SECURITIES MARKET MODULE GOOD QUESTIONS & ANSWERS FOR AMFI EXAMS

1) The following are participants in the securities markets ______. (1 mark)
(a) Underwriters
(b) Debenture Trustees
(c) Venture Capital Funds
(d) All of the above
(e) I am not attempting the question



2) The securities markets have the following category (ies) of participant (s)
_____. (1 mark)
(a) issuers of securities
(b) investors in securities
(c) intermediaries
(d) All of the above
(e) I am not attempting the question

3) In private placement, issuance is done to _____. (2 marks)
(a) more than 50 persons
(b) less than 100 persons
(c) less than 50 persons
(d) less than 10 persons
(e) I am not attempting the question

4) Which entity provides novation :_______. (2 marks)
(a) NSCCL
(b) NSE
(c) NSDL
(d) CDSL
(e) I am not attempting the question

5) ______ deals with issue, allotment and transfer of securities and various
aspects relating to company management. (2 marks)
(a) Companies Act, 1956
(b) Depositories Act, 1996
(c) Capital Issues (Control) Act, 1947
(d) None of the above
(e) I am not attempting the question

6) ______ envisages transfer of ownership of securities electronically by book
entry without making the securities move from person to person. (2 marks)
(a) Companies Act, 1956
(b) Depositories Act, 1996
(c) Capital Issues (Control) Act, 1947
(d) None of the above
(e) I am not attempting the question

7) A company making a public issue of securities has to file a draft prospectus
with ____. (1 mark)
(a) RBI
(b) SEBI
(c) Ministry of Finance
(d) None of the above
(e) I am not attempting the question

8) For public and rights issues of debt instruments, it is mandatory to obtain
credit rating from a registered credit rating agency. True or False. (1 mark)
(a) True
(b) False
(c) I am not attempting the question

9) Promoters’ contribution in case of public issues by unlisted companies and
promoters’ shareholding in case of ‘offers for sale’ shall not be less than ____ of post
issue capital (2 marks)
(a) 50%
(b) 15%
(c) 20%
(d) 30%
(e) I am not attempting the question

10) The Companies Act, 1956 requires that every public listed company making
an IPO of any security for ____ or more shall issue the same only in dematerialized
form. (2 marks)
(a) Rs. 50 crores
(b) Rs. 30 crores
(c) Rs. 20 crores
(d) Rs. 10 crores
(e) I am not attempting the question

11) Foreign Currency Convertible Bonds (FCCBs) are also known as _______.
(2 marks)
(a) Euro Issues
(b) Dollar Issues
(c) Convertible credit securities
(d) Convertible credit bonds
(e) I am not attempting the question

12) Mutual Funds being Public Trusts are governed by the ______. (2 marks)
(a) Indian Trustees Act, 1887
(b) Mutual Trust Act, 1880
(c) Public Trust Act, 1886
(d) Indian Trust Act, 1882
(e) I am not attempting the question

13) A company proposing to list on the NSE must have a minimum paid up equity
capital of _____. (1 mark)
(a) Rs. 50 crs.
(b) Rs. 20 crs.
(c) Rs. 10 crs.
(d) Rs. 30 crs.
(e) I am not attempting the question

14) During Auction, order matching takes place after the ____. (3 marks)
(a) Solicitor period
(b) Intitiator period
(c) Competitor period
(d) Open period
(e) I am not attempting the question

15) For Auction market price bands of _____ are applicable. (2 marks)
(a) 50%
(b) 15%
(c) 20%
(d) 30%
(e) I am not attempting the question

16) ______ is a clearing member but not a trading member. (1 mark)
(a) Clearing Banks
(b) Self Clearing Member
(c) Clearing Member
(d) Custodian
(e) I am not attempting the question

17) If the Custodian rejects a trade, the obligation is assigned back to the _____.
(1 mark)
(a) investor
(b) trading member
(c) clearing bank
(d) depository
(e) I am not attempting the question

18) A clearing membe r receives shares during ____ . (1 mark)
(a) pay-in
(b) pay-out
(c) auction
(d) funds settlement
(e) I am not attempting the question

19) The market for government securities comprises the securities issued by the
_________
(1 mark)
(a) Central Govt.
(b) State Govt
(c) State sponsored entities
(d) All of the above
(e) I am not attempting the question

20) The _____ arises if a party discharges his obligations but the counterparty
defaults. (2 marks)
(a) replacement cost risk
(b) principal risk
(c) systemic risk
(d) unsystematic risk
(e) I am not attempting the question

21) The ______ combines the features of cash as well as futures markets.
(1 mark)
(a) account period settlement
(b) rolling settlement
(c) T+2 settlement
(d) T+1 settlement
(e) I am not attempting the question

22) Under the T+2 rolling settlement at NSE, Auction takes place on ______.
(1 mark)
(a) T+0
(b) T+1
(c) T+2
(d) T+3
(e) I am not attempting the question

23) Under the T+2 rolling settlement at NSE, Custodial Confirmation takes place
on ______. (1 mark)
(a) T+0
(b) T+1
(c) T+2
(d) T+3
(e) I am not attempting the question

24) NSCCL levies penalties on trading members for non-compliances and defaults
like : ____ (2 marks)
(a) Funds Shortages
(b) Securities Shortages
(c) Margin Shortages
(d) All of the above
(e) I am not attempting the question

25) Interest payments of the following bonds are based on Wholesale Price Index
/ Consumer Price Index : (1 mark)
(a) SBI Bonds
(b) RBI Bonds
(c) Zero Coupon bonds
(d) Indexed bonds
(e) I am not attempting the question

26) Security Type GS stands for ____ in the WDM Segment of NSE. (1 mark)
(a) GDR Securities
(b) Government Securities
(c) General Securities
(d) None of the above
(e) I am not attempting the question

27) Under DVP III, securities are settled on a ___ basis. (2 marks)
(a) cash
(b) gross
(c) net
(d) T+5
(e) I am not attempting the question

28) _____ performs novation for transactions in Government Securities.
(3 marks)
(a) Clearing Corporation of India Ltd. (CCIL)
(b) National Securities Clearing Corporation Ltd. (NSCCL)
(c) National Stock Exchange (NSE)
(d) National Depository Services Ltd. (NSDL)
(e) I am not attempting the question

29) ______ trades are essentially forward transactions in a security which is still to be issued. (3 marks)
(a) Forward
(b) If Issued
(c) When Issued
(d) None of the above
(e) I am not attempting the question

30) Swaps are a type of derivatives. True or False. (1 mark)
(a) True
(b) False
(c) I am not attempting the question

31) Arbitrageurs are one of the participants in the derivatives markets. True or
False. (1 mark)
(a) True
(b) False
(c) I am not attempting the question

32) Risk averse investors use derivatives for speculation. True or False. (1 mark)
(a) True
(b) False
(c) I am not attempting the question

33) Speculators use derivatives as Hedging tools. True or False. (1 mark)
(a) True
(b) False
(c) I am not attempting the question

34) _____ are standardized, exchange traded contracts. (2 marks)
(a) Swaps
(b) Forwards
(c) Futures
(d) FRAs
(e) I am not attempting the question

35) An exporter would _____ dollar forwards to lock in an exchange rate.
(2 marks)
(a) sell
(b) buy
(c) hold
(d) exchange
(e) I am not attempting the question

36) Strike Price for a call option on a stock is Rs. 125 and the underlying stock
price is Rs. 120. If the Premium is Rs.2, the option is _____. (2 marks)
(a) In the money
(b) Out of the money
(c) At the money
(d) Deep in the money
(e) I am not attempting the question

37) An out of the money call option has an intrinsic value of zero . True or False.
(3 marks)
(a) True
(b) False
(c) I am not attempting the question

38) A securit y trades in the Spot market at Rs. 1319. Money can be invested at
10% p.a. The fair value of a one month futures contract on the security is ___
(2 marks)
(a) Rs. 1341.10
(b) Rs. 1333.20
(c) Rs. 1328.30
(d) Rs. 1330.05
(e) I am not attempting the question

39) A security trades in the Spot market at Rs. 1423. Money can be invested at
10% p.a. The fair value of a one month futures contract on the security is ___
(2 marks)
(a) Rs. 1441.90
(b) Rs. 1434.40
(c) Rs. 1426.70
(d) Rs. 1434.90
(e) I am not attempting the question

40) If you are bullish about a stock, you would ____ call options on the stock.
(1 mark)
(a) sell
(b) buy
(c) short
(d) write
(e) I am not attempting the question

41) If you are bearish about a stock, you would ____ put options on the stock.
(1 mark)
(a) sell
(b) buy
(c) short
(d) write
(e) I am not attempting the question

42) ______ is the total number of outstanding contracts that are held by market
participants at the end of each day. (1 mark)
(a) Outstanding position
(b) Outstanding Interest
(c) Open position
(d) Open Interest
(e) I am not attempting the question

