Financial Markets
Which institution is the central bank and monetary authority of India?
The Reserve Bank of India (RBI).
What is the name of India's oldest major stock exchange, established in 1875?
The Bombay Stock Exchange (BSE).
What is the basic principle that generally states that investors expect greater potential returns for accepting greater risk?
The risk-return trade-off.
What type of analysis evaluates a company's financial statements, industry, management, and economic conditions to estimate its value?
Fundamental analysis.
What investment strategy involves spreading money across different securities to reduce portfolio risk?
Diversification.
What market deals with short-term financial instruments such as Treasury Bills and Commercial Paper?
The money market.
Name either of the two major depositories that hold securities in electronic form in India.
NSDL or CDSL
Which measure is commonly used to measure the volatility of an investment's returns?
Standard deviation.
If a company's share price is ₹500 and its earnings per share are ₹25, what is its P/E ratio?
20 times.
Calculation: ₹500 ÷ ₹25 = 20.
What is the process of deciding how much of a portfolio should be invested in equities, bonds, cash, and other asset classes?
Asset allocation.
Which Indian institution regulates the securities market and protects investors in securities?
The Securities and Exchange Board of India (SEBI).
In India's equity cash market, what does the T+1 settlement cycle mean?
The transaction is generally settled one business day after the trade date.
What does a beta of 1 indicate about a stock's sensitivity to market movements?
The stock is expected to move approximately in line with the overall market.
What does EPS stand for, and how is it generally calculated?
Earnings Per Share; it is generally calculated as earnings available to equity shareholders divided by the number of outstanding equity shares.
What ratio measures the excess return earned per unit of total portfolio risk?
The Sharpe ratio.
n India, which market is used by companies to raise long-term funds through instruments such as equity shares and debentures?
The capital market
A company offers existing shareholders the right to purchase additional shares, usually at a specified price. What is this called?
A rights issue.
Under CAPM, if the risk-free rate is 6%, beta is 1.2, and the market risk premium is 8%, what is the expected return?
15.6%.
Calculation: 6% + (1.2 × 8%) = 15.6%.
What valuation approach calculates the present value of a company's expected future cash flows?
Discounted Cash Flow (DCF) valuation.
An investor periodically adjusts a portfolio back to its original target percentages after market movements change the asset weights. What is this process called?
Portfolio rebalancing.
A company issues shares to investors for the first time through an IPO. In which segment of the financial market does this transaction take place?
The primary market.
What mechanism automatically stops trading in the market when prices move beyond specified limits during extreme market movements?
Circuit breakers.
What type of risk cannot be eliminated through diversification and is associated with economy-wide factors such as inflation, interest rates, and recessions?
Systematic risk or market risk.
An analyst examines India's GDP growth, inflation, interest rates, industry conditions, and then evaluates a particular company. What three-level approach to fundamental analysis is being used?
Economy–industry–company analysis.
According to Modern Portfolio Theory, what type of portfolio provides the highest expected return for a given level of risk?
An efficient portfolio.