Q1.What is an Asset Management firm?

Ans. Mutual funds, hedge funds and pension plans are all run by asset management companies.
These companies earn income by charging service fees to their clients. AMCs offer their clients
more diversification because they have a larger pool of resources than the individual investor.
Pooling assets together and paying out proportional returns allows investors to avoid minimum
investment requirements often required when purchasing securities on their own, as well as the
ability to invest in a larger set of securities with a smaller investment.
Q2. Difference between Mutual funds and Hedge Funds
Ans. Hedge funds are managed much more aggressively than their mutual fund counterparts.
They are able to take speculative positions in derivative securities such as options and have the
ability to short sell stocks. This will typically increase the leverage - and thus the risk - of the
fund. This also means that it's possible for hedge funds to make money when the market is
falling. Mutual funds, on the other hand, are not permitted to take these highly leveraged
positions and are typically safer as a result.
Another key difference between these two types of funds is their availability. Hedge funds are
only available to a specific group of sophisticated investors with high net worth. The U.S.
government deems them as "accredited investors", and the criteria for becoming one are lengthy
and restrictive. This isn't the case for mutual funds, which are very easy to purchase with
minimal amounts of money.
Q3. What are different money market instruments?
Ans. Treasury Bills
Treasury bills (T-bills) are short-term notes issued by the U.S. government. They come in three
different lengths to maturity: 90, 180, and 360 days. The two shorter types are auctioned on a
weekly basis, while the annual types are auctioned monthly. T-bills can be purchased directly
through the auctions or indirectly through the secondary market. Purchasers of T-bills at auction
can enter a competitive bid (although this method entails a risk that the bills may not be made
available at the bid price) or a noncompetitive bid. T-bills for noncompetitive bids are supplied at
the average price of all successful competitive bids.
Federal Agency Notes
Some agencies of the federal government issue both short-term and long-term obligations,
including the loan agencies Fannie Mae and Sallie Mae. These obligations are not generally backed
by the government, so they offer a slightly higher yield than T-bills, but the risk of default is still
very small. Agency securities are actively traded, but are not quite as marketable as T-bills.
Corporations are major purchasers of this type of money market instrument.

Short-Term Tax Exempts

These instruments are short-term notes issued by state and municipal governments. Although they
carry somewhat more risk than T-bills and tend to be less negotiable, they feature the added benefit
that the interest is not subject to federal income tax. For this reason, corporations find that the
lower yield is worthwhile on this type of short-term investment.
Certificates of Deposit
Certificates of deposit (CDs) are certificates issued by a federally chartered bank against deposited
funds that earn a specified return for a definite period of time. They are one of several types of
interest-bearing "time deposits" offered by banks. An individual or company lends the bank a
certain amount of money for a fixed period of time, and in exchange the bank agrees to repay the
money with specified interest at the end of the time period. The certificate constitutes the bank's
agreement to repay the loan. The maturity rates on CDs range from 30 days to six months or
longer, and the amount of the face value can vary greatly as well. There is usually a penalty for
early withdrawal of funds, but some types of CDs can be sold to another investor if the original
purchaser needs access to the money before the maturity date.
Commercial Paper
Standard and Poor's and Moody's provide ratings of commercial paper. The highest ratings are A1
and P1, respectively. A2 and P2 paper is considered high quality, but usually indicates that the
issuing corporation is smaller or more debt burdened than A1 and P1 companies. Issuers earning
the lowest ratings find few willing investors.
Unlike some other types of money-market instruments, in which banks act as intermediaries
between buyers and sellers, commercial paper is issued directly by well-established companies, as
well as by financial institutions. Banks may act as agents in the transaction, but they assume no
principal position and are in no way obligated with respect to repayment of the commercial paper.
Companies may also sell commercial paper through dealers who charge a fee and arrange for the
transfer of the funds from the lender to the borrower.
Bankers' Acceptances
The maturity of acceptances ranges from one to six months.
Repurchase Agreements
Repurchase agreementsalso known as repos or buybacksare Treasury securities that are
purchased from a dealer with the agreement that they will be sold back at a future date for a higher
price. These agreements are the most liquid of all money market investments, ranging from 24
hours to several months.

