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MBA Finance Interview questions (share Trading)



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MBA Finance Interview questions (share Trading)

  1. 1. 1.What are different types of Dividends? 1.Regular Dividend. By dividend we mean regular dividend paid annually, proposed by the board of directors and approved by the shareholders in general meeting. It is also known as final dividend because it is usually paid after the finalization of accounts. It sis generally paid in cash as a percentage of paid up capital, say 10 % or 15 % of the capital. Sometimes, it is paid per share. No dividend is paid on calls in advance or calls in arrears. The company is, however, authorised to make provisions in the Articles prohibiting the payment of dividend on shares having calls in arrears. (2) Interim Dividend. If Articles so permit, the directors may decide to pay dividend at any time between the two Annual General Meeting before finalizing the accounts. It is generally declared and paid when company has earned heavy profits or abnormal profits during the year and directors which to pay the profits to shareholders. Such payment of dividend in between the two Annual General meetings before finalizing the accounts is called Interim Dividend. No Interim Dividend can be declared or paid unless depreciation for the full year (not proportionately) has been provided for. It is, thus,, an extra dividend paid during the year requiring no need of approval of the Annual General Meeting. It is paid in cash. (3) Stock-Dividend. Companies, not having good cash position, generally pay dividend in the form of shares by capitalizing the profits of current year and of past years. Such shares are issued instead of paying dividend in cash and called 'Bonus Shares'. Basically there is no change in the equity of shareholders. Certain guidelines have been used by the company Law Board in respect of Bonus Shares. (4) Scrip Dividend. Scrip dividends are used when earnings justify a dividend, but the cash position of the company is temporarily weak. So, shareholders are issued shares and debentures of other companies. Such payment of dividend is called Scrip Dividend. Shareholders generally do not like such dividend because the shares or debentures, so paid are worthless for the shareholders as directors would use only such investment is which were not . Such dividend was allowed before passing of the Companies (Amendment) Act 1960, but thereafter this unhealthy practice was stopped. (5) Bond Dividends. In rare instances, dividends are paid in the form of debentures or bounds or notes for a long- term period. The effect of such dividend is the same as that of paying dividend in scrips. The shareholders become the secured creditors is the bonds has a lien on assets. (6) Property Dividend. Sometimes, dividend is paid in the form of asset instead of payment of dividend in cash. The distribution of dividend is made whenever the asset is no longer required in the business such as investment or stock of finished goods. But, it is, however, important to note that in India, distribution of dividend is permissible in the
  2. 2. form of cash or bonus shares only. Distribution of dividend in any other form is not allowed. 2. What is Stock Dividends? Stock dividend is the shares offered by the company instead of dividend to its shareholders. This is one way to retain dividens with the comapny itself. Investors will get shares without paying anything extra. 3. What is Bonus Dividends? If the companey reserves gradually incresing, the directores Decided to issuig a bonus by a dividend nothing but a Reserves and surplus 4. What is Interium Dividend? interim divident are paid in between the two fiscal years. This means it is paid in middle of the financial yearA dividend which is declared and distributed before the company's annual earnings have been calculated; often distributed quarterly. 5. What is Right Issue? when the company goes for the further issue, then it give the first preference to the employees and the existing share holders. it is called right issue. not to the employees.. only existing share holders.. the new issue is made to the existing share holders is called as right issue.. generally the issue price is lower than the market price of the company's stock. 6. What is Capital Budgeting? capital budgting refers to the a long term funds invest in assets. 7. difference between Funds Flow and Cash Flow statements? In fund flow statement all the current assets and current liabilities also included with cash. In cash flow statement only cash flow is included. 8. What is the difference between Long term Loan and Debt? long term loans are taken for the purpose of long term investments or capital investments but debt are taken for the purpose of maintain the shot term financial needs of the company. 9. What are cash Resources? The cash resources for a firm are: Returns on investment,IPOs, Loan from other FIs,Returns on equity stak, etc. 10. What is NASDAQ? nasdaq's stands for national assocaation of securities dealers automated is an american stock is the largest
  3. 3. electronic screen based equity securities trading market in the united states. 11. What is meant by OTC? Over-the-counter (OTC) trading is to trade financial instruments such as stocks, bonds, or derivatives directly between two parties. It is the opposite of exchange trading which occurs on futures exchanges or stock exchanges. An over-the-counter (OTC) contract is a bi-lateral contract in which two parties agree on how a particular trade or agreement is to be settled in the future. For derivatives these agreements are usually governed by an International Swaps and Derivatives Association agreement. An over-the-counter (OTC) market is a financial market where products are traded over-the-counter. over the counter.this exchange is for small scale industry. 12. What Are Hedge Funds? hedge funds is risk free funds. 13. What is meant by Market Capitalization? Market Capitalization= Total no. of shares * share price Putting in simple terms, Market price is the total amount that the investor has to pay if he decides to buy all the shares of a company (this is only a hypothetical situation) 14 What is Technical Analysis? Technical analysis is method of predicting the share price movements with the help of price graphs or charts (along with volume figures). Price movement is the only criteria to predict future prices of stocks in Technical Analysis 15. DOW stock exchange belong to which country? Dow Jones from America 16. What is Leverage Ratio? Debt-Equity Ratio = Total Debt / Total Equity D/E Ratio = Outsider's funds / Shareholder's funds Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. 17. What is Paid up Capital? paid up capital is flly paid by shareholder 18. What is authorized Capital?
  4. 4. The amount of capital that a company has been authorized to raise by way of equity and preference shares through the Articles of Association / Memorandum of Association of the company. This is typically the capital at the time it has been incorporated. The face value is also closely linked to the first issue of authorized capital…. 19. What is EPS? Earning per share means return earned per share. it is calculated as EPS= Profit after tax/No of outstanding shares 20. What is Investment? in simple investment means employement of funds in order to generate future returns or future income. 21. What is Money Market? The market dealing in a short term funds is knowns as money market 22. What is meant by company Deposits? Some times a Company may accept deposits from the public with the permission of RBI. It should disclose the Redumption period and interest rate 23. What is Treasury Bills? it is short term money market instrument which is issued by the govt at discounted value .it means it will issue a 500 rs worth of bill at 410 rs like that .after at the maturity date it will pay rs 500. to holder of bill. 24. Who is a lame-duck? A person who has defaulted on his or her debts or has gone bankrupted due to the stock market. The financial use of the term is most commonly used in Europe. trader or investor who makes poor trades and ends up with heavy losses over time would be considered a lame duck. Often, if a trader goes bankrupt, it is not the result of one bad trade but a long string of them - such a trader is called a lame duck because he or her is ineffective as a trader. 25. What is Beta? It is a tool used to measure the systematic risk of the securities. 26. What is Bear market? A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self- sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.
  5. 5. 27. What Does Warrant Mean? A derivative security that gives the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue as a "sweetener" to entice investors. these are long term options(where the writer grants the buyer to purchase the asset in specific time)these are being issued by companies and financial does not have any initial service cost and dividend payment. it has a life of more than five years.. 28. What is net present value?. NPV = Present Value of cash inflows - Present Value of cash outflows. Net present value (NPV) is a standard method for the financial appraisal of long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met. By definition, 29. what is stock? stock means fully paid up shares. 30. What is EBIDTA? EBIDTA - