📘 Sources of Finance; Financial Markets & Institutions 100 MCQs
🔹 Sources of Finance (Conceptual & Analytical)
Q1. Internal sources of finance include:
A. Equity shares
B. Retained earnings
C. Debentures
D. Bank loans
Answer: B
Q2. External sources of finance include:
A. Reserves
B. Depreciation
C. Equity capital
D. Retained earnings
Answer: C
Q3. Equity shareholders are:
A. Creditors
B. Owners of the company
C. Lenders
D. Auditors
Answer: B
Q4. Preference shares have:
A. Voting rights
B. Fixed dividend
C. No dividend
D. Unlimited liability
Answer: B
Q5. Debentures represent:
A. Ownership
B. Loan capital
C. Reserve
D. Profit
Answer: B
Q6. Retained earnings are:
A. External funds
B. Internal funds
C. Borrowed funds
D. Capital market funds
Answer: B
Q7. Working capital finance is used for:
A. Fixed assets
B. Day-to-day operations
C. Long-term investment
D. Share capital
Answer: B
Q8. Fixed capital is used for:
A. Inventory
B. Salaries
C. Machinery
D. Cash
Answer: C
Q9. Lease financing involves:
A. Ownership transfer
B. Use of asset without ownership
C. Loan repayment
D. Shareholding
Answer: B
Q10. Hire purchase differs from lease in:
A. Ownership transfer
B. Payment
C. Risk
D. Cost
Answer: A
Q11. Venture capital is:
A. Low-risk finance
B. High-risk equity finance
C. Debt finance
D. Government grant
Answer: B
Q12. Factoring involves:
A. Loan
B. Sale of receivables
C. Share issue
D. Leasing
Answer: B
Q13. Bridge finance is:
A. Long-term finance
B. Short-term interim finance
C. Equity
D. Grant
Answer: B
Q14. Commercial paper is:
A. Long-term instrument
B. Short-term unsecured instrument
C. Equity
D. Loan
Answer: B
Q15. Securitization involves:
A. Selling shares
B. Converting assets into securities
C. Borrowing
D. Leasing
Answer: B
Q16. GDR stands for:
A. Global Deposit Receipt
B. Global Depository Receipt
C. General Deposit Receipt
D. Government Deposit Receipt
Answer: B
Q17. Derivatives include:
A. Shares
B. Options
C. Loans
D. Deposits
Answer: B
Q18. Forward contract is:
A. Spot transaction
B. Future agreement
C. Loan
D. Equity
Answer: B
Q19. Swap involves:
A. Buying shares
B. Exchange of cash flows
C. Loan
D. Deposit
Answer: B
Q20. Capital rationing occurs when:
A. Funds unlimited
B. Funds limited
C. No investment
D. Profit high
Answer: B
🔹 Financial Markets
Q21. Financial market facilitates:
A. Production
B. Transfer of funds
C. Consumption
D. Audit
Answer: B
Q22. Capital market deals in:
A. Short-term funds
B. Long-term funds
C. Medium-term
D. Cash
Answer: B
Q23. Money market deals in:
A. Long-term funds
B. Short-term funds
C. Equity
D. Bonds
Answer: B
Q24. Primary market is for:
A. Trading existing securities
B. Issuing new securities
C. Audit
D. Banking
Answer: B
Q25. Secondary market is for:
A. New issues
B. Trading existing securities
C. Loans
D. Deposits
Answer: B
Q26. Stock exchange is part of:
A. Money market
B. Capital market
C. Banking
D. Insurance
Answer: B
Q27. Liquidity in financial market means:
A. Profit
B. Ease of buying/selling
C. Risk
D. Cost
Answer: B
Q28. Financial market efficiency ensures:
A. Mispricing
B. Fair pricing
C. Delay
D. Risk
Answer: B
Q29. Bull market indicates:
A. Falling prices
B. Rising prices
C. Stable prices
D. No trading
Answer: B
Q30. Bear market indicates:
A. Rising prices
B. Falling prices
C. Stable prices
D. High liquidity
Answer: B
🔹 Financial Institutions
Q31. RBI is:
A. Commercial bank
B. Central bank
C. Investment bank
D. Insurance company
Answer: B
Q32. RBI regulates:
A. Stock market
B. Banking system
C. Insurance
D. Audit
Answer: B
