term ‘Inverted Tax Structure’ refers to a situation where the rate of tax on inputs purchased (i.e., GST rate
paid on inputs received) is more than the rate of tax on outward supplies (i.e., GST rate payable on sal es).
Question 2. Which of the following is a form of Tobin Tax in India? PFRDA Grade A – Phase 2 - 2021
A. STT
B. GST
C. Income Tax
D. Both B and C
Answer – Option A
Explanation
STT is a form of Tobin Tax.

The Tobin tax is a tax levied on spot currency conversions, with the intention of disincentivizing short-term
currency speculation, named after economist James Tobin.
India already has a form of Tobin tax in place—the Securities Transaction Tax (STT). Introduced in 2004, the STT
is levied on every transaction of securities listed on the stock exchanges and mutual funds

Section C
Explanation
Question 1. The fiscal deficit target for the year 2018-19 is _________________ ? RBI Grade B – Phase 2 – 2018
A. 2.2%
B. 3.3%
C. 4.4%
D. 5.5%
Answer – Option B
Explanation
This is a current affairs oriented question, please be informed that all the targets of the FRBM act have been
revised and for the updated targets please refer to the concept notes for the same.
Question 2. Under FRBM, government can borrow from RBI through which of the following option. RBI Grade
B – Phase 2 – 2018
A. Bonds
B. Long Term Loans
C. Ways and Mean Advances
D. Securitization
Answer – Option C
Explanation
The Reserve Bank of India (RBI) gives temporary loan facilities to the central and state governments.
This loan facility is called Ways and Means Advances (WMA).
The Ways and Means Advances scheme was introduced in 1997.
The government can avail of immediate cash from the RBI, if required. But it has to return the amount within
90 days. Interest is charged at the existing repo rate

Explanation
Question 1. In the FRBM Act, the clause that states that the government can deviate from its annual fiscal deficit
target in situations of calamity and national security is the _______ ? PFRDA Grade A – Phase 1 - 2021
A. Swing Clause
B. Rule Clause
C. Escape Clause
D. Backup Clause
Answer – Option C
Explanation
In the FRBM Act, the clause that states that the government can deviate from its annual fiscal deficit target in
situations of calamity and national security is the Escape Clause.

Questions asked in phase 1 and phase 2 of the PFRDA Grade A exam, starting from 2021 onwards
No questions were asked from this topic in PFRDA Grade A exam.
Section B
Answer Key

Question 1 Option B
Question 2 Option D
Question 3 Option E
Section C
Explanation
Question 1. Finance Commission has been constituted under which of the following article of constitution? SEBI
A. Article 279
B. Article 280
C. Article 281
D. Article 282

Answer – Option B
Explanation
Finance Commission has been constituted under Article 280 of the Indian Constitution
Article 280 of the Indian Constitution reads: President should, within two years of commencement of the
Constitution and thereafter on expiry of every 5th year, or at such intervals as he/ she thinks necessary, would
constitute a Finance Commission
Question 2. Who is the Chairman of 15th Finance Commission?. SEBI Grade A – Phase 1 – 2018
A. Shaktikant Das
B. Anoop Singh
C. Ashok Lahiri
D. NK Singh
Answer – Option D
Explanation
This is a current affairs-oriented question. The current chairman of the 15th Finance commission is Nand Kishore
(NK) Singh
Question 3. As per the recommendations of the 15th Finance Commission, which of the following is not one of
the four themes mentioned in devolution of Performance Based Incentives and Grants to States? SEBI Grade A
– Phase 2 – 2022
A. Social Sector
B. Rural Economy
C. Power Sector Reform
D. Government and Administrative Reforms
E. Manufacturing Reform
Answer – Option E
Explanation
As per 15th Finance Commission, Performance Based Incentives and Grants to States revolve around four main
themes.
• The first is the social sector, where it has focused on health and education. Hence option A is correct.
• Second is the rural economy, where it has focused on agriculture and the maintenance of rural roads.
Hence option B is correct
• Third, governance and administrative reforms under which it has recommended grants for judiciary,
statistics and aspirational districts and blocks. Hence option D is correct
• Fourth, it has developed a performance-based incentive system for the power sector, which is not
linked to grants but provides an important, additional borrowing window for States. Hence option C is
correct
Therefore, option E is the odd-one out and it’s the correct answer.

