Investment

MCQs

1. This type of risk can be avoided by diversifying properly.
2. 1.  systematic risk
   2.  unsystematic risk
   3. portfolio risk
   4.  total risk

Answer – B

Explanation: Diversification can help to mitigate unsystematic risk, which is also known as diversifiable risk. Investors are still exposed to market-wide systemic risk even after diversification. The unsystematic risk with systematic risk equals total risk.

2. A statistical measure of how closely two variables especially in stock returns move together
3. 1.  variation coefficient
   2. certainty equivalent
   3.  variance
   4.  covariance

Answer – D

Explanation: Covariance is a measure of the relationship between changes in one variable and changes in another. The extent to which two parameters are linearly related is measured by covariance.

3. Which of the following securities has the most possible risk as well as the highest potential return?
4. 1. Preferred stocks
   2.  Commercial paper
   3.  Derivative securities
   4. Bonds

Answer – C

Explanatiocn: Derivatives are contracts that allow corporations, investors, and municipalities to transfer the risks and rewards of commercial or financial events to third parties. Holding a derivative contract reduces the risk of poor harvests, market volatility, or unfavourable occurrences such as a bond default.

4. The ability to convert an asset rapidly and without influencing its price is referred to as ________.
5. 1. Scalability
   2. Liquidity
   3.  Marketability
   4.  minimal risk

Answer – C

Explanation: The ability of a market, such as a country’s financial markets, to allow assets to be purchased and sold readily and rapidly is referred to as market liquidity.

5. Horse racing, card games, and the lottery are all instances of ________.
6. 1. Investing
   2. Gambling
   3.  Speculating
   4.  Arbitrage

Answer – B

Explanation: Gambling is the act or activity of placing a bet on anything, such as a card game or a horse race. Gambling is a recreational activity. Online gambling is prohibited by the country’s legislation.

6. _______ is associated with buying low and selling high, resulting in a significant capital gain.
7. 1.  Speculation
   2. Gambling
   3.  Investing
   4. Arbitrage

Answer – A

Explanation: In the world of finance, speculating, often known as speculative trading, refers to the act of engaging in a financial transaction that has a high risk of losing value while also offering the possibility of a huge gain or other major benefits.

7. The process of holding an investment in shares in electronic form is _________.
8. 1. Dematerialisation
   2. Demutualisation
   3. Speculation
   4. None of the above

Answer – A

The act of transforming your physical shares and securities into digital or electronic form is known as the dematerialization.

8. The __ market assists existing investors in selling their stocks.
9. 1.  Primary market
   2.  Commodity market
   3.   Capital market
   4.   Secondary market

Answer – D

Explanation: The secondary market, often known as the stock market or stock exchange, is a place where existing securities can be bought and sold. Securities are not directly issued by the corporation to investors in the secondary market. Existing investors sell the securities to new investors.

9. Which of the following securities is most likely to become virtually worthless if a company declares bankruptcy?
10. 1. common stock
    2. preferred stock
    3.  bond
    4. None of the above

Answer – A

Explanation: Common stock shares will become effectively worthless and dividends will cease to be paid while the company is in bankruptcy.

10. A shareholder-funded investment program that trades in a variety of assets
11. 1. Mutual Funds
    2. Dividends
    3.  Share program
    4. None of the answers

Answer –A

Explanation: A mutual fund or index fund offers greater diversification than a single stock. It keeps track of a portfolio of stocks, bonds, and commodities.

11. Amount of money paid to a company’s shareholders on a regular basis.
12. 1. Bonds
    2. Profit
    3. Cashback
    4.  Dividends

Answer – D

Explanation: A dividend is a monetary payment given by a corporation to its shareholders who are entitled to it. Dividend payments and amounts are decided by a company’s board of directors. Dividends are those payments made to investors in consideration for the purpose of investment by publicly operated companies.

12. A form of savings account that shows you own a piece of a company and have a claim on its assets and earnings
13. 1. Dividend
    2.  Share
    3.   Stock
    4. none of the above

Answer – C

Explanation: A stock is a type of financial instrument that represents ownership of a share of a business. According to the amount of stock owned, the stockholder is entitled to half of the corporation’s assets and income.

