Finance Multiple Choice Question Answers(Finance Quiz - 9)

1. Bank of the Middle East, Dubai is maintaining an account with SBI Mumbai. SBI Mumbai calls this account as
[A]Nostro account
[B]Vostro account
[C]Loro account
[D]Mirror account


2. Suppose that a speculator anticipates depreciation of US $ against Euro 3-months from now from the current 3 months forward rate. To make profit, the speculator should
[A]Sell US $ spot and buy Euro 3-month forward
[B]Buy US $ spot and sell Euro 3-month forward
[C]Sell US $ 3-month forward
[D]Buy Euro 3-month forward


3. The value of a forward contract at its initiation is
[A]Zero
[B]Forward price
[C]Bid - ask spread
[D]Spot price minus forward price


4. In a swap transaction where two fixed-floating currency swaps are combined to form a fixed to fixed currency swap is known as
[A]Roller-coaster swap
[B]Amortized swap
[C]Amortizing swap
[D]Circus swap


5. Which of the following equation is true?
[A]Short underlying asset + long call = long put
[B]Short underlying asset + long put = long call
[C]Long underlying asset + short call = long put
[D]Short underlying asset + long put = short call


6. Which of the following is an example of systematic risk?
[A]Risk of non-availability of a major raw material to a company making aluminium bars
[B]Death of the finance manager of a company providing financial services
[C]Unexpected entry of a multi-national company in the tea industry
[D]Reduction of tax rate by the government


7. If a security’s return is plotted above the security market line, then
[A]The risk free rate is equal to the required rate of return on the security
[B]The security’s rate of return is more than the return on the market portfolio
[C]The security’s beta is less than one and hence a conservative security
[D]The security is to be bought immediately


8. Other things being equal, which of the following will cause an increase in the value of a bond?
[A]Decrease in the term to maturity
[B]Increase in the required rate of return on maturity
[C]Decrease in the discount on the bond on issue
[D]Increase in the premium on maturity of the bond


9. The amount that can be realized by a company if it sells its business as an operating one is termed as
[A]Going concern value
[B]Market value
[C]Book value
[D]Replacement value


10. Which of the following is true with regard to the degree of operating leverage (DOL) for a company?
[A]Irrespective of the level of output, DOL of a company remains same
[B]DOL of a company is positive above the operating break-even point
[C]DOL of a company is positive below the operating break-even point
[D]DOL of a company is negative above the operating break-even point


11. Which of the following is a liquidity ratio?
[A]Return on equity
[B]Return on investment
[C]Acid -test ratio
[D]Debt-equity ratio


12. The objective of financial management to increase the wealth of the shareholders means to
[A]Increase the physical assets owned by the firm
[B]Increase the market value of the shares of the firm
[C]Increase the current assets of the firm
[D]Increase the cash balance of the company


13. Mr. Suresh deposited Rs.2,000 at the beginning of every month in a bank for five years. If the interest rate is 9% p.a. compounded monthly, the accumulated amount he will get after 5 years is
[A]Rs.89,910
[B]Rs.1,34,400
[C]Rs.1,43,340
[D]Rs.1,51,980


14. Which of the following players cannot act as a borrower in the call money market?
[A]Discount and Finance House of India
[B]SBI Mutual Fund
[C]State Bank of India
[D]Securities Trading Corporation of India


15. Consider the following information regarding Satish Ltd. :
Annual cost of sales : Rs.36,00,000
Opening stock of finished goods : Rs.50,000
Finished goods storage period : 5 days
Assuming 360 days in a year, the closing stock of finished goods is
[A]Rs.40,000
[B]Rs.50,000
[C]Rs.60,000
[D]Rs.1,20,000