Section C
Explanation
Question 1. Systematic risk can be measured with the help of coefficient which measures the stocks relative
volatility with respect to whole stock market. What is this coefficient called? RBI Grade B – Phase 2 – 2017
A. Vega
B. Gamma
C. Alpha
D. Delta
E. Beta
Answer – Option E
Explanation
In finance, the beta (β or beta coefficient) of an investment indicates whether the investment is more or less
volatile than the market.
In general, a beta less than 1 indicates that the investment is less volatile than the market, while a beta more
than 1 indicates that the investment is more volatile than the market.
Question 2. If the Risk-Weighted Assets of the bank are 560 million. What should be the Capital Employed by
the bank as per Basel and RBI Norms in millions? RBI Grade B – Phase 2 – 2017
A. 44.8,44.8
B. 44 .8,50.4
C. 50.4,50.4
D. 50.4,44.8
Answer – Option B
Explanation
As per Basel Norms, the capital employed shall be 8% of CRAR.
CRAR as per question is 560 Million, so as per Basel Norms, capital employed = 8%*560 Million = 44.8 Million
As per RBI, minimum capital employed shall be 9, so capital employed as per RBI = 9%*560 = 50.4 Million.
Therefore option B is correct.

Question 3. Which of the following types of risk are considered as Risks in Basel 3 norms? RBI Grade B – Phase
2 – 2018
A. Market Risk
B. Credit Risk
C. Liquidity Risk
D. Only 1 and 3
E. Only 1 and 2
Answer – Option E
Explanation
The question is very clear and straight, along with Credit Risk and Market Risk, Basel 2 and Basel 3 norm also
consider Operational Risk while calculating the minimum capital.
Question 4. Which of the following are 3 pillars of Basel 2? RBI Grade B – Phase 2 – 2018
1. Capital Requirement
2. Supervisory Review
3. Operational Liquidity
4. Market Discipline
A. 1,2 and 3
B. 1,2 and 4
C. 2,3 and 4
D. 1,3 and 4
Answer – Option B
Explanation
Basel 2 norms has 3 pillars
• Pillar 1 - Minimum capital requirements

• Pillar 2 - Supervisory review process
• Pillar 3 - Market discipline
Question 5. Which of the following are Basel 3 Capital Components? RBI Grade B – Phase 2 – 2018
A. Tier 1 Capital
B. Tier 2 Capital
C. Capital Conservation Buffer
D. 1 and 2
E. 1,2 and 3
Answer – Option E
Explanation
Basel III is intended to further strengthen the risk management at bank especially after looking into devastation
caused by global financial crisis in 2008. It was announced in 2010.
Major Changes that were Proposed in Basel 3 over earlier Accords – Basel 1 and Basel 2 are given below
1. Better Quality of Capital ( including Tier 1 and Tier 2 capital)

2. Capital Conservation Buffer
3. Countercyclical Buffer
4. Leverage Ratio
5. Liquidity Ratios
6. Systematically Important Financial Institutions (SIFIs)
Question 6. Geneva based Basel committee on Banking supervision has come up with Basel Norms, the
committee has been formed to address which of the following issues? RBI Grade B – Phase 2 – 2019
A. Market risk
B. Political risk
C. Risks Faced by the Banks
D. Reputation risk
Answer – Option C
Explanation
All the Basel Norms are introduced to reduce various types of risk which are faced by banks. Therefore the
correct answer will be option C.
Option A, B and D are just there to confuse you.
Question 7. In Banking Sector, Market risk arises mainly due to _____________ ? RBI Grade B – Phase 2 – 2019
A. Political factors
B. External factors
C. Natural calamities
D. Internal factors
Answer – Option B
Explanation
Market Risk (Also known as Price Risk)
The market risk arises due to un-favorable movement in market prices in the investments done by bank.
Suppose bank has invested in Equities (Stock market) but stock market crashes then banks would make a loss.
Banks generally invests in products which are related to price of Commodities, Shares, Currency movement (You
will learn this concept in Derivatives in detail). So, investment in such products can lead to market risk. Market
Risk is also called Price Risk
Question 8. Operational Risk in an organization arises from which of the following reasons? RBI Grade B – Phase
2 – 2019
A. New regulatory norms

B. Inadequate internal control process
C. Inadequate external control process
D. Strict internal control process
Answer – Option B
Explanation
Operational loss has mainly three exposure classes namely people, processes, and systems. In other words, in
arise due to bad intentions of staff, hacking of systems or wrong systems in place to meet the compliance. The
failure in internal controls or corporate governance which leads to financial loss through error or frauds is also
part of operational risk
Explanation
Question 1. Which of the following is not a credit risk safety instrument ? SEBI Grade A – Phase 1 - 2018
A. Mortgage
B. Collateral
C. Insurance
D. Interest rate Swap
E. None of Above

Answer – Option D
Explanation
Interest Rate Swaps are derivative instrument (swap), these instruments are used to hedge the different
positions which are taken in the foreign exchange market. Mortgage, collateral and insurance are purely credit
safety instruments, as these instruments protects one party from the loss of non-fulfilment of the payment
obligation from other party.
Question 2. Who represents the Basel Committee from India? SEBI Grade A – Phase 1 - 2018
A. Finance Minister
B. Finance Secretary
C. RBI Governor
D. Chairman of RBI
Answer – Option C
Explanation
In India, RBI is the implementing body for Basel Norms, therefore RBI Governor is the person who represents
the India on the Basel Committee.
Question 3. As per Basel 3 laws what is the condition of Tier2 Capital? SEBI Grade A – Phase 1 - 2018
A. 2% of Risk Weighted Assets
B. 3% of Risk Weighted Assets
C. 4% of Risk Weighted Assets
D. 6% of Risk Weighted Asset
Answer – Option A
Explanation
As per Basel 3 Norms
A - Tier 1 Capital/RWA – minimum capital ratio is 6% (Also called Tier 1 Capital Ratio)
B - Tier 2 Capital/RWA – Max Capital ratio is 2% (Also called Tier 2 Capital Ratio)
C - So, Min. Tier1 Capital ratio be 6%. In India recommends min of 7% Min. overall (Tier 1 + Tier 2) Capital Ratio
= 8%. In India RBI Recommends min of 9%
So, with in min. overall capital ratio of 8% (as per RBI 9%), Tier 2 Capital ratio can be max. of 2%

Explanation
Question 1. Default risk in case of government securities is _______? PFRDA Grade A – Phase 1 - 2021
A. Higher than equity markets
B. Higher than commodity markets
C. Higher than Corporate Debt
D. Zero
Answer – Option D
Explanation
Government securities are issued and backed by a sovereign guarantee and therefore all the government
securities are practically having zero default risk.

Explanation
Question 1. If the total Assets are – Rs 36,000; Liabilities are – Rs 16,000; What is the amount of Equity? SEBI -
Grade A – 2020
A. Rs20,000
B. Rs52,000
C. Rs56,000
D. Rs10,000
E. None of the Above
Answer – Option A
Explanation
As we all know that accounting Equation is given by Assets = Liabilities + Equity (share capital)
Here, Assets = 36,000 and Liabilities are 16,000.
Apply the formula, and you will get equity as 20,000, therefore the correct answer will be option A
Question 2 – Current assets are assets expected to be realized within ________ SEBI Grade A – Phase 1 -
2020
A. 90 days
B. 180 days
C. 1 year
D. 2 years
Answer – Option C
Explanation:
Any asset which is expected to last or be in use for less than one year is considered as current assets. In other
words current assets are those assets which are held by the business with the purpose of converting them into
cash within a short period, i.e., one year. For e.g., Debtors, Bill receivables, Stock etc.
Hence, Option C is the correct answer. All other options are incorrect.

Explanation
Question 1 – XYZEE Ltd. has sales of $300,400, cost of $200,070, depreciation expense of $28,600, interest
expense of $1,000, and a tax rate of 34%. The firm paid out $16,000 in dividends. What is the addition to retained
earnings? PFRDA Grade A – Phase 1 - 2021
A. Rs 25,500
B. Rs 30,681
C. Rs 42,270
D. Rs 33,000
Answer – Option B
Explanation:
Income Statement
Sales 300,400
Cost of Goods Sold 200,070
Gross Profit 100,330
Operating Expense
Depreciation 28,600
Total Operating Expense (28600)
Operating Income (EBIT) 71,730
Non-Operating or Other
Interest Expense (1000)
Total Non-Operating Income (1000)
Profit Before taxes (EBT) 70,730
Taxes (34%) 34% of 70,730 = 24,048.2
PAT or Net Income 46,682
Remarks: The values in ( ) indicates the negative value or the expenses
If 16,000 of the net profits after tax was paid out in dividends, then 30,681 (46,682 - 16,000) was left over for
the retained earnings account
Note: This is not the exact numerical. We have recreated this based on the feedback from students.
Hence, Option B is the correct answer. All other options are incorrect.

Section C
Explanation
Question 1. For a firm Consider the following financial parameters -
Net Profit = Rs 30,000 and
collection from debtors = Rs 2500.
Amount Paid to creditors = Rs 7500.

What is the net cash flow from operations? SEBI Grade A – Phase 2 - 2020
A. Rs 32,500
B. Rs 25,000
C. Rs 27,500
D. Rs 35,000
E. None of above
Answer – Option B
Explanation
Here, you will have to understand that how an increase or decrease in current assets and current liabilities affect
the cash flow of an organisation.
Collection form debtors would have resulted in cash-inflow and amount paid to creditors would result in cash-
outflow, thereby
30,000 + 2500 (Decrease in current Assets) – 7500 (Decrease in current liabilities) = 30,000 – 5000 = 25,000.
Therefore, net cash flow from operations will be 25,000.
Question 2 - Which of the following is not a component of cash flow from operations SEBI Grade A – Phase 2 -
2020
A. Settling off trade payables
B. Collection from debtors
C. Both A and B
D. Payment to supplier of machinery
Answer – Option D
Explanation
Operating activities are the activities that constitute the primary or main activities of an enterprise. For example,
for a company manufacturing garments, operating activities are procurement of raw material, incurrence of
manufacturing expenses, sale of garments, etc. These are the principal revenue generating activities (or the
main activities) of the enterprise and these activities are not investing or financing activities.
Payment to supplier of machinery will be an Investing Activity for the organisation. Thereby the correct answer
will be option D.

Explanation
Question 1 – Study the following details about Company “X Ltd”
• Profit After Tax = 1,20,000

• Shareholders Fund = 5,00,000
• Long Term Debt = 1,00,000
From the above given information calculate Return on Capital Employed (ROCE) for company “X Ltd” . RBI Grade
B – Phase 2 - 2017
A. 18.8%
B. 20.8%
C. 25%
D. 20%
E. 24.8%
Answer – Option D
Explanation
Return on capital employed is a financial ratio that measures a company’s profitability in terms of all of its
capital. Following is the formula for Return on capital employed.
ROCE = Earnings / Capital Employed, in the question, earning is directly given to you, which is Rs. 1,20,000
and capital employed = Long term Debt + Shareholders fund, which will be 1,00,000 + 5,00,000 = 6,00,000
Now use the formula, ROCE = 1,20,000/6,00,000 = 20%

Hence the correct answer will be option B.
Question 2. Return on Investment is a very important measure for company to find out whether it is going in
right direction or not. What type of parameter/ratio return on investment is? RBI Grade B – Phase 2 - 2018
A. Liquidity
B. Profitability
C. Solvency
D. Turnover Ratios
E. None of Above
Answer – Option B
Explanation

Return on Investment is a Profitability ratio
Explanation
Question 1. What kind of ratio is a Current Ratio? SEBI Grade A – Phase 1 – 2020
A. Liquidity
B. Activity
C. Profitability
D. Solvency
Answer – Option A
Explanation
Current Ratio is a liquidity ratio.

Question 2 – Find the Asset Turnover Ratio from the following given details. SEBI Grade A – Phase 2 – 2020
• Total Assets = Rs. 90,00,000

• Return on Asset = 9%
• Net Profit Ratio = 5%
A. 1.7
B. 1.8
C. 2.7
D. 2.3
E. None of Above
Answer – Option B
The asset turnover ratio, also known as the total asset turnover ratio, measures the efficiency with which a company
uses its assets to produce sales.
The formula for Asset turnover ratio is Sales/ Total Assets*100.
In this question, the value of denominator (total assets) is directly given to you, which is Rs. 90,00,000
But the main deal is to find the total sales. You can use the following steps to arrive at the figure of total sales
Step 1 – Use Return of Assets ratio
• In the question, return on assets is given as 9%, as we know that Return on assets is calculated by the following
formula
• Return on Assets = Profit After Tax/Total Assets,
• In the question, Return on Asset is given as 9% and total assets is Rs. 90,00,000
• Apply and use the formula now
• Profit After Tax = 90,00,000*9% = Rs. 8,10,000
• Please note that Profit After Tax is also known as Net Profit.
Step 2 – Use Net Profit Ratio
• We all known that Net Profit Ratio is calculated as following

• Net Profit – Net Profit/Total Sales
• In the given question, Net profit ratio is given as 5%, net profit (as we calculated in the step 1) is Rs 8,10,000. Now
apply these two values in the given formula
• Sales = 8,10,000/5 = Rs. 1,62,000
Step 3 – The final answer.
• Now we have the Sales figure and Total assets was directly given in the question.
• Sales = 1,62,000 and total assets = 90,00,000
• Asset turnover ratio is expressed Sales/ Total Assets = 1,62,000/90,00,000*100
• Finally, Asset turnover ratio = 1.8
Hence the correct answer will be option B.
Question 3 – Using the information given below, calculate the Interest Coverage Ratio. SEBI Grade A – Phase
2 - 2022
Net Profit After Tax Rs. 60,000

Tax Rate 40%
15% Long Term Debt Rs. 10,00,000
A. 1.35
B. 1.5
C. 1.67
D. 1.98
Answer – Option C
Explanation –
Interest Coverage Ratio= Earnings before Interest and Taxes (EBIT)/ Interest Expense
• Net Profit after Tax = Rs 60,000

• Tax rate = 40% = 0.4
• Therefore, Profit before tax = 60,000/ (1-0.4) =Rs. 1,00,000
• Interest on Long term Debt (Interest Expense) = 15% of 10,00,000 = Rs 1,50,000
• EBIT = Profit Before Tax + Interest = 100000+150000 = 2,50,000
• Interest coverage Ratio = 250000/150000 = 1.67
• Hence, Option C is the correct answer. All other options are incorrect.
Question 4 – Calculate the Book value per share of ABC limited using the information given below: SEBI Grade
A – Phase 2 - 2022
Profit After Tax Rs 1,75,000

Issued Share Capital 70,000 shares @10 each
Market Value of share Rs 13
A. 11
B. 12.5
C. 9.5
D. 14
Answer – Option B
Explanation –
The book value per share formula is used to calculate the per share value of a company based on its equity
available to common shareholders.
• In the given question, Equity Capital = 70,000 X 10 = 7,00,000

