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Participants in money market - class-XII

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Money market funds were a financial innovation partly inspired to circumvent ________.

  1. Regulation Q, which is no longer in existence

  2. Regulation M

  3. Regulation D

  4. Regulation B, which is still in existence


Correct Option: A
Explanation:

Money market funds were a financial innovation partly inspired to circumvent regulation Q, which is no longer in existence. The money market is a market for short-term funds which deals in monetary assets whose period of maturity is up to one year. Generally money market is the source of finance for working capital. Transactions of money market include lending and borrowing of cash for a short period of time and also sale and purchase of securities having one year time.

A partner of a trading or non trading firm signs a Negotiable instrument liability incurs in ______.

  1. the name of the firm.

  2. in the name of partner.

  3. both a & b.

  4. none of the above.


Correct Option: A
Explanation:

A partner of a trading or non trading firm signs a Negotiable instrument liability incurs in the name of the firm. When a maker or holder of the negotiable instrument signs a document, it should be signed in the name of the firm. Signing negotiable instrument in the name of the partners is not valid.

Everything mentioned below is required to make the endorsement complete EXCEPT ________.

  1. the holder signs on the face or back of the instrument.

  2. the instrument is delivered to the endorsee.

  3. it is sighed and delivered with intention of vesting of the endorsee with the rights of the holder.

  4. it is sighed and delivered with intention of vesting the endorsee with the duties of the holder.


Correct Option: D
Explanation:

Everything mentioned below is required to make the endorsement complete except it is signed and delivered with intention of vesting the endorsee with the duties of the holder. Endorsement can be defined as an act of a person who is holder of a negotiable instrument in signing his or her name on the back of the instrument, thereby transferring title or ownership.

According to Negotiable Instrument Act $1881$, which of the following is not the type of promissory note?

  1. A promise to pay a certain sum of money to a person.

  2. A promise to pay a certain sum of money to the order.

  3. A promise to pay the bearer.

  4. A promise to pay a certain sum of money at some time.


Correct Option: C
Explanation:

According to Negotiable Instrument Act, 1881, a promise to pay the bearer is not the type of promissory note s promissory note can be defined as a written document which states the promise to pay the sum of money to a specified person.

For an endorsement to be called as Restrictive endorsement, it should satisfy the following conditions _______.

  1. if the endorse signs his name only.

  2. if the endorse signs a direction to pay the amount mentioned in the instrument to or to the order of a specified person.

  3. if the endorser restricts or excludes the right to further negotiate the instrument.

  4. if the endorser purports to transfer to the endorsee only a part of the amount payable.


Correct Option: C
Explanation:

For an endorsement to be called as Restrictive endorsement, it should satisfy the following condition- if the endorser restricts or excludes the right to further negotiate the instrument. The result of a restrictive endorsement is that a financial instrument is no longer a negotiable instrument that can be passed from the stated payee to a third party.

According to Negotiable Act, $1881$, which of the following refer to an instrument in writing (not being a bank note or a currency note) containing unconditional undertaking, signed by the maker to pay or demand or at a fixed or determinable future time or the bearer of the instrument?

  1. Promissory note

  2. Bill of exchange

  3. Cheque

  4. Bearer debentures


Correct Option: B
Explanation:

According to Negotiable Act, 1881, Bill of Exchange refer to an instrument in writing (not being a bank note or a currency note) containing unconditional undertaking, signed by the maker to pay or demand or at a fixed or determinable future time or the bearer of the instrument. A bill of exchange can be defined as a written order to a person requiring them to make a specified payment to the payee.

Promissory is invariably _______.

  1. in writing.

  2. definite.

  3. unconditional.

  4. all of the above.


Correct Option: D
Explanation:

Promissory is invariably in writing, definite and unconditional. A promissory can be defined as an instrument in writing containing an unconditional undertaking, signed by the maker, to pay a certain sum of money to or to the order of a certain person, or to the bearer of the instruments.

Every business undertaking is engaged in the production and/ or distribution of ________ in exchange of money.

  1. Goods

  2. Services

  3. Money

  4. Goods or services


Correct Option: D
Explanation:

Every business undertaking is engaged in the production and/ or distribution of goods or services in exchange of money. The essential characteristic of business undertaking involves the production or distribution of goods and services in order to satisfy human wants and needs in exchange of money or profit.

The money deposit made by the buyer to the seller of real estate during negotiation stage is known as ________________.

  1. Earnest Money Deposit

  2. Fixed Deposit

  3. Current Deposit

  4. None of the above


Correct Option: A
Explanation:

The money deposit made by the buyer to the seller of real estate during negotiation stage is known as Earnest Money Deposit. An earnest money deposit can be referred as a specific form of security deposit made in some major transaction. It is done by the applicant to show his willingness to complete the transaction.

_______ is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.

  1. Commercial Bill

  2. Treasury Bill

  3. Call money

  4. None of the above


Correct Option: A
Explanation:

A commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. Commercial bills are known as trade bills or accommodation bills. These are common instruments used in credit purchase and sale. These have short term maturity period generally 90 days and can be discounted with bank even before the maturity period.

_______ are issued at a price which is lower than their face value and repaid at par.

  1. Commercial Paper

  2. Certificate of Deposit

  3. Commercial Bill

  4. Treasury Bill


Correct Option: D
Explanation:

Treasury bill are issued at a price which is lower than their face value and repaid at par. A treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year.  Treasury bills enable government to get short term borrowings as these bills are sold to banks and general public. Maturity of Treasury bills varies from 14 to 364 days.

Which of the following is true regarding call rate?