43) _____ means a depository whose name is entered as such in the register of
the issuer. (2 marks)
(a) Beneficiary owner
(b) Registered owner
(c) Investment Banker
(d) R&T Agent
(e) I am not attempting the question

44) A company may purchase its own shares, out of _____. (2 marks)
(a) it’s promoters money
(b) it’s Equity Capital
(c) Profits
(d) Free Reserves
(e) I am not attempting the question

45) A security trades in the Spot market at Rs. 1600. Money can be invested at
10% p.a. The fair value of a one month futures contract on the security is ___
(2 marks)
(a) Rs. 1651.90
(b) Rs. 1634.40
(c) Rs. 1666.40
(d) Rs. 1613.40
(e) I am not attempting the question

46) A seller of a call option has to pay securities transaction tax. True or False.
(1 mark)
(a) True
(b) False
(c) I am not attempting the question

47) A buyer of a put option has to pay securities transaction tax. True or False.
(1 mark)
(a) True
(b) False
(c) I am not attempting the question

48) _____ deals with listing of securities on stock exchanges. (2 marks)
(a) NSDL
(b) RBI
(c) SC(R)R, 1957
(d) SC(R)A, 1956
(e) I am not attempting the question

49) What is the present value of Rs. 1000 payable 3 years hence, if the interest
rate is 8% per annum? (2 marks )
(a) Rs. 779.42
(b) Rs. 788.23
(c) Rs. 793.83
(d) Rs. 785.54
(e) I am not attempting the question

50) What is the present value of Rs. 1000 payable 5 years hence, if the interest
rate is 10% per annum? (2 marks)
(a) Rs. 680.64
(b) Rs. 656.56
(c) Rs. 620.92
(d) Rs. 690.76
(e) I am not attempting the question

51) Calculate the value 5 years hence of a deposit of Rs. 1000 made today if the
interest rate is 9%. (2 marks)
(a) Rs. 1543.65
(b) Rs. 1538.62
(c) Rs. 1546.23
(d) Rs. 1570.54
(e) I am not attempting the question

52) _____ is the discount rate which makes its net present value equal to zero.
(1 mark)
(a) Accrued Interest rate
(b) Compunding
(c) Discounting
(d) Internal Rate of Return (IRR)
(e) I am not attempting the question

53) The Dividend Growth Model approach assumes that the price of equity stock
depends ultimately on the dividend expected from it. True or False. (2 marks)
(a) True
(b) False
(c) I am not attempting the question

54) Security A gives a return of 10% with a dispersion of 4%, while security B
gives return of 18% with a dispersion of 6%. Which security is more risky? (2 marks)
a)Security A
b)Neither of the securities is risky
c)Security B
d)Both securities are equally risky
e)I am not attempting the question

55) Security A gives a return of 12% with a dispersion of 4%, while security B gives
return of 15% with a dispersion of 5%.Which security is more risky? (2 marks)
a)Security B
b)Both securities are equally risky
c)Security A
d)Neither of the securities is risky
e)I am not attempting the question

56) How much is the correlation coefficient between the companies A and B, if their
covariance is 20 and their standard deviations respectively are 4 and 6? (2 marks)
a)0.5345
b)0.8334
c)0.5275
d)-0.2131
e)I am not attempting the question

57) How much is the correlation coefficient between the companies A and B, if their
covariance is 32 and their standard deviations respectively are 7 and 6? (2 marks)
a)0.53
b)0.83
c)0.52
d)0.76
e)I am not attempting the question

58) For a security B, if price at the beginning of the year is Rs.50; dividend
receivable at the end of the year is Rs.1.5; and the price at the end of the year is
Rs.53 then what is the rate of return on the security? (2 marks)
a)0.05
b)0.03
c)0.02
d)0.09
e)I am not attempting the quest ion

59) Gross Profit Ratio is given by __________. (2 marks)
a)Gross Profit/Net Sales
b)Net Profit/ Cost of Sales
c)Net Profit/Sales
d)Gross Profit/Cost of Sales
e)I am not attempting the question

60) Fixed Assets Turnover Ratio is given by __________. (2 marks)
a)Net Sales/Average Net Fixed Assets
b)Net Sales/Gross Fixed Assets
c)Cost of Sales/Average Net Fixed Assets
d)Cost of Sales /Gross Fixed Assets
e)I am not attempting the question

Answers :
1 (d) 21 (a) 41 (b)
2 (d) 22 (d) 42 (d)
3 (c) 23 (b) 43 (b)
4 (a) 24 (d) 44 (d)
5 (a) 25 (d) 45 (d)
6 (b) 26 (b) 46 (a)
7 (b) 27 (c) 47 (b)
8 (a) 28 (a) 48 (d)
9 (c) 29 (c) 49 (c)
10 (d) 30 (a) 50 (c)
11 (a) 31 (a) 51 (b)
12 (d) 32 (b) 52 (d)
13 (c) 33 (b) 53 (a)
14 (a) 34 (c) 54 (a)
15 (c) 35 (a) 55 (b)
16 (d) 36 (b) 56 (b)
17 (b) 37 (a) 57 (d)
18 (b) 38 (d) 58 (d)
19 (d) 39 (d) 59 (a)
20 (b) 40 (b) 60 (a)

India Taxation

Basic Concepts that one must know: India Taxation

1.      This income is chargeable under section 15, 16 and 17 of the income tax act.

Salary means any payment made at a regular intervals for the service rendered. The same need not be of a permanent nature. Even as employment if a temporary mature would still qualify for the chargeability under the income of salaries.

To charge any income under this head, the basic requirement is that there should be employer and employee relationship between the 2 parties

Are as follows :-

1)      The employer-employee relationship is essential. This is the most important condition for the income to be taxed  under the head salaries. If your boss gives you a gift in the occasion of your marriage then the same is not taxed as salaries

2)      The relationship must be real and not illusionary: It means there should be two different persons involved in giving salary and receiving it. In one famous school case the owner of the school paid the salary to himself in various capacities like peon, teacher, principal and accountant because he was the person who did all the jobs. This is not allowed in salary. It means that the employer and the employee are two different people and should not be one and the same person.

Salary may be received for the past and for the future services also

Salary is taxable on the receipt or accrual basis. Whichever occurs first.

Salary once taxed on the receipt basis (Advance salary) will not be taxed again on due basis. If it is taxed again on due basis them to will lead to double taxation.

Unlike accounts conceptually salary and wages are same for the purpose of income tax.

Accounts treats that wages are paid to the factory workers debited to trading accountant and salaries are paid to the office employees, which is debited to P & L account. But income tax makes no such difference.

Salary Donated is taxable as Salary

 Strange but true even if the employee has not received the same in his hands it would be taxable.

Similarly Salary forgone is also taxable.

Salary paid tax-free is also taxable.

Salary surrendered is also taxable, except one

It is still taxable. But if the same were surrendered under the section 2 of the voluntary surrender of salaries exemption from taxation act 1961 then the same would be exempted from tax.

Like all cases of direct taxed there are 2 authorities in salaries. The tax collecting authority i.e. Govt. of India and the tax paying body which is the assessee.

Full salary is not taxable.

If you are earning a salary of Rs. 5,000 per month then the full amount is not taxable. Some expenses that must have been incurred for earning the salary are allowed as deduction. Thus the concept is as follows:

“TAXABLE SALARY = GROSS SALARY–EXPENSES INCURRED FOR EARNING SALARY”

           

The income side of salary consists of 4 heads

1.      Salary: these are contractual payments that are agreed upon between the employer and the employee under the terms of employment. Theses are statutory in nature and would include the following items:

Salary, wages, advance salary, commission, arrears of salary, leave salary, annuity, gratuity, pension, bonus, ex-gratia payments etc.

2.      Allowance: these are the amount given by the employer to the employee for carrying out the job responsibilities in an efficient manner. E.g. an air-hostess is give a kit allowance and a wardrobe allowance so that she can carry out her duties properly and stay beautiful which is a requirement of her job. Similarly sales man is given traveling allowance because it is the requirement of the job that he should travel extensively for procuring business.

3.      Perquisites: there are the non-cash benefits, which an employee receives from his employer during the course of employment. The main important difference between the allowance and the perquisites is that the allowance are received by the employee in his hands and then they are spent, where as in the case of perquisite the money is not received, it is only the advantage that is received E.g. free car given to the employee does not receive any money but he gets non-monetary benefit of using the car.

4.      Profit In Lieu of Salary: These are the payments that are made by the employer to the employee on account of distribution of the profit, which he shares, with the employee. These may include the direct and the indirect benefits of profits that may accrue to the employee from the employment. E.g. ESOP or employee sweet option schemes are the best example of profits in lieu of salary (now included in salary so not taxable). It also includes any amount of any compensation due to or received by an assessee from is employer or former employer in connection with the termination of his employment. The amount of any compensation due to or received by as assessee from his employer or former employer ub connection with the modification of terms and conditions of the employment.