Q.1 Which of the following is a short-term debt instrument issued by companies to meet their working capital needs?
Equity shares
Debentures
Commercial Paper
Bonds
Explanation - Commercial Paper (CP) is an unsecured, short-term debt instrument issued by companies to meet short-term working capital requirements.
Correct answer is: Commercial Paper
Q.2 A bond that can be converted into a predetermined number of equity shares is called:
Convertible bond
Debenture
Non-convertible bond
Zero-coupon bond
Explanation - Convertible bonds are bonds that can be converted into a fixed number of equity shares of the issuing company at certain times during its life.
Correct answer is: Convertible bond
Q.3 Which instrument represents ownership in a company?
Debenture
Preference Share
Equity Share
Bond
Explanation - Equity shares represent ownership in a company and provide voting rights as well as dividends.
Correct answer is: Equity Share
Q.4 A financial instrument that does not pay periodic interest but is issued at a discount and redeemed at face value is called:
Bond
Debenture
Zero-coupon bond
Preference share
Explanation - Zero-coupon bonds are issued at a discount to face value and redeemed at par at maturity; they do not pay periodic interest.
Correct answer is: Zero-coupon bond
Q.5 Which financial instrument has a fixed dividend but does not carry voting rights?
Equity share
Preference share
Debenture
Commercial Paper
Explanation - Preference shares provide fixed dividends and have priority over equity shares in dividend payment, but they generally do not carry voting rights.
Correct answer is: Preference share
Q.6 Treasury bills are primarily issued by:
Commercial banks
Reserve Bank of India
Corporates
Stock exchanges
Explanation - Treasury bills are short-term government securities issued by the RBI on behalf of the Government of India to manage short-term liquidity.
Correct answer is: Reserve Bank of India
Q.7 Which financial instrument is used for raising long-term finance by companies and gives the holder a claim on company assets?
Debenture
Equity share
Commercial Paper
Certificate of Deposit
Explanation - Debentures are long-term debt instruments issued by companies and provide the holder a claim on the company’s assets in case of liquidation.
Correct answer is: Debenture
Q.8 Which of the following instruments is traded in the money market?
Equity shares
Bonds
Treasury bills
Mutual funds
Explanation - Treasury bills are short-term instruments with maturities of less than one year and are traded in the money market.
Correct answer is: Treasury bills
Q.9 Which instrument allows the investor to receive a return based on company profits rather than a fixed interest?
Bond
Debenture
Equity share
Certificate of Deposit
Explanation - Equity shareholders receive dividends based on company profits, unlike bondholders or debenture holders who receive fixed interest.
Correct answer is: Equity share
Q.10 A secured debenture backed by the company’s assets is called:
Convertible debenture
Collateral debenture
Unsecured debenture
Government bond
Explanation - Collateral debentures are secured debentures backed by company assets to assure repayment to investors.
Correct answer is: Collateral debenture
Q.11 Which of the following is a short-term instrument issued by banks to raise funds from the public?
Certificate of Deposit
Bond
Equity share
Preference share
Explanation - Certificates of Deposit (CDs) are short-term money market instruments issued by banks to raise funds from the public for a fixed maturity period.
Correct answer is: Certificate of Deposit
Q.12 Which instrument is considered a safe investment because it is backed by the government?
Corporate bond
Treasury bill
Commercial paper
Equity share
Explanation - Treasury bills are short-term government-backed instruments considered very safe with minimal risk of default.
Correct answer is: Treasury bill
Q.13 Which type of bond pays interest only if the issuing company earns profits?
Zero-coupon bond
Debenture
Income bond
Convertible bond
Explanation - Income bonds pay interest only when the issuing company earns sufficient profits, providing a variable return to the investor.
Correct answer is: Income bond
Q.14 A money market instrument with a maturity of 91 days issued by the government is called:
Treasury bill
Commercial paper
Certificate of Deposit
Bond
Explanation - Treasury bills (T-bills) are short-term government securities, typically issued for 91, 182, or 364 days to manage liquidity.
Correct answer is: Treasury bill
Q.15 Debentures without any security or collateral are called:
Secured debentures
Collateral debentures
Unsecured debentures
Convertible debentures
Explanation - Unsecured debentures are not backed by any assets and rely solely on the issuer’s creditworthiness.
Correct answer is: Unsecured debentures
Q.16 Which financial instrument is primarily used by corporations to raise funds for long-term projects?
Commercial paper
Debenture
Treasury bill
Certificate of Deposit
Explanation - Debentures are long-term debt instruments used by companies to raise capital for projects or expansion.
Correct answer is: Debenture
Q.17 A bond with no fixed maturity and interest paid indefinitely is called:
Perpetual bond
Convertible bond
Zero-coupon bond
Debenture
Explanation - Perpetual bonds have no fixed maturity date and pay interest indefinitely, providing a perpetual income stream to investors.
Correct answer is: Perpetual bond
Q.18 Which instrument allows a lender to convert debt into ownership at a later date?
Debenture
Preference share
Convertible bond
Certificate of Deposit
Explanation - Convertible bonds can be converted into equity shares, allowing the lender to become a shareholder in the company.
Correct answer is: Convertible bond
Q.19 Which short-term financial instrument is often used by banks to park excess funds with other banks?
Certificate of Deposit
Commercial paper
Treasury bill
Equity share
Explanation - Banks issue Certificates of Deposit to manage short-term funds and allow other banks or investors to park surplus funds.
Correct answer is: Certificate of Deposit
Q.20 Which type of share receives dividends after preference shareholders but before any residual profits are distributed?
Equity share
Preference share
Debenture
Bond
Explanation - Equity shareholders are paid dividends after preference shareholders have been paid, and they receive the residual profits of the company.
Correct answer is: Equity share
Q.21 Which instrument provides the highest claim in case of company liquidation?
Equity share
Preference share
Debenture
Commercial paper
Explanation - Debenture holders have priority over preference and equity shareholders in case of liquidation, giving them the highest claim among these instruments.
Correct answer is: Debenture
Q.22 Which instrument allows companies to raise funds without diluting ownership?
Equity share
Debenture
Convertible bond
Preference share
Explanation - Debentures allow companies to raise debt capital without affecting the ownership structure of the company.
Correct answer is: Debenture
Q.23 Which instrument is considered most liquid among the following?
Bond
Commercial paper
Treasury bill
Equity share
Explanation - Treasury bills are highly liquid short-term government securities, easily tradable in the money market.
Correct answer is: Treasury bill
Q.24 A financial instrument issued for short-term borrowing by corporate bodies and backed by a bank guarantee is called:
Commercial paper
Certificate of Deposit
Banker's Acceptance
Treasury bill
Explanation - Banker's Acceptances are short-term debt instruments guaranteed by a bank, used to facilitate trade and corporate borrowing.
Correct answer is: Banker's Acceptance
Q.25 Which of the following is not a money market instrument?
Treasury bill
Commercial paper
Certificate of Deposit
Equity share
Explanation - Equity shares are traded in the capital market, not the money market which deals with short-term debt instruments.
Correct answer is: Equity share