  1. A rise in call money rates makes other sources of finance cheaper.

  2. There is an inverse relationship between call rates and other short-term money market instruments.

  3. It is a highly volatile rate that varies from day-to-day and sometimes even from hour-to-hour.

  4. All of the above


Correct Option: D
Explanation:
Call rate can be defined as the rate paid on call money. It is very volatile rate which varies from day to day and sometimes from hour to hour. Following statements are true regarding call rate:
a) A rise in call money rates makes other sources of finance cheaper.
b) There is an inverse relationship between call rates and other short-term money market instruments.
c) It is a highly volatile rate that varies from day-to-day and sometimes even from hour-to-hour.

Treasury bills are also known as Zero Coupon Bonds that are available for a minimum of ______  and in multiples thereof.

  1. 20000

  2. 25000

  3. 30000

  4. 35000


Correct Option: B
Explanation:

Treasury bills are also known as Zero Coupon Bonds that are available for a minimum of and in multiples thereof. A treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year.  Treasury bills enable government to get short term borrowings as these bills are sold to banks and general public. Maturity of Treasury bills varies from 14 to 364 days.

Which one of the following is not a money market instrument?

  1. Commercial paper

  2. Participatory certificates

  3. Warrants

  4. Treasury Bills


Correct Option: C

Short-term borrowing is undertaken in.

  1. Money market

  2. Capital market

  3. Stock market

  4. Commodity market


Correct Option: A

In the call/notice money market, which of the following participants is allowed to trade?

  1. All Banks, Primary Dealers and Mutual Funds

  2. All Corporates

  3. Only Commercial Banks

  4. All of the above


Correct Option: C

The expected rate of return of the money market is _________.

  1. Less

  2. More

  3. Zero

  4. Very High


Correct Option: A
Explanation:

The money market yield will be lower than the yield on stocks and bonds because of the low risk.

A commercial bill is used to _____________.

  1. Pay the interest

  2. Meet the short term debt

  3. Finance the working capital requirements

  4. Meet the long term debt


Correct Option: A,C
Explanation:

Working capital financing is done by various modes such as trade credit, cash and discount of bills, bank guarantee, letter of credit, factoring, commercial paper, working capital financing extensively used by all small and big businesses.

Only institutional investors can participate in __________.

  1. Foreign market

  2. Loan market

  3. Capital market

  4. Money market


Correct Option: D
Explanation:

Only institutional investors can participate in money market. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods, typically up to twelve months.

Money market deals in _____________________.

  1. Short term Securities

  2. Medium term securities

  3. Long term Securities

  4. None of these


Correct Option: A
Explanation:

The money market is where financial instruments with high liquidity and very short maturities are traded. It is used by participants as a means for borrowing and lending in the short term, with maturities that usually range from overnight to just under a year.

The statistical technique used by Altman to distinguish between a bankrupt and a non bankrupt firm is ______________.

  1. Multiple Discriminant Analysis

  2. Correlation

  3. Joint Probability

  4. Multiple Regression Analysis

  5. Both (B) and (D) above


Correct Option: A
Explanation:

Multiple discriminant Analysis (MDA) is the statistical technique that is used to distinguish between bankrupt and non bankrupt firms.

A _________ is basically an instrument of short-term borrowing by the Government of India maturing in less than one year.

  1. call money

  2. treasury bill

  3. commercial paper

  4. certificate of deposit


Correct Option: B
Explanation:

A treasury bill is basically an instrument of short-term borrowing by the Government of India maturing in less than one year.  Treasury bills enable government to get short term borrowings as these bills are sold to banks and general public. Maturity of Treasury bills varies from 14 to 364 days.

Money market mutual funds ________.

  1. enable individuals and small businesses to invest indirectly in money-market instruments

  2. are available only to high net-worth individuals

  3. are used in acquiring and placing mortgages

  4. are mostly tradable on stock exchange


Correct Option: C
Explanation:

Money market mutual funds are used in acquiring and placing mortgages. Money market deals with short term securities having maximum tenure of 1 year. Money market mutual funds can be defined as short term liquid investments which invest in high quality money market instruments.

A __________ is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms.

  1. money market

  2. treasury bill

  3. certificate of deposit

  4. commercial bill


Correct Option: D
Explanation:

A commercial bill is a short-term, negotiable, self-liquidating instrument which is used to finance the credit sales of firms. Commercial bills are known as trade bills or accommodation bills. These are common instruments used in credit purchase and sale. These have short term maturity period generally 90 days and can be discounted with bank even before the maturity period.

The money market is a market for __________ funds which deals in monetary assets whose period of maturity is upto one year.

  1. short-term

  2. long-term

  3. medium-term

  4. nano-term


Correct Option: A
Explanation:

The money market is a market for short-term funds which deals in monetary assets whose period of maturity is up to one year. Generally money market is the source of finance for working capital. Transactions of money market include lending and borrowing of cash for a short period of time and also sale and purchase of securities having one year time.

All of the following are essentials of a valid acceptance of an instrument, except _____.

  1. must be conditional.

  2. signed by drawee or his agent.

  3. accepted must appear on the holder.

  4. accepted of valid Acceptance.


Correct Option: A

Money market mutual funds ____________________________.

  1. Enable individuals and small business to invest indirectly in money-market instruments

  2. Are available only to high net-worth individuals

  3. Are used in acquiring and placing mortgages

  4. Are mostly tradable on stock exchange


Correct Option: C
Explanation:

Money market mutual funds are used in acquiring and placing mortgages. Money market mutual funds can be referred to short-run liquid investments which invest in high quality money market instruments. It helps to provide investors with a reasonable returns over a period up to 1 year.

In the call/notice money market, which of the following participants is allowed to trade?

  1. All Banks, Primary Dealers and Mutual Funds

  2. Insurance companies

  3. Only Commercial Banks

  4. All of the above


Correct Option: D
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