Money Market: Structure and components: Participants in Indian Money Market, Money Market Instruments, Structure of Money Market, Role of central bank in money market; Players in the Indian Money Market, The reforms in Indian Money Market

1. 205 FMBO
MCQ

2. • Income scheme mutual funds invests
primarily in __________?
1. Fixed income securities
2. Equities
3. Other Mutual Funds
4. Commercial Papers
Answer:(1)
A debt mutual fund scheme invests a significant portion of its portfolio in
fixed-income securities like government securities (G-Sec), debentures,
corporate bonds and other money-market instruments. Fixed income
mutual funds aim to generate returns by investing in bonds and other
fixed-income securities which means that these funds buy the bonds and
earn interest income on the investments.

3. • The Gilt funds invest exclusively in
___________?
1. Certificate of Deposits
2. Debentures
3. Corporate Bonds
4. Government securities
Answer: (4)
Gilt funds are debt funds that invest in
government securities. The government
bonds used to be issued in golden-edged
certificates

4. • Name the mutual fund scheme that
provides tax benefits under 80C?
1. Gilt Funds
2. Fixed Income Fund
3. Equity Linked Saving Scheme (ELSS)
4. Growth Funds
Answer: (3)
An equity-linked savings scheme or ELSS is a tax-saving
investment under Section 80C of the Income Tax Act, 1961.
By investing in ELSS, you can claim a tax rebate of up to Rs
1,50,000 a year. An ELSS is the only kind of mutual fund
eligible for tax benefits under Section 80C.

5. • What is the maximum period for which
New Fund Offer (NFO) can remain open
in market?
1. 45 days
2. 30 days
3. 15 days
4. 10 days
Answer: (3)
As per SEBI regulations, a new fund offering can
remain active in the market for a maximum of
15 days.

6. Which color code represents lowest level of risk
in a mutual fund scheme?
1. Blue
2. Green
3. Yellow
4. Brown
Answer: (1)
The various risk levels and the corresponding colour codes are:
Blue: The blue colour coded box will be used to indicate low risk
Yellow: The yellow colour coded box will indicate medium risk. All hybrid products
such as monthly income plans (MIPs), balanced funds and unit-linked insurance
plans which typically invest in both equity and debt products will be given a yellow
colour.
Brown: The brown colour coded box indicates that one’s money is being put into
a high-risk instrument. All equity funds such as diversified funds, sectoral funds,
index funds, large-cap funds and small-cap funds will carry a brown colour code
as these have a significant risk component and are prone to market fluctuations.

7. • The NAV of mutual fund scheme must by
mutual fund on ___basis
1. Yearly
2. Monthly
3. Weekly
4. Daily
Answer: (4)
NAV is required to be disclosed by the mutual funds on a
daily basis. The NAV per unit of all mutual fund schemes
have to be updated on AMFI‟s website and the Mutual
Funds‟ website by 9 p.m. of the same day. Fund of Funds
are allowed time till 10 a.m. the following business day to
update the information

8. • For index funds and all debt money
market, the mutual funds have to round off
NAV upto ___ decimal points.
1. Two
2. Three
3. Four
4. None of the Above
Answer: (3)
Mutual funds round off NAVs upto four decimals in
respect of index funds and all types of debt-
oriented schemes like liquid/money market, gilt,
income, short term plan, fixed maturity plan,
monthly income plans, etc

9. • For equity oriented and balanced fund
schemes, the mutual funds have to
round off NAV upto ___ decimal points.
1. Two
2. Three
3. Four
4. None of the Above
Answer: (1)
Mutual funds round off NAVs upto two
decimals in case of equity-oriented and
balanced fund schemes.

10. Who conducts the certification that have to
be passed by persons/entities engaged
in marketing and selling of mutual
funds?
1. SEBI
2. AMFI
3. IRDAI
4. PFRDA
Answer: (2)

11. • Fund of funds (FoF) mutual funds invests
in _________
1. Equities
2. Corporate Bonds
3. G-Sec
4. Other Mutual Funds
Answer: (4)
Fund of funds is a Mutual Fund which utilises its
pool of resources to invest in various other kinds
of mutual funds available in the market.
Alternatively, investment in hedge funds can also be
made via this Mutual Fund.

12. • In which year the first insurance
company was started in India?
1. 1818
2. 1856
3. 1910
4. 1914
Answer: (1)
In 1818, the first insurance company in India was
established in Calcutta (modern day Kolkata), The
Oriental Life Insurance Company.

13. • IRDA was established in the year ____ ?
1. 2003
2. 2002
3. 2000
4. 1999
Answer: (4)
Following the recommendations of the Malhotra Committee
report, in 1999, the Insurance Regulatory and Development
Authority (IRDA) was constituted as an autonomous body to
regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000.

