When stock prices reflect fundamental values:

• A) All investors will experience capital gains
• B) All companies will have an easier task of obtaining financing for investment projects
• C) The overall level of the stock market should move higher continuously
• D) The allocation of resources will be more efficient

The reason for the government to get involved in the financial system is to:

• A) All of the given options
• B) Protect investors
• C) Protect bank customers from monopolistic exploitation
• D) Ensure the stability of the financial system

Which one of these not the role of financial intermediaries?

• A) Diversification of risk
• B) None of above
• C) Gathering the small saving
• D) Reduction of information and transaction cost

Which of the following is true regarding increase of interest rates?

• A) Encourage corporate expansion.
• B) Discourage corporate investments.
• C) Encourage corporate borrowing.
• D) Discourage individuals from saving.

The Dividend-Discount Model of stock valuation:

• A) Takes the net present value of expected dividends and add it to the future sale price of the stock
• B) Is an application of the net present value formula
• C) Takes the annual dividend, adds it to the expected future selling price and divides by the number of years to get the current price
• D) Takes the net present value of the expected future price of the stock and add the annual dividend

Which of the following statement best describes the bond market?

• A) The most widely followed financial markets in the Pakistan
• B) A market where exchange rates are determined
• C) A market where interest rates are determined
• D) All of given option

Investors A, B and C invest money in Capital market, bond market and money market respectively. Which of the following investor have normally higher liquidity?

• A) Investor A
• B) Investor C
• C) All have equal liquidity
• D) Investor B

The Theory of Efficient Markets:

• A) Says Insider-information makes markets less efficient
• B) Assumes people have equal luck
• C) Rules out high returns due to chance
• D) Allows for higher than average returns if the investor takes higher risk

Banks borrow from the central bank this loan is called ___________.

• A) Collateralized loan
• B) Personal loan
• C) Corporate loan
• D) Discount loan

Which of the following allows financial institutions to take deposits and make loans to foreign individuals and businesses.

• A) International monetary fund (IMF)
• B) Exchange rate (ER)
• C) All of the above
• D) International banking facility (IBF)

One thing that is true about economic policy in the U.S. is:

• A) Monetary and Fiscal policy often times conflict
• B) Fiscal and monetary policy never conflict
• C) Monetary policy ultimately controls fiscal policy since the Fed controls the money supply
• D) Fiscal policy ultimately controls monetary policy since Congress can control the Fed's budget

Which of the following activity reduce Moral hazard in the economy?

• A) Screening the debt application
• B) Making good contact with debt holders
• C) Providing only limited debt facility
• D) Monitoring the debtors

If we increase leverage in capital structure, what will be effect on standard deviation?

• A) Standard deviation and leverage have no relationship
• B) Standard deviation will remain constant
• C) Standard deviation will increase
• D) Standard deviation will decrease

If the purchase price of a financial instrument differs from the price at which it is sold, the result may be decrease in the value of the financial instrument. Such risk is termed as:

• A) Interest rate risk
• B) Trading risk
• C) Liquidity risk
• D) Sovereign risk

Profitability of one bank may vary from the profitability of other banks due to following factor/s:

• A) All of the given options
• B) Level of professional activities
• C) Efficient cost management
• D) Size of the bank

You start with a $1000 portfolio; it loses 40% over the next year, the following year it gains 50% in value; At the end of two years the worth of your portfolio will be:

• A) $600
• B) $1100
• C) $900
• D) $1000

We can calculate -------------------- of a bank by taking difference between bank’s assets and bank’s liabilities

• A) Net investment
• B) Net Worth
• C) Net borrower
• D) Vault cash

Financial intermediaries reduce which of these costs

• A) Information cost
• B) Transaction cost
• C) All of above
• D) Services cost

Which of the problem asymmetry information has to face during the proper flow of funds?

• A) Adverse selection
• B) All of above
• C) Moral hazard
• D) Borrower behavior in fund utilization

Which of the following is true regarding Return on equity (ROE) and leverage?

• A) Standard deviation and ROE show some time positive and some time negative relationship
• B) Standard deviation and ROE have no relationship
• C) Standard deviation and ROE have negative relationship
• D) Standard deviation and ROE have positive relationship