Q33. SEBI regulates:
A. Banking
B. Capital market
C. Insurance
D. Tax
Answer: B
Q34. NABARD focuses on:
A. Industry
B. Agriculture
C. Trade
D. Export
Answer: B
Q35. SIDBI supports:
A. Agriculture
B. Small industries
C. Banking
D. Insurance
Answer: B
Q36. EXIM Bank deals with:
A. Domestic trade
B. Foreign trade
C. Agriculture
D. Banking
Answer: B
Q37. Mutual funds pool:
A. Loans
B. Investor funds
C. Deposits
D. Grants
Answer: B
Q38. Insurance companies provide:
A. Loans
B. Risk coverage
C. Equity
D. Audit
Answer: B
Q39. Commercial banks provide:
A. Long-term finance only
B. Short and medium-term finance
C. Equity
D. Audit
Answer: B
Q40. Development banks provide:
A. Short-term loans
B. Long-term finance
C. Equity only
D. Grants
Answer: B
🔹 Advanced Concepts
Q41. Cost of capital refers to:
A. Profit
B. Cost of funds
C. Revenue
D. Risk
Answer: B
Q42. Debt financing increases:
A. Ownership
B. Financial risk
C. Profit
D. Equity
Answer: B
Q43. Equity financing leads to:
A. Fixed obligation
B. Ownership dilution
C. Debt
D. Risk elimination
Answer: B
Q44. Financial leverage arises due to:
A. Equity
B. Debt
C. Profit
D. Cost
Answer: B
Q45. Dividend is paid to:
A. Creditors
B. Shareholders
C. Auditors
D. Government
Answer: B
Q46. Interest is paid to:
A. Shareholders
B. Debenture holders
C. Auditors
D. Employees
Answer: B
Q47. Financial institutions ensure:
A. Production
B. Capital allocation
C. Consumption
D. Audit
Answer: B
Q48. Market risk refers to:
A. Internal risk
B. Price fluctuations
C. Audit
D. Cost
Answer: B
Q49. Credit risk refers to:
A. Market fluctuation
B. Default risk
C. Cost
D. Profit
Answer: B
Q50. Liquidity risk refers to:
A. Price risk
B. Inability to convert assets into cash
C. Credit risk
D. Audit
Answer: B
Q51. A company prefers debt over equity mainly to:
A. Increase ownership
B. Reduce control dilution
C. Avoid interest
D. Increase risk
Answer: B
Q52. High debt-equity ratio indicates:
A. Low financial risk
B. High financial leverage
C. High liquidity
D. Low profit
Answer: B
Q53. Cost of retained earnings is:
A. Zero
B. Opportunity cost
C. Fixed cost
D. Variable cost
Answer: B
Q54. Convertible debentures can be converted into:
A. Cash
B. Equity shares
C. Loans
D. Bonds
Answer: B
Q55. Preference shares are suitable for investors seeking:
A. High risk
B. Fixed return
C. Voting rights
D. Growth
Answer: B
Q56. Venture capitalists typically invest in:
A. Mature companies
B. Start-ups
C. Government
D. Banks
Answer: B
Q57. Leasing is beneficial because it:
A. Requires ownership
B. Saves initial capital
C. Increases risk
D. Eliminates cost
Answer: B
Q58. Factoring improves:
A. Profit
B. Liquidity
C. Cost
D. Risk
Answer: B
Q59. Commercial paper is issued by:
A. Government
B. Corporates
C. Banks only
D. Individuals
Answer: B
Q60. Securitization reduces:
A. Risk concentration
B. Profit
C. Cost
D. Liquidity
Answer: A
🔹 Financial Markets (Advanced Concepts)
Q61. Efficient Market Hypothesis assumes:
A. Prices reflect all information
B. Prices are random
C. No trading
D. No risk
Answer: A
Q62. Arbitrage ensures:
A. Price difference
B. Price equality
C. Profit loss
D. Risk
Answer: B
Q63. Derivative value depends on:
A. Interest
B. Underlying asset
C. Profit
D. Cost
Answer: B
Q64. Futures contract is standardized and traded on:
A. OTC
B. Exchange
C. Bank
D. Government
Answer: B
Q65. Option gives the holder:
A. Obligation
B. Right but not obligation
C. Loan
D. Equity
Answer: B
Q66. Hedging is used to:
A. Increase risk
B. Reduce risk
C. Increase cost
D. Delay
Answer: B
Q67. Speculation involves:
