Capital market - questions and answers for bank recruitment

Capital market - questions and answers for bank recruitment

Q1. Name the three components of capital market?

Ans. There are three component of capital market are:-

- EQUITY MARKET
- DEBT MARKET
- DERIVATIVE MARKET

Q2. Which organisation regulates capital market?

Ans. Security and exchange board of India (SEBI) regulates the capital market.

Q3. What are the instruments of money market?

Ans. Following are the instruments of money market:-

- Call money
- Notice money
- Certificate of deposits (1989)
- Commercial papers (1990)
- Forward rate agreement / interest rate swaps (1999)
- Bills rediscounting

Q4. Categorize the “Industrial Security Market”?

Ans. There are two categories of industrial security market:-

- Primary market (new issue market)
- Secondary market / stock market (old issue market or stock exchange)

Q5. What is “Gilt-Edged Market”?

Ans. The market refers to government and semi-government securities which are supported by RBI and is called GILT-EDGED market.

Q6. Name the types of “Repurchase Agreement”?

Ans. Following are the types of repurchase agreement:-

- Market repo
- RBI repo (LAF)
- Treasury bills
- Inter-bank participation certificate (1988)
- CBLO (2003)

Q6. Name the participants of CBLO?

Ans. Following are the participants of CBLO:-

- Scheduled commercial banks
- Co-operative banks
- Primary dealers (PDs)
- Select all-India financial institutions
- Insurance companies
- Mutual funds and other corporate

Q7. What is the tenor of transaction of overnight market?

Ans. The tenor of transaction of overnight market is one working day.

Q8. What is “FOREX” market?

Ans. FOREX market deals with the exchange of currency. With help of FOREX market we are able to meet the multi-currency requirements of market.

Q9. Name the major institutions involved with the CREDIT market?

Ans. Following are the major institutions involves with the CREDIT market:-

- Banks
- Financial institutions
- NBFCs

Q10. What is “STRIPS”?

Ans. STRIPS stands for “Separate Trading of Registered Interest and Principle of Securities”. It is basically a ZERO-COUPON where the investor receives payment at maturity only.

Q11. On which day in the week does RBI conduct the auction to issue the treasury bills?

Ans. On every Wednesday RBI conducts auction to issue treasury bills.

Q12. What are “COMMERCIAL PAPERS”?

Ans. COMMERCIAL PAPERS (CP) is an unsecured money market instrument issued in the form of promissory notes.

Q13. What is “CERTIFICATE OF DEPOSITS”?

Ans. CERTIFICATE OF DEPOSITS (CD) is a negotiable money market instrument and is issued in the form of USANCE promissory note.

Q14. What do we call a market instrument which has features of equity as well as debenture?

Ans. The market instrument which has the feature of both equity and debenture is called “HYBRID INSTRUMENT”.

Q15. What are the various forms of derivative instruments?

Ans. Following are the forms of derivative instruments:-

- Forward contract
- Options
- Swaps

Q16. How many forms of SWAPS are there in derivatives, name them?

Ans. There are two forms of SWAPS in derivatives:

- Interest rate swaps
- Overnight index swaps

Q17. What is “PARTICIPATARY NOTE”?

Ans. PARTICIPATARY NOTE (PN) is an instrument used by foreign funds. It is not used for domestic trading because it is not registered in India.

Q18. What is dated government securities?

Ans. Dated government securities are the long term securities. They carry fixed or floating coupons which are paid on the face value and payable at fix time period.

Q19. What is “ASSET SECURITISATION”?

Ans. ASSET SECURITISATION is the process through which illiquid assets are transformed into a more liquid form of assets and distribute to broad range of investor through capital market.

Q20. Name the financial institutions that provide credit to various sectors of economy?

Ans. Following are the financial institutions that provide credit to various sectors of economy:-

- Commercial banks
- Regional rural banks (RRBs)
- Urban co-operative banks (UCBs)
- State co-operative banks (STCBs)
- District central co-operative banks (DCCBs)
- Primary agriculture credit society (PACS)
- State co-operative and agriculture rural development banks (SCSCARDBs)
- Primary co-operative and agriculture rural development banks (PCARDBs)
- Financial institutions
- Non-banking financial companies (NBFCs)

Q21. What is “SPECIALIZED FINANCIAL INSTITUTION (SFI)”?

