MCQ

Parvesh Aghi
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» How operating leverage can Impact a Business?
A.it occurs when a company must incur fixed costs during the
production of its goods and services
B.increasing operating leverage can also cause substantial losses and
puts more pressure on a business.

C.When a firm incurs fixed costs in the production process, the

percentage change in profits when sales volume grows is larger than
the percentage change in sales.
D. A company with high operating leverage will see its profits go up
when its sales increase because fixed cost remain the same
E.All the above

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Industries /company’s which have high operating leverage are
A.Airlines (large amount of fixed costs per flight)
B.leisure industry (eg hotels, cruise ship operators, movie theatres,
theme parks)
C.Chemicals (large production units entailing fixed costs
D.Energy intensive businesses, eg glass or steel production
E.Software firms (fixed costs to develop the software, low variable costs
thereafter)
F.Pharmaceuticals (high R&D spend to get a drug to the market)
G.All the above

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» Industries /company’s which have low operating

leverage are
A.Retailers and labour-intensive industries such as
restaurants and accounting companies .
B.Airlines companies
C.Telecom companies
D.All the above

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» A borrower may want to limit the interest rate to

avoid any rises in the future and buys a …….
A.Cap
B.Floors
C.Swap
D.combination

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» Investor may buy a …… to avoid any future falls

in the interest rates
A.Cap
B.Floors
C.Swap
D.combination

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» Anyone who aims to maintain interest rates within

defined range can use the …..

A.Cap
B.Floors
C.Swap
D.Collar

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» Interest rate parity (IRP) is a theory in which

the interest rate differential between two
countries is equal to the differential between the
forward exchange rate and the spot exchange
rate. 
A.True
B.false

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» IRP theory holds that differences in interest

rates between two countries will cause the
currency with the higher interest rate to drop in
value relative to the lower interest rate currency.
The theory holds that this devaluation will occur
until the real interest rates in the two countries
are equal.
A.True
B.false

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» Which of the following is not a financial

derivative?
» (a) Stock
» (b) Futures
» (c) Options
» (d) Forward contracts

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» Hedging risk for a long position is accomplished

by
» (a) taking another long position.
» (b) taking a short position.
» (c) taking additional long and short positions in
equal amounts.
» (d) taking a neutral position.
» (e) none of the above.

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» Hedging risk for a short position is accomplished

by
» (a) taking a long position.
» (b) taking another short position.
» (c) taking additional long and short positions in
equal amounts.
» (d) taking a neutral position.
» (e) none of the above.

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» Interest rate derivatives are valuable tools in

managing risks.
A.True
B.false

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» How Interest Rates are Determined ?

A.Supply & Demand
B.Inflation
C.Level of borrowing
D.All of above

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» Forwards & Swaps are traded in which market

A.Over the counter market
B.Stock exchanges
C.Financial Markets
D.Sarjoni Nagar Market
E.All of above

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» Future & option are traded in which market

A.Stock Exchanges
B.OTC markets
C.Lajpat nagar market
D.All of the above

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» Spot Price (S) > Forward Price (F): …….. will

pay long the difference between spot price
and forward price i.e. S-F.
A.Short
B.Long
C.writer
D.holder

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» FRA is the forward contract on …………

A.Foreign currency
B.Commodity
C.An Interest rate
D.Shares
E.All the above

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» Floating interest rates are variable and

pegged to a specific index, such as …….
A.MIBOR
B.TIBOR
C.LIBOR.
D.All the above

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