NISM Series - XII Securities Markets Foundation Cert. Mock Test -2

Explanation:

Banks, Non-banking Finance Companies and Financial Institutions can issue Equity shares, Preference shares, Bonds, Convertible bonds, Securitized paper, Commercial paper and Certificates of deposit to raise capital.

Explanation:

The Reserve Bank of India regulates the money market segment. As the manager of the government’s borrowing program, RBI is the issue manager for the government. It controls and regulates the government securities market.

Explanation:

When a security is traded on cum basis, it means that it incorporates the benefit of the corporate action in its price. Once it goes ex-basis, the buyer no longer has the benefit of the corporate action. For eg. If security ABC is traded on an Ex-Bonus basis from 1 December, then the buyers of this security from 1 December onwards will not receive the bonus shares.

Explanation:

Bonds give regular returns in the form of interest. Returns from Gold, Equity and Property are uncertain and investment in these is generally for the long term.

Explanation:

Explanation:

Mutual funds may impose a charge on the investors at the time of exiting from a fund called the exit load. It is calculated as a percentage of the NAV and reduced from the NAV to arrive at the price that the investor will get on exiting from the investment.

Redemption Price = NAV less Exit load

In the above question, NAV is Rs. 18 and the exit load is 2%.
2% of Rs. 18 is 0.36
So the Redemption Price is 18 – 0.36 = Rs. 17.64

Explanation:

Current yield simply compares the coupon of a bond with its market price.

Current yield = Coupon rate/ Market price

As per the given data –

Current yield = 8 / 111

= 0.072 (x 100 ) = 7.2 %

Explanation:

Open interest is compared with the volume of trading in the derivatives market. The larger the open interest as a percentage of traded volume, the greater the liquidity in the market. An increase in open interest is seen as an indicator of liquidity as it means fresh money is flowing into those contracts.

Explanation:

Financial planning is done because there is need for retirement planning, difficult to understand investment products etc.

Explanation:

Promoters must contribute at least 20% of the post-issue paid up capital of a company making a public issue and this is locked in for a period of 3 years.

Explanation:

As per the SEBI (Prohibition of Insider Trading) Regulations, a person is deemed to be a connected person if such person is a banker of the company. This means that individuals associated with the company in certain capacities, including being a banker, are considered connected persons and are subject to restrictions on trading to prevent insider trading.

Explanation:

The Department of Investment and Public Asset Management (DIPAM), which is under the Ministry of Finance, Government of India, handles all matters related to the disinvestment of the Government of India’s shareholding in Central Public Sector Enterprises (CPSEs). The Department of Economic Affairs (DEA) does play a role in economic policy formulation and management, but disinvestment matters specifically fall under the purview of DIPAM.

Explanation:

In the case of a preferential issue of shares, as per the SEBI (Securities and Exchange Board of India) regulations, the allotment of shares to the alternate allottees (if any) pursuant to the special resolution must be completed within 15 days of passing such resolutions. This ensures a timely and efficient process for the issuance of shares through preferential allotment.

Explanation:

In India, the Government securities are primarily issued by the Central Government. These securities, also known as G-Secs or government bonds, are debt instruments through which the government raises funds from the market to meet its expenditure requirements and other financial obligations.

While State Governments may also issue their own securities known as State Development Loans (SDLs), the primary responsibility for issuing sovereign securities lies with the Central Government.

Explanation:

According to the Code of Conduct for Merchant Bankers in India, a Merchant Banker is indeed responsible for the acts or omissions of its employees and agents in respect of the conduct of its business. Merchant Bankers are expected to maintain a high standard of integrity and fairness in all their dealings, and they are accountable for the actions of those working under their authority.

Explanation:

As per the SEBI ICDR (Issue of Capital and Disclosure Requirements) Regulations, the issuer company making a public issue or a rights issue, where the aggregate value of the specified securities offered is Rupees 50 Lakhs or more, shall do so only when the draft offer document along with fees have been filed through the lead merchant banker with SEBI.

This regulation is in place to ensure that companies intending to make a public or rights issue adhere to the regulatory framework, and their offer documents are reviewed by SEBI before proceeding with the issuance.

Explanation:

Every Merchant Banker is required to pay an initial fee of Rs.10 lakh as registration fees. Additionally, a merchant banker who has been granted a certificate of permanent registration, to keep its registration in force, shall pay a fee of Rs.5 lakh every three years.

This fee structure is outlined by SEBI (Securities and Exchange Board of India) to ensure that merchant bankers contribute to the regulatory framework and comply with ongoing obligations to maintain their registration.

Explanation:

Yes, any non-promoter shareholder can offer its shares through the Offer For Sale (OFS) mechanism on the stock exchange. The OFS mechanism allows existing shareholders, including non-promoters such as institutional investors, retail investors, and others, to sell their shares to the public through the stock exchange platform.

This mechanism provides an avenue for existing shareholders to divest their holdings and allows investors to buy shares directly from them through the stock exchange, promoting liquidity in the market.

Explanation:

The SLR (Statutory Liquidity Ratio) and CRR (Cash Reserve Ratio) rates are decided by the Reserve Bank of India (RBI). These are regulatory ratios that banks are required to maintain as a certain percentage of their net demand and time liabilities.

• SLR (Statutory Liquidity Ratio): It is the percentage of deposits that banks need to maintain in the form of liquid assets such as cash, gold, or government securities. The purpose is to ensure the liquidity and solvency of the banks.
• CRR (Cash Reserve Ratio): It is the percentage of total deposits that banks are required to keep with the central bank (RBI) in the form of reserves in cash. It is a tool used by the central bank to control the money supply in the economy.

Explanation:

This means that the issuer should have a minimum paid-up capital of Rs.10 Crores, and the minimum market capitalization should be Rs.25 Crores for listing on these stock exchanges. These requirements are set to ensure a certain level of financial strength and market value for companies listed on the exchanges.

Explanation:

Explanation:

Explanation:

A retirement solution-oriented scheme with a lock-in period of 5 years or until the investor reaches the retirement age is referred to as a “Retirement Fund.” These funds are designed to help investors accumulate wealth for their retirement years. The lock-in period is in place to encourage a long-term investment horizon and disciplined savings for retirement.

The other options provided (Arbitrage Fund, Equity Savings, and Children’s Fund) represent different types of mutual fund schemes with distinct investment objectives, strategies, and target audiences.

Explanation:

An open-ended debt scheme investing in government securities across maturities is known as a “Dynamic Bond” fund. Dynamic Bond funds have flexibility in managing their portfolio duration and can invest in a mix of government securities with varying maturities based on the fund manager’s outlook on interest rates and market conditions. This flexibility allows the fund to adapt to changing interest rate scenarios and capitalize on potential opportunities in the bond market.

The other options provided (Credit Risk Fund, Corporate Bond Fund, and Gilt Fund) represent different types of debt funds with specific investment mandates, such as investing in corporate bonds, managing credit risk, or focusing exclusively on government securities (gilts).

Explanation:

The ratio of outstanding put options to outstanding call options is known as the Put-Call Ratio (PCR). It is a widely used financial indicator in options trading and analysis. The Put-Call Ratio helps investors and analysts assess market sentiment and potential future market movements.

A high Put-Call Ratio suggests that there are more outstanding put options relative to call options, indicating a potentially bearish sentiment, as investors may be purchasing more puts for downside protection. Conversely, a low Put-Call Ratio suggests a potentially bullish sentiment, as there are more outstanding call options relative to puts, indicating optimism about the market.

Explanation:

Merchant bankers do act as a single point of contact for issuers during a new issue of securities. Merchant bankers, also known as investment bankers, play a crucial role in the process of issuing new securities such as stocks or bonds. They assist the issuing company in various tasks, including the preparation of the offer documents, obtaining regulatory approvals, marketing the securities to potential investors, and ensuring compliance with securities laws. By acting as a single point of contact, merchant bankers streamline the communication and coordination between the issuer and the various entities involved in the issuance process, facilitating a smoother and more organized offering.

Explanation:

Preference shares have some features of equity and some of debt instruments. They are a type of hybrid security that combines characteristics of both equity and debt. Preference shareholders receive a fixed dividend, similar to bondholders receiving interest payments, which provides a debt-like feature. However, preference shareholders also have some equity-like features, such as voting rights and the potential for higher returns if the company performs well. This hybrid nature makes preference shares a unique financial instrument with elements of both equity and debt.

Explanation:

Explanation:

Without the services provided by intermediaries, it would be quite difficult for investors and issuers to locate each other and carry out transactions. Intermediaries play a crucial role in facilitating the smooth functioning of financial markets by acting as intermediaries between buyers and sellers. They provide services such as brokerage, market-making, and other financial services that help in connecting investors with issuers and enabling efficient and orderly transactions in the market.

