Securities Market Foundation Free Demo Test 4

Explanation:

Instruments such as certificates of deposit and commercial paper are categorized as money market securities. Money market instruments are short-term, highly liquid financial instruments that serve as a means for companies and governments to manage their short-term funding needs. These instruments are typically characterized by their short maturity periods and low-risk profiles. The other options—primary market, secondary market, and currency market—refer to different aspects of financial markets but are not specific to the characteristics of certificates of deposit and commercial paper.

Explanation:

A margin is the amount of funds that one has to deposit with the clearing corporation in order to cover the risk of non-payment of dues or non-delivery of securities. Clearing corporations play a crucial role in ensuring the smooth settlement of trades in financial markets by managing risks associated with transactions. Margin requirements help mitigate the risk of default by market participants, providing a safety net for potential losses. The other options—SEBI (Securities and Exchange Board of India), issuer, and broker—have distinct roles in the financial markets but are not directly involved in collecting margins to cover transaction risks.

Explanation:

Securities Pay-out is the process of receiving securities from the clearing corporation to complete the securities settlement of a purchase transaction. In this context, it involves the delivery of securities to the buyer after the transaction has been successfully settled. The other options—Securities Pay-in, Funds Pay-in, and Funds Pay-out—refer to different stages of the settlement process, but Securities Pay-out specifically addresses the delivery of securities to complete the purchase transaction settlement.

Explanation:

Earlier, most derivative contracts were settled in cash. This means that the settlement involved the actual exchange of cash between the parties based on the difference in the contract’s value at the time of settlement. The other options—cheques and electronic mode—represent methods of transferring cash but are not specific to the settlement process of derivative contracts. “All the above” is the correct choice, as it encompasses the different forms of cash settlement.

Explanation:

Copies of the contract note are generated for both the broker and the client. These documents provide a detailed record of the transaction, including the terms and conditions of the trade, and are distributed to both parties involved—the broker and the client. The contract note serves as an important confirmation and record-keeping document in financial transactions. The option “Only 1 & 2” indicates that copies are generated for the broker and the client, excluding other entities like banks.

Explanation:

Stockbrokers and depository participants are required to submit quarterly reports to Stock Exchanges and Depositories on cyber-attacks and threats experienced by them. Additionally, they need to outline the measures taken to counteract such threats. Authorized persons may also fall under this requirement. The option “Only 1 & 2” signifies that stock brokers and depository participants are obligated to provide these reports, excluding other entities like authorized persons.

Explanation:

The statement is true. SEBI (Securities and Exchange Board of India) has the authority to register and regulate the functioning of depositories and depository participants. This ensures oversight and compliance within the securities market infrastructure, contributing to the overall regulatory framework.

Explanation:

In order to calculate impact cost, the process involves determining the “ideal” or average price and then calculating the deviations from it. Impact cost is a measure used in financial markets to assess the liquidity of a security, reflecting the cost incurred due to the execution of a trade relative to the prevailing market price. The other options—Securities Transaction Tax (STT), Goods and Services Tax (GST), and Stamp Duty—are different components of transaction costs or taxes in financial markets but are not directly related to the calculation of impact cost.

Explanation:

Both initial and exposure margins are payable in advance by clearing members before they enter into trading positions. Clearing members play a crucial role in the clearing and settlement process in financial markets. They are responsible for ensuring that trading participants adhere to margin requirements to cover potential losses and risks associated with their positions. The other options—arbitrageurs, brokers, and trading members—may engage in trading but are not specifically responsible for ensuring margin payments in advance.

Explanation:

Arbitrageurs are specialists who identify price differentials in two markets and engage in trades to exploit these differences and reduce them. They take advantage of discrepancies in prices between different markets or instruments to make a profit. In this context, they contribute to the efficiency of markets by aligning prices across different venues or securities. Authorized persons, depository participants, and portfolio managers may have different roles in financial markets, but they are not specifically associated with the identification and exploitation of price differentials through arbitrage.