A. Risk avoidance
B. Risk taking
C. Audit
D. Compliance
Answer: B
Q68. Primary dealers operate in:
A. Capital market
B. Money market
C. Insurance
D. Audit
Answer: B
Q69. Treasury bills are:
A. Long-term
B. Short-term government securities
C. Equity
D. Bonds
Answer: B
Q70. Repo rate is:
A. Lending rate by RBI
B. Borrowing rate
C. Deposit rate
D. Market rate
Answer: A
🔹 Financial Institutions (Advanced)
Q71. RBI acts as:
A. Banker to public
B. Banker to banks
C. Investor
D. Auditor
Answer: B
Q72. SEBI’s primary role is:
A. Banking regulation
B. Investor protection
C. Insurance
D. Tax
Answer: B
Q73. Mutual funds provide:
A. Guaranteed return
B. Diversification
C. Fixed interest
D. Loan
Answer: B
Q74. Insurance transfers:
A. Profit
B. Risk
C. Cost
D. Capital
Answer: B
Q75. Development banks focus on:
A. Short-term finance
B. Long-term development
C. Retail banking
D. Audit
Answer: B
Q76. NBFCs differ from banks as they:
A. Accept deposits
B. Cannot issue cheques
C. Provide loans
D. Accept savings accounts
Answer: B
Q77. Financial inclusion aims at:
A. Profit
B. Access to financial services
C. Risk
D. Audit
Answer: B
Q78. Credit rating agencies assess:
A. Profit
B. Creditworthiness
C. Cost
D. Audit
Answer: B
Q79. Stock exchanges provide:
A. Loan
B. Liquidity
C. Audit
D. Insurance
Answer: B
Q80. Financial intermediaries reduce:
A. Risk
B. Transaction cost
C. Profit
D. Audit
Answer: B
🔹 Case-Based & Analytical
Q81. If interest rates rise, bond prices:
A. Rise
B. Fall
C. Remain constant
D. Double
Answer: B
Q82. A firm with high leverage faces:
A. Low risk
B. High financial risk
C. No risk
D. Profit
Answer: B
Q83. If liquidity is high, market is:
A. Inefficient
B. Efficient
C. Risky
D. Slow
Answer: B
Q84. If inflation rises, real return:
A. Increases
B. Decreases
C. Stable
D. Doubles
Answer: B
Q85. Diversification reduces:
A. Systematic risk
B. Unsystematic risk
C. Market risk
D. Interest risk
Answer: B
Q86. IPO is issued in:
A. Secondary market
B. Primary market
C. Money market
D. Bond market
Answer: B
Q87. Rights issue is offered to:
A. Public
B. Existing shareholders
C. Government
D. Banks
Answer: B
Q88. Bonus shares are issued from:
A. Debt
B. Reserves
C. Loan
D. Market
Answer: B
Q89. Financial market stability depends on:
A. Regulation
B. Transparency
C. Liquidity
D. All of the above
Answer: D
Q90. Systematic risk is:
A. Diversifiable
B. Non-diversifiable
C. Avoidable
D. Internal
Answer: B
🔹 Numerical/Conceptual Logic
Q91. Higher cost of capital leads to:
A. More investment
B. Less investment
C. No change
D. Profit
Answer: B
Q92. If debt cost < equity cost, firm prefers:
A. Equity
B. Debt
C. Both
D. None
Answer: B
Q93. Dividend payout ratio affects:
A. Retained earnings
B. Debt
C. Loan
D. Cost
Answer: A
Q94. Financial leverage increases:
A. Profit variability
B. Stability
C. Cost reduction
D. Risk elimination
Answer: A
Q95. Interest coverage ratio measures:
A. Profit
B. Ability to pay interest
C. Cost
D. Risk
Answer: B
Q96. Capital structure decision affects:
A. Profit
B. Risk
C. Value of firm
D. All of the above
Answer: D
Q97. Financial market regulation ensures:
A. Fraud
B. Stability
C. Risk
D. Delay
Answer: B
Q98. Liquidity preference theory relates to:
A. Demand for money
B. Supply of money
C. Profit
D. Cost
Answer: A
Q99. Credit creation is done by:
A. RBI
B. Commercial banks
C. Government
D. Audit
Answer: B
Q100. Ultimate goal of financial system is:
A. Profit
B. Efficient allocation of resources
C. Audit
D. Cost
Answer: B
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