Ans. SPECIALIZED FINANCIAL INSTITUTIONS (SFI) have been set up to serve the increasing financial needs of commerce and trade in the area of VENTURE CAPITAL, CREDIT RATING and LEASING.

Q22. Name the types of NBFCs registered with RBI?

Ans. Following are the types of NBFCs registered with RBI:-

- Equipment leasing company
- Hire-purchase company
- Loan company
- Investment company

Q23. What do you mean by “DELIVERY versus PAYMENT” (DvP)?

Ans. DELIVERY versus PAYMENT (DvP) is the mode of settlement of securities where the transfer of securities and the funds happens simultaneously, this ensure that unless the funds are paid, security are not delivered and vice-versa.

Q24. Name the type of “ALL-INDIA DEVELOPMENT BANKS” (AIDB)?

Ans. Following are the types of ALL-INDIA DEVELOPMENT BANKS:-

- Industrial development bank of India(IDBI)
- Industrial finance corporation of India ltd(IFCI)
- Small industrial development bank (SIDBI)
- Industrial investment bank of India ltd (IIBI)

Q25. Name some de-recognized stock exchange in India?

Ans. Following are some de-recognized stock exchange of India:-

- Hyderabad stock exchange
- Magadha stock exchange
- Saurashtra kutch stock (SKSE)
- Mangalore stock exchange

Q26. What is a “Bonus Share”?

Ans. Shares issued by the companies to their share-holders free of cost by capitalization of accumulated reserves from the profit earned in the earlier year is called “Bonus Share”.

Q27. What do you mean by “Equity Shares”?

Ans. Equity shares are commonly referred to as ordinary share that also represent the form of fractional ownership in which a share-holder, as a fractional owner, undertakes the maximum entrepreneurial risk associated with a business venture.

Q28. What are “Security Receipts”?

Ans. Security receipts means a receipt or other security issued by a securitisation company to any qualified institutional buyer pursuant to a scheme evidencing the purchase or acquisition by the holder there of an undivided right, title or interest in the financial asset involved in securitisation.

Q29. What do you mean by “Bull” as regarding capital market?

Ans. If a person is optimistic and believes that stock will go up, he or she is called a “BULL” and is said to have a bullish outlook.

Q30. What is cumulative preference share?

Ans. It is a type of preference stock in which the unpaid dividend accumulates. All arrear of preference dividend have to be paid out before paying dividend on equity shares.

Q31. Categorize the NBFC based on the way they accept public deposits?

Ans. There are two types of NBFC based on their public deposits:-

- NBFC- deposit taking (NBFC-D)
- NBFC- non deposit taking (NBFC-ND)

Q32. What are the important sources of long term finance?

Ans. Following are the important source of long-term finance:-

- Issue of shares
- Issue of debentures
- Loan from financial institutions
- Reinvestment of profits

Q33. What do you mean by short term capital?

Ans. Short-term capital is required for a short period, less than a year. It involves financing assets and meeting day-to-day expenses.

Q34. What are the important sources of short term finance?

Ans. Following are the important sources of long term finance:-

- Banks
- Trade credit
- Instalment credit

Q35. What is “Special Data Dissemination Standard” (SDDS)?

Ans. SDDS is an international monetary fund standard to guide member that have access to international capital market in the provision of their economic and financial data to the public.

Q36. What is “TAP SALE”?

Ans. Under TAP SALE a certain amount of securities are created and made available for sale, generally with minimum price and sold to the market as bids are made.

Q37. What do you mean by “HELD TILL MATURITY (HTM)”?

Ans. The securities acquired by banks with the intention to hold them up to maturity.

Q38. What is “COUPON FREQUENCY”?

Ans. Coupon payments are made at regular intervals throughout the life of a debt security and may be quarterly, half-yearly or annual payment.

Q39. What is “Bond Ledger Account(BLA)”?

Ans. BOND LEDGER ACCOUNT is an account with the RBI or an agent in which the government securities are held in a dematerialised form at the credit of the holder.

Q40. What is the tenor of market repo?

Ans. The tenor for market repo ranges from one day to one year.