Capital Market Instruments and FDI

Chapter-1 Capital Market Instruments
Self Assessment Questions
1. The preliminary prospectus, which has a statement on its cover that the registration statement
has not yet become effective, is referred to as a (an) ..
a) red herring
b) registration statement
c) underwriting syndicate
d) standby arrangement
2. A market where new securities are bought and sold for the first time is known as a
. market.
a) primary
b) secondary
c) tertiary
d) capital
3. A market for existing (used) securities, such as the NYSE or AMEX, rather than new issues is
known as the .market.
a) primary
b) secondary
c) tertiary
d) capital.
4. A market for relatively long-term (greater than one year original maturity) financial
instruments (e.g., bonds and stocks) is known as the market.
a) primary
b) secondary
c) tertiary
d) capital
5. Which securities law requires that public offerings be registered with the federal government
before they are sold?
a) Underwritten Rule 144a.

b) Blue Sky Laws.
c) Securities Exchange Act of 1933.
d) Securities Exchange Act of 1934.
6. Which securities law regulates the secondary market for long-term securities already
outstanding?

b) Blue Sky Laws.
7. An arrangement with a single investment banker or group of investment bankers to "stand

by" and be ready to underwrite any unsold portion of an issue, is referred to as a (an)
.
a) red herring
8. Which securities law(s) is (are) involved with state laws regulating the offering and sale of
securities?

b) Blue Sky Laws.
9. Which of the following is privately placed common stock that cannot be immediately resold?
a) Red herring.
b) Letter stock.
c) Initial public offering.
d) Right.
10. Which of the following is a short-term option to buy a certain number of securities from the
issuing corporation?
a) Red herring.
b) Letter stock.
c) Initial public offering.
11. Which of the following statements is correct regarding asymmetric information?

a) Asymmetric information is a theory of information flow, which has been proven to not
have relevance in the financial market place
b) This is a theory where investors have better information than myopic (shortsighted)
management.
c) This occurs when one party, say management, has better information than another
party, say investors, about relevant information to each party.
d) This occurs when one party has relevant information and uses it to intentionally damage
another party.
12. A temporary combination of investment banking firms formed to sell a new security issue,
can be referred to as a (an) .
a) red herring
13. What happens, according to the text, to the average common stock price immediately after
the announcement of a new equity issue by a publicly traded firm?
a) The average stock price increases a few percentage points.

b) The average stock price decreases a few percentage points.
c) The average stock price does not generally change because no new information is
provided to investors.
d) The average stock price does not generally change because of asymmetric information.
14. Which of the following is not a method a firm can use to publicly issue common stock?
a) Private placement.
b) Firm commitment underwriting.
c) Shelf registration.
d) Best efforts offering.
15. Which of the following is not a method a firm can use to finance their long-term needs
externally?
a) Retained earnings.
b) Public issue.
c) Privileged subscription.
d) Private placement.
16. How are investment bankers generally compensated under traditional underwriting?
a) The stockbroker, representing the investment banker, charges a commission to investors.

b) The leader underwriter in the underwriting syndicate dictates the commission that the
other firms must charge so that investors pay for a majority of the underwriting expense.
c) Investment bankers earn a spread based on the difference between the purchase price
from the firm and the sales price to investors of the securities being underwritten.
d) The issuing firm pays a flat fee, usually $1 million, plus all of the commissions charge by
stockbrokers who are ultimately selling the securities to investors.
17. If the market price of a stock "rights-on" is $50 a share, the subscription price is $40 a share,
and it takes nine rights to buy an additional share of common stock, the theoretical value of a
right when the stock is selling "rights-on " is how much?
a) $1.00
b) $1.11
c) $4.00
d) $5.00
18. The is a disclosure document filed with the SEC in order to register a new
security and includes the prospectus and other SEC required information.
a) red herring
19. What will be the effect if a company makes a transfer from its profit and loss account to a
capital reserve?
a) Current assets will be reduced by the amount of the transfer

b) Total owners' equity will be increased
c) Total owners' equity will be neither increased nor decreased
d) Total owners' equity will be decreased
20. In so far as the distributable profits of a company are concerned, there is no difference
between realized revenue profits and realized capital profits.
a) True
b) False
Answers for Self Assessment Questions
1. (a) 2.(a) 3.(b) 4.(d) 5.(c)
6. (d) 7.(d) 8.(b) 9.(b) 10.(b)
11. (c) 12.(c) 13.(b) 14.(a) 15.(a)
16. (c) 17.(a) 18.(b) 19.(c) 20.(a)
Chapter-2 Capital Market Instruments
1. FDI is an acronym that stands for
A. federation of direct investors.
B. federal diversification initiative.
C. foreign direct investment.
D. formal direct internationalization.
2. occurs, according to the U.S. Department of Commerce, whenever a U.S. citizen,

organization, or affiliated group takes an interest of 10 percent or more in a foreign business
entity.
A. Cross-border international investment
B. Foreign direct investment
C. Reciprocal foreign investment
D. International capital investment
3. The establishment of a wholly new operation in a foreign country is referred to as a(n):
A. outplacement.
B. greenfield investment.
C. acquisition.
D. licensing agreement.
4. The _____ of foreign direct investment refers to the amount of FDI undertaken over a given
period (normally a year). The _____ of foreign direct investment refers to the total accumulated
value of foreign-owned assets at any time.
A. portfolio; current
B. flow; stock
C. source; offshoring
D. advantage; risk
5. The flow of foreign direct investment out of a country is:
A. forfeiture of national investment.
B. speculation of FDI.
C. hedging of FDI.
D. outflow of FDI
6. During the past 30 years, there has been a (n):
A. higher increase in world trade than the FDI.
B. marked increase in both the flow and stock of FDI in the world economy.
C. general increase in trade barriers.
D. shift toward totalitarian political institutions and mercantile market economies.
7. Why has FDI grown more rapidly than world trade?
A. Decline in trade barriers has made the fear of protectionist pressures redundant.
B. Executives see trade as a way of circumventing future trade barriers.
C. The general shift toward radical and totalitarian political institutions.
D. Programs such as privatization have made developing nations attractive for MNEs.
8. Since World War II, _____ has been the largest source country for FDI.
A. the United Kingdom
B. the United States
C. Netherlands
D. France
9. In the case of developing nations, half of FDI is in the form of cross-border merger and
acquisitions.
A. True
B. False
10.
11. Because of the problems associated with doing business in a different culture where the
"rules of the game" may be very different, FDI is risky.
A. True
B. False
12. Which of the following involves granting a foreign entity the right to produce and sell the
firm's product in return for a royalty fee on every unit sold?
A. Franchising
B. Exporting
C. Licensing
D. Foreign Direct Investment
13. which of the following is a risk/problem associated with FDI?
A. A firm could give away a valuable technological know-how to a potential competitor.
B. It becomes unprofitable to ship low value-to-weight ratio products when transportation costs
are high.
C. Firms must bear the cost of establishing a facility in a foreign country where rules of the
game may be different.
D. It creates a risk of a rival getting a commanding position in one market and then using the
profit to subsidize competition in other markets.
14. Some firms undertake foreign direct investment as a response to actual or threatened:
A. trade barriers.
B. economic sanctions.
C. legal action.
D. international appeals
15. If a firm wants to avoid bearing the costs of establishing production facilities in a foreign
country, which of the following would be LEAST advisable?
A. Exporting
B. FDI
C. Licensing
D. Franchising
16. A firm will favor foreign direct investment over exporting as an entry strategy when:
A. transportation costs or trade barriers make exporting unattractive.
B. a firm wishes to maintain control over its technological know-how.
C. a firm wishes to maintain control over its operations and business strategy.
D. the firm's capabilities are not amenable to licensing.
17. Which of the following theories fails to identify when it is profitable to invest abroad?
A. Investment theory
B. Multipoint competition theory
C. Eclectic paradigm
D. Product life-cycle theory
18. Executives see FDI as a way of circumventing future trade barriers.
A. True
B. False
19. Which of the following is NOT a home-country benefit source to FDI?
A. National sovereignty and autonomy of host countries is reduced.
B. The home country's balance of payments improves.
C. Positive employment effects.
D. Home country MNE learns valuable skills from its exposure to foreign markets.
20. Double taxation of foreign income refers to:
A. taxation of income in both the host country and the home country.
B. tax on the amount of earnings that can be repatriated and tax on the imports from abroad.
C. tax on the profit earned by the corporate and the tax on the dividend earned by shareholders.
D. taxation on capital outflow and capital inflow by the host country.

1. (c) 2.(b) 3.(b) 4.(b) 5.(d)
6. (b) 7.(d) 8.(b) 9.(b) 10.(a)
11. (a) 12.(c) 13.(c) 14.(a) 15.(b)
16. (a) 17.(d) 18.(a) 19.(a) 20.(a)
Chapter-3 Indian Financial System-an Overview
1. In which one of the following circumstances is there no consideration?
a) Le-Ann gave Sundeep 80 for her designer handbag.

b) Monica stated that she would give Theresa's children a lift to school every day.
c) Ben promised to clean Edna's car in return for Edna's promise to do Ben's washing up.
d) Bernard gave Timothy 50 for cleaning his motorbike.
2. Which one of the following statements is not correct?
a) Executed consideration is where, at the time of the contract, consideration has already
been performed.
b) Executory consideration is where something is to be done in the future.
c) Consideration need not benefit the promisor.
d) Executed consideration usually occurs in bilateral contracts.
3. In which one of the following circumstances would consideration be valid?
a) Tammy promised Daniel the biggest bedroom as he was the oldest child.
b) Ella looked after Carla's dog while she was on holiday and when Carla returned she
promised 20 to Ella.
c) Richard promised Katharine 100 if she would stop complaining.
d) Thomas promised Roberto 2 for his house.
4. Which one of the following statements is incorrect?
a) Performance of a pre-existing contractual duty will never be valid consideration.

b) Performance of a pre-existing contractual duty is generally not valuable consideration.
c) Payment of a lesser sum on the day in satisfaction of a greater cannot be any satisfaction
for the whole.
d) Where a person is merely carrying out duties they are legally obliged to perform there
will be no consideration.
5. Which one of the following is not clearly necessary in order to rely on the doctrine of
promissory estoppel?
a) There must be a clear promise not to enforce full legal rights.

b) The promisee must have acted in reliance on the promise.
c) The promisee must have acted in reliance on the promise to their detriment.
d) It would be inequitable for the promisor to go back on what was promised.
6. A gratuitous promise can be enforced if it is contained within a deed.
a) True
b) False
7. Which one of the following was not put forward as proposals for reform by the Law Revision
Committee?
a) A written promise should be binding with or without consideration.

b) Consideration should no longer need to move from the promisee.
c) Past consideration should be valid.
d) The doctrine of promissory estoppel should be removed as it binds parties when they do
not necessarily intend to do so.
8. A deficit unit is one for whom:
a) consumption exceeds income.

b) (consumption + investment) exceeds income.
c) saving exceeds investment.
d) saving equals investment.
9. A surplus unit is one for whom:
a) income exceeds consumption.

b) investment exceeds saving.
c) income exceeds (consumption + investment).
d) investment equals saving.
10. A unit's net acquisition of financial assets ('NAFA') will be negative if:
a) consumption exceeds income.

b) investment equals saving.
c) investment exceeds saving.
d) income exceeds (consumption + saving).
11. A household's income during the year is 50,000. Its consumption is 45,000 while its real
investment is 5,000. It also pays capital taxes of 1,000. Its NAFA is:
a) -1000
b) 1000
c) 0
d) 5000
12. Which of the following is/are possible indicators of a manager's effectiveness?
a) Keeping within agreed cost or budgetary control limits.

b) Accuracy of work carried out by the department.
c) Absenteeism and levels of sickness, level of staff turnover, numbers of accidents at work.
d) All of the above.
13. The central bank accepts the quantity theory of money. It expects GDP growth to be 4% this
year while monetary growth will be 12%. If it also expects velocity to fall by 5%, what does it
expect to happen to inflation?
a) 3%
b) 7%
c) 8%
d) 17%
14. Structure is the pattern of relationships among positions in the organization and among
members of the organization. Which of the following does structure make possible?
a) The creation of a framework of order and command.

b) The planning, organizing, directing and controlling of the activities of the organization.
c) The application of the process of management.
15. Which of the following functions may be described as 'task' functions?
a) Production.
b) Personnel.
c) Quality control.
16. The span of control refers to:
a) the number of subordinates reporting directly to a given manager or supervisor.

b) the number of subordinates reporting directly or indirectly to a given manager or
supervisor.
c) the total number of managers and supervisors to whom staff report directly or
indirectly.
d) the number of different levels in the chain of hierarchical command.
17. Within an organization the relationships between people in specialist or advisory positions
and line managers and their subordinates, where the specialist offers a common service
throughout all departments of the organization but has no direct authority over those who
make use of the service, are called:
a) staff relationships.
b) line relationships.
c) lateral relationships.
d) functional relationships.
18. Which of the following might be classified as functions of the 'staff organization' as opposed
to functions of the 'line organization?
a) Public relations.
b) Computer support services.
c) Personnel.
19. Brech identifies four main elements of management. They are planning, control, co-
ordination and:
a) discipline.
b) motivation.
c) centralization.
d) the division of work.
20. which of the following might a manager be responsible for?
a) Formulating policies for the organization as a whole.

b) Determining organizational objectives.
c) Implementing policy decisions.

1. (b) 2.(a) 3.(d) 4.(a) 5.(c)
6. (a) 7.(d) 8.(b) 9.(c) 10.(c)
11. (a) 12.(d) 13.(a) 14.(d) 15.(a)
16. (a) 17.(d) 18.(d) 19.(b) 20.(c)
Chapter-4 Functions and Organization
1. Which of the following is false regarding repetitive processes?
a. They use modules.
b. They allow easy switching from one product to the other.
c. They are the classic assembly lines.
d. They have more structure and less flexibility than a job shop layout.
2. Mass customization, when done correctly,
a. increases pressure on supply-chain performance
b. helps eliminate the guesswork that comes with sales forecasting
c. drives down inventories
d. all of the above
3. Which of the following characteristics best describes process focus?
a. low volume, high variety
b. finished goods are usually made to order
c. processes are designed to perform a wide variety of activities
d. all of the above are true
4. Service blueprinting
a. provides the basis to negotiate prices with suppliers
b. mimics the way people communicate
c. determines the best time for each step in the process
d. focuses on the provider's interaction with the customer
5. Which of the following characteristics best describes repetitive focus?

a. uses modules
b. falls between product and process focus
c. widely used for the assembly of automobiles
d. all of the above
6. A drawing of the movement of material, or people is a
a. flow diagram
b. process chart
c. service blueprint
d. process map
7. Strategies for improving productivity in services are
a. separation, self-service, automation, and scheduling
b. lean production, strategy-driven investments, automation, and process focus
c. reduce inventory, reduce waste, reduce inspection, and reduce rework
d. high interaction, mass customization, service factory, and Just-in-time
8. In mass service and service factory quadrants of the service process matrix, the operations
manager could focus on all of the following except
a. automation
b. standardization
c. tight quality control
9. Which of the following is true regarding opportunities to improve service processes?
a. Automation can do little to improve service processes, because services are so personal.
b. Layout is of little consequence, since services seldom use an assembly line.
c. If a work force is strongly committed, it need not be cross-trained and flexible.
d. None of the above are true.

10. Which of the following are typical of process control systems?
a. They have sensors.
b. The digitized data are analyzed by computer, which generates feedback.
c. Their sensors take measurements on a periodic basis.
d. all of the above
11. The management of applications and allotment is less cumbersome because the number is
limited.
a. True
b. False
12. An organization's process strategy
a. will have long-run impact on efficiency and production
b. is the same as its transformation strategy
c. must meet various constraints, including cost
d. all of the above are true
13. A job shop is an example of a(n)
a. repetitive process
b. continuous process
c. line process
d. intermittent process
14. Three types of process strategies are:
a. goods, services, and hybrids
b. manual, automated, and service
c. process focus, repetitive focus, and product focus
d. modular, continuous, and technological

15. Which of the following industries is likely to have low equipment utilization?
a. auto manufacturing
b. beer making
c. television manufacturing
d. hospitals
16. A product focused process is commonly used to produce
a. high-volume, high-variety products
b. low-volume, high-variety products
c. high-volume, low-variety products
d. low-variety products at either high- or low-volume
17. Which of the following is not a benefit of a well-run stock exchange?
a. Society is assisted in the allocation of scarce capital to productive use
b. Shares are always priced at a level which perfectly predicts the fortunes of the companies
c. Firms are able to find funds and grow
d. Shareholders benefit from the availability of a speedy, cheap secondary market if they wish
to sell
18. Which statement is true? To be listed on the Alternative Investment Market, a firm:
a. Has to appoint and retain a nominated adviser and nominated broker
b. Needs to have a trading history of at least three years
c. Has to ensure that at least 25% of its shares are in public hands
d. Has to have a market capitalization of at least 700,000
19. Which of the following is true regarding vision systems?
a. They are consistently accurate.
b. They are modest in cost.

c. They do not become bored.
d. All of the above are true.
20. Distribution means the function of sale of shares and debentures to the investors.
a. True
b. False

1. (b) 2.(d) 3.(d) 4.(d) 5.(a)
6. (a) 7.(d) 8.(c) 9.(d) 10.(d)
11. (a) 12.(d) 13.(d) 14.(c) 15.(d)
16. (c) 17.(b) 18.(a) 19.(d) 20.(a)
Chapter-5 Customer Satisfaction and Service Quality
1. Which of the following statements about services marketing is incorrect?
a) Satisfied and productive service employees will ensure the generation of greater service
value to the customer.
b) The specific nature of services marketing requires tailored marketing approaches.
c) The marketing of products and services is exactly the same.
2. Which of the following statements is not an element or consequence of the application of the
service-profit chain?
a) Excellent service results in superior customer satisfaction.

b) Customers who are satisfied by service and product quality will remain loyal and
committed to the continuous purchase of products and services.
c) Greater service value is created by more effective and efficient customer value creation.
d) None of the above.
3. Which are the factors or elements of internal marketing within a service firm?
a) Investment in staff training and development programmes.

b) Ensuring effective teamwork.
c) Training of the staff that deals directly with the customers (front-line staff).
4. Why is service differentiation so difficult to achieve?
a) Service innovations can be patented and thus secured.

b) Service intangibility and inseparability mean that customers are rarely able to compare
alternative services in advance of purchase.
c) Service is indispensable.
d) Difficult to achieve accurate comparative analysis.
5. How can firms differentiate their service delivery?
a) Customer focused training and development of all staff.

b) Employ enthusiastic people to interface with the customer.
c) Create an attractive environment and ambience to project superior service.
d) Ensure reliable and effective customer contact between staff and customers.
e) All of the above.
6. Which of the following is not a common practice that will directly impact customer
satisfaction?
a) Monitoring service performance.

b) Developing an organizational 'customer obsession'.
c) Senior management commitment to quality.
d) Paying bonuses to senior management.
7. The maximum amount with which the company is registered is called:
A) Authorized Share Capital
B) Issued Share Capital
C) Paid up capital
D) Called up capital
8. Depreciable value of an asset is equal to:
A) Cost + scrap value
B) Cost + market price
C) Cost scrap value
D) None of the given options
9. Which of the following asset is NOT depreciated?
A) Factory Buildings
B) Office Equipment
C) Plant & Machinery
D) Land
10. Which one of the following is NOT true about revenue expenditure?
A) These are the running expenses of the business
B) They improve the financial position of the business

C) They reduce the profit of the concern
D) They do not appear in the balance sheet
11. Which one of the following statement is CORRECT about Long term liabilities?
A) These are due within one year
B) These are consist of all debts, payable after 12 months
C) In working capital, these are deducted from current assets
D) All of the given options
12. Which of the following can offer its share to general public at large?
A) A private limited company
B) A listed company
C) A partnership firm
D) A trust
13. What would be the value of total factory cost, if the cost of material consumed during the
month is Rs. 6,000, labor cost incurred is Rs. 2,000 and the factory over head cost is Rs. 2,500?
A) Rs. 6,000
B) Rs. 4,500
C) Rs. 8,000
D) Rs. 10,500
14. A special purpose distinct entity (SPDE) means a trust which acquires debts/ other
receivables out of funds mobilized by it by issue of SDIs.
A) True
B) False
15. Wages outstanding given in the trial balance will be treated as a (an)
A) Asset
B) Liability
C) Revenue
D) Deferred expense
16. Prepaid interest given in the Trial Balance will be treated as a (an):
A) Asset
B) Liability
C) Revenue
D) Deferred expense
17. Which one of the following statements is not true?
A). Once a company has been liquidated it will be dissolved and will cease to exist as a legal
entity.
B) The court does not have to wind a company up, even if it is satisfied that the company cannot
pay its debts.
C) The court may be petitioned to wind a company up by the company itself.
D) If it is satisfied that a petitioner has showed that he is owed more than 750, the court must
wind the company up.
18. Which one of the following statements is not true?
A) Both the members of limited companies and of Limited Liability Partnerships have limited
liability for the debts of the business.
B) It is possible for the articles of a company to allow the directors to refuse a transfer of shares
to a person of whom they disapprove.
C) Profits left in a company are not subject to tax until they are withdrawn.
D) If a director is paid a salary then the company will need to pay the employer's national
insurance contributions on this and the director will need to pay the employee's national
insurance contributions.
19. Which of the following is correct?
A) A cash inflow means increase total cash only

B) A cash inflow means increase in cash equivalent only
C) A cash inflow means increase in cash and decrease in cash equivalent
D) A cash inflow means increase in both cash and cash equiva
20. The register of beneficial owners maintained by a depository in respect of SDIs held in
dematerialized form with it would be deemed to be a register of holders for the purpose.
A) True
B) False

1. (c) 2.(d) 3.(d) 4.(b) 5.(e)
6. (d) 7.(a) 8.(c) 9.(d) 10.(b)
11. (b) 12.(b) 13.(d) 14.(a) 15.(b)
16. (a) 17.(d) 18.(c) 19.(d) 20.(a)
Chapter-6 Primary Market Organization
1. Letter stock is
a) a handwritten certificate representing a corporate IOU.

b) a mass mailing offering a security for sale.
c) securities issued by the United States Postal Service.
d) privately placed common stock that cannot be immediately resold to the general public.
2. A preliminary prospectus is known as a
a) golden parachute.
b) red herring.
c) blue sky.
d) green shoe.
3. If an investment banker has agreed to sell a new issue of securities on a best-efforts basis, the
issue
a) most likely involves an unusually large stock offering.

b) most likely involves bonds instead of common stock.
c) results in no assumption of underwriting risk by the investment banker.
d) most likely involves a well-established, large company.
4. The actual market value of a right will differ from its theoretical value for all of the following
reasons except for:
a) the size of the firm's marginal tax rate.

b) the amount of transactions costs incurred.
c) investor speculation.
d) the irregular exercise and sale of rights over the subscription period.
5. In a common stock rights offering the subscription price is generally:
a) set equal to the current market price of the stock.

b) set below the current market price of the stock.
c) set above the current market price of the stock.
d) set after the stock goes "ex-rights."
6. When the investment banker bears the risk of not being able to sell a new security at the
established price, this is known as:
a) a best efforts offering.

b) underwriting.
c) shelf registration.
d) making a market.
7. To say that there is "asymmetric information" in the issuing of common stock or debt means
that
a) investors have nearly perfect information.

b) the markets have nearly perfect information.
c) investors have more accurate information than management has.
d) management has more accurate information than investors have.
8. In calculating the value of one right when the stock is selling "rights-on," the analyst needs to
know the number of rights needed to buy one share of stock and:
a) the subscription price per share.

b) the transactions costs involved.
c) the price-earnings ratio of the firm's stock.
d) the length of the rights offering period.
9. A best efforts offering is sometimes used in connection with a of new, long-term

securities.
a) private placement
b) privileged subscription
c) public issue
d) all of the above
10. A company can ensure the complete success of a rights offering by making use of a
a) standby arrangement.
b) oversubscription privilege.
c) green shoe provision.
d) shelf registration.
11. Marketers must weigh carefully the costs of additional information against the _____
resulting from it.
a) uses
b) benefits
c) knowledge
d) rewards
12. Four common sources of internal data include the accounting department, operations, the
sales force, and the ..
a) owners
b) stockholders
c) marketing department
d) custodians
13. Marketing information from this type of database usually can be accessed more quickly and
cheaply than other information sources. Which one is it?
a) External.
b) MDSS.
c) EIS.
d) Internal.
14. This systematic collection and analysis of publicly available information about competitors
and developments in the marketing environment is very useful. What is it called?
a) Marketing data.
b) Marketing intelligence.
c) Web Master.
d) Sales and sales management.
15. Which of the following was not mentioned in your textbook as a source of marketing
intelligence?
a) Suppliers.
b) Resellers.
c) Key customers.
d) Your company reports.
16. Which of the following was not mentioned in your textbook as a source of marketing
intelligence?
a) Competitors garbage.
b) Buying competitors products.
c) Monitoring competitors sales.
d) Checking for new goodwill.
17. Your competitor may reveal intelligence information through which of these sources of
information?
a) Annual reports.
b) Trade show exhibits.
c) Web pages.
18. In todays information age, companies are leaving a paper trail of information ..
a) in the wastebasket
b) online
c) in annual reports
d) with government agencies
19. To combat marketing intelligence by competitors, Unilever Corporation is now providing

.. to employees.
a) intelligence training
b) privacy blocks
c) protection
d) less information
20. The nature of merchant banking services is development oriented and promotional to help
the industry and trade to grow and survive.
a) True
b) False

1. (d) 2.(b) 3.(c) 4.(c) 5.(b)
6. (b) 7.(d) 8.(a) 9.(c) 10.(a)
11. (b) 12.(c) 13.(d) 14.(b) 15.(d)
16. (d) 17.(d) 18.(b) 19.(a) 20.(a)
Chapter-7 Primary Market Organization Activities
1. With the globalization of markets, the tastes and preferences of consumers world-wide are:
a) so different that they can be ignored by international organizations.

b) being encouraged by multinational organizations to become increasingly similar.
c) becoming similar to the tastes and preferences of American consumers.
d) converging upon a global norm.
2. The main advantage of a differentiation strategy in international markets lies in that:
a) the focus is taken away from price.

b) consumers in foreign markets pay less for the same product.
c) it enables brand stretching and extension.
d) imitators cannot reduce margins.
3. The goals of international marketing are to:
a) eliminate competition in international markets.

b) create and retain customers in global markets.
c) gain market share and increase profit.
d) expand business activities abroad.
4. Being a global organization means:
a) creating standardized products for homogeneous markets.

b) customizing the product range for each segment in part.
c) creating both standardized and customized products.
d) any of the above.
5. Which of the following represents a company's effort to identify and categorize groups of
customers and countries according to common characteristics?
a) Global marketing research.

b) Global positioning.
c) Global market segmentation.
d) Global targeting.
6. A global market leader is an organization which:
a) has the monopoly over several foreign markets.

b) is ahead of the competition in terms of global innovation.
c) has more than 50% global market share.
d) is recognized as being ahead of the rest in terms of market share.
7. From the point of view of marketing, an organization that enjoys competitive advantage in an
industry has done so by:
a) creating superior value for customers.

b) charging lower prices than competition.
c) focusing on long-term profit.
d) constantly enlarging its marketing activities.
8. Regionalism is:
a) an international management orientation.

b) an international management orientation and a protectionist policy created to exclude
third world countries from certain forms of international trade.
c) the grouping of countries into regional clusters based on geographic proximity.
d) a protectionist policy created to exclude third world countries from certain forms of
international trade.
9. The main aim of global marketing is to:
a) satisfy global customers better than competition.

b) coordinate the marketing activities within the constraints of the global environment.
c) find global customers.
d) achieve all of the above.
10. Long-term care is best described as:
a) home-based care for physically disabled adults and children

b) hospital stays lasting more than 30 days
c) services provided in both home and institutional settings for persons of all ages with
varying levels of medical, social, and personal care needs: powerpoint
d) community-based services for the frail elderly
11. The US history of institutional long-term care began with:
a) family-based care for the sick and infirm in their own homes
b) government supported poorhouses
c) military hospitals to care for wounded and sick soldiers
d) communal care settings operated by charitable community members
12. A central bank wishing to reduce the rate of credit expansion would typically:
a) sell treasury bills to the general public.

b) raise the price of repurchase agreements with the banking system.
c) refuse reserves to the banking system.
d) buy treasury bills from the banking system at their current price.
13. Which of the following societal factors increases the need for formal long-term care services?
a) women working outside the home

b) high divorce rates
c) smaller family size
d) all of the above
14. The development of formal home care services, such as those provided by the Visiting
Nurses Association originated as:
a) a means to get urban children immunized against infectious diseases

b) a service to the wealthy who wished to receive care in their homes, rather than
institutions
c) a social response intended to improve unhealthy living conditions of immigrants
residing in crowded urban tenements
d) local health departments response to the needs of elderly residents living alone
15. Long-term care and nursing-home reform legislation of the 1970s occurred as a response to
which of the following:
a) widespread media reports and ensuing Congressional hearings on nursing home and
residential care facility abuses and negligence
b) inadequate reimbursement for appropriate care in institutional settings
c) national recognition of inadequate quality assurance and monitoring systems in the
long-term care industry
16. Which of the following are money markets instruments?
1. Treasury 8% 2011.
2. National Savings Certificates.
3. A 3-month certificate of deposit.
4. A treasury bill with 7 days to maturity.
5. A 14-day repurchase agreement of Treasury 8% 2007.
a) 3, 4 and 5
b) 1, 3 and 4
c) 2 and 4
d) 1, 2 and 5
17. 3-month CDs are trading at a discount rate of 5 3/8, while 1-month CDs are trading at a rate
of 5 5/8. The difference in rates is:
a) 0.025 percent.
b) 25 basis points.
c) 0.5 percent.
d) 0.25 basis points.
18. On which of the following instruments is the rate of return calculated on a 'discount basis'?
1. Certificates of deposit.
2. Interbank deposits.
3. Commercial paper.
4. Repurchase agreements.
5. Commercial bills.
a) 2, 3 and 5
b) 1, 3 and 4
c) 2 and 4
d) 3 and 5
19. The price of a newly issued 91-day 100,000 treasury bill is 98,750. The rate of discount is:
a) 5.25%
b) 5%
c) 4%
d) 1.25%
20. Which of the following is not a eurocurrency?
a) French francs held in New York.

b) Deutschemarks held in Paris.
c) US$ held in Tokyo.
d) French francs held in Paris.
1. (d) 2.(a) 3.(b) 4.(c) 5.(c)
6. (d) 7.(a) 8.(c) 9.(d) 10.(c)
11. (d) 12.(b) 13.(b) 14.(c) 15.(a)
16. (a) 17.(d) 18.(d) 19.(b) 20.(a)
Chapter-8 Non-banking Financial Companies
1. A banks balance sheet
(a) shows that total assets equals total liabilities plus equity capital.
(b) lists sources and uses of bank funds.
(c) does all of the above.
(d) does only (a) and (b) of the above.
2. Which of the following statements are true?
(a) A banks assets are its sources of funds.
(b) A banks liabilities are its uses of funds.
(c) A banks balance sheet shows that total assets equal total liabilities plus equity capital.
(d) Each of the above.
3. Which of the following statements are true?
(a) A banks assets are its uses of funds.
(b) A banks liabilities are its sources of funds.
(c) A banks balance sheet has the property that total assets equal the sum of total liabilities and
equity capital.
(d) Each of the above are true.
4. Which of the following statements is true?
(b) A banks assets are its sources of funds.
(c) A banks liabilities are its uses of funds.
(d) Only (b) and (c) of the above are true.
5. Which of the following statements is false?

(b) A bank issues liabilities to acquire funds.
(c) The banks assets provide the bank with income.
(d) Bank capital is an asset in the bank balance sheet.
6. Which of the following are reported as liabilities on a banks balance sheet?
(a) Reserves
(b) Checkable deposits
(c) Loans
(d) Deposits with other banks
(a) Discount loans
(b) Checkable deposits
(c) U.S. Treasury securities
(d) Only (a) and (b) of the above
(a) Reserves
(b) Small denomination time deposits
(c) Loans
(d) Deposits with other banks
(a) No transaction deposits
(b) Bank capital
(c) Loans
(d) Only (a) and (b) of the above

(a) Discount loans
(b) Cash items in the process of collection
(c) State government securities
(d) All of the above
(e) Only (a) and (b) of the above
(a) Bank capital
(b) Loans
(c) Reserves
(d) All of the above
(e) Only (a) and (b) of the above
12. The share of checkable deposits in total bank liabilities has
(a) expanded moderately over time.
(b) expanded dramatically over time.
(c) shrunk over time.
(d) remained virtually unchanged since 1960.
13. Every financial market has the following characteristic:
A) It determines the level of interest rates.
B) It allows common stock to be traded.
C) It allows loans to be made.
D) It channels funds from lenders-savers to borrowers-spenders.
14. Financial markets have the basic function of
A) bringing together people with funds to lend and people who want to borrow
funds.
B) assuring that the swings in the business cycle are less pronounced.
C) assuring that governments need never resort to printing money.
D) both (A) and (B) of the above.
15. Which of the following can be described as involving direct finance?
A) A corporations stock is traded in an over-the-counter market.
B) People buy shares in a mutual fund.
C) A pension fund manager buys commercial paper in the secondary market.
D) None of the above.
16. Which of the following can be described as involving direct finance?
A) A corporations stock is traded in an over-the-counter market.
B) A corporation buys commercial paper issued by another corporation.
C) A pension fund manager buys commercial paper from the issuing corporation.
D) Both (B) and (C) of the above.
17. Which of the following can be described as involving indirect finance?
A) A corporation takes out loans from a bank.
B) People buy shares in a mutual fund.
C) A corporation buys commercial paper in a secondary market.
D) All of the above.
18. Financial markets and institutions
A) involve the movement of huge quantities of money.
B) affect the profits of businesses.
C) affect the types of goods and services produced in an economy.
D) do all of the above.

19. Markets in which funds are transferred from those who have excess funds available
to those who have a shortage of available funds are called
A) commodity markets.
B) fund-available markets.
C) financial markets.
D) derivative exchange markets.
20. The price paid for the rental of borrowed funds (usually expressed as a percentage of the
rental of $100 per year) is commonly referred to as the
A) inflation rate.
B) exchange rate.
C) interest rate.
D) aggregate price level.

1. (d) 2.(c) 3.(d) 4.(a) 5.(d)
6. (b) 7.(d) 8.(b) 9.(d) 10.(a)
11. (a) 12.(c) 13.(d) 14.(a) 15.(d)
16. (d) 17.(d) 18.(d) 19.(c) 20.(c)
Chapter-9 Management of Non-performing Assets
1. The balance of royalty payable account is transferred to
a) Profit and loss account

b) Royalties suspense account
c) Production account.
2. The balance of royaltys receivable account is transferred to..

b) Royalties suspense account
c) Production account.
3. Under the double account system, the profit and loss account is called

b) Income and expenditure account
c) Revenue account.
4. Under the double account system, the profit and loss appropriation account is called
a) Net revenue account

b) Profit and loss appropriation account
c) Profit and loss account.
5. Under the double account system, interest on debentures is shown in
a) Revenue account
b) Net revenue account
c) Profit and loss account.
6. Share forfeited account is shown on
a) Liabilities side of the general balance sheet

b) Credit side of the net revenue account
c) Credit side of the receipts and expenditures on capital account
7. A fixed asset originally acquired for Rs. 20,000 is to be replaced by new one. The estimated
cost of replacement of the original asset is Rs. 30,000. Hence, the revenue charge equals
a) Rs. 20,000
b) Rs. 10,000
c) Rs. 30,000.
d) Rs. 40,00
8. A fixed asset originally acquired for Rs. 20,000 is replaced by a new asset. The estimated cost
of the replacement of the original asset is Rs. 30,000. The sale proceeds of old material amounted
to Rs. 2,000.Hence, the revenue charge equals
a) Rs. 28,000
b) Rs. 18,000
c) Rs. 30,000.
9. Calls in advance are shown on the
a) Liabilities side of the general balance sheet

b) Expenditure side of receipts and expenditures on capital account
c) Receipts side of receipts and expenditures on capital account.
10. Plant and machinery is shown on the.
a) Assets side of the general balance sheet

b) Expenditure side of the receipts and expenditures on capital account
c) Receipts side of the receipts and expenditures on capital account.
11. The value of goodwill, according to the simple profit method, is
a) The product of current year's profit and number of years

b) The product of last year's profit and number of years
c) The product of average profits of the given years and number of years.
12. The goodwill of a business is to be valued at 3 years' purchase of the average profits of the
last three years. The profits of the last three years are Rs. 5,000, Rs. 6,000 and Rs. 7,000
respectively. Hence, the goodwill be valued at
a) Rs. 18,000
b) Rs. 12,000
c) 15,000.
d) Rs. 17,00
13. A business has a capital of Rs. 40,000 at the end. It had earned profits of Rs. 5,000 during the
year. Hence, the average capital of the business will be ..
a) Rs. 42,500
b) Rs. 37,500
c) Rs. 35,000.
d) Rs. 40,000
14. If the average capital of a business is Rs. 60,000 and the normal rate of profit is 15%, then the
normal profits will amount to
a) Rs. 10,000
b) Rs. 15,000.
c) Rs. 20,000
d) Rs. 9,000
15. It is given that net assets available for equity and preference shares amount to Rs. 90,000.
The paid up capitals are 10,000 equity shares of Rs. 2 each and 5,000 preference shares of Rs. 10
each. Therefore, value of an equity share will be
a) Rs. 2 per share

b) Rs. 4 per share
c) Rs. 5 per share.
d) Rs. 6 per share
16. Liabilities (not accumulated profits) of a company include.
a) General reserve
b) Dividend equalization fund.
c) Pension fund
17. When the expenses of liquidation are to be borne by the vendor company, then the vendor
company debits..
a) Realisation account
b) Bank account
c) Goodwill account.
18. When the expenses of liquidation are to be borne by the purchasing company, then the
purchasing company debits
a) Vendor company's account

b) Bank account
c) Goodwill account.
19. When the purchasing company makes payment of the purchase consideration, it debits
a) Business purchase account
b) Assets account
c) Vendor company's account.
20. Standard assets generate continuous income and repayments as and when they fall due.
a) True
b) False

1. (c) 2.(a) 3.(a) 4.(b) 5.(b)
6. (c) 7.(c) 8.(a) 9.(c) 10.(b)
11. (c) 12.(b) 13.(b) 14.(d) 15.(b)
16. (c) 17.(a) 18.(c) 19.(c) 20.(a)
Chapter-10 Prudential Norms on Capital Adequacy
1. Net Interest income is
A. Interest earned on advances

B. Interest earned on investments
C. (Total interest earned on advances and investment
D. Difference between interest earned and interest paid
2. Interest rate risk is a type of
A. Credit risk
B. Market risk
C. Operational risk
D. All the above
3. European opinion can be exercised on any day at the option of the buyer on or before the
expiry of the option.
A. True
B. False
4. What is the beta factor for corporate finance under Standardized approach ?
A. 15%
B. 18%
C. 12%
D. None of the above
5. A bank suffers loss due to adverse market movement of a security. The security was however
held beyond the defeasance period. What is the type of the risk that the bank has suffered ?
A. Market Risk
B. Operational Risk
C. Market Liquidation Risk
D. Credit Risk
6. The June 1999 Basle Committee on Banking Supervision issued proposals for reform of its
1988 Capital Accord (the Basle II Proposals). These proposals contained MAINLY.
(I) Settlement risk management
(II) Capital requirements
(III) Supervisory review
(IV) The handling of hedge funds
(V) Contingency plans
(VI) Market discipline
A. I, III and VI
B. II, IV and V
C. I, IV and V
D. II, III and VI
7. Which of the following is not a type of credit risk ?
A. Default risk
B. Credit spread risk
C. Intrinsic risk
D. Basis risk
8. 8% Government of India security is quoted at RS 120/- The current yield on the security, will
be
A. 12%
B. 9.6%
C. 6.7%
D. 8%
9. Risk of a portfolio with over exposure in steel sector will be
A. More than systematic risk

B. Equal to intrinsic risk
C. Less than intrinsic risk
D. None of these
10. A company declares RS 2/- dividend on the equity share of face value of RS 5/-. The share is
quoted in the market at RS 80/- the dividend yield will be..
A. 20%
B. 4%
C. 40%
D. 2.5%
11. The risk that arises due to worsening of credit quality is
A. Intrinsic Risk
B. Credit spread Risk
C. Portfolio risk
D. Counterparty risk
12. A debenture of face value of As. 100 carries a coupon of 15%. If the current yield is 12.5%.
What is the current market price ?
A. Rs.100
B. Rs.120
C. Rs.150
D. Rs.125
13. In order to develop an capability to actively manage an credit portfolio one must have in
place the following:
(1) Credit Rating Model (or models for different categories of loans and advances)
(2) Develop and maintain necessary data on defaults of borrowers rating category wise, i.e.,
Rating Migration.
A. Both 1 and 2 are required

B. Only 1 is required
C. Only 2 is required
14. An increase in cash reserve ratio will cause yield curve to
A. Shift downward
B. Remain unchanged
C. Become steeper
D. Become flatter
15. The model that combines five financial ratios using reported accounting information and
equity values to produce on objective measure of borrowers financial health is
A. Altmans 2 score
B. Credit Metrics
C. Credit Risk +
16. A bank holds a security that is rated A+. The rating of the security migrates to A. What is
the risk that the bank has faced ?
A. Market risk
B. Operational risk
C. Market liquidation risk
D. Credit risk
17. When interest rates go up, prices of fixed interest bonds
A. Go up
B. Go down
C. Remain unchanged
D. None of these
18. VaR is not enough to assess market risk of a portfolio. Stress testing is desirable because
A. It helps in calibrating VaR module

B. It helps as an additional risk measure
C. It helps in assessing risk due to abnormal movement of market parameters
D. It is used as VaR measure is not accurate enough
19. A transaction where financial securities are issued against the cash flow generated from a
pool of assets is called
A. Securitization
B. Credit Default Swaps
C. Credit Linked Notes
D. Total Return Swaps
20. Operational Risk arises from
a. Inadequate or failed internal processes

b. People and systems
c. External Events
d. Defaults
Which of the following is true?
(i) All of them
(ii) None of them
(iii) (a) , (b) and (c)
(iv) (a) , (b) and (e)

1 (d) 2 (b) 3 (b) 4 (b) 5 (b)
6 (d) 7 (b) 8 (c) 9 (a) 10 (d)
11(b) 12(b) 13(a) 14(d) 15(a)
16(b) 17(c) 18(a) 19(d) 20(c)

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Chapter-1 Capital Market Instruments

Self Assessment Questions

a) Underwritten Rule 144a.

a) Underwritten Rule 144a.

7. An arrangement with a single investment banker or group of investment bankers to "stand

a) Underwritten Rule 144a.

11. Which of the following statements is correct regarding asymmetric information?

a) The average stock price increases a few percentage points.

a) The stockbroker, representing the investment banker, charges a commission to investors.

a) Current assets will be reduced by the amount of the transfer

Self Assessment Questions

1. FDI is an acronym that stands for

A. federation of direct investors.

B. federal diversification initiative.

C. foreign direct investment.

D. formal direct internationalization.

2. occurs, according to the U.S. Department of Commerce, whenever a U.S. citizen,

A. Cross-border international investment

B. Foreign direct investment

C. Reciprocal foreign investment

D. International capital investment

3. The establishment of a wholly new operation in a foreign country is referred to as a(n):

5. The flow of foreign direct investment out of a country is:

A. forfeiture of national investment.

6. During the past 30 years, there has been a (n):

A. higher increase in world trade than the FDI.

C. general increase in trade barriers.

D. shift toward totalitarian political institutions and mercantile market economies.

7. Why has FDI grown more rapidly than world trade?

B. Executives see trade as a way of circumventing future trade barriers.

C. The general shift toward radical and totalitarian political institutions.

A. the United Kingdom

B. the United States

D. Foreign Direct Investment

13. which of the following is a risk/problem associated with FDI?

A. A firm could give away a valuable technological know-how to a potential competitor.

A. transportation costs or trade barriers make exporting unattractive.

B. a firm wishes to maintain control over its technological know-how.

D. the firm's capabilities are not amenable to licensing.

B. Multipoint competition theory

D. Product life-cycle theory

18. Executives see FDI as a way of circumventing future trade barriers.

19. Which of the following is NOT a home-country benefit source to FDI?

A. National sovereignty and autonomy of host countries is reduced.

B. The home country's balance of payments improves.

C. Positive employment effects.

D. taxation on capital outflow and capital inflow by the host country.

Answers for Self Assessment Questions

Self Assessment Questions

1. In which one of the following circumstances is there no consideration?

a) Le-Ann gave Sundeep 80 for her designer handbag.

2. Which one of the following statements is not correct?

3. In which one of the following circumstances would consideration be valid?

4. Which one of the following statements is incorrect?

a) Performance of a pre-existing contractual duty will never be valid consideration.

a) There must be a clear promise not to enforce full legal rights.

6. A gratuitous promise can be enforced if it is contained within a deed.

a) A written promise should be binding with or without consideration.

8. A deficit unit is one for whom:

a) consumption exceeds income.

9. A surplus unit is one for whom:

a) income exceeds consumption.

a) consumption exceeds income.