Q4. Difference between Equity and Fixed Income

Ans. When it comes to investing, you have two primary choices: equities or debt securities. In a
nutshell, equities are things you own, such as stocks, and debt securities represent a loan that you
expect to be repaid with interest. Debt securities are sometimes referred to as fixed income
securities because the interest payment schedule is typically fixed. You can make money with
each type of investment, but both equity investments and fixed income securities involve risk.
Ownership
You can own stocks, and you can own bonds, but only stocks give you ownership in the
underlying company. Each share of stock represents an equal level of ownership in the company
with every other share of stock. Since you are a part owner in the company, you are entitled to
participate in the company's financial fortunes. If the value of the company soars, you stand to
gain based on the market price of your stock. Fixed income securities, such as bonds, have no
right to participate in any increase in the company's value.
Income
Fixed income securities, such as corporate bonds or bank certificates of deposit, pay a stated
interest rate that might be either a fixed rate or a variable rate. While the amount of your interest
payment might vary, the payment date is typically fixed so you know when you will get paid.
Some stocks pay dividends, which represent a portion of the company's profits that are
distributed to the shareholders. Dividends are typically paid quarterly, but they are not
guaranteed and companies are under no obligation to make a dividend payment. Even companies
that have a long history of paying quarterly dividends might elect to reduce or eliminate the
payments, if the board of directors believes there is a better use for those funds.
Safety
All investments in either equities or fixed income securities involve some level of risk, although
some investments are inherently safer than others. For example, a fixed income investment in a
Federal Deposit Insurance Corp.-insured certificate of deposit has virtually no risk of loss of
principal or interest, but all of that safety comes at a price. Interest rates on bank CDs are usually
quite low. An investment in the stock of an emerging high-tech company might have the
potential for rapid growth, but it might also crash and burn, leaving investors with a significant
loss.
Price Fluctuation
Both equities and fixed income securities are subject to price fluctuations in the secondary
market, but their market price movements might be influenced by different factors. Stock prices
can be affected by the company's earnings, positive or negative news, the general economy and a
number of other fundamental or emotional factors. Bond prices in the secondary market typically

move in the opposite direction of prevailing interest rates. For example, a bond paying 7 percent
interest would trade at a premium to its face value if prevailing interest rates on similar bonds
were at 5 percent.
Q5. What do you understand by Asset under Management (AUM) of a company?
Ans. Assets under management (AUM) refers to the total market
value of investments managed by amutual fund, money management firm, hedge fund, portfolio
manager, or other financial services company.
How it works/Example:
AUM generally changes according to the flow of money into and out of a particular fund or
company. It also fluctuates based on changes in the value of a fund or company's
underlying investments.
Why it Matters:
SEC guidelines leave room for interpretation on what may be included in AUM, but there are at
least two important reasons why investors should be sure to understand an asset manager's
method of calculating AUM.
First, investors are entitled to fair and transparent disclosure of an asset manager's true
performance over time. Because many asset management companies compare the size of their
AUM with competitors as a measure of success, accurate disclosure is especially important for
correctly evaluating an asset manager's performance.
The CFA Institute has established ethical standards -- called the Global Investment Performance
Standards (GIPS) -- that are especially useful to individual investors. The GIPS standards are a
set of standardized, industry-wide ethical principles that provide investment firms
with guidance on how to calculate and report investment results to prospective clients. Firms
must comply with the CFA Institute's high ethical standards if they want to prepare their
marketing materials according to GIPS (and advertise their compliance).
Second, many asset management companies charge management fees that are equal to a fixed
percentage of AUM, making it especially important for investors to understand how the firm
calculates AUM.
Q6. Define Arbitrage and Short Selling
Ans. Arbitrage is basically buying in one market and simultaneously selling in another, profiting
from a temporary difference. This is considered riskless profit for the investor/trader. The sale of
a security that is not owned by the seller, or that the seller has borrowed. Short selling is
motivated by the belief that a security's price will decline, enabling it to be bought back at a
lower price to make a profit.

Q7. What are convertible securities?

Ans. A convertible security is a security that can be converted into another
security. Convertible securities may be convertible bonds or preferred stocks that pay regular
interest and can be converted into shares of common stock (sometimes conditioned on the stock
price appreciating to a predetermined level).
Q8. Difference between REITs and Real Estate Companies
Ans. Real estate investment trust, or REIT for short.
A REIT is a company that owns and manages income-producing real estate.
REITs were created by an act of Congress in 1960 to enable large and small investors to enjoy
the rental income from commercial property.
REITs are governed by many regulations, the most important being that they must distribute at
least 90% of their taxable income to shareholders each year as dividends. Thats why theyre so
popular with investors seeking steady income.
All REITs share together are the following requirements to qualify. By law they must:
Be structured as corporation, business trust, or similar association
Be managed by a board of directors or trustees
Offer fully transferable shares
Have at least 100 shareholders
Pay dividends of at least 90 percent of the REIT's taxable income (most REITs actually
payout nearly 100%)
Have no more than 50 percent of its shares held by five or fewer individuals during the
last half of each taxable year
Hold at least 75 percent of total investment assets in real estate
Have no more than 20 percent of its assets consist of stocks in taxable REIT subsidiaries
Land plus anything permanently fixed to it, including buildings, sheds and other items attached
to the structure. Although, media often refers to the "real estate market" from the perspective of
residential living, real estate can be grouped into three broad categories based on its use:
residential, commercial and industrial. Examples of real estate include undeveloped land, houses,
condominiums, townhomes, office buildings, retail store buildings and factories.
Q9. What do you understand by Sub-Prime Lending?
Ans. In finance, subprime lending (also referred to as near-prime, non-prime, and secondchance lending) means making loans to people who may have difficulty maintaining the
repayment schedule, sometimes reflecting setbacks such as unemployment, divorce, medical
emergencies, etc. Historically, subprime borrowers were defined as having a FICO scores below
640, although "this has varied over time and circumstances.
Q10. Name two prominent Stock Exchanges in US

Ans. Ten largest stock exchanges in the world by market capitalization in 2011:
1. New York Stock Exchange (NYSE) - Headquartered in New York City. Market
Capitalization (2011, USD Billions) 14,242; Trade Value (2011, USD Billions) 20,161.
The largest stock exchange in the world by both market capitalization and trade value. NYSE is
the premier listing venue for the worlds leading large- and medium-sized companies. Operated
by NYSE Euronext, the holding company created by the combination of NYSE Group, Inc. and
Euronext N.V., NYSE offers a broad and growin array of financial products and services in cash
equities, futures, options, exchange-traded products (ETPs), bonds, market data, and commercial
technology solutions. Featuring more than 8000 listed issues it includes 90% of the Dow Jones
Industrial Average and 82% of the S&P 500 stock market indexes volume.
2. NASDAQ OMX - Headquartered in New York City. Market Capitalization (2011, USD
Billions) - 4,687; Trade Value (2011, USD Billions) 13,552.
Second largest stock exchange in the world by market capitalization and trade value. The
exchange is owned by NASDAQ OMX Group which also owns and operates 24 markets, 3
clearinghouses and 5 central securities depositories supporting equities, options, fixed invome,
derivatives, commodities, futures and structured products. It is a home to approximately 3,400
listed companies and its main index is the NASDAQ Composite, which has been published since
its inception. Stock market is also followed by S&P 500 index.
http://www.world-stock-exchanges.net/top10.html
Q11. Who is the Governor of RBI
Ans. Raghuram Govinda Rajan is the current and the 23rd Governor of the Reserve Bank of
India
Q12. What do you understand by the terms ADR and GDR and how are they different from each
other?
Ans. An American depositary receipt (ADR) or global depositary receipt (GDR) is a simple
way for investors to invest in companies whose shares are listed abroad.
The ADR or GDR is essentially a certificate issued by a bank that gives the owner rights over a
foreign share. It can be listed on a stock exchange and bought and sold just like a normal share.
The holder of an ADR or GDR is entitled to all benefits such as dividends and rights issues from
the underlying shares. They are sometimes but not always able to vote.

As you might expect from the name, an ADR is listed in the US. A GDR is typically listed in
London or Luxembourg. A depositary receipt where the issuing bank is European will sometimes
be called aEuropean Depositary Receipt (EDR), although this term is less common.
How ADRs work
For a real example, lets look at ICICI Bank. This stock is listed in India and isnt available to
most foreign investors.
However it has a depositary receipt issued in New York and traded on the New York stock
exchange, which almost anyone can buy.
The depositary receipt for ICICI is issued by Deutsche Bank. For each depositary receipt in
circulation, Deutsche Bank holds the equivalent number of India-listed shares on behalf of the
owners of the ADR.
One ADR or GDR does not always equal one share of underlying stock. And with ICICI, the
ADR actually represents two India-listed shares of ICICI and is priced accordingly.
This is quite common and is done so that the price of the ADR is typical for the market where it
trades. Very low-priced shares may have each depositary receipt backed by several shares
For very high-priced ones, each depositary receipt represents a fractional claim on the underlying
shares. For example, each Nintendo ADR in the US is worth one-eighth of a Nintendo share in
Tokyo.
The price of the depositary receipt should be equal to the price of the underlying shares, adjusted
for currencies. Thats because major institutional investors can arbitrage between the price of the
underlying share and the price of the ADR/GDR if the relationship moves too far out of line.
However, in some special cases this may not be true for example, in cases where countries put
limits on the maximum amount of a companys shares that can be owned by foreign investors.
If that limit has already been reached, the ADR may trade at a persistent premium to the value of
the underlying shares because its the only way that foreign buyers can buy into that company.
One persistent example of this is HDFC Bank, another Indian bank with an ADR in New York.

The depositary bank that issues the ADR can charge a fee for the costs of holding on to the
shares that back the ADR and doing all the paperwork. This is typically around US$0.01-0.03 per
share per year.
Where the company pays dividends, this will usually be deducted from the dividend before that
is paid on to the ADR holder. Where the company does not pay a dividend, the depositary bank
will usually charge your broker who holds the ADRs on your behalf. The broker will then usually
pass those fees onto you.
Q13. Difference between Investment in public equity and Investment through private placement
Ans. Occurs when private investors take a sizable investment in publicly traded corporations.
This usually occurs when equity valuations have fallen and the company is looking for new
sources of capital. This is a means by which a public company gets additional access to the
equity markets in express mode-- they already have public shares trading and this is an additional
offering to investors under a securities purchase agreement, the issuer promises to register the
shares typically via a resale registration statement within so many days after the closing. In
context ofprivate equity, PIPEs is the investments by a privte euqity fund in a publicly traded
company. The investments usually take form of preferred stock at a discount.
The sale of securities to a relatively small number of select investors as a way of raising capital.
Investors involved in private placements are usually large banks, mutual funds, insurance
companies and pension funds. Private placement is the opposite of a public issue, in which
securities are made available for sale on the open market.
Since a private placement is offered to a few, select individuals, the placement does not have to
be registered with the Securities and Exchange Commission. In many cases, detailed financial
information is not disclosed and a the need for a prospectus is waived. Finally, since the
placements are private rather than public, the average investor is only made aware of the
placement after it has occurred.
Q14. What do you understand by Mortgage bond?
Ans. A type of asset-backed security that is secured by a mortgage or collection of mortgages.
These securities must also be grouped in one of the top two ratings as determined by a accredited
credit rating agency, and usually pay periodic payments that are similar to coupon payments.
Furthermore, the mortgage must have originated from a regulated and authorized financial
institution.
Also known as a "mortgage-related security" or a "mortgage pass through."

Q15. What do you understand by the term Reverse Merger?

Ans. A type of merger used by private companies to become publicly traded without resorting to
an initial public offering. Initially, the private company buys enough shares to control a publicly
traded company. The private company's shareholder then uses their shares in the private
company to exchange for shares in the public company. At this point, the private company has
effectively become a publicly traded one.
Also known as a "reverse merger" or "reverse IPO"
Q16. Difference between Public/Private Company and Public/private Investment firm
Ans. The distinction between a public company and a private company are explained in the
following manner:
1. Minimum number of members
The minimum number of person required to form a public company is seven, whereas in a
private company their number is only two.
2. Maximum number of members
There is no limit on the maximum number of member of a public company, but a private
company cannot have more than fifty members excluding past and present employees.
3. Commencement of Business
A private company can commence its business as soon as it is incorporated. But a public
company shall not commence its business immediately unless it has been granted the certificate
of commencement of business.
4. Invitation to public
A public company by issuing a prospectus may invite public to subscribe to its shares whereas a
private company cannot extend such invitation to the public.
5. Transferability of shares
There is no restriction on the transfer of share In the case of public company whereas a private
company by its articles must restrict the right of members to transfer the share.
6. Number of Directors
A public company must have at least three directors whereas a private company may have two
directors.
7. Statutory Meeting
A public company must hold a statutory meeting and file with the register a statutory report. But
in a private company there are no such obligations.

8. Restrictions on the appointment of Directors

A director of a public company shall file with the register a consent to act as such. He shall sign
the memorandum and enter into a contact for qualification shares. He cannot vote or take part in
the discussion on a contract in which he is interested. Two-thirds of the directors of a public
company must retire by rotation. These restrictions do not apply to a private company.
9. Managerial Remuneration
Total managerial remuneration in the case of public company cannot exceed 11% of net profits,
but in the case of inadequacy of profit a minimum of Rs. 50, 000 can be paid. These restrictions
do not apply to a private company.
10. Further Issue of Capital
A public company proposing further issue of shares must offer them to the existing members. A
private company is free to allot new issue to outsiders.
11. Name
A private company has to use words private limited at the end of its name. But a public
company has to use only the word Limited at the end of its name.
Q17. What Does Private Equity Mean?
Equity capital that is not quoted on a public exchange. Private equity consists of investors and
funds that make investments directly into private companies or conduct buyouts of public
companies that result in a delisting of public equity. Capital for private equity is raised from
retail and institutional investors, and can be used to fund new technologies, expand working
capital within an owned company, make acquisitions, or to strengthen a balance sheet.
The majority of private equity consists of institutional investors and accredited investors who can
commit large sums of money for long periods of time. Private equity investments often demand
long holding periods to allow for a turnaround of a distressed company or a liquidity event such
as an IPO or sale to a public company.
Investopedia explains Private Equity
The size of the private equity market has grown steadily since the 1970s. Private equity firms
will sometimes pool funds together to take very large public companies private. Many private
equity firms conduct what are known as leveraged buyouts (LBOs), where large amounts of debt
are issued to fund a large purchase. Private equity firms will then try to improve the financial
results and prospects of the company in the hope of reselling the company to another firm or
cashing out via an IPO.
Q18. Difference between a Portfolio Manager and a Board Member

Ans. A portfolio manager is a body corporate who, pursuant to a contract or arrangement with a
client, advises or directs or undertakes on behalf of the client (whether as a discretionary
portfolio manager or otherwise), the management or administration of a portfolio of securities or
the funds of the client.
A board of directors is a body of elected or appointed members who jointly oversee the
activities of a company ororganization. Other names include board of governors, board of
managers, board of regents, board of trustees, and board of visitors. It is often simply
referred to as "the board".
A board's activities are determined by the powers, duties, and responsibilities delegated to it or
conferred on it by an authority outside itself. These matters are typically detailed in the
organization's bylaws. The bylaws commonly also specify the number of members of the board,
how they are to be chosen, and when they are to meet.
Q19. What do you understand by Hostile takeover?
Ans. Definition of 'Hostile Takeover'
The acquisition of one company (called the target company) by another (called the acquirer) that
is accomplished not by coming to an agreement with the target company's management, but by
going directly to the company's shareholders or fighting to replace management in order to get
the acquisition approved. A hostile takeover can be accomplished through either a tender offer or
a proxy fight.
Investopedia explains 'Hostile Takeover'
The key characteristic of a hostile takeover is that the target company's management does not
want the deal to go through. Sometimes a company's management will defend against unwanted
hostile takeovers by using several controversial strategies including the poison pill, crown-jewel
defense, golden parachute, pac-man defense, and others.
Q20. Define charitable foundation?
Ans. Public or private trust which is not a charitable organization but
is established and operated for charitable purposes. No part of the income generated by a
charitable foundation can be paid to any trustee, trustor, member, etc.