NISM 15 Research Analyst Mock Test 3: 600 MCQ Series (Full Detailed Version)
NISM Series XV: Mock Test 3 (Set 3 of 24)
Dhaval’s Personal Advice for Aspirants:
Practice and understand these 25 questions. If you can't understand the theory or the logic, just mug it up (memorize it) because these are very important and sure-shot questions that will appear in the exam!
Question 1
What will be the result of Central banks following expansionary monetary policies?
A. More credit flow to borrowers
B. Increase in money supply
C. Decrease in interest rates
Options:
A. Only A
B. Only B
C. Both A and B
D. All A, B and C
View Correct Answer & Detailed Explanation
Explanation: Expansionary monetary policy is used to push the economy up by increasing the money supply steeply and reduction in the interest rates. With an increase in money supply, borrowers get more money for business or spending.
Question 2
Identify the CORRECT statement with respect to GST.
Options:
A. GST is applicable on all goods and services imported into India
B. GST is applicable on goods and services provided or sold in India
C. GST is applicable on all goods and services produced in India or imported into India
D. GST is applicable on production and is collected at the time of sale
View Correct Answer & Detailed Explanation
Explanation: GST (Goods and Services Tax) in India is a comprehensive indirect tax levied on the supply of goods and services, whether:
Produced/supplied within India
Imported into India
So, GST is applicable on:
Domestic supply (goods/services made and sold in India)
Imports (treated as inter-state supply and taxed via IGST)
Question 3
Code of internal conduct has to be framed by _______.
Options:
A. Self Regulatory Organisations (SRO)
B. Asset Management Companies (AMC)
C. Trustees of mutual funds
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Under the SEBI (Prohibition of Insider Trading) Regulations, all the above entities have to have strict internal code of conduct as they deal with price sensitive information.
Question 4
Which type of risk applies to all types of securities issued in a nation?
Options:
A. Re-Investment Risk
B. Country Risk
C. Political Risk
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Country Risk: Country risk refers to the risk related to a country as a whole. There is a possibility that it will not be able to honour its financial commitments. When a country defaults on its obligations, this can affect the performance of all other securities in that country as well as other countries it has relations with. Country risk applies to all types of securities issued in that country.
Question 5
Why are most businesses price takers and not price makers?
Options:
A. Because the margin on sales is less
B. Because they have low bargaining power with their suppliers
C. Because products have to be priced as per the competition in market
D. Because of low manufacturing cost
View Correct Answer & Detailed Explanation
Explanation: In any competitive industry, pricing command is virtually missing. If a competitor reduces prices, others will have to follow to remain in the market. So the companies in a competitive market are price takers and not price makers.
Question 6
In which of these situations is Free Cash Flows to the Firm (FCFF) used for valuation?
Options:
A. When the Free Cash Flow for Equity (FCFE) is likely to be negative
B. When the Free Cash Flow for Equity (FCFE) is likely to be positive
C. When the capital structure of the firm is likely to change significantly in the future
D. Both option 1 and 3 above
View Correct Answer & Detailed Explanation
Explanation: Free Cash Flow to the Firm (FCFF) is used for valuation when:
FCFE is likely to be negative: FCFE (Free Cash Flow to Equity) represents cash available to equity holders after all expenses, reinvestments, and debt payments. If FCFE is negative (due to high debt repayments or reinvestment needs), valuing a firm based on FCFE might not be reliable. FCFF, which accounts for cash flows before debt servicing, is a better metric.
The capital structure is likely to change significantly: FCFE is highly sensitive to leverage (debt-equity ratio). If a company is planning major changes in its debt structure, FCFE projections can become unpredictable. FCFF, on the other hand, values the firm independent of its financing structure and is discounted using Weighted Average Cost of Capital (WACC) rather than the Cost of Equity.
Question 7
Which of this information can be considered as Insider Information?
Options:
A. A manager mentioning the number of employees of the company who are working from home
B. The Managing Director mentioning about an acquisition proposal not yet disclosed to the public
C. The information that factory is working on additional shifts. This has been announced to the public but not published in the annual report
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Insider information is a material non-public information that when published would immediately affect an investor's decision to buy or sell the security. Whether an information can be considered insider depends on the source of the information (how reliable it is), its impact and its certainty. From the three options given above, the Managing Director mentioning about an acquisition proposal not yet disclosed to the public, will be considered as an insider information.
Question 8
What will be the likely Beta of a stock which is more volatile than the market?
