Finance is an important subject of ASSEB/AHSEC Class 11 Commerce Stream Which helps us understand the role and management of money in our personal lives, businesses, and investments. For Class 11 students under AHSEC/ASSEB Chapter 2, Financial System, serves as the foundation for grasping fundamental financial concepts.
![Class 11 Finance Chapter 1: Basics of Finance MCQs - [For AHSEC/ASSEB 1st Year]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEju-gTaS2H7NYTFDtaX7b-HKpsTYoz7uA0JTkeZIK9EALz_KfbQYMhc5fTG5nan9CS3su107MMnnqaynN_OkJiuAEFIYluzi9Bli0gphs7AraRWm8FN3mcs1fbtnSs5XuKAgGFxwrvBrJBS3DPyHuADMbnV_T1h8xPw_GyxMCllKDxvGER_RWOpBSdfyrBr/s16000-rw/Class%2011%20Finance%20Multiple%20Choice%20Questions%20MCQs.webp "Class 11 Finance Chapter 1: Basics of Finance MCQs - [For AHSEC/ASSEB 1st Year]")
In this post, we have compiled a set of important multiple-choice questions (MCQs) from Chapter 2. These questions are designed in accordance with the updated exam pattern, which includes a 40-mark objective section to be answered using OMR sheets. Practicing these MCQs will not only enhance your preparation but also deepen your understanding of key topics, enabling you to perform well in your exams.
AHSEC/ASSEB Class 11 Finance Chapter 2: Financial System multiple-choice questions
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What is the primary function of a financial system?
- a) Production of goods
- b) Allocation of financial resources
- c) Marketing of products
- d) Regulation of trade policies
Show Answer
The correct answer is: b) Allocation of financial resources
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Which of the following is NOT a component of the financial system?
- a) Financial institutions
- b) Financial markets
- c) Financial instruments
- d) Manufacturing units
Show Answer
The correct answer is: d) Manufacturing units
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What role do financial intermediaries play in the financial system?
- a) Directly produce goods
- b) Facilitate the flow of funds between savers and borrowers
- c) Regulate international trade
- d) Control government policies
Show Answer
The correct answer is: b) Facilitate the flow of funds between savers and borrowers
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Which market deals with short-term funds and securities?
- a) Capital market
- b) Money market
- c) Foreign exchange market
- d) Commodity market
Show Answer
The correct answer is: b) Money market
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What is the main purpose of the capital market?
- a) Facilitate short-term borrowing
- b) Provide long-term funding for investments
- c) Regulate currency exchange rates
- d) Manage daily cash transactions
Show Answer
The correct answer is: b) Provide long-term funding for investments
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Which of the following is an example of a financial instrument?
- a) Equity shares
- b) Real estate property
- c) Machinery
- d) Inventory
Show Answer
The correct answer is: a) Equity shares
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What is the role of the central bank in a financial system?
- a) Manufacture goods
- b) Implement monetary policy and regulate the banking system
- c) Manage individual investment portfolios
- d) Oversee corporate management
Show Answer
The correct answer is: b) Implement monetary policy and regulate the banking system
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Which financial institution primarily deals with accepting deposits and providing loans to individuals and businesses?
- a) Insurance companies
- b) Commercial banks
- c) Pension funds
- d) Mutual funds
Show Answer
The correct answer is: b) Commercial banks
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What is a primary market?
- a) A market for second-hand goods
- b) A market where new securities are issued and sold for the first time
- c) A market for agricultural products
- d) A market for foreign exchange
Show Answer
The correct answer is: b) A market where new securities are issued and sold for the first time
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Which of the following best describes a secondary market?
- a) A market for issuing new securities
- b) A market where existing securities are traded among investors
- c) A market for short-term financial instruments
- d) A market for government bonds only
Show Answer
The correct answer is: b) A market where existing securities are traded among investors
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What is the primary objective of financial regulation?
- a) Increase corporate profits
- b) Ensure the stability and integrity of the financial system
- c) Promote monopolies
- d) Limit access to financial services
Show Answer
The correct answer is: b) Ensure the stability and integrity of the financial system
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Which of the following is a characteristic of a well-functioning financial system?
- a) Limited access to credit
- b) High transaction costs
- c) Efficient allocation of resources
- d) Lack of transparency
Show Answer
The correct answer is: c) Efficient allocation of resources
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What is the significance of financial markets in an economy?
- a) They hinder economic growth
- b) They facilitate the mobilization and allocation of savings
- c) They solely benefit large corporations
- d) They operate independently of economic policies
Show Answer
The correct answer is: b) They facilitate the mobilization and allocation of savings
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Which financial instrument represents ownership in a company?
- a) Bonds
- b) Equity shares
- c) Certificates of deposit
- d) Treasury bills
Show Answer
The correct answer is: b) Equity shares
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What is the main difference between money markets and capital markets?
- a) Money markets deal with long-term funds; capital markets deal with short-term funds
- b) Money markets deal with short-term funds; capital markets deal with long-term funds
- c) Money markets are unregulated; capital markets are regulated
- d) Money markets involve only government securities; capital markets involve only corporate securities
Show Answer
The correct answer is: b) Money markets deal with short-term funds; capital markets deal with long-term funds
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Which institution acts as a lender of last resort in a country's financial system?
- a) Commercial bank
- b) Central bank
- c) Investment bank
- d) Credit union
Show Answer
The correct answer is: b) Central bank
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What is the purpose of a stock exchange in the financial system?
- a) Manufacture financial instruments
- b) Provide a platform for buying and selling securities
- c) Regulate interest rates
- d) Issue currency
Show Answer
The correct answer is: b) Provide a platform for buying and selling securities
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Which of the following is a function of insurance companies within the financial system?
- a) Accept deposits from the public
- b) Provide protection against financial losses
- c) Issue government bonds
- d) Regulate monetary policy
Show Answer
The correct answer is: b) Provide protection against financial losses
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What is meant by financial intermediation?
- a) Direct lending between individuals
- b) The process by which financial intermediaries channel funds from savers to borrowers
- c) Government allocation of funds
- d) Investment in physical assets
Show Answer
The correct answer is: b) The process by which financial intermediaries channel funds from savers to borrowers
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Which of the following best describes a derivative instrument?
- a) A financial instrument whose value is derived from the value of an underlying asset
- b) A direct investment in a company's equity
- c) A short-term debt instrument issued by corporations
- d) A savings account with a fixed interest rate
Show Answer
The correct answer is: a) A financial instrument whose value is derived from the value of an underlying asset
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What is the role of mutual funds in the financial system?
- a) Accept deposits and provide loans
- b) Pool funds from investors to invest in securities
- c) Regulate the stock market
- d) Manage central bank policies
Show Answer
The correct answer is: b) Pool funds from investors to invest in securities
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Which type of market is known for trading foreign currencies?
- a) Money market
- b) Commodity market
- c) Forex market
- d) Capital market
Show Answer
The correct answer is: c) Forex market
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What is the maturity period of treasury bills issued by the government?
- a) More than 10 years
- b) Between 5 to 10 years
- c) Less than one year
- d) Exactly 2 years
Show Answer
The correct answer is: c) Less than one year
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Which of these is an example of an indirect financial instrument?
- a) Equity shares
- b) Bank deposits
- c) Bonds
- d) Mutual fund units
Show Answer
The correct answer is: d) Mutual fund units
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What is the role of credit rating agencies in the financial system?
- a) Provide loans to businesses
- b) Assess and rate the creditworthiness of borrowers
- c) Regulate financial intermediaries
- d) Manage government debt
Show Answer
The correct answer is: b) Assess and rate the creditworthiness of borrowers
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Which financial market deals with commodities like gold and crude oil?
- a) Money market
- b) Derivatives market
- c) Commodity market
- d) Forex market
Show Answer
The correct answer is: c) Commodity market
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What is the primary benefit of financial inclusion?
- a) It increases inequality in society
- b) It ensures access to financial services for all sections of society
- c) It reduces government involvement in the economy
- d) It eliminates the need for regulation
Show Answer
The correct answer is: b) It ensures access to financial services for all sections of society
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Which of the following is a characteristic of a well-functioning banking system?
- a) Limited access to credit
- b) High liquidity and availability of credit
- c) Lack of regulation
- d) Bank monopoly in lending
Show Answer
The correct answer is: b) High liquidity and availability of credit
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What is the primary purpose of central banks in the financial system?
- a) Issue government bonds
- b) Set interest rates and control inflation
- c) Provide loans to individuals
- d) Manage private-sector investments
Show Answer
The correct answer is: b) Set interest rates and control inflation
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What is the significance of a country's foreign exchange reserves?
- a) They are used to fund government expenditure
- b) They provide a buffer against economic crises and support the national currency
- c) They are invested only in gold
- d) They are distributed as loans to foreign countries
Show Answer
The correct answer is: b) They provide a buffer against economic crises and support the national currency
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What is meant by the term "securitization" in the financial system?
- a) Converting illiquid assets into tradable securities
- b) The process of buying and selling securities
- c) Converting short-term loans into long-term securities
- d) Setting interest rates for financial institutions
Show Answer
The correct answer is: a) Converting illiquid assets into tradable securities
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Which financial market deals with commodities like gold and crude oil?
- a) Money market
- b) Derivatives market
- c) Commodity market
- d) Forex market
Show Answer
The correct answer is: c) Commodity market
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What is the primary characteristic of a debenture?
- a) Ownership in a company
- b) Short-term borrowing
- c) Long-term debt instrument without collateral
- d) Government-issued currency
Show Answer
The correct answer is: c) Long-term debt instrument without collateral
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Which financial instrument is issued by banks to individuals for international trade?
- a) Letters of credit
- b) Treasury bills
- c) Bonds
- d) Equity shares
Show Answer
The correct answer is: a) Letters of credit
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What is the role of pension funds in the financial system?
- a) Provide long-term retirement benefits by investing in securities
- b) Issue short-term loans to businesses
- c) Manage government debt
- d) Regulate financial markets
Show Answer
The correct answer is: a) Provide long-term retirement benefits by investing in securities
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Which financial institution is primarily responsible for underwriting new securities?
- a) Insurance companies
- b) Commercial banks
- c) Investment banks
- d) Development banks
Show Answer
The correct answer is: c) Investment banks
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What is the primary function of the Reserve Bank of India (RBI)?
- a) Provide loans to individuals
- b) Act as a central bank to regulate monetary policy
- c) Manage mutual funds
- d) Offer insurance services
Show Answer
The correct answer is: b) Act as a central bank to regulate monetary policy
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What is a certificate of deposit?
- a) A document indicating ownership in a company
- b) A savings account with fixed maturity and interest rate
- c) A government bond with a short maturity period
- d) A type of equity share
Show Answer
The correct answer is: b) A savings account with fixed maturity and interest rate
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Which of these is NOT a function of financial institutions?
- a) Channel funds from savers to borrowers
- b) Provide a platform for trading commodities
- c) Assess creditworthiness
- d) Manage monetary policies
Show Answer
The correct answer is: d) Manage monetary policies
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What is the function of the primary dealer system in India?
- a) Regulate foreign investments
- b) Facilitate the purchase and sale of government securities
- c) Provide loans to small businesses
- d) Issue treasury bills
Show Answer
The correct answer is: b) Facilitate the purchase and sale of government securities
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Which market supports companies in raising capital through initial public offerings (IPOs)?
- a) Secondary market
- b) Primary market
- c) Commodity market
- d) Forex market
Show Answer
The correct answer is: b) Primary market
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What is the role of financial technology (FinTech) in the financial system?
- a) Manufacture banking equipment
- b) Improve efficiency and accessibility of financial services using technology
- c) Create physical bank branches
- d) Regulate stock exchanges
Show Answer
The correct answer is: b) Improve efficiency and accessibility of financial services using technology
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Which of the following is a characteristic of money market instruments?
- a) High-risk, high-return investments
- b) Short-term maturity and high liquidity
- c) Long-term funding for projects
- d) Ownership in companies
Show Answer
The correct answer is: b) Short-term maturity and high liquidity
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Which financial institution focuses on pooling risks and providing coverage for potential losses?
- a) Commercial banks
- b) Insurance companies
- c) Pension funds
- d) Investment banks
Show Answer
The correct answer is: b) Insurance companies
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What is a bond?
- a) A type of derivative instrument
- b) A fixed-income instrument representing a loan made by an investor
- c) A document indicating company ownership
- d) A short-term money market instrument
Show Answer
The correct answer is: b) A fixed-income instrument representing a loan made by an investor
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Which of the following is an example of a fixed-income security?
- a) Equity shares
- b) Bonds
- c) Options
- d) Futures
Show Answer
The correct answer is: b) Bonds
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Which term refers to the risk of a borrower defaulting on their debt obligations?
- a) Market risk
- b) Credit risk
- c) Liquidity risk
- d) Operational risk
Show Answer
The correct answer is: b) Credit risk
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Which instrument is commonly traded in the secondary market?
- a) New IPO shares
- b) Existing equity and bonds
- c) Treasury bills
- d) Savings accounts
Show Answer
The correct answer is: b) Existing equity and bonds
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What is meant by liquidity in the context of financial markets?
- a) The ability to earn high returns
- b) The ease of converting assets into cash
- c) The risk of default on loans
- d) The duration of financial instruments
Show Answer
The correct answer is: b) The ease of converting assets into cash
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What is the primary goal of portfolio diversification?
- a) Maximize investment in a single asset
- b) Minimize risks by investing in a variety of assets
- c) Reduce investment returns
- d) Eliminate the need for financial intermediaries
Show Answer
The correct answer is: b) Minimize risks by investing in a variety of assets