Multiple Choice Questions (MCQ) : Indian Financial System

18 Indian Financial System
Act, 1982, “Chit means a transaction whether called chit, chit fund, chitty, kuri or by any other
name by or under which a person enters into an agreement with a specified member of persons
where every one of them shall subscribe a certain sum of money (or a certain quantity of grain
instead) by way of periodical installments over a definite period and that each such subscriber
shall, in his turn, as determined by lot or by auction or by tender or in such other manner as
may be specified in the chit agreement, be entitled to the prize amount”.
Such chit fund schemes may be conducted by organized financial institutions or may be
unorganized schemes conducted between friends or relatives. There are also variations of chits
where the savings are done for a specific purpose. Chit funds also played an important role in
the financial development of people of south Indian state of Kerala, by providing easier access to
credit. In Kerala, chitty (chit fund) is a common phenomenon practiced by all sections of the
society. A company named Kerala State Financial Enterprise exists under the Kerala State
Government, whose main business activity is the chitty. Chit Funds are also misused by its
promoters and there are many instances of the founders running what is basically a Ponzi
scheme and absconding with their money.
MULTIPLE CHOICE QUESTIONS (MCQ)

1. What is the meaning of “financing” in the financial market?
[a] Advising an organization to raise charity funds
[b] Investing in the securities market
[c] Sourcing funds
[d] Converting the assets into cash
2. Financial instrument such as commercial paper can be sold
[a] issued by commercial banks [b] directly
[c] with brokers or dealers [d] functional buyers
3. Type of instrument whoever holds it, gets interest and principal amount is classified as
[a] term instrument [b] interim instrument
[c] primary instrument [d] bearer instrument
4. Negotiable deposit certificate are traded in
[a] secondary markets [b] primary markets
[c] direct markets [d] indirect markets
5. In primary markets, property of shares which made it easy to sell newly issued security is
considered as
[a] increased liquidity [b] decreased liquidity
[c] money flow [d] large funds
Financial System and its Components 19
6. India is a member of the International Monetary Fund since _____.

[a] 1934 [b] 1935 [c] 1947 [d] 1949
7. Markets in which derivatives are traded, are classified as
[a] assets backed market [b] cash flow backed markets
[c] mortgage backed markets [d] derivative securities markets
8. Transaction cost of trading of financial instruments in centralized market is classified as
[a] flexible costs [b] low transaction costs
[c] high transaction costs [d] constant costs
9. Type of market in which securities with less than one year maturity are traded, is classified as
[a] money market [b] capital market
[c] transaction market [d] global market
10. Financial instruments of public markets include
[a] transfer funds [b] bearer bonds [c] shares [d] bonds
11. The market which deals in trade bills, promissory notes and government papers or bills, which
are drawn for short-periods is called
[a] Money market [b] Capital market
[c] Primary market [d] Secondary market
12. A financial market in which short-term papers or bills are brought and sold is known as
[a] Bill market [b] Commercial market [c] Capital market [d] Call market
13. In order to protect the interests of investors and regulate the working of stock exchanges, the
Government in 1988 set up the
[a] SEBI [b] SIDBI
[c] RBI [d] Bank of India
14. The financial market for long-term funds is known as
[a] Capital market [b] Money market
[c] Primary market [d] Secondary market
15. Finance Function comprises
[a] Safe custody of funds only
[b] Expenditure of funds only
[c] Both a and b
[d] Procurement and effective use of funds
16. The objective of wealth maximization takes into account
[a] Amount of returns expected
[b] Timing of anticipated returns
20 Indian Financial System
[c] Risk associated with uncertainty of returns

[d] All the above
17. Financial management mainly focuses on
[a] Efficient management of every business
[b] Brand dimension
[c] Both a and b
[d] All elements of acquiring and using means of financial resources for financial activities
18. When the market's required rate of return for a particular bond is much less than its coupon
rate, the bond is selling at
[a] Premium [b] Discount
[c] Face value [d] None of these
19. If an investor may have to sell a bond prior to maturity and interest rates have risen since the
bond was purchased, the investor is exposed to
[a] The coupon effect [b] The interest rate
[c] At maturity [d] None of these
20. Interest rates and bond prices
[a] Move in the same direction [b] Move in opposite direction
[c] Have no relationship with each other [d] All the above
21. Development financial institutions include _____________.
[a] State financial institutions [b] Central financial institution
[c] State and financial institution [d] All of the above
22. The unorganized financial system includes _____________.
[a] Commercial banks [b] Merchant banks
[c] Indigenous banks [d] All of the above
23. Development financial institutions have been established to cater to __________ of the
industrial sector.
[a] Short-term financial needs [b] Medium-term financial needs
[c] Long-term financial needs [d] All of the above
24. The ultimate source of money in India is _____________.
[a] Commercial banks [b] Indian companies
[c] RBI [d] All the above
25. Long-term debt instruments have a maturity of _____________.
[a] One year [b] Over one year
[c] One and half year [d] None of these
Financial System and its Components 21
26. The organized financial system includes _____________.

[a] Commercial banks [b] Indigenous banks
[c] Foreign banks [d] None of these
27. The unorganized financial system comprises of _____________.
[a] Money lenders [b] Indigenous bankers
[c] Lending pawnbrokers [d] All the above
28. The lender of the last resort to the market is the _____________.
[a] Commercial banks [b] Indigenous banks
[c] Money lenders [d] RBI
Answer:
1. [c] 2. [b] 3. [d] 4. [a] 5. [a]
6. [c] 7. [d] 8. [b] 9. [a] 10. [c]
11. [a] 12. [a] 13. [a] 14. [a] 15. [d]
16. [d] 17. [d] 18. [a] 19. [b] 20. [b]
21. [a] 22. [c] 23. [c] 24. [c] 25. [b]
26. [a] 27. [d] 28. [d]
REVIEW QUESTIONS
Short Type Questions
1. What is a financial system?
2. What do you mean by “financial dualism”?
3. Give the meaning of term financial intermediaries.
4. Define financial markets.
5. What is financial services?
Long Type Questions

1. Discuss the significance and role of financial system.
2. What are the objectives of financial system?
3. Explain the purpose of financial system.
4. Discuss the functions of financial system.
5. Explain the constituents of financial system.
6. Explain the components/structure of Indian financial system.

Multiple Choice Questions (MCQ) : Indian Financial System

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18 Indian Financial System

MULTIPLE CHOICE QUESTIONS (MCQ)

6. India is a member of the International Monetary Fund since _____.

[c] Risk associated with uncertainty of returns

26. The organized financial system includes _____________.

6. [c] 7. [d] 8. [b] 9. [a] 10. [c]

26. [a] 27. [d] 28. [d]

Long Type Questions

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