Options:
A. Zero
B. Below zero
C. Between zero and one
D. Greater than one
View Correct Answer & Detailed Explanation
Explanation: Beta of 1 indicates that the security's price will move with the market. Beta of less than 1 means that the security will be less volatile than the market. And, beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market both on up and down moves.
Question 9
In Expansionary fiscal policy, the Government uses its excess income to repay its debts or acquire assets. State True or False?
Options:
A. True
B. False
View Correct Answer & Detailed Explanation
Explanation: A Government tries to balance between its inflows and outflows and based on its actions the fiscal policy can be categorized as -
Expansionary fiscal policy – Fiscal measures when government's spending exceeds its income. This policy stance is usually undertaken during recessions/slow moving economy.
Contractionary fiscal policy – Fiscal measures when government's spending is lower than its income. Government uses excess income to repay its debts/obligations or acquire assets.
Question 10
What can most likely cause an increase in the purchases of premium products over regular cheaper alternatives?
Options:
A. Recession
B. Inflation
C. Increase in income levels
D. Growth in population
View Correct Answer & Detailed Explanation
Explanation: As an economy grows, the income levels grow and the disposable income of population increases. This can cause change in category of goods and services being consumed. People start consuming premium products compared to cheaper alternatives.
Question 11
What is the advantage of Merger and Acquisition activity?
Options:
A. Diversification
B. Synergy
C. Taxation benefits
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Some of the motives behind Merger and Acquisition activities are:
Synergy - Each company may have distinct efficiencies that when combined together may result in greater economic benefits
Increased revenue and market share - If two competitors go through M&A, it would result in increased revenue and market share for the acquiring entity
Geographical or other diversification - Acquiring Company in different geography or complimentary business space may offer significant competitive advantage to the acquirer
Taxation - A profitable company can buy a loss making company to enjoy tax shield against the losses of the target company
Question 12
When the capital inflows are more than the capital outflows, the country will have a _______.
Options:
A. Current Account Surplus
B. Current Account Deficit
C. Capital Account Surplus
D. Capital Account Deficit
View Correct Answer & Detailed Explanation
Explanation: Balance of payment statement of a country is broadly divided into two accounts namely the current account and the capital account. The current account has all the details of transactions on revenue account viz. imports and exports of goods and services while the capital account captures all the capital flows like FDI, FII, loans, and grants etc. Capital account will be in surplus if inflows are more than outflows and in deficit if outflows are more than inflows on capital account.
Question 13
Which of the following will be considered as STRENGTH in SWOT analysis?
Options:
A. Large number of patents on products
B. Ease in licensing
C. Reduction in tax rates
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis: Strengths refer to internal factors that give the company a competitive advantage. Large set of patents is an internal asset and a clear strength. Reduction in tax rates and ease in regulatory licensing are external factors, which fall under Opportunities, not strengths.
Question 14
The bargaining power of the buyer will be high when _______.
Options:
A. Competitive intensity in the industry is strong
B. Close substitutes of the products exist and switching can be done easily
C. Products are standardized with little differentiation
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Buyers can exert a lot of pressure and dictate prices, if there are a large number of sellers with similar products/services. Buyers' bargaining power would be high if:
Competitive intensity in the industry is strong
Products/Services are standardized with little or no differentiation.
Question 15
If the government of a country changes its expansionary fiscal policy to contractionary fiscal policy, the equity markets are likely to go _______.
Options:
A. Up
B. Down
C. Fiscal policies have no impact on equity markets
D. None of the above
View Correct Answer & Detailed Explanation
Explanation: Contractionary policy is intended to cool down the heated up economy through reduction in the money supply or slow increase in money supply and increase in the interest rates. When economy is heated up, it may need fiscal measures to slowdown. In such a situation, a government can increase taxes to suck money out of the economy or decrease in its spending thereby decreasing the money in circulation. However, possible negative effects of such a policy in the long run could be a slow moving economy and high unemployment levels which will lead to a negative impact on the equity markets.
Question 16
_______ gives a review of company's sources and uses of cash over the year.
Options:
A. Balance Sheet
B. Cash Flow Statement
C. Income Statement
D. Working Capital Statement
View Correct Answer & Detailed Explanation
Explanation: Cash flow statement provides a summary of the various sources and uses of cash.
Question 17
Which of these is the most suitable inference in technical analysis, if the share price breaks its resistance level?
Options:
A. When the price breaks the resistance level, its likely to stay there for some months
B. When the price breaks the resistance level, its likely to fall down rapidly
C. When the price breaks the resistance level, its likely to rise to the next resistance level
D. When the price breaks the resistance level, its likely to decline slowly
View Correct Answer & Detailed Explanation
Explanation: Resistance is something which stops the price from rising further. The resistance level is a price point on the chart where traders expect maximum supply. So if a share breaks the resistance level with good volumes, its likely to rise much higher, probably to the next higher resistance level.
Question 18
Any change in the Securities Transaction Tax will have an affect on which of these industries?
Options:
A. Defense supply industry
B. Pharma industry
C. Security manpower suppliers
D. Stock brokerage firms
View Correct Answer & Detailed Explanation
Explanation: Security transaction tax is paid at the time of sale of securities / derivatives etc. Since it reduces the realisable value of security sales, it discourages short-term trading. Thus, this affects stock traders and in turn stock brokerage firms.
Question 19
Which of these is a good source of information for investment analysis?
Options:
A. Movement of stock prices for the last 3 years
B. Research Report from Credit Rating Companies
C. Media reports of the company
D. News about the company in social media
View Correct Answer & Detailed Explanation
Explanation: From the above four options, only Research Report from Credit Rating Companies can be considered as a reliable source of information for investment analysis.
Question 20
As per Regulation 8 of SEBI (Research Analyst) Regulations, any corporate entity wishing to get registered with SEBI as a Research Analyst should have a minimum net worth of _______.
Options:
A. Rs 10 lakhs
B. Rs 20 lakhs
C. Rs 25 lakhs
D. Rs 50 lakhs
View Correct Answer & Detailed Explanation
Explanation:
Regulation 8: Capital adequacy -
(1) A research analyst who is individual or partnership firm shall have net tangible assets of value not less than one lakh rupees.
(2) A research analyst who is body corporate or limited liability partnership firm shall have a networth of not less than twenty five lakh rupees.
Question 21
Value of Equity is calculated as _______.
Options:
A. Free cash flows to the firm (FCFF) is discounted using the cost of debt
B. Free cash flows for equity (FCFE) is discounted using the cost of debt
C. Free cash flows to the firm (FCFF) is discounted using the cost of equity
D. Free cash flows for equity (FCFE) is discounted using the cost of equity
View Correct Answer & Detailed Explanation
Explanation: To calculate the value of equity, FCFE is discounted using the cost of equity.
Question 22
When is the threat of substitutes very high?
Options:
A. When the substitute offer better quality
B. When the substitute is available at a better price
C. When the substitute offer better ease
D. All of the above
View Correct Answer & Detailed Explanation
Explanation: Threat of substitutes would be high if -
Substitutes offer equal or better experience to customers – quality, price, ease etc.
Switching cost for customers from one product/service to another is low or nil
Question 23
Which of the following is NOT included in fundamental analysis?
Options:
A. Investors behaviour analysis
B. Company analysis
C. Economic analysis
D. Industry analysis
View Correct Answer & Detailed Explanation
Explanation: Fundamental analysis includes following:
Economic analysis
Industry analysis
Company analysis
It does not include analysis of investors behaviour.
Question 24
Which is the nodal agency of the Central Government to formulate and monitor India's macroeconomic policies, covering monetary and fiscal policy as well as the functioning of the Capital Market including stock exchanges?
Options:
A. Department of Revenue
B. Department of Economic Affairs
C. Department of Expenditure
D. Department of Financial Services
View Correct Answer & Detailed Explanation
Explanation: Department of Economic Affairs is the nodal agency of the Central Government to formulate and monitor India's macroeconomic policies, covering monetary and fiscal policy as well as the functioning of the Capital Market including stock exchanges.
Question 25
Price to Earnings ratio is calculated as _______.
Options:
A. Earnings per share (EPS) x Current price of stock
B. Earnings per share (EPS) / Current price of stock
C. Current price of stock / Earnings per share (EPS)
D. Current price of stock X Earnings per share (EPS)
View Correct Answer & Detailed Explanation
Explanation: Price to Earnings Ratio (P/E) = Current price of stock/ Earnings Per Share (EPS)
The PE ratio represents the value placed by the market on each rupee of earnings of the company. It is calculated using the current market price and the historical EPS, or forward PE by using the forecasted EPS.
Mock Test 3 of 24 Complete. Keep practicing to clear your NISM 15 exam!
Dhaval Visariya
AMFI Registered Distributor (ARN-327925) | Software Developer & Finance Enthusiast
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