Explanation:

Explanation:

The activities of a mutual fund, including collecting money from investors, creating, and managing the portfolio, are subject to SEBI (Securities and Exchange Board of India) regulations. SEBI regulates and oversees the functioning of mutual funds in India to ensure investor protection, transparency, and fair practices in the capital markets. The other options—Mutual funds, RBI (Reserve Bank of India), and Stock exchange—are not the primary regulatory entities governing the activities of mutual funds.

Explanation:

Spread and impact costs are expenses that arise due to market imperfections or a lack of liquidity. These costs encompass the difference between the bid and ask prices (spread) and the impact on the price caused by executing a large trade in a market with limited liquidity.

Explanation:

The issue process, intermediaries involved, disclosure norms, and every step of the primary issue process are subject to regulatory supervision. This implies that regulatory authorities oversee and enforce rules and guidelines to ensure fair, transparent, and compliant practices in the primary issuance of securities.

Explanation:

Optionally Convertible Debentures (OCD) are securities that can be converted into equity shares at the discretion of the debenture holders. Unlike Fully Convertible Debentures (FCD), which must be compulsorily converted into equity shares, OCD gives debenture holders the choice to convert or retain their debentures as debt. Partly Convertible Debentures (PCD) involve partial conversion, and Convertible Debentures (CD) is a general term for debentures with conversion features.

Explanation:

Market valuation benefits issuers when they need to raise further capital from the market by providing an indication of the price at which new capital could be issued. It involves assessing the market’s perception of the company’s value, which aids in determining the potential pricing for new capital issuance.

Explanation:

Investors in differential voting rights generally enjoy a higher rate of dividend. This is because differential voting rights shares often grant fewer voting rights to shareholders, and in return, companies may offer a higher rate of dividend to compensate for the reduced influence on corporate decision-making.

Explanation:

The secondary market is also called both the stock exchange (option a) and the securities exchange (option b). These terms are often used interchangeably to refer to the marketplace where existing securities, previously issued in the primary market, are bought and sold among investors.

Explanation:

Derivatives are financial instruments whose value is derived from the value of an underlying asset or reference rate. They can be based on various types of underlying assets, including debt instruments, shares, loans, and other financial instruments.

Explanation:

R-WAP is only an additional option and not a replacement for the ASBA (Application Supported by Blocked Amount) process. ASBA is a process that allows investors to apply for shares in IPOs without the need for funds to be blocked in their bank accounts. R-WAP is an alternative portal for applying in public issues, providing investors with an additional option for the application process.

Explanation:

Commodities can be classified into different categories such as soft commodities, bullion & base metals, and energy. All these categories collectively encompass a wide range of tangible goods and raw materials traded in commodity markets. The correct answer is option d) All the above.

Explanation:

The derivative markets have started the process of moving from cash settlement to physical settlement, following the criteria specified in the relevant SEBI circulars.

Explanation:

Financial institutions may issue equity or debt securities to fulfill their capital needs beyond the typical funding sources of deposits and government grants. The correct option is “Only 2 & 3,” which includes financial institutions and banks.

Explanation:

Certificates of Deposit (CDs) are issued by banks, non-banking finance companies, and financial institutions, which makes option (b) the correct answer. These financial instruments represent time deposits with fixed interest rates and specified maturity dates, allowing institutions to raise short-term funds from the market.

Explanation:

The correct answer is “Only 1 & 3,” as these are the common types of margins collected in the futures market. The initial margin is the upfront amount required, and the exposure margin is collected based on the potential exposure of the position.

Explanation:

An open-ended equity scheme investing in line with an investment theme such as housing or infrastructure is categorized as a Thematic Fund. Thematic funds focus on specific investment themes or sectors, aligning their portfolio with a particular trend or idea.

Explanation:

An open-ended scheme investing in equity, arbitrage, and debt is known as an Equity Savings Fund. Equity Savings Funds typically allocate their assets among equity, arbitrage opportunities, and debt instruments, offering a balanced approach to investors.

Explanation:

Systematic Transfer Plans (STP) permit investors to periodically transfer a specified sum from one scheme to another within the same fund house. STP allows investors to manage their investments by systematically moving funds between different schemes based on their financial objectives and market conditions.

Explanation:

Professional Clearing Members (PCMs) are entities that function as clearing members but not as trading members. They are typically banks or custodians that exclusively perform clearing functions.

Explanation:

Exchange Traded Funds (ETFs) combine features of an open-ended fund and a stock. ETFs are traded on stock exchanges like individual stocks, but they represent a diversified portfolio of assets similar to open-ended mutual funds.

Explanation:

Units are only issued in domestic markets. Therefore, option (c) is the correct answer. Units typically refer to units of mutual funds or other investment schemes that are offered and traded in the domestic market.