FEIA important questions (2m)

1 What is Money?

Money refers to any medium of exchange that is widely accepted in transactions for goods and
services. It can take various forms, including currency, bank deposits, and digital currency.

2. What is Financial Planning?

.Financial planning is the process of setting and achieving financial goals by creating a
comprehensive strategy that considers various aspects of an individual's financial situation, such as
income, expenses, investments, and liabilities.

3. What is Investment?

Investment refers to the allocation of funds with the expectation of generating returns or profits. It
involves putting money into financial instruments such as stocks, bonds, mutual funds, or real estate
with the intention of generating income or capital gains.

4. State any two investment objectives.

Two investment objectives are:

Capital appreciation: the objective of generating an increase in the value of an investment over time.

Income generation: the objective of generating regular income from an investment.

5. What is Primary Market?

The primary market is a market where new securities are issued and sold to the public for the first
time. Companies use the primary market to raise capital by issuing shares or bonds to investors.

6. What is Secondary Market?

The secondary market is a market where existing securities are bought and sold among investors. In
the secondary market, investors trade previously issued securities with each other rather than
buying them directly from the issuing company.

7. What is Capital Market?

The capital market is a market where long-term securities such as stocks and bonds are traded. It is a
market for raising long-term funds for companies and government entities.

8. State few functions of Stock.

Some functions of stock are:

To provide a means for companies to raise capital.

To allow investors to participate in the growth and profits of companies.

To provide liquidity for investors to buy and sell shares easily.

Nifty is an index of the National Stock Exchange of India (NSE) that represents the top 50 companies
listed on the exchange based on market capitalization.

10. What is SENSEX?

SENSEX is an index of the Bombay Stock Exchange (BSE) in India that represents the top 30
companies listed on the exchange based on market capitalization.

11. What is Mutual Fund?

A mutual fund is a professionally managed investment fund that pools money from multiple
investors to invest in various financial instruments such as stocks, bonds, and money market
instruments.

12.What is Growth or Equity Fund?

A growth or equity fund is a mutual fund that primarily invests in stocks of companies with the
potential for high growth and capital appreciation.

13. What is Income or Debt Fund?

An income or debt fund is a mutual fund that primarily invests in fixed-income securities such as
bonds and money market instruments with the objective of generating regular income for investors.

14. What is Balanced Fund?

A balanced fund is a mutual fund that invests in a combination of stocks and bonds to provide a
balance between capital appreciation and income generation.

15. What is Money Market Fund?

A money market fund is a mutual fund that primarily invests in short-term debt securities such as
Treasury bills and commercial paper, with the objective of providing liquidity and stability.

16. Which is the first Mutual Fund in India?

The first mutual fund in India is Unit Trust of India (UTI), which was established in 1964.

FEIA IMPORTANT QUESTION {5M}

1. Differentiate between Primary and Secondary Market.

The primary market is where securities are issued and sold for the first time by the company or the
government to the public.

The secondary market is where already-issued securities are traded between investors.
2. What is Mutual Fund? Bring out its features.

A mutual fund is a type of investment fund that pools money from multiple investors to purchase a
diversified portfolio of stocks, bonds, or other securities.

Its features include

diversification, professional management, and liquidity.

Diversification:- Mutual funds offer you the benefit of diversification in such asset class which
otherwise isn’t possible for an individual investor. You reap the dividend of maximum exposure with
minimum risk.

Liquidity:- You can easily redeem the units of your mutual funds to meet any kind of financial
emergency. Based on the type of scheme, the redemption amount is usually credited to your bank
account within 3-4 business days from the date of redemption. In the case of liquid funds, the
amount is credited on the next business day. However, do note you may be charged an exit load if
you redeem your equity or debt funds before the specified period in the SID (Scheme Information
Document) of the mutual fund. The exit load is charged as a percentage of the NAV (Net Asset Value)
of the mutual fund at the time of redemption.

Professional management:- Mutual funds are managed by professional fund managers who
closely watch the markets and make constant investment decisions based on the fund's stated
objective. Therefore, you don't have to worry about researching and individual stock picking once
you invest in mutual funds.

Low Cost:- Mutual funds charge a small amount known as the expense ratio from investors. The
expense ratio is charged to cover operating expenses such as management, administration, etc., and
other charges.

Properly Regulated:- The Securities and Exchange Board of India (SEBI) regulates the mutual fund
market. Mutual funds have to strictly comply with SEBI (Mutual Funds) Regulations, 1996, to ensure
transparency and protection of investors wealth.

3. What is Financial Planning? And why do we need to go for it?

Financial planning is the process of setting financial goals, creating a plan to achieve them, and
regularly reviewing and adjusting the plan as necessary.
It is important because it helps individuals and businesses to manage their finances effectively, make
informed decisions, and achieve their financial goals.

• Invest in your career – Your lifetime earnings will impact your financial plan more than any other
factor. Think long and hard about what kind of career you want for yourself. Pursuing a more
remunerative career will produce more financial resources but will likely come at the cost of less
time to do other things you love.

• Build your network – It’s unlikely you will have only one job (or perhaps even one profession) over
your career. Develop connections with people in your industry and cultivate those relationships over
time. If you lose or quit your job it will be much harder to transition to a new one if people don’t
know who you are.

• Think hard about what money means to you – When we start out as young adults, living on our
own for the first time and making money, it canbe tempting to live a cash flow-based life and spend
what comes in. But we’re all constrained by a finite amount of human capital to spend over our lives.
Understanding early on how you want to allocate this resource is extremely important.

4. Briefly explain the functions of Stock Exchange.

The functions of a stock exchange include providing a platform for buying and selling of securities,
ensuring fair and transparent trading practices, providing market information and analysis, and
regulating the activities of market participants.

• Liquidity and Marketability: One of the main drawing factors of the stock exchange is that it
enables high liquidity. The securities can be sold at amoment’s notice and be converted to cash. It is
a continuous market and the investors can divest and reinvest with ease as per their wishes.

• Price Determination: In a secondary market, the only way to determine the price of securities in via
the rules of supply and demand. A stock exchange enables this process via constant valuation of all
the securities. Such pricesof shares of various companies can be tracked via the index we call the
Sensex.

• Safety: The government strictly governs and regulates the stock exchanges. In the case of the BSE,
the Securities Board of India is the governing body. All transactions occur within the legal
framework. This provides the investor with assurances and a safe place to transact in securities.

• Contribution to the Economy: As we know the stock exchange deals in already-issued securities.
But these securities are continuously sold and resold and so on. This allows the funds to be
mobilized and channelized instead of sitting idle. This boosts the economy.

• Spreading of Equity: The stock exchange ensures wider ownership of securities. It actually educates
the public about the safety and the benefits of investing in the stock market. It ensures a better
quality of transactions and smooth functioning. The idea is to get more public investors and spread
the ownership of securities for the benefit of everyone.

• Speculation: One often hears that the stock exchange is a speculative market. And while this is
true, the speculation is kept within the legal framework. For the stake of liquidity and price
determination, a healthy dose of speculative trading is necessary, and the stock exchange provides
us with such a platform.
5. PV – 1,00,000 i – 10% n – 5 Years FV - ?

FV = PV x (1 + i)^n = 1,00,000 x (1 + 0.1)^5 = 1,61,051.

6. FV- 10,00,000 i- 6% n- 10 years PV- ?

PV = FV / (1 + i)^n = 10,00,000 / (1 + 0.06)^10 = 4,112,259.

7. Assume you deposit 1,000 every year somewhere that pays you 10%
interest per annum. How much will you get after 5 years?

Using the formula for the future value of an annuity, FV = (1,000 x (1 + 0.1)^5 - 1) / 0.1 x (1 + 0.1) =
6,105.10.

8. Assume you will get 10,000 every year for 5 years. What is its present
value if the discounting rate is 10%?

.Using the formula for the present value of an annuity, PV = 10,000 x (1 - 1 / (1 + 0.1)^5) / 0.1 =
37,355.96.

9. Calculate the PV of perpetuity if you get ₹50 every year at 5% discount

Using the formula for the present value of a perpetuity, PV = C / r = 50 / 0.05 = 1,000.

FEIA IMPORTANT QUESTION {10M}

1. Explain in detail the Trading and Settlement process in Stock

2. Write a note on the following as an investment alternative

a) Life Insurance b) Real Estate

3. What are benefits and pitfalls of investing in Mutual Fund?

4. Explain in detail the types of Mutual Funds.

5. Explain in detail the types of Mutual Fund Plans.