Financial Markets & Institutions — Part 2: 40 MCQs with Explanations

Stock issued by company have lower rate of return because of Low book to market ratio .

Positive minimum risk portfolio of any security shows that market security sold Greater than original price .

Stocks which has lower book for market ratio are considered as Less risky .

Stocks which has high book for market ratio are considered as More risky .

If market value is greater than book value, then investors for future stock are considered as Optimistic .

In capital market line, risk of efficient portfolio is measured by its Standard deviation .

Market where market makers keep record of stock of financial instruments is classified as Dealer market .

Money lends to corporations by banks is classified as Commercial loans .

Beta reflects stock risk for investors which is usually Individual .

Difference between actual return on stock and predicted return is considered as Random error .

If book value is greater than market value comparison with investors for future stock are considered as Pessimistic .

An unsystematic risk which can be eliminated but market risk is the Remaining risk .

Markets which deals with high liquid and short-term debt securities are classified as Money markets .

Bonds issue by corporations which are more riskier than preferred stocks are classified as Common stocks .

Financial markets include All of above .

Loans by finance companies, banks and credit unions is classified as Consumer credit loans .

Transfer through institutions such as mutual funds or banks are classified as Financial intermediary .

In financial markets, period of maturity within one to five years of financial instruments is classified as Intermediate term .

Markets for products such as wheat, rice, cotton, real estate and autos dealing is classified as Physical asset markets .

Price of stock that companies observe in financial markets is called Market price .

Collection of money from investors and spending money in other investment activities is classified as Hedge funds .

If stock market price is higher than strike price so call option Price will be higher .

Document in a corporation which consists of amount of stock, name and addresses of directors is classified as Charter .

Type of financial security in which firms do not borrow money rather lease their assets is classified as Leases .

Interest rates, tax rates and market risk premium are factors which an/a Firm cannot control .

Price of an outstanding bond decreases when market rate is Increased .

Weighted average cost of debt, preferred stock and common equity is classified as Cost of capital .

Capital markets is the correct answer to “A markets which deals with long-term corporate stocks are classified as”. Items of this type are drawn from the Financial Markets & Institutions — Part 2 syllabus of Pakistani competitive exams, where the fact is tested verbatim.

Markets dealing loans of autos, education, vacations and appliances are considered as Consumer credit loans .

Risk free rate is subtracted from expected market return is considered as Equity risk premium .

In financial markets, period of maturity less than one year of financial instruments is classified as Short-term .

Notes, mortgages, bonds, stocks, treasury bills and consumer loans are classified as Financial instruments .

Market in which bonds are traded over-the-counter than in an organized exchange is classified as Bond markets .

If market interest rate falls below coupon rate then bond will be sold Above its par value .

If market interest rate rises above coupon rate, then bond will be sold Below its par value .

Type of options that permit bond holder to buy stocks at stated price are classified as Warrants .

Bonds that can be converted into shares of common stock are classified as Convertible bonds .

Price of an outstanding bond increases when market rate Decreases .

Rate on debt that increases as soon market rises is classified as Floating rate debt .

A market interest rate for specific type of bond is classified as bonds Required rate of return .