PAPER-1

Q 1. 'Style Box' is a part of the ___________.

Financial Advisors Kit

Mutual Fund Fact Sheet

Insurance Companies Marketing Tool

None of the above

Correct Answer

Explanation:

Style of a Mutual fund scheme is represented using a style box. The style box
shows a overview of the category of the fund ie.Agressive, Passive etc.

Q 2. In addition to the risk of each investment and its weight in the portfolio, portfolio
risk will also depend on the________ between the asset classes included in it.
standard deviation

correlation

variance

theta

Correct Answer

Explanation:
In addition to the risk of each investment and its weight in the portfolio, portfolio
risk will also depend on the CORREALATION between the asset classes included in
it.

If the assets included in the portfolio have a negative correlation, then by

combining them there is a scope to reduce total portfolio risk.
Q 3. Money Back policies allow the insured to decide on the kind of portfolio (mix of asset
classes, such as debt and equity) that the insurer should maintain for the savings
portion - State True or False ?
 True

False

Correct Answer

Explanation:
Unit-linked insurance policies allow the insured to decide on the kind of portfolio.
Q 4. What does it mean by RISK APPETITE ?
Its the level of risk the investor is comfortable with

Its the level of risk the investor should take to fulfill his financial goals

Its the level of risk the investor should take based on his age

Its the proportion of the investors portfolio in risk instruments like equity etc

Correct Answer

Explanation:

Risk Appetite is a very personal factor. Although factors like age, employabilty
etc. does affect it, but ultimately its the level at which the investor is
comfortable which is most important.

Two sets of individual who have same age and other factors can still have different
risk appetite.

Q 5. For dealing in foreign exchange market, the intermediaries need to be registered

with ________ .
SEBI

RBI

FEDAI - Foreign Exchange Dealers Association of India

Finance Ministry

Wrong Answer

Correct Answer:
RBI
Q 6. A company (issuer of shares) who comes out with a Initial Public Offer - IPO has to
 sign an listing agreement with ______.
SEBI

RBI

Depository

Stock Exchange

Wrong Answer

Correct Answer:
Stock Exchange
Explanation:

Shares issued in the IPO have to be traded in the secondary markets ie. the Stock
Exchanges.

The issuer of shares has to sign the listing agreement with the stock exchanges
and requires the company to disclose information about its working, financials and
other key information that may affect its share price.

Q 7. The seller of the option is also called the ______ of the option.
investor

writer

arbitrageur

exerciser

Correct Answer

Explanation:
The seller of the option is also called the writer of the option. The buyer is the
investor in the option.
Q 8. The Core Portfolio is that portfolio of securities that have been bought keeping the
short terms market trends in mind and to benefit from such short term movements -
State True or False ?
True

False
 Wrong Answer

Correct Answer:
False
Explanation:
The core portfolio is constructed to meet the long-term goals and strategic needs
of an investor. Investments that are part of the core are long-term holdings.
Changes in the core portfolio are made only when there is a change in investor
needs, objectives or life stage.
Q 9. 'Model Portfolio' means ___________.
A single portfolio for all investors of an age group

A portfolio for each client profile, which is customised for each investor

A special portfolio suitable for all types of investors

A portfolio which gives the highest returns

Correct Answer

Explanation:
The model portfolios hold an indicative allocation that may be suitable for investors
who fit the defined risk profile and investment objective.
Q 10. _________ gives the buyer a right but not the obligation to SELL the underlying at a
predetermined price during a predetermined period.
Put Option

Call Option

In the Money CALL Option

Futures

Wrong Answer

Correct Answer:
Put Option
Q 11. __________ Bias means holding on to an old information that may no longer be
relevant, and make their decisions based on that.
Anchoring

Familiarity
 Herd Mentality

Choice Paralysis

Wrong Answer

Correct Answer:
Anchoring
Explanation:
Investors hold on to some information that may no longer be relevant, and make
their decisions based on that. New information is labelled as incorrect or irrelevant
and ignored in the decision making process. This is known as Anchoring bias.
Q 12. A person can have a maximum of ____ PPF Account(s) in his/her name in India.
5

Wrong Answer

Correct Answer:
1
Q 13. In ________ bias, the impact of current events on decision making can be very strong
and investors tend to extrapolate the event into the future and expect a repeat.
Herd Mentality

Loss Aversion

Recency

Familiarity

Wrong Answer

Correct Answer:
Recency
Explanation:
In Recency Bias the impact of recent events on decision making is strong. This
applies equally to positive and negative experiences.
 For example - In a bear market, when prices of securities are low, still investors
do not invest as they belive the recent events which caused bear market will
continue.
Q 14. Which of the below mentioned stocks have a high BETA ?
Pharma Company Stocks

Defensive Stocks

Growth Stocks

High Yield Stocks

Wrong Answer

Correct Answer:
Growth Stocks
Explanation:
Beta measures the risk in a stock by measuring the volatility in its price in reaction
the movements of overall market.

A high beta is associated with riskier growth stocks ie. stocks that move up quickly
when the economy is doing well and decline rapidly during periods of low economic
growth.

A low beta is associated with defensive stocks like Pharma and Consumer goods
companies.
Q 15. A high turnover (volume) in a stock indicates __________.
Lower volatility

Higher Price

Higher Liquidity

Higher Returns

Wrong Answer

Correct Answer:
Higher Liquidity
Explanation:

Higher the volumes in a stock in the stock markets, higher will be the liquidity - it
 will be easier to buy or sell higher amount of shares easily.

Q 16. Of the following statements, which one of them is FALSE with respect to Monthly
Income Plans ?
MIPs assure a guaranteed monthly income

MIPs invest both in Equity and Debt

MIPs can be easily liquidated

MIPs have no upper limits for investments

Wrong Answer

Correct Answer:
MIPs assure a guaranteed monthly income
Explanation:

In MIPs - monthly income is intended but not gauranteed.

Q 17. When an NRI returns to India and becomes a Resident Indian, he/she has to do
which of the following with respect to holdings in demat account?
He/She will have to open a new demat account and transfer holdings

He/She can operate the existing demat account

He/She can change the existing account status to resident

He/She will have to open a new account for future investment and maintain current

account for existing investments.

Wrong Answer

Correct Answer:
He/She will have to open a new demat account and transfer holdings
Explanation:
When a NRI returns to India, a new demat account with Resident status
needs to be opened.

All the balances held in the NRI demat account shall be transferred to the new
Resident demat account. After transfer, the NRI demat account will get
closed.
Q 18. Call risk exists in callable debt securities - State True or False ?
True

False

Wrong Answer

Correct Answer:
True
Explanation:
Usually securities are called back when interest rates decline and the issuers want
to retire high-cost debt and re-issue fresh debt at lower rates. So the investor
who has invested in such securities have to re-invest in lower interest securities.

Thus Call risk exists in callable debt securities.

Q 19. The Pension Account of National Pension System (NPS) is known as ________.
Tier I

Tier II

Tier III

Asset Class E

Wrong Answer

Correct Answer:
Tier I
Explanation:

Tier I A/c of the National Pension System (NPS) is the Pension account and is non-
withdrawable.

Tier II A/c is the Savings account and is withdrawable to meet financial

contingencies. An active Tier I account is a pre-requisite for opening a Tier II
account.

Q 20. A person has sold a PUT option ( gone short ) because he believes that _______.
the price of the underlying will not fall below the strike price

the price of the underlying will go below the strike price

 the price of the underlying will not fall below the current market price

the price of the underlying will not rise above the strike price

Correct Answer

Explanation:
When a person sells a PUT option, he is of a bullish or sideway movement view. He
is of the belief that the price of the underlying will either rise or not fall below
the strike price.

Q 21. Monthly Income Plans of Mutual Funds have a guaranteed return option - State
True or False ?
True

False

Wrong Answer

Correct Answer:
False
Explanation:
In MIPs, monthly dividend pay-out is intended but there is no guarantee from the
fund house. This basically because MIP invest both in equity and debt and one can
never gaurantee a return in equity investments.
Q 22. In case of Non-Resident Ordinary (NRO) account, which of these options is True ?
Interest earned in this account can be repatriated

It can be maintained by Indian residents

It can be denominated in foreign currency

It can be used to make repatriative investments

Correct Answer

Explanation:

The interest earned on NRO Savings Account is repatriable after payment of taxes
applicable in India.

Q 23. The FACT SHEETS of a Mutual Fund are published on a ________ basis.
 weekly

monthly

quartely

half yearly

Wrong Answer

Correct Answer:
monthly
Explanation:
Mutual funds publish fact sheets, which are used as a source of information to
track the fund performance and portfolios on a monthly basis.
Q 24. Which amongst these is the costliest form of loan ?
Vehicle Loan

Personal Loan

Mortgage Loan

Revolving Credit

Wrong Answer

Correct Answer:
Revolving Credit
Explanation:

Personal Loans and Credit Card loans both are expensive. But Revolving Credit in
Credit cards is most expensive.

When the credit card user does not pay the entire amount i.e. some amount is
carried over for payment in the following business cycles, it is called revolving
credit. If a credit card company charges 3% p.m. as interest, the compunded
cost come to around 42%, which is an exorbitant cost.
Q 25. Qualified Foreign Investors are considered to be _________.
Institutional Investors

Individual Investors
 They are not allowed to invest in India

None of the above

Wrong Answer

Correct Answer:
Individual Investors
Q 26. Investments in _________ are most likely to be affected by rising inflation ?
Bank Deposits

Equity Shares

Gold

Property

Wrong Answer

Correct Answer:
Bank Deposits
Explanation:

Bank Deposits have fixed rate of interest and if inflation rises, the post inflation
returns on Bank FD's shrink.

Q 27. In a Discretionary Portfolio Management Service, portfolio manager will provide

advice and information to the investors who will themselves take the decisions on
investment choices and timing of the investment. - State True or False ?
True

False

Correct Answer

Explanation:
In a discretionary PMS, the portfolio manager manages the portfolio in alignment
with the investors requirement.

In a non-discretionary PMS the portfolio manager will provide advice

and information to the investor who will themselves take the decisions on
investment choices and timing of the investment.
Q 28. Who decides the proportion of a public issue of shares allocated to various categories
 of investors ?
The issuing company

The Stock Exchange

SEBI

Registrar

Correct Answer

Explanation:

There are three categories of investors in an public issue - Qualified institutional

buyers (QIBs), High net worth individuals and Retail Investors.

The proportion of the issue that has to be offered to these categories is

stipulated by SEBI regulations.
Q 29. A copy of the Pancard can be attested by _________.
Broker

Bank Manager

Financial Advisor who is KYD compliant

All of the above

Wrong Answer

Correct Answer:
All of the above
Explanation:
The verification and attestation of the Pancard can be done at the distributor,
broker or mutual funds office, or by a bank manager or a gazetted official.
The investors financial advisor can also attest the PAN card, if the advisor has
complied with the Know Your Distributor (KYD) norms
Q 30. Collateralised borrowing and lending obligations (CBLO) are issued with 1 to 14-
day tenor - True or False ?
True

False
 Wrong Answer

Correct Answer:
True