13. High-interest rates will have a negative impact.
14. 1.  have no impact on the cost of new houses, but do have an impact on the cost of existing dwellings.
    2.  To the right, shift the need for new houses.
    3. To the left, change the flow supply timetable for new dwellings.
    4.  Shift the new housing supply flow schedule to the right

Answer –D

Explanation: The equilibrium price of a property is determined by the law of supply and demand. A lack of supply or housing availability can cause prices to rise, resulting in bidding wars. Multiple parties may be interested in a certain property, and each will try to outbid the other by raising their purchase price offer.

14. Fixed investment in the business
15. 1.  is merely a small part of overall aggregate demand.
    2.  does not play a significant influence in the long-term economic growth process
    3.   Approximately 11% of GDP is spent on research and development.
    4.  Since 1993, the percentage of overall output has decreased every year.

Answer –C

Explanation: Fixed investment in business refers to purchases of machines, tools, and equipment for use in the production of goods and services. Fixed capital is represented by the stock of these machinery or plant equipment, for example.

15. Which of the assertions below is (are) correct?

1. 1.  The multiplier process, together with the simple accelerator theory, explains cyclical swings in production.
   2. Investment is more volatile than the simple accelerator model predicts.
   3.   The level of investment, according to the simple accelerator theory of investment, is determined by the level of existing inventories.
   4. Both a and b are correct.

Answer – A

Explanation: Economic fluctuations are derived by the interaction of the multiplier and the accelerator in this model. The multiplier causes output to rise as investment rises, and the accelerator causes investment to rise as production rises.

16. Shares are a part of the investment portfolio.
17. 1.  Insurance market
    2. Financial market
    3.  Securities market
    4. Banking system

Answer – C

Explanation: A portfolio is a grouping of financial assets such as stocks, securities, commodities, currency, and retained earnings, as well as closed-end funds and exchange-traded funds. Stocks, securities, and cash are commonly seen to be the foundation of a portfolio.

17. The two types of investment alternatives are
18. 1. Bank and post office deposit
    2.  Shares and debentures
    3.   Financial assets & Real Assets
    4.  None of these

Answer – C

Explanation: Stocks, securities, and cash are all common types. Private equity or venture capital, hedge fund managers, managed futures, art and antiquities, commodity, and derivatives contracts are examples of alternative investments.

18. Exchanging one currency for another is part of ______.
19. 1.   Securities market
    2.  Forex market
    3.  Commodity market
    4.  None of the above 

Answer – B

Explanation: The trade of one currency for another is known as foreign exchange. One can, for example, exchange the US dollar for the euro. The foreign exchange market, often known as the forex market, is where foreign exchange transactions can be made. 

19. The connection between investors and debtors is called __________.
20. 1.   Electronic market
    2. Financial market
    3.   Market
    4. None of these

Answer – B

Explanation: Financial markets bridge the gap between savers and borrowers by providing a marketplace where debt and equity may be transferred, allowing those with extra assets or saves to earn a return while also making loan funds available to those in need.

20. The return you make on your investment is based on the amount you put in, usually given as a percentage.
21. 1. Emergency Fund
    2. Interest Rate
    3.  Index
    4.  Penalty

Answer – B

Explanation: The interest rate is a proportion of the principle that lenders charge borrowers. It also refers to the money gained through savings and checking accounts.

21. _______ is a leading indicator of market behavior.
22. 1. Arbitrage
    2. Index
    3. Investment
    4.  None of These

Answer – B

Explanation: A stock market index can be defined as a metric or indicator that demonstrates how the securities market functions. It is calculated using the market values of selected equities.

22. The length of time that an investment is expected to last.
23. 1. Maturity Date
    2. Interest
    3.  Diversification
    4. Term

Answer – D

Explanation: The duration of time one expects to retain an investment unless they need the money back is referred to as the investment time horizon, or simply time horizon.