14. • The selling of insurance products
through banks is called _______ ?
1. Bankassurance
2. Bancassurance
3. Bankinsurance
4. Bancinsurance
Answer:(2)
Bancassurance is a relationship between a bank and an
insurance company that is aimed at offering insurance
products or insurance benefits to the bank’s customers. In
this partnership, bank staff and tellers become the point of
sale and point of contact for the customer

15. • Which section of banking regulation act
recognizes insurance as permissible
form of business by banks?
1. Section 4(1)(e)
2. Section 4(2)(o)
3. Section 5(1)
4. Section 6(1)(o)
Answer: (4)
The Government of India through its Notification dated
August 3, 2000, specified ‘Insurance’ as a permissible form
of business that could be undertaken by banks under
section 6(1)(o) of the Banking Regulation Act, 1949

16. • How many life and non life insurance
companies are there in India?
1. 41
2. 45
3. 58
4. 63
Answer: (3)
There are 24 life insurance companies and
34 non life insurance companies are
operating in India

17. • Which out of the following are rules
governing letter of credit?
1. UCP 600
2. UCP 1200
3. UCP 1800
4. UCP 2400
Answer: (1)
The Uniform Customs and Practice for Documentary
Credits (“UCP”) 600 are international rules published by the
International Chamber of Commerce (ICC) with the aim of
standardising international banking practice in relation to LCs

18. • Which out of the following is not one of
the party in a Bank guarantee?
1. Guarantor
2. Principal Debtor
3. Agent
4. Creditor
Answer: (3)
The bank who gives the guarantee is called the “surety or
guarantor”, the person in respect of whose default the
guarantee is given is called the “principal debtor”, and the
person to whom the guarantee is given is called the “creditor
or beneficiary”

19. • Which among the following is a non-fund
based facility?
1. Term Loan
2. Bank guarantee
3. Working Capital
4. Packing credit
Answer: (2)
Non fund based lending, where the lending bank
does not commit any physical outflow of funds. The
funds position of the lending bank remains intact.
For example, bank guarantee

20. • Which out the following is not a type of
bank guarantee?
1. Bill Guarantee
2. Performance Guarantee
3. Financial Guarantee
4. Deferred Payment Guarantee
Answer: (1)

21. How many contractual relationships are there in
letter of credit?
1. One
2. Two
3. Three
4. Four
Answer: (3)
Generally, there are three separate transactions in a letter of credit transaction.
The first is between a seller and a buyer, called an underlying transaction, by
which the seller provides contracted goods to the buyer.
The second transaction is between the buyer-applicant and the bank (issuer of
the letter of credit), in which the bank issues a letter of credit to the seller-
beneficiary.
Finally, the letter of credit itself creates a relationship between the issuer and the
beneficiary, in which, the issuer makes payment for goods upon the beneficiary’s
presentation of the required documents, in accordance with the terms and
conditions of the letter of credit as agreed between seller and buyer

22. • Name the letter of credit in which an advance
payment is made to exporter for purpose of
procuring shipment material?
1. Red Clause LC
2. Green Clause LC
3. Yellow Clause LC
4. Pink Clause LC
Answer: (1)
A red clause letter of credit is a specific type of letter of credit in which
the buyer can extend the facility of advance payment to the seller against
a certain documentary requirement. In other words, under the red clause
letter of credit, the issuing bank will make an advance payment to the
exporter i.e. the seller before the seller ships the goods to the importer
i.e. buyer.

23. • Name the letter of credit in which an advance
payment is made to exporter for temporary
storage of good at exporter end?
1. Red Clause LC
2. Green Clause LC
3. Yellow Clause LC
4. Pink Clause LC
Answer: (2)
Green Clause Letters are an extension of the Red Letter, as
it enables the advance of not only the purchase of raw
materials, processing and packaging of goods but it also
takes pre-shipment warehousing at the port of origin and
insurance into account

24. • Which type of risk is hedged by forward
rate agreement?
1. Reputation Risk
2. Operational Risk
3. Liquidity Risk
4. Interest Rate Risk
Answer: (4)
Forward Rate Agreements are agreements between the
bank and borrower in which the bank agrees to lend the
borrower at an agreed certain interest rate on a nominal
principal at a time in the future. It is a tool to hedge interest
rate risk

25. • Which of the following is “Not” a function of the
Securities and Exchange Board of India (SEBI)?
1. Supervising the working of the stock Exchanges
2. Underwriting new Capital Issues
3. Regulating the working of depositories, custodians of
securities
4. Promoting the development of a healthy Capital market
Answer: (2)
Securities underwriting is the process by which investment
banks raise investment capital from investors on behalf of
corporations and governments that are issuing securities
(both equity and debt capital). The services of an underwriter
are typically used as part of a public offering in a primary
market

26. • Which of the following statement is false?
1. SIDBI is the Primary Financial Institution for promoting,
developing and financing MSME sector.
2. NABARD is an apex Development Bank authorised for
providing and developing the agricultural credit functions
3. IRDA function is to protect the interest of and secure fair
treatment to insurance/assurance policyholders
4. Securities and Exchange Board of India (SEBI) is a statutory
regulatory body entrusted with the responsibility to regulate the
Indian money markets
Answer: (4)
Reserve Bank of India (RBI) is a statutory regulatory body entrusted
with the responsibility to regulate the Indian money markets and
Securities and Exchange Board of India (SEBI) is a statutory regulatory
body entrusted with the responsibility to regulate the Indian capital
markets

