NISM Series - XV Research Analyst Cert. Mock Test - 3

Explanation:

The Structure-Conduct-Performance (SCP) model is a framework used in industrial organization economics to analyze the behavior of firms within an industry. It examines the relationship between the structure of the industry, the conduct of firms operating within it, and their resulting performance. The financial dimension of the industry, including factors such as profitability, efficiency, and financial stability, is indeed a part of the analysis perspective of the SCP model. Therefore, the statement is true.

Explanation:

In industries like education and healthcare, the bargaining power of customers tends to be low because consumers often have limited alternatives and are willing to pay for essential services. Additionally, the threat of new entrants is relatively low due to high barriers to entry such as regulation, capital requirements, and expertise needed. This combination of factors allows companies in these industries to maintain higher profit margins.

Explanation:

A neutral fiscal policy stance is typically undertaken during periods of economic stability or normal economic conditions, not necessarily during recessions or slow-moving economies. During recessions or economic downturns, governments often implement expansionary fiscal policies to stimulate economic activity and promote growth. Conversely, during periods of economic overheating or high inflation, governments may adopt contractionary fiscal policies to cool down the economy. Therefore, a neutral fiscal policy stance is not usually associated with recessions or slow-moving economies.

Explanation:

Porter’s Five Forces framework includes the threat of substitutes as one of the horizontal forces. These horizontal forces focus on factors external to the industry that can affect its competitiveness. The threat of substitutes refers to the availability of alternative products or services that could potentially replace the products or services offered by firms within the industry. It is one of the factors that can influence the intensity of competition within the industry.

Explanation:

Average Revenue Per Unit or User (ARPU) is a crucial metric in the telecom industry because it indicates the average revenue generated by each customer or unit. In the telecom sector, companies rely heavily on ARPU to assess their revenue streams, pricing strategies, and customer segmentation. It helps telecom companies gauge their performance, optimize pricing plans, and identify opportunities for growth. Therefore, ARPU is particularly significant in the telecom industry compared to other sectors like banking, IT, or capital goods.

Explanation:

Interest expense is driven by the funding choices of the company because it relates to the cost of borrowing money. The level of interest expense depends on factors such as the amount of debt a company takes on and the interest rates it incurs on that debt. On the other hand, depreciation and amortization are driven by accounting choices, as they represent the allocation of the cost of assets over their useful lives, based on accounting principles rather than funding decisions.

Explanation:

Specific indices for industries such as information technology and pharmaceuticals are known as sectoral indices. These indices track the performance of companies within a particular sector or industry. They provide investors with insights into the overall performance and trends within that specific sector, allowing them to make informed investment decisions related to that industry.

Explanation:

Shareholder’s equity can undergo changes due to various factors including profits earned, dividends paid, additional shares issued, share buybacks, and certain income and other comprehensive income. These changes affect the overall financial position of the company and are reflected in the shareholder’s equity section of the balance sheet.

Explanation:

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) is a ratio that calculates EBITDA as a percentage of net sales. It measures the profitability of a company’s operations before accounting for non-operating expenses, such as interest, taxes, depreciation, and amortization, relative to its net sales or revenue. This ratio is useful for assessing the efficiency and profitability of a company’s core business activities.

Explanation:

Differential voting rights allow companies to raise capital without diluting the voting rights of existing shareholders. This means that shareholders who hold shares with differential voting rights may have limited or enhanced voting power compared to those holding common shares, but their ownership stake in the company remains unaffected. This can be beneficial for companies seeking to raise funds while maintaining control among a select group of shareholders. The other options (b and c) are not necessarily true; differential voting rights may or may not be available at the same price as common shares and may be issued at a premium or a discount depending on various factors and market conditions.

Explanation:

The Insolvency and Bankruptcy Code (IBC) envisages that every insolvency proceeding should be completed within 180 days since the initiation of the process. An insolvency professional (IP) is responsible for carrying out the process efficiently within this timeframe. This provision aims to expedite the resolution process and provide timely outcomes for creditors and stakeholders involved in the insolvency proceedings.

Explanation:

Company-specific factors include its natural leadership position in the industry, brand affinity among customers, and its cost base. These factors are specific to the individual company and contribute to its competitive advantage and performance within its industry. While technological and industry factors may also influence a company’s success, company-specific factors are unique to the organization and play a significant role in shaping its strategic positioning and competitive landscape.

Explanation:

Dividend on preference shares is typically payable before any dividend is paid on common equity at a pre-determined rate. Preference shareholders have a fixed dividend rate, which is determined at the time of issuing the preference shares. This rate is agreed upon in advance and must be paid before any dividends are distributed to common equity shareholders.

Explanation:

If the net profit margin is 10%, it means that for every Rs 1 of revenue generated, the company earns a net profit of 10 paisa (or 10%). Therefore, if we assume the revenue generated by the company is Rs 1, the net profit would be 10% of Rs 1, which is Rs 0.10.

To find the net profit of the company for a different revenue figure, we would simply multiply the revenue by the net profit margin. For example, if the revenue is Rs 1,000,000 (Rs 10,00,000), the net profit would be:

Net Profit = Revenue * Net Profit Margin = Rs 1,000,000 * 10% = Rs 100,000

So, the net profit of the company would be Rs 100,000.

Explanation:

Accounts receivable turnover measures how efficiently a company collects cash from its credit sales. A higher turnover ratio indicates that the company is able to convert its sales into cash more quickly, which is preferred because it signifies better liquidity and management of accounts receivable. This is crucial for maintaining a healthy cash flow and overall financial stability.

Explanation:

Private placements can take various forms, including qualified institutional placements or preferential allotment. These methods allow companies to raise capital directly from institutional investors or select investors without making a public offering. Private placements offer flexibility and control over the terms of the offering, making them a preferred choice for companies seeking to raise funds efficiently while minimizing regulatory requirements and costs associated with public offerings.

Explanation:

Long-serving firms are often considered attractive investment choices because they have stood the test of time through various business cycles, indicating resilience and stability. Additionally, they typically possess extensive knowledge, experience, and established networks within their industries, which can lead to more informed decision-making and better management of challenges and opportunities. This combination of longevity and expertise can make them reliable and potentially profitable investments.

Explanation:

Preference shares have preference over common shareholders only on the distribution of earnings (dividends) and assets in the event of liquidation. This means that preference shareholders are entitled to receive dividends before common shareholders, and they have priority in receiving assets during liquidation. This preference in distribution of earnings and assets is a key characteristic of preference shares.

Explanation:

Parameters like maximum, minimum, average, etc. are commonly used in relative valuations. Relative valuation methods compare the value of a company to similar companies or to the overall market. These methods often involve ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA), where maximum, minimum, and average values of these ratios among comparable companies are considered to assess the relative attractiveness of the company being valued.

Explanation:

Masala bonds were issued for the first time in November 2014 by the International Finance Corporation (IFC) and listed on the London Stock Exchange. Masala bonds are rupee-denominated bonds issued outside India by Indian entities. They are a way for Indian entities to raise funds overseas without being exposed to foreign exchange risk since they are denominated in Indian rupees. The term “Masala” reflects the Indian origin of the bonds.

Explanation:

Clearing members must furnish liquid assets to sufficiently cover diverse margins and liquid net-worth requirements. They have the flexibility to deposit liquid assets in the form of cash, bank guarantees, fixed deposit receipts, approved securities, and any other prescribed collateral as per regulatory guidelines.

Explanation:

Modern stock exchanges are equipped with advanced online surveillance systems to monitor volumes, positions, and prices of all listed products. Additionally, these systems can identify and investigate any unusual activity or irregularities.

Explanation:

To limit potential losses, Mr. Kailash, with a loss-bearing capacity of Rs. 4000, calculates a per-share loss of Rs. 20 (Rs. 4000 / 200 shares). Consequently, if the shares of ABC Industries Ltd. decline by Rs. 20, he would incur a loss of Rs. 4000.

Setting a stoploss order, he determines the stoploss price as Rs. 830 (850 – 20). Hence, he plans to place a stoploss order at Rs. 830.

Explanation:

Explanation:

Buyers of options, who pay the premium, are limited to the premium amount as their maximum loss, exempting them from paying any margin.

On the other hand, sellers of options, who receive the premium, face the potential for infinite losses. Hence, margins are collected from both sellers of Call and Put options.

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Explanation:

The price of a future contract is typically the spot price plus interest for the given time period.

With a yearly interest rate of 12%, the full year’s interest amounts to Rs 24 (12% of Rs 200, calculated as 200 x 12 / 100).

For a 3-month period, the interest cost is Rs 6 (24/12 x 3).

Therefore, the approximate price of a 3-month future contract will be Rs 206 (Rs 200 + Rs 6).

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Explanation:

Tick Size refers to the smallest permissible price change in quoted values. Exchanges establish tick sizes for traded contracts as a component of contract specifications. For example, the tick size for Nifty futures is set at 5 paisa.

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