• A reserve or Accumulated Profits or Losses refers to the share of profit saved by the business/firm for future
growth or expansion and to handle the situation of losses in the future.
• Therefore, Accumulated Reserves = Profit after tax = Rs 1,75,000
• Therefore, Book Value per share = (700000+175000)/70000 = 12.5
• Hence, Option B is the correct answer. All other options are incorrect

Explanation
Question 1 – Which of the following is a type of liquidity ratio? PFRDA Grade A – Phase 1 - 2021
A. Debt-Equity Ratio
B. Acid Test Ratio
C. ROCE Ratio
D. Interest Coverage Ratio
E. ROI Ratio
Answer – Option B
Explanation –
• Acid Test Ratio is a type of liquidity ratio.
• It is also known as the Quick or Liquidity Ratio.
• Quick ratio = Quick Assets : Current Liabilities or Quick Assets/Current Liabilities
• The quick assets are defined as those assets which are quickly convertible into cash.
• While calculating quick assets we exclude the inventories at the end and other current assets such as prepaid
expenses, advance tax, etc., from the current assets.
Additional Information:
• Return on Investment (ROI) or Return on Capital Employed (ROCE) is a type of Profitability Ratio. Hence,
Option C and E are incorrect.
• Debt-Equity Ratio and Interest Coverage Ratio are types of Solvency Ratio. Hence, Option A and Option D
are incorrect.
Question 2 – Calculate the current ratio from the following given information. PFRDA Grade A – Phase 2 -
2021

A. 2.26
B. 3.07
C. 1.66
D. 2.05
E. 6.74
Answer – Option B
Explanation
Current Ratio = Current Assets / Current Liabilities
• Current Assets = Sundry Debtors + Cash in Hand + Inventories = ₹ (20,00,000 + 10,00,000 + 1,00,000) = ₹
31,00,000
• Current Liabilities = Sundry Creditors + Bank Overdraft = ₹ (5,50,000 + 4,60,000) = ₹ 10,10,000
• Therefore, Current Ratio = ₹ 31,00,000 / ₹ 10,10,000 = 3.069 or 3.07 approx
NOTE: The figures of the given question are not an exact replica of the question as it appeared in the exam.
We have tried to incorporate the question with the limited data available to us in a way that carries the
essence or the main part of the question as it appeared in the examination.
Question 3 – From the given information calculate the Asset Coverage Ratio. PFRDA Grade A – Phase 2 – 2021
• Cash & Equivalents = $50m

• Accounts Receivable = $30m
• Property, Plant & Equipment = $100m
• Intangible Assets = $20m
• Accounts Payable = $60m
• Short-Term Debt = $20m
• Long-Term Debt = $40m
A. 1.0
B. 1.5
C. 2.0
D. 2.5
E. 3.0
Answer – Option C
Explanation
• The Asset Coverage Ratio measures the number of times a company could hypothetically repay its debt
obligations post-liquidation of its tangible assets.
• Higher asset coverage ratios imply lower financial risk associated with the borrower in question.
• The asset coverage ratio determines if a company’s liquidated assets can sufficiently cover its debt
obligations and liabilities in case its earnings falter unexpectedly.
• Asset Coverage Ratio = [(Total Assets – Intangible Assets) – (Current Liabilities – Short-Term Debt)] / Total
Debt
• The asset coverage ratio represents the number of times that a company can repay its debt using the
proceeds from the liquidation of its tangible assets.
• The rationale behind leaving out intangible assets from the calculation is that intangibles cannot be easily
sold (or even be valued objectively).
• The subsequent step is to subtract current liabilities on the numerator, but note that short-term debt is NOT
included.
• Current liabilities refer to non-financial, short-term obligations such as accounts payable (A/P), which are
payments owed to suppliers/vendors.
• As for the denominator, the calculation should be straightforward, as it is simply the short-term debt plus
long-term debt.
• Here, in this question, the company has current assets of $80m and total assets of $200m – of which $20m
are from intangible assets.
• The tangible assets amount to $180m ($200m – $20m).
• On the other side, the company has $80m in current liabilities and $120m in total liabilities, with $20m in
short-term debt and $40m in long-term debt.
• Written out, the formula for calculating the asset coverage ratio is as follows:
• Asset Coverage Ratio = [($200m – $20m) – ($60m – $20m)] / ($40m + $20m)
• The asset coverage comes out to 2.0x. In other words, if the company’s tangible assets were liquidated and
current liabilities were taken care of, the short-term and long-term debt obligations could be paid off twice.
• To reiterate from earlier, the higher the asset coverage ratio, the less risk there is for the company (i.e.,
the borrower has sufficient proceeds post-liquidation to cover its outstanding debt), the company appears
to be financially sound.
Hence, Option C is the correct answer. All other options are incorrect.
Question 4 – Company X has reported the below figures: PFRDA Grade A – Phase 2 – 2021
• Equity Share Capital: ₹500000
• Preference Share Capital: ₹600000
• Long Term Debentures: ₹200000
• EBIT: ₹90000
Based on the above information, you are required to calculate ROCE.

A. 6.92
B. 4.51
C. 5.36
D. 4.25

E. 6.13
Answer – Option A
Explanation
• The Capital employed can be calculated as per below:
• Capital Employed = 500000 + 600000 + 200000
• Capital Employed = 1300000
• Calculation of return on capital employed (ROCE) can be done as follows:
• ROCE = 90,000 /1300000
• Return on Capital Employed will be = 6.92 (approx)
Hence, Option A is the correct answer. All other options are incorrect.
Question 5 – EBIT to Sales Ratio is also known as _________ PFRDA Grade A – Phase 2 – 2021
A. Interest Coverage Ratio

B. Proprietary Ratio
C. Assets Turnover Ratio
D. Return on Capital Employed Ratio
E. Operating Profit Ratio
Answer – Option E
Explanation –
• EBIT to Sales Ratio is also known as Operating Profit Ratio
• Operating Profit Margin is a profitability or performance ratio that reflects the percentage of profit a
company produces from its operations, prior to subtracting taxes and interest charges.
• It is calculated by dividing the operating profit by total revenue and expressing as a percentage. The
margin is also known as EBIT (Earnings Before Interest and Tax) Margin.
Hence, Option E is the correct answer. All other options are incorrect.
Additional Information:
• Interest Coverage Ratio: It is a ratio which deals with the servicing of interest on loan. It is a measure of
security of interest payable on long-term debts. It expresses the relationship between profits available
for payment of interest and the amount of interest payable. Hence, Option A is incorrect.
• Proprietary Ratio: It expresses relationship of proprietor’s (shareholders) funds to net assets. Hence,
Option B is incorrect.

• Assets Turnover Ratio: It reflects relationship between revenue from operations and net assets (capital
employed) in the business. Hence, Option C is incorrect.
• Return on Capital Employed Ratio: It explains the overall utilisation of funds by a business enterprise.
Capital employed means the long-term funds employed in the business and includes shareholders’
funds, debentures and long-term loans. Alternatively, capital employed may be taken as the total of non-
current assets and working capital. Profit refers to the Profit Before Interest and Tax (PBIT) for
computation of this ratio. Hence, Option D is incorrect.
Question 6 – Calculate the Average age of Receivable from the following data. PFRDA Grade A – Phase 2 –
2021
• Credit Sales = ₹72,00,000
• Average Accounts Receivable = ₹12,00,000
A. 60 days
B. 45 days
C. 90 days
D. 180 days
E. 72 days
Answer – Option A
Explanation
Average age of Receivables = 360 / Debtor Turnover Ratio
(No. of days in a Financial Year is 365 days but we generally calculate the aging by multiply of 360 days to avoid
fractions.)
Debtor’s Turnover Ratio = Credit Sales / Average Accounts Receivables
=> Debtor’s Turnover Ratio = ₹72,00,000 / ₹12,00,000 = 6
Therefore, Average age of receivables = 360 / 6 = 60 days.
Hence, Option A is the correct answer. All other options are incorrect.

Section B
Answer Key

Question 1 Option D
Question 2 Option D
Section C
Explanation
Question 1. In the world of finance, it has been seen that in hypothecation_________? RBI Grade B – Phase 2 -
2019
A. Only Possession of asset is transferred
B. Only ownership is transferred
C. Both possession & ownership is transferred
D. Neither Possession & ownership is transferred
Answer – Option D
Explanation

The term Hypothecation' means a charge in or upon any moveable property, existing or future, created by
a borrower in favour of a secured creditor, without delivery of possession of the moveable property to
such creditor, as a security for financial assistance.
Major features of Hypothecation
• The mortgage of moveable property is called ‘hypothecation’.

• Hypothecation differs from pledge because goods remain in the possession of the borrower.
• Hypothecation differs from mortgage in two respects. Firstly, mortgage related to immoveable
property whereas hypothecation relates to movable. Secondly, in a mortgage, there is transfer of
interest in the property to the creditor but in hypothecation there is only obligation to repay money and
no transfer of interest.
Question 2. Which of the following is not a fund-based transaction? RBI Grade B – Phase 2 - 2019
A. Recurring Deposit
B. Fixed credit
C. Cash credit
D. Letter of credit
Answer – Option D
Explanation
Non fund credit facilities can be defined as the services that are provided by the bank or other financial institutions,
wherein there is no flow of funds from banks. Here, transfer of real cash doesn’t take place at all.
Types of Non-fund-based credit facilities
• Bank Guarantee facility

• Letter of credit facility
• Underwriting and credit guarantee facilities

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RBI Grade B questions

Question Number Answer

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Number of years = 72/8 = 9 Years.

Therefore, the correct answer will be option C

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This question is based on the formula of Future value of annuity, which is

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Key features of zero-coupon bonds

A. They have fixed payments at regular intervals but no payment at maturity

Key features of zero-coupon bonds

Wherein, n = number of payments

M = value at maturity, or par value and i = interest rate, or required yield

In this question, M = 1000, N is 3 years and i = 8%

Substitute the values in the formula, Bond price = 1000/(1+0.08)^3

Bond price = 1000/1.2597 = 793, Therefore A is correct answer.

YTM is calculated as below

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YTM is calculated as below

A. When Prices increases, yield decreases

• Price of bond is inversely related to Interest Rates

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SEBI Grade A questions

Question Number Answer

PFRDA Grade A questions

Question Number Answer

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A. 10% and !0%

So, in the first case, the overall profit will be 40%.

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There are four types of Derivative Contracts

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A. Gold and Silver Market

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Herein, we will use a formula

Margin call price = 60*1-0.40/1-0.20, which will be, 60*0.60/0.80

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There are four types of Derivative Contracts

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Question Number Answer

PFRDA Grade A questions

Question Number Answer

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A put option is an option contract giving the owner

Buyer of the Put option believes that price of share

A. The number of long contracts

Gamma = Change in an option delta/ Unit change in price of underlying asset

Vega = Change in an option premium/ Change in volatility

 Rho = Change in an option premium/ Change in cost of funding the underlying

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A. Tangible Net Worth would increase

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Under Offer to public there are 3 types of Investors

1. Retail Investor: The one which invests less than 2 lakhs

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A. Depositories are integrated part of stock market

It gives Central Government regulatory jurisdiction over -

(a) stock exchanges through a process of recognition and continued supervision,

Margin call price = 601-0.40/1-0.20, which will be, 600.60/0.80