27. • The RBI divested its entire stake in NABARD and NHB amounting
to Rs 20 crore (Rupee twenty crore) and Rs 1450 crore (Rupees
one thousand four hundred and fifty crore) on February 26, 2019
and March 19, 2019 respectively. With this, the Government of
India now holds 100% stake in both the financial institutions. The
above divestment was done on whose recommendation?
1. SEBI
2. Narasimham Committee II
3. Sivaraman Committee
4. C. Rangarajan
Answer: (2)
Divestment of RBI’s stake in NABARD and NHB has its basis in the
recommendation of Narasimham Committee II and the Discussion
Paper prepared by RBI on Harmonizing the Role and Operations of
Development Financials Institutions and Banks. Based on the
recommendation, RBI announced the proposal to transfer ownership of
its shares in SBI, NHB and NABARD to the Central Government

28. ASBA Stands for
1. Applications Supported by Blocked Amount
2. Applications Supported by Book Building Amount
3. Applications serviced by Blocked Amount
4. Applications services by Book Building Amount
Answer: (1)
Applications Supported by Blocked Amount
(ASBA) is a process developed by the India’s Stock
Market Regulator SEBI for applying to IPO. In
ASBA, an IPO applicant’s account doesn’t get
debited until shares are allotted to them.

29. Which among the following is/are the feature of Money Market?
a) Money market deals with monetary assets of short-term nature,
usually less than a year
b) The participants in the money market can be commercial banks
government and private companies as well.
c) Government can borrow short term funds for fulfilling
temporary mismatches.
d) Money Market helps corporates in raising long term capital.
1. a, b, d
2. a, c, d
3. a, b, c
4. b, c, d
Answer: (3)
Money Market is a segment of the financial market in India where
borrowing and lending of short-term funds take place. The maturity of
money market instruments is from one day to one year. In India, this
market is regulated by both RBI (the Reserve bank of India)

30. Mr A, CA of kingfisher ltd. During the course of audit, he comes
across loan fraud of the company and observe that when such
news becomes public then the share price will fall. Considering it,
Mr. A sold a large number of company’s shares in futures market
before this news reach the market. Identify the type of trading of
shares conducted by Mr A ?
1. Swing trading
2. Momentum trading
3. Position trading
4. Insider trading
Answer: (4)
Insider trading refers to trading of shares by an ‘insider’
based on unpublished price sensitive information (UPSI). It
involves buying or selling shares of a listed company using
information that can materially impact the stock price, but
has not been made public yet.

31. • Isha ambani grandfather gave her some share
certificates on her birthday and told her to sell them to
get money out of it. As no physical trading of shares
take place at this point of time Isha ambani wants to
know by following which process she will be able to
deal with share certificates.
1. Dematerialization
2. Remateralisation
3. Devaluation
4. All of the above
Answer: (1)
Dematerialisation is the process by which a client can get
physical certificates converted into electronic balances.
An investor intending to dematerialise its securities needs
to have an account with a DP

32. In India, NIFTY and SENSEX are calculated on
the basis of
1. Market Capitalization
2. Free-float Capitalization
3. Authorized Share Capital of all listed companies
4. Subscribed Share Capital of all listed companies
Answer: (2)

33. Answer: (2)
Market capitalization is nothing, but the outstanding
number of shares, multiplied by the current market price of
a stock. Free float market capitalization is very different
from full market capitalization and is normally lower than
the later.
Free float market capital would exclude the following:
1) Shares that are locked in.
2) Shares that are held by the promoters.
3) Shares that have been acquired through Foreign Direct
Investment route.
4) Shares that are held by the government.
• In India, NIFTY and SENSEX are calculated on by using
Free-float Capitalization.

34. • . Which of the following derivative is not
traded on Indian Stock Market?
1. Index Options
2. Index Futures
3. Stock Options
4. Forward Rate Agreements
Answer: (4)
Forward rate agreements (FRA) are over-the-counter
contracts between parties that determine the rate of
interest to be paid on an agreed-upon date in the future. As
these are customized agreements (OTC) hence cannot be
listed on exchange.

35. After successful IPO of WoW MoMos is planning
for Further Public Offer. Now issuing of more
securities comes with in the ambit of _______
?
1. Primary Market
2. Secondary Market
3. Indian Market
4. Commodity Market
Answer: (1)
In a primary market, securities are created for the first time for investors
to purchase. New securities are issued in this market through a stock
exchange, enabling the government as well as companies to raise
capital.
Secondary market is an equity trading avenue in which already
existing/pre- issued securities are traded amongst investors.
Since in FPO new securities are created (new share issue) for investors
to purchase, hence it comes under the ambit of Primary Market.

36. The first computerised online stock
exchange in India was
A.NSE
B.OTCEI
C.BSE
D.MCX
Answer: A

37. Which of the following derivative is not
traded on Indian Stock Market?
A. Index Options
B. Stock Futures
C. Index Futures
D. Forward Rate Agreements
Answer: D

38. Answer: