Economics and finance 2019 2020

Skill Based Subject:
MARKETING APTITUDE AND GENERAL AWARENESS
(Economics and Finance)
Subject Code: 04SB63
2019-2020

Objective Questions and Answers of Economics
Economics - Multiple choice questions SET-1
1. Father of political economy:
A. Adam Smith B. Malthus C. Marshall D. Samuelson
2. He described economics as a science of material welfare:
A. Robbins B. Marshall C. Ricardo D. Keynes 3. Economic laws are:
A. Exact B. Approximate C. Brief D. Definite
4. Economic laws are:
A. Scientific B. Moral C. Natural D. Unreal
5. Economics is a science:
A. Spiritual B. Social C. Dismal D. Moral
6. Economic problems arise because of:
A. Greed B. Scarcity C. Dishonesty D. Laziness
7. Which statement relates to macroeconomics:
A. Oil prices are rising in Pakistan B. Profit rate is high in textile industry
C. The firms try to make huge profits D. The government has failed to control inflation 8.
8.Which statement is true?
A. Economics is a physical and normative science B. Economics is a social and natural science C.
Economics is physical and positive science D. Economics is a social and normative science
9. Ceteris paribus means:
A. Other things equal B. All variables are independent
C. Enable economists to simplify reality D. That no other assumptions are made
10. In economics, assumptions:
A. Make economic theory useless B. Mean other things equal
C. Enable economists to simplify reality D. Used in micro and not in macroeconomics
11. A positive statement:
A. Concerns 'what is' B. Is always accurate
C. Deals with values and opinions D. Cannot be tested in the real world
12. Normative economics:
A. Deals solely with the facts B. Is never studied in colleges
C. Involves opinions and interpretations D. Is clearly preferable to positive economics
13. Basic economic problem is:
A. Inflation B. Unemployment C. Poverty D. Scarcity E. Lack of
money
14. Microeconomics concentrates:
A. In only poor countries B. In a country that uses resources inefficiently C. In all
countries of the world D. When society produces unimportant or silly goods
15. Microeconomics concentrates:
A. On inflation B. International economic relations C. Individual
economic units D. Economic development of Pakistan
16. Macroeconomic deals with:
A. How to buy groceries B. Aggregate economic activity
C. Establishment of a new firm D. Industrial activity
17. Three basic economic problems:
A. What, how and for whom B. Why, where, and when
C. What, which and how much D. What, which, why
18. Economics:
A. Is more important than mathematics B. Is a social science C. Should be
made compulsory for every student D. None of these

19. Economic law:
A. Must be followed B. Are hated by people
C. Show economic behaviour of people D. Are unscientific
20. Adam Smith was a:
A. Was a Saint B. A modern economist C. Good sports man D. Classical economist
21. Marshall in his definition of economics:
A. Uses the concept of material welfare B. Dislikes wealth
C. Accuses Adam Smith D. Praises Robbins
22. "Wealth of Nations":
A. Is another name for United Nations B. Is a book
C. Indicates total wealth of rich countries D. Contains formulas to earn wealth
23. Marshall wrote the book:
A. Introduction to economics B. Principles of economics
C. Classical economics
24. Economic theory means:
D. Microeconomic theory
A. Economic policy B. Principles of economics
C. Descriptive economics D. Economic facts
25. Robbins in his definition:
A. Talks of scarcity of resources B. Preaches moral values C.
Advises neutrality in economics D. None of the above
26. Market system means:
A. Socialism B. Capitalism C. A place where goods are traded D. All of the above 27. One
or more persons living together and having a common budget is called:
A. A family B. Organisation
C. Household D. All commodities in a house
28. "Wealth of Nations" was written in:
A. 1976 B. 1876 C. 1776 D. 1676
29. Economic principles are also called:
A. Economic law B. Economic theory C. Economic model D. All of the above
30. "Wealth of nations" was written by:
A. Adam Smith B. Malthus C. Marshall D. Newton
31. Select the correct statement:
A. Economics affects politics B. Economics affects history C. Geography affects
economics D. All of the above are true
32. Professor Marshall thinks:
A. Economics studies national welfare B. Economics studies personal welfare C.
Economics studies total welfare D. Economics studies material welfare
33. "Everyone should study economics":
A. Is a positive statement B. Is a narmative statement
C. Is a true statement D. Is nonsense
34. Utility and usefulness are:
A. Equal B. Different C. Similar D. Unrelated
35. Rotten eggs are:
A. Free good B. Economic good C. Service D. Wealth
36. Scarcity means that:
A. Non-availability of goods B. High price of goods
C. Nobody wants to consume it D. The good is available but it is not free
37. The basic economic problem common to all societies is:
A. Scarcity cannot be totally eliminated B. What, how and for whom to produce C. Equal
distribution of wealth D. The achievement of full employment

38. Human wants are:
A. One thousand B. Few C. Innumerable D. Countable
39. Scarcity means:
A. Non-availability of goods B. High price of goods
C. Less supply than demand D. High profit of the firms
40. Validity of economic theories can never be proved with 100 percent certainty, because:
A. Ceteris paribus clause B. Limited number of observation is possible
C. Some observation will be made in furture which refute the theory D. (b) and (c)
Answer key
1 A 11 A 21 A 31 D
2 B 12 C 22 B 32 D
3 B 13 D 23 B 33 B
4 A 14 C 24 B 34 B
5 B 15 C 25 A 35 A
6 B 16 B 26 B 36 D
7 D 17 A 27 C 37 A
8 D 18 B 28 C 38 C
9 A 19 C 29 D 39 C
10 C 20 D 30 A 40 A
1. What happens to marginal cost when average cost increases?
a) Marginal cost is below average cost b) Marginal cost is above average cost
c) Marginal cost is equal to average variable cost d) Marginal cost is equal to average cost
2. Development means economic growth with
a) Price stability b) social change c) inflation d) deflation
3. Which one of the following is more effective in controlling prices in the long run?
a) Decrease in production b) increase in production
c) Decrease in the rate of interest d) increase in the rate of employment
4. Through open market operations, the RBI purchase and sell
a) Foreign exchange b) gold c) government securities d) all of these
5. A firm is said to be of optimum size when
a) Average total cost is at a minimum b) marginal cost is at a minimum
c) Marginal cost is equal to marginal revenue d) the firm is maximizing its profit
6. All revenues received, loans raised and money received in repayment of loans by the Union
government go into
a) Public account of India b) Contingency fund of India
c) Consolidated fund of India d) none of the above
7. The law of demand states that
a) Demand increases with increase in income
b) When income and prices rise, the demand also rises
c) When price falls, demand increases d) when price increases, demand increases
8. The balance of payment comprises
a) A current account of goods and services only b) a capital account of financial assets only
c) Official settlement accounts only d) all of these
9. What is Net National Product?
a) The money value of final goods and services produced annually in the economy

b) The money value of annual service generation in the economy
c) The money value of tangible goods produced annually in the economy
d) The money value of tangible goods available in the economy 10. Other things being equal,
what causes a decrease in demand?
a) Rise in the price of the substitute b) fall in the price of the commodity
c) Rise in the income of the consumer d) rise in the price of the commodity
11. Deflation is
a) Deficit budget b) reduction in taxation
c) Contraction in volume of money or credit that results in a decline of price level
d) Increase in public expenditure
12. Bank rate means
a) Interest rate charged by moneylenders b) interest rate charged by scheduled banks
c) Rate of profit of the banking institution d) the official rate of interest charged by the central
bank of the country
13. Which agency estimates the national income of India?
a) Reserve Bank of India b) Planning Commission c) Ministry of Finance
d) Central Statistical Organization 14. What
is Gross National Product?
a) The total output of goods and services produced by the country’s economy
b) The total domestic and foreign output claimed by residents of the country
c) The sum of gross domestic product and investment
d) National income minus national expenditure
15. The Government of India acquired the ownership and control of major banks in 1969 whose
deposits were not less than
a) Rs 40 crore b) Rs 50 crore c) Rs 60 crore d) Rs 80 crore 16. What are
costs which vary with output called?
a) Overhead costs b) indirect costs c) prime costs d) all of the above 17. Which
of the following is known as plastic money?
a) Bearer Cheques b) credit cards c) demand drafts d) gift cheques
18. To get the Net National Product, we deduct what from the Gross National Product?
a) Direct taxes b) imports c) interim payments d) loss
19. What is the main purpose of currency?
a) standard of postponed payments b) standard of money c) medium of exchange
d) None of these
20. What does devaluation of a currency mean?
a) Decrease in the internal value of money
b) Decrease in the external value of money
c) Decrease both in the external and internal values of money d) none of these 21. Which of
the following is not a direct tax?
a) Estate duty b) agricultural income tax c) state excise d) corporation tax
22. Which one of the following was set up during the Seventh Five Year Plan to help the low income
groups?
a) NABARD b) Regional rural bank c) National Housing Bank d) UTI Bank
23. The launching of five year plans in India saw the introduction of
a) Mixed economy b) socialist economy c) capitalist economy d) closed economy
24. Land development banks in India are owned by the
a) RBI b) State governments c) Commercial banks d) Cooperative societies
25. Which of the following taxes is levied and collected by the union, but assigned to the states?
a) Sales tax b) octroi c) excise d) consignment tax

Answers
1. Marginal cost is above average cost 2. Social change 3. Increase in production 4. All of these 5.
Average total cost is at a minimum 6. Consolidated fund of India 7. When price falls, demand
increases 8. All of these 9. The money value of final goods and services produced annually in the
economy 10. Rise in the price of the commodity 11. Contraction in volume of money or credit
that results in a decline of price level 12. The official rate of interest charged by the central bank
of the country 13. Central Statistical Organization 14. The total domestic and foreign output
claimed by residents of the country 15. Rs 50 crore 16. Overhead costs 17. Credit cards 18. Loss
19. Medium of exchange 20. Decrease in the external value of money 21. Agricultural income tax
22. NABARD
23. mixed economy 24. Cooperative societies
25. Consignment tax
1. Who was the first administrator-statesman to attempt planning as a means for economic
development?
a) Sir CP RamaswamiAiyyar b) M Viswesvarayya
c) VT Krishnamachari d) C Rajagopalachari
2. An economy is at the take off stage on its path to development when it
a) becomes stagnant b) begins steady growth
c) is liberalized d) gets maximum foreign aid
3. Which of the following is the basic characteristic of Oligopoly?
a) a few sellers, one buyer b) a few sellers, many buyers
c) a few sellers, a few buyers d) many sellers, a few buyers
4. The aim of which of the Five Year Plans was to correct the disequilibrium in the economy?
a) First Five Year Plan b) Second Five Year Plan
c) Third Five Year Plan d) Fourth Five Year Plan
5. Which of the following Five Year Plans recognized human development as the core of all
developmental efforts?
a) Eighth Five Year Plan b) Seventh Five Year Plan
c) Fifth Five Year Plan d) Third Five Year Plan
6. Which of the following plans aimed at improving the standard of living?
a) Third Plan b) Fourth Plan c) Fifth Plan d) Sixth Plan
7. At which of the following places was the mining of coal started in 1774?
a) Chhindwara b) Dhanbad c) Ranchi d) Raniganj
8. In which of the following years were the cocking coals and non-cocking coal mines in India
nationalized?
a) 1971 and 1972 repetitively b) 1972 and 1973 respectively
c) 1973 and 1974 respectively d) 1970 and 1972 respectively
9. Which Indian state has the largest number of cotton textile mills?
a) Madhya Pradesh b) Maharashtra c) Gujarat d) West Bengal
10. Minor ports like Kakinada, Machilipatnam, Bheemunipatnam and Krishnapatnam are in which of
the following states?
a) Tamil Nadu b) Andhra Pradesh c) Maharashtra d) Karnataka
11. When, for the first time, did the Prime Minister of India announce the 20-point Economic
Programme?
a) 1973 b) 1974 c) 1975 d) 1976
12. Which of the following plans aimed at the removal of poverty and attainment of self-reliance?
a) Second plan b) third plan c) fourth plan d) fifth plan

13. Census in India is being held regularly after every
a) 6 years b) 8 years c) 10 years d) 12 years
14. People belonging to what age group are eligible for training under TRYSEM scheme?
a) 18-35 b) 25-40 c) 18-50 d) 18-25
15. According to the census in 2001, which city in India has the largest population?
a) Kolkatta b) Mumbai c) Delhi d) Chennai
16. In terms of geographical area India occupies what position in the world?
a) Five b) six c) seven d) three
17. India does not share its boundary with which of the following countries?
a) China b) Taiwan c) Burma d) Bhutan
18. Agriculture employs almost what percent of the Indian population?
a) 90 b) 50 c) 40 d) 70
19. Which one of the following is a Kharif crop?
a) bajra b) wheat c) mustard d) barley
20. Which one of the following is a rabi crop?
a) rice b) jowar c) cotton d) peas
21. Who is known as the ‘Father of White Revolution’?
a) V Kurien b) MS Swaminathan c) JP Narayan d) Baba Amte
22. Who was the chief architect of Green Revolution that significantly improved the agricultural yield
in the country?
a) MS Swaminathan b) VR KrishaAiyyar c) V Kurien d) Jawaharlal Nehru
23. The Chota Nagpur Plateau famous for its mineral deposits is in
a) Uttar Pradesh b) Jharkhand c) Madhya Pradesh d) Bihar
24. The Mumbai Stock Exchange was set up in
a) 1875 b) 1900 c) 1922 d) 1947
25. What does the term NSDL stands for?
a) National Securities Development Limited b) National Securities Depository Limited
c) National Safety Development Limited d) Natural Safety Deployment Limited
ANSWERS
1.M Viswesvarayya 2. Begins steady growth 3. A few sellers, many buyers 4. First Five Year
Plan 5. Eighth Five Year Plan 6. Fourth Plan 7. Raniganj 8. 1972 and 1973 respectively
9. Maharashtra 10. Andhra Pradesh 11. 1975 12. Fifth plan 13. 10 years 14. 18-35 15. Mumbai
16.seven 17. Taiwan 18. 70 19. Bajra 20. Peas 21. V Kurien 22. MS Swaminathan 23. Jharkhand
24. 1875 25. National Securities Depository Limited
1. Which is the largest commercial bank in India?
a) Reserve Bank of India b) State Bank of India
c) ICICI Bank d) Bank of India
2. Bank of Hindustan is the oldest bank in India. When did it start functioning?
a) 1990 b) 1770 c) 1885 d) 1892
3. The Bank of Calcutta, Bank of Bombay and Bank of Madras were merged in 1921 to form
a) Reserve Bank of India b) Imperial Bank of India
c) Bank of India d) Union Bank of India
4. When was the Reserve Bank of India established?
a) 1935 b) 1920 c) 1928 d) 1947
5. When was the Imperial Bank of India nationalized to form the State Bank of India?
a) 1947 b) 1949 c) 1951 d) 1955
6. The Reserve Bank of India was nationalized in?

a) 1947 b) 1948 c) 1950 d) 1956
7. What is a Bank which has capital and reserves of over Rs. 5 lakhs called?
a) National Bank b) Cooperative Bank
c) Scheduled Bank d) Unscheduled Bank
8. The Export-Import (EXIM) Bank was set up in
a) 1982 b) 1983 c) 1987 d) 1985
9. Which of the following has the sole right of issuing paper notes in India?
a) Union Government b) Reserve Bank of India
c) Ministry of Finance d) Supreme Court
10. In India, coins and subsidiary coins are issued by
a) Union Government b) Reserve Bank of India
c) Ministry of Finance d) Supreme Court
11. Which of the following is entrusted with the task of receiving all money on behalf of the
Government as also with the task of making payments on their behalf? a) State Bank of India
b) Reserve Bank of India
c) Ministry of Finance d) Union Parliament
12. When was the International Monetary Fund (IMF) established?
a) 1944 b) 1945 c) 1948 d) 1950
13). Decision taken at Bretton Woods Conference led to the formation of
a) IDA b) IMF c) ADB d) IFC
14. The International Bank for Reconstruction and Development (IBRD) is better known as a)
World Bank b) Asian Development Bank c) IMF d) It is known by its name
15. Which sister organization of the World Bank provides long term loans at zero interest to the
poorest developing countries?
a) Asian Development Bank b) IMF
c) International Developmental Association d) International Finance Corporation 16. The
International Finance Corporation (IFC) was established in?
a) 1956 b) 1972 c) 1985 d) 1960
17. Where is the headquarters of Asian Development Bank (ADB) situated?
a) Manila b) Delhi c) Bangkok d) Hong Kong
18. Which sister organization of the World Bank helps private activity in developing countries by
financing projects with long-term capital in the form of equity and loans?
a) Asian Development Bank b) IMF
c) International Developmental Association d) International Finance Corporation
19. Who is known as the ‘Father of Economics’?
a) Adam Smith b) Chanakya c) Machiavelli d) None of these 21. When did India become a
member of the IMF?
a) 1947 b) 1956 c) 1960 d) 1951
22. Euro is the currency of European Union. When did it come into being?
a) 1999 b) 1995 c) 2000 d) 2001
23. When did the Foreign Exchange Regulation Act (FERA) come into being?
a) 1973 b) 1975 c) 1980 d) 1981
24. When did Regional Rural Banks start functioning in India?
a) 1975 b) 1947 c) 1956 d) 1960
25. In India, income tax is levied by
a) Union Government b) State Governments c) Ministry of Finance d) RBI
ANSWERS
1. State Bank of India 2. 1770 3. Imperial Bank of India 4. 1935 5. 1955 6. 1948 7. Scheduled
Bank

8. 1982 9. Reserve Bank of India 10. Ministry of Finance 11. Reserve Bank of India 12.1944 13.
IMF 14. World Bank 15. International Developmental Association 16. 1956 17. Manila 18.
International Finance Corporation 19. Adam Smith 20. Central Bank of India 21.1947 22. 199923.
1973 24. 1975 25. Union Government.
1. The Securities and Exchange Board of India (SEBI) was established in
a) 1992 b) 1947 c) 1990 d) 1976
2. Which Five-year Plan is being implemented at present?
a) Eleventh b) Eighth c) Ninth d) Tenth
3. Which of the following is not a direct tax?
a) Sales tax b) Income tax c) Wealth tax d) Estate duty 4. Who is the ex-officio
chairman of Planning Commission?
a) Prime Minister b) President
c) Chief Justice of Supreme Court d) Speaker of Lok Sabha
5. The Indian economy is
a) Capitalist b) Socialistic c) Mixed d) Federal
6. Which certification indicates a guarantee of quality for agricultural food products like ghee,
honey,etc.?
a) ISI b) Agmark c) BIS d) All of above
7. Who was the first chairman of the Planning Commission?
a) Dr. S. Radhakrishnan b) Jawaharlal Nehru
c) Dr. Rajendra Prasad d) Dr. M. Vishveshwaraya
8. Who is the Deputy Chairman of Planning Commission at present?
a) Montek Singh Ahluwalia b) B Balakrishnan
c) Manmohan Singh d) Anil Kakodkar
9. In India farm credit is regulated by
a) SBI b) RBI c) NABARD d) Union Government
10. The term of the 11th Five Year Plan is
a) 2007 – 2012 b) 2005 – 2010 c) 2008 – 2013 d) 2006 – 2011
11. When was the Tata Iron & Steel Company set up at Jamshedpur?
a) 1907 b) 1911 c) 1914 d) 1921
12. In terms of size what position does the Indian economy occupy in the world?
a) 10th
b) 12th
c) 7th
d) 9th
13. When was the General Insurance Corporation of India formed?
a) 1982 b) 1972 c) 1956 d) 1935
14. Which Five-Year Plan had adopted ‘Removal of Poverty’ as its foremost objective?
a) Second b) Third c) Fourth d) Sixth
15. During the financial year 2007- 08 India recorded a GDP growth of
a) 8% b) 8.5% c) 9.1% d) 9.7%
16. The economic liberalization was introduced in
a) 1991 b) 1990 c) 1985 d) 1988
17. Which industry provides the largest employment in India?
a) Chemicals b) Textiles c) Iron and steel d) Jute
18. The highest denomination banknote being in circulation in India is
a) 500 rupee note b) 1000 rupee note c) 5000 rupee note d) 2000 rupee note
19. Which period did the First Five-year Plan cover?
a) 1947-52 b) 1951-56 c) 1950-55 d) 1952-57
20. Who finally approves the Five-Year Plan?
a) The President b) The Prime Minister

c) The National Development Council d) The Planning Commission 21. When
was the Decimal currency system introduced in India?
a) January 1955 b) April 1955 c) April 1951 d) April 1957
22). The Indian rupee is a legal tender in two other countries. One is Nepal. The other is
a) Pakistan b) Sri Lanka c) Bhutan d) Afghanistan
23. Kerala’s shores are famous for the deposits of
a) Copper b) Coal c) Thorium d) Iron ore
24. Which of the following taxes is the largest source of revenue for the Government of India?
a) Excise b) Customs c) Income tax d) Corporation tax
25. The National Stock Exchange (NSE) is located at
a) Mumbai b) New Delhi c) Madras d) Calcutta
ANSWERS
1. 1992 2. Eleventh 3. Sales tax 4. Prime Minister 5. Mixed 6. Agmark 7. Jawaharlal Nehru .
8. Montek Singh Ahluwalia 9. NABARD 10. 2007 – 2012 11. 1907 12. 12th
13. 1972 14.
Sixth 15. 9.1% 16. 1991 17. Textiles 18. 1000 rupee note 19. 1951-56 20.
The National Development Council 21. April 1957 22. Bhutan 23. Thorium 24. Excise 25. Mumbai
1. The aim of which Five Year Plan was to correct the disequilibrium in the economy?
a) 1st
Five year plan b) 2nd
Five year plan c) 3rd
Five year plan d) 4rt five year plan 2. Which
of the following is the Central bank of India?
a) State Bank of India b) Reserve bank of India
c) Imperial Bank of India d) Punjab National bank
3. The Reserve Bank of India came into existence on
a) April 1, 1936 b) January 26, 1894 c) August 15, 1947 d) April 1, 1947
4. Which of the following was the first Indian bank?
a) Bank of Baroda b) Bank of Hindustan
c) Punjab National Bank d) State Bank of India
5. In which of the following years was power development initiated in India?
a) 1900 b) 1905 c) 1911 d) 1915
6. How many banks were nationalized in 1969?
a) 10 b) 12 c) 13 d) 14
7. Who was the Prime Minister of India when nationalization of banks took place in 1969?
a) Indira Gandhi b) Jawaharlal Nehru c) Lal Bahadur Shastri d) Morarji Desai
8. At which of the following places was the first hydroelectric power station commissioned?
a) Chambal b) Damodar c) Mandi d) Shivasamudram
9. Garland canal project envisages the conservation of water resources in the country through the
construction of
a) dams b) canals c) embankments d) none of these
10. The largest percentage of bonded labour in India belongs to
a) scheduled castes b) scheduled tribes
c) other backward classes d) none of these
11. In which of the following year was the mining of coal started in India?
a) 1775 b) 1774 c) 1800 d) 1805
12. Which of the following is India’s biggest dam?
a) Bhakra Nangal b) Hirakud c) Farakka d) Pong Dam
13. On which river is the Pong Dam hydro electric power project built?
a) Ganga b) Ravi c) Beas d) Hughly
14. In India which crop is sown on the largest area?

a) Jowar b) wheat c) tobacco d) rice
15. Bakra Nangal is a joint project of Haryana, Punjab and Rajasthan. On which river is this built?
a) Yamuna b) Sindhu c) Sutlej d) Ravi
16. On which river is the Hirakud dam built?
a) Godavari b) Kaveri c) Mahanadi d) Narmada
17. On which river is the Tehri dam built?
a) Alakananda b) Bhagirathi c) Ganga d) Hooghly
18. Which Indian state leads in the production of rubber?
a) Tamil Nadu b) Kerala c) Karnataka d) Gujarat
19. Which Indian state tops in the production of gypsum?
a) Gujarat b) Rajasthan c) Kerala d) Karnataka
20. Into how many PIN code zones is India divided?
a) eight b) seven c) six d) nine
21. Which state has the highest percentage of people living below the poverty line?
a) Uttar Pradesh b) Orissa c) Bihar d) Madhya Pradesh
22. Which of the following is the most populous city in India?
a) Mumbai b) Delhi c) Kolkatta d) Chennai
23. Which Indian state has the lowest percentage of people living below the poverty line?
a) Punjab b) Gujarat c) Karnataka d) Maharashtra
24. Which Indian state has the highest per capita income?
a) Haryana b) Punjab c) Uttar Pradesh d) Karnataka
25. Which Indian state stands first in the production of coffee?
a) Kerala b) Karnataka c) Assam d) Gujarat
ANSWERS
1. First Five year plan 2. Reserve bank of India 3. April 1, 1936 4. Bank of Hindustan 5. 1900
6. 14 7. Indira Gandhi 8. Shivasamudram 9. Canals 10. Scheduled tribes 11. 1774 12. Bhakra
Nangal 13. Beas 14. Rice 15. Sutlej 16. Mahanadi 17. Bhagirathi 18. Kerala 19.Rajasthan 20.
Eight 21. Orissa 22. Mumbai 23. Punjab 24. Punjab 25. Karnataka
Objective Questions and Answers of Financial Management
Finance - Multiple choice questions SET-1
1. Accounting Ratios are important tools used by
(a) Managers (b) Researchers (c)Investors (d) All of the above 2. Net
Profit Ratio Signifies:
(a) Operational Profitability (b) Liquidity Position (c) Big-term Solvency (d)Profit for Lenders.
3. Working Capital Turnover measures the relationship of Working Capital with:
(a)Fixed Assets (b)Sales (c)Purchases (d)Stock.
4. In Ratio Analysis, the term Capital Employed refers to:
(a)Equity Share Capital (b)Net worth (c)Shareholders' Funds (d)None of the above.
5. Dividend Payout Ratio is:
(a)PAT Capital, (b)DPS ÷ EPS,(c) Pref. Dividend ÷ PAT, (d) Pref. Dividend ÷ Equity Dividend.
6. DU PONT Analysis deals with:
(a) Analysis of Current Assets, (b)Analysis of Profit,
`(c)Capital Budgeting, (d) Analysis of Fixed Assets.
7. In Net Profit Ratio, the denominator is:
(a)Net Purchases, (b) Net Sales, (c) Credit Sales, (d) Cost of goods sold.
8. Inventory Turnover measures the relationship of inven¬tory with:
(a) Average Sales, (b)Cost of Goods Sold, (c)Total Purchases, (d) Total

Assets.
9. The term 'EVA' is used for:
(a)Extra Value Analysis, (b)Economic Value Added, (c)Expected
Value Analysis, (d)Engineering Value Analysis.
10. Return on Investment may be improved by:
(a)Increasing Turnover, (b) Reducing Expenses,
(c)Increasing Capital Utilization, (d) All of the above.
11. In Current Ratio, Current Assets are compared with:
(a)Current Profit, (b) Current Liabilities, (c) Fixed Assets, (d) Equity Share Capital.
12. In Inventory Turnover calculation, what is taken in the numerator?
(a) Sales, (b)Cost of Goods Sold, (c)Opening Stock, (d) Closing Stock.
13. There is deterioration in the management of working capital of XYZ Ltd. What does it refer to?
(a)That the Capital Employed has reduced,
(b)That the Profitability has gone up,
(c)That debtors collection period has increased, (d) That Sales has decreased.
14. Which of the following does not help to increase Current Ratio?
(a)Issue of Debentures to buy Stock, (b) Issue of Debentures to pay Creditors, (c)Sale of
Investment to pay Creditors, (d) Avail Bank Overdraft to buy Machine.
15. Debt to Total Assets Ratio can be improved by:
(a)Borrowing More, (b) Issue of Debentures, (c) Issue of Equity Shares, (d) Redemption of Debt.
16. Ratio of Net Income to Number of Equity Shares known as:
(a)Price Earnings Ratio, (b) Net Profit Ratio, (c) Earnings per Share, (d) Dividend per Share.
17. Trend Analysis helps comparing performance of a firm
(a)With other firms, (b) Over a period of firm, (c) with other industries, (d) none of the above.
18. A Current Ratio of Less than One means:
(a)Current Liabilities < Current Assets, (b) Fixed Assets > Current Assets, (c)
Current Assets < Current Liabilities,(d) Share Capital > Current Assets.
19. Ratio Analysis can be used to study liquidity, turnover, profitability, etc. of a firm. What does
DebtEquity Ratio help to study?
(a)Solvency, (b)Liquidity, (c)Profitability, (d) Turnover,
20. Return on Assets and Return on Investment Ratios be¬long to:
(a) Liquidity Ratios,(b)Profitability Ratios,(c)Solvency Ratios,(d)Turnover.
21. Suppliers and Creditors of a firm are interested in
(a)Profitability Position,(b)Liquidity Position,(c)Market Share Position, (d) Debt Position.
22. Which of the following is a measure of Debt Service capacity of a firm?
(a)Current Ratio, (b)Acid Test Ratio,(c) Interest Coverage Ratio,(d) Debtors Turnover.
23. Gross Profit Ratio for a firm remains same but the Net Profit Ratio is decreasing. The reason for
such behavior could be:
(a) Increase in Costs of Goods Sold, (b)If Increase in Expense,(c) Increase in
Dividend,(d)Decrease in Sales.
24. Which of the following statements is correct?
(a) A Higher Receivable Turnover is not desirable
(b) Interest Coverage Ratio depends upon Tax Rate (c)Increase in Net Profit Ratio means
increase in Sales
(d) Lower Debt-Equity Ratio means lower Financial Risk.
25. Which of the following helps analysing return to equity Shareholders?
(a) Return on Assets, (b) Earnings Per Share, (c) Net Profit Ratio, (d)Return on Investment.
[Answers : 1. (d); 2. (a) 3. (a); 4. (d); 5. (b); 6. (b); 7. (b); 8. (b); 9. (b); 10. (d); 11. (b); 12 (b) 13.
(c);
14. (d); 15. (d); 16. (c); 17. (b); 18. (c) 19. (a); 20. (b); (c);21. (b);22. (c);23. (b);24. (d);25. (b);]

1. Capital Budgeting is a part of:
(a)Investment Decision, (b) Working Capital Management, (c)
Marketing Management, (d) Capital Structure.
2. Capital Budgeting deals with:
(a) Long-term Decisions, (b) Short-term Decisions, (c) Both (a) and (b), (d)
Neither (a) nor (b).
3. Which of the following is not used in Capital Budgeting?
(a) Time Value of Money, (b) Sensitivity Analysis, (c) Net Assets Method,(d) Cash Flows.
4. Capital Budgeting Decisions are:
(a) Reversible,(b) Irreversible,(c) Unimportant,(d)All of the above.
5. Which of the following is not incorporated in Capital Budgeting?
(a) Tax-Effect,(b) Time Value of Money,(c) Required Rate of Return,(d) Rate of Cash
Discount.
6. Which of the following is not a capital budgeting deci¬sion?
(a) Expansion Programme,(b) Merger, (c) Replacement of an Asset,(d) Inventory Level.
7. A sound Capital Budgeting technique is based on:
(a) Cash Flows,(b)Accounting Profit,(c) Interest Rate on Borrowings,(d) Last Dividend Paid.
8. Which of the following is not a relevant cost in Capital Budgeting?
(a) Sunk Cost,(b) Opportunity Cost,(c) Allocated Overheads,(d) Both (a) and (c) above.
9. Capital Budgeting Decisions are based on:
(a) Incremental Profit,(b) Incremental Cash Flows,(c) Incremental Assets,(d) Incremental
Capital.
10. Which of the following does not effect cash flows proposal?
(a) Salvage Value,(b) Depreciation Amount,(c) Tax Rate Change,(d) Method of Project
Financing.
11. Cash Inflows from a project include:
(a) Tax Shield of Depreciation, (b) After-tax Operating Profits, (c) Raising of Funds,
(d) Both (a) and (b).
12. Which of the following is not true with reference capital budgeting?
(a) Capital budgeting is related to asset replacement decisions,
(b) Cost of capital is equal to minimum required return,
(c) Existing investment in a project is not treated as sunk cost,(d) Timing of cash flows is
relevant.
13. Which of the following is not followed in capital budgeting? (a) Cash flows Principle, (b)
Interest Exclusion Principle, (c) Accrual Principle, (d) Post-tax Principle.
14. Depreciation is incorporated in cash flows because it:
(a) Is unavoidable cost,(b) Is a cash flow,(c) Reduces Tax liability,(d) Involves an outflow.
15. Which of the following is not true for capital budgeting?
(a) Sunk costs are ignored, (b)Opportunity costs are excluded,
(c)Incremental cash flows are considered, (d) Relevant cash flows are considered.
16. Operating leverage helps in analysis of:
(a) Business Risk,(b) Financing Risk,(c) Production Risk,(d) Credit Risk 17. Which of the
following is studied with the help of finan¬cial leverage?
(a) Marketing Risk,(b) Interest Rate Risk,(c) Foreign Exchange Risk,(d) Financing risk 18.
Combined Leverage is obtained from OL and FL by their: (a) Addition,(b)
Subtraction,(c) Multiplication,(d) Any of these 19. High degree of financial leverage means:

(a) High debt proportion,(b) Lower debt proportion,(c) Equal debt and equity,(d) No debt 20.
Financial Leverage arises because of:
(a) Fixed cost of production,(b) Variable Cost,(c) Interest Cost,(d) None of the above 21.
Operating Leverage is calculated as:
(a) Contribution ÷ EBIT,(b) EBIT÷PBT,(c) EBIT ÷Interest,(d) EBIT ÷Tax 22.
Financial Leverage is calculated as:
(a) EBIT÷ Contribution, (b) EBIT÷ PBT,(c) EBIT÷ Sales, (d) EBIT ÷ Variable Cost
23. Which combination is generally good for firms
(a) High OL, High FL (b) Low OL, Low FL, (c) High OL, Low FL,(d) None of these 24.
Combined leverage can be used to measure the relationship between: (a) EBIT and
EPS,(b) PAT and EPS,(c) Sales and EPS,(d) Sales and EBIT 25. Operating leverage works
when:
(a) Sales Increases, (b) Sales Decreases, (c) Both (a) and (b), (d) None of (a) and (b)
[Answers : l(a), 2(a), 3(c), 4(b), 5(d), 6(d), 7(a), 8(d), 9(b), 10(d), 11(d), 12(c), 13 (c), 14(c), 15(b),
16.
(a), 17. (d), 18. (c), 19. (a), 20. (a), 21. (c), 22. (a), 23. (b), 24. (c), 25. (c),]
1. Cash Budget does not include
(a) Dividend Payable, (b)Postal Expenditure, (c) Issue of Capital, (d)Total Sales Figure.
2. Which of the following is not a motive to hold cash?
(a) TransactionaryMotive, (b)Pre-scautionary Motive, (c)Captal Investment,
(d)None of the above.
3. Cheques deposited in bank may not be available for immediate use due to
(a) Payment Float, (b)Recceipt Float, (c) Net Float, (d)Playing the Float.
4. Difference between the bank balance as per Cash Book and Pass Book may be due to:
(a) Overdraft, (b) Float, (c) Factoring, (d)None of the above.
5. Concentration Banking helps in
(a) Reducing Idle Bank Balance, (b)Increasing Collection, (c)Increasing Creditors,
(d)Reducing Bank Transactions.
6. Financial Leverage measures relationship between
(a) EBIT and PBT, (b) EBIT and EPS, (c) Sales and PBT, (d) Sales and EPS
7. Use of Preference Share Capital in Capital structure
(a) Increases OL, (b) Increases FL, (c) Decreases OL, (d) Decreases FL
8. Relationship between change in sales and change m is measured by:
(a) Financial leverage, (b) Combined leverage
(c) Operating leverage, (d) None of the above
9. Miller-Orr Model deals with
(a)Optimum Cash Balance, (b)Optimum Finished goods, (c)Optimum
Receivables, (d)All of the above.
10.Float management is related to
(a)Cash Management, (b)Inventory Management,
(c)Receivables Management, (d)Raw Materials Management.
11.Which of the following is not an objective of cash manage¬ment ?
(a)Maximization of cash balance,(b)Minimization of cash balance,
(c)Optimization of cash balance,(d)Zero cash balance.
12.Which of the following is not true of cash budget ?
(a)Cash budget indicates timings of short-term borrow¬ing,
(b)Cash budget is based on accrual concept,

(c)Cash budget is based on cash flow concept,
(d)Repayment of principal amount of law is shown in cash budget.
13. Baumol's Model of Cash Management attempts to:
(a) Minimise the holding cost, (b)Minimization of transaction cost,
(c)Minimization of total cost, (d)Minimization of cash balance 14. Which
of the following is not considered by Miller-Orr Model?
(a)Variability in cash requirement, (b)Cost of transaction,
(c)Holding cost, (d)Total annual requirement of cash.
15.Basic characteristic of short-term marketable*
(a)High Return, (b)High Risk, (c)High Marketability, (d)High Safety
16. Financial Planning deals with:
(a) Preparation of Financial Statements, (b)Planning for a Capital Issue, (c) Preparing
Budgets, (d)All of the above.
17. Financial planning starts with the preparation of:
(a) Master Budget, (b) Cash Budget, (c) Balance Sheet, (d)None of the above.
18. Which of the following is not a part of Master Budget?
(a)Projected Balance Sheet, (b) Capital Expenditure Budget, (c)Operating
Budgets, (d) Budget Manual.
19. Which of the following is not shown in Cash Budget? (a)Proposed Issue of Capital, (b) Loan
Repayment, (c) Interest on loan, (d) Depreciation.
20. Process of Financial Planning ends with:
(a) Preparation of Projected Statements,(b) Preparation of Actual Statements,
(c) Comparison of Actual with Projected,
(d) Ordering the employees that projected figures m come true.
21. Which of the following is not true for cash Budge?
(a) That shortage or excess of cash would appear in a particular period.
(b) All inflows would arise before outflows for those periods.
(c) Only revenue nature cash flows are shown.
(d) Proposed issue of share capital in shown as an inflow.
22. Which of the following is true for Net Income Approach? (a) Higher Equity is better, (b)
Higher Debt is better, (c) Debt Ratio is irrelevant, (d) None of the above.
23. In case of Net Income Approach, the Cost of equity is:
(a) Constant, (b) Increasing, (c) Decreasing, (d) None of the above.
24. In case of Net Income Approach, when the debt proportion is increased, the cost of debt:
(a) Increases, (b) Decreases, (c) Constant, (d) None of the above.
25. Marketable securities are primarily
(a) Equity shares,' b) Preference shares,
(c)Fixed deposits with companies, (d)Short-term debt investments.
[Answers 1. (d), 2.(c), 3. (b), 4. (b), 5. (b), 6. (b), 7. (b), 8. (b), 9. (a), 10. (a), 11. (c), 12. (b), 13. (c),
14.
(d), 15. (c)., 16. (c); 17. (d); 18. (d); 19. (d); 20. (c); 21. (c) 22(b), 23(a), 24(c), 25 (d)]
1. The type of collateral (security) used for short-term loan is
(a) Real estate, (b)Plant & Machinery, (c)Stock of good, (d)Equity share capital 2. Which
of the following is a liability of a bank?
(a)Treasury Bills, (b)Commercial papers, (c)Certificate of Deposits,(d)Junk Bonds.

3. Commercial paper is a type of
(a)Fixed coupon Bond,(b)Unsecured short-term debt,(c)Equity share capital,(d) Government Bond
4.Which of the following is not a spontaneous source of short-term funds ?
(a)Trade credit, (b)Accrued expenses, (c)Provision for dividend, (d)All of the above. 5.
Concept of Maximum Permissible Bank finance was introduced by
(a)Kannan Committee,(b)Chore Committee,(c)Nayak Committee,(d)Tandon Committee.
6. In India, Commercial Papers are issued as per the lines issued by
(a) Securities and Exchange Board of India, (b)Reserve Bank of India, (c)Forward
Market Commission, (d)None of the above.
7. Commercial paper are generally issued at a pries
(a)Equal to face value, (b)More than face value,
(c)Less than face value, (d)Equal to redemption value
8. Which of the following is not applicable to commercial paper
(a)Face Value, (b)Issue Price, (c)Coupon Rate, (d)None of the above.
9. The basic objective of Tandon Committee recommendations is that the dependence of industry on
bank should gradually
(a)Increase, (b)Remain Stable, (c)Decrease, (d)None of the above
10. Cash discount terms offered by trade creditors never be accepted because
(a)Benefit in very small,(b)Cost is very high,(c)No sense to pay earlier,(d)None of the above.
11. In lease system, interest is calculated on
(a)Cash down payment,(b)Cash price outstanding,(c)Hire purchase price,(d)None of the above
12. A short-term lease which is often cancellable is known as
(a)Finance Lease, (b)Net Lease, (c)Operating Lease, (d)Leverage Lease
13. Which of the following is not a usual type of lease arrangement?
(a)Sale & leaseback, (b)Goods on Approval, (c)Leverage Lease, (d)Direct
Lease
14. Under income-tax provisions, depreciation on lease asset is allowed to
(a) Lessor, (b)Lessee (c) Any of the two, (d)None of the two
15. Under the provisions of AS-19 'Leases', a leased asset is shown is the balance sheet of
(a)Manufacturer, (b)Lessor, (c)Lessee, (d Financing bank
16. A lease which is generally not cancellable and covers full economic life of the asset is known as
(a) Sale and leaseback, (b)Operating Lease,(c)Finance Lease,(d)Economic Lease
17. Lease which includes a third party (a lender) is known as
(a)Sale and leaseback, (b)Direct Lease, (c)Inverse Lease, (d) Leveraged Lease
18. One difference between Operating and Financial lease is: (a)There is often an option to buy in
operating lease.
(b)There is often a call option in financial lease.
(c)An operating lease is generally cancelable by lease.
(d) A financial lease in generally cancellable by lease.
19. From the point of view of the lessee, a lease is a:
(a)Working capital decision, (b)Financing decision,
(c)Buy or make decision,
20. For a lessor, a lease is a
(d)Investment decision
(a)Investment decision, (b)Financing decision,
(c)Dividend decision, (d)None of the above.
21. Business risk can be measured by:
(a) Financial leverage, (b) Operating leverage,
(c) Combined leverage, (d) None of the above

[Answers 1. (c), 2. (c), 3. (b), 4. (c), 5. (d), 6. (b), 7. (c), 8(d), 9. (c), 10. (d) 11. (b), 12. (c), 13. (b), 14.
(a), 15. (c), 16. (c), 17.(d), 18(c), 19(b),20. (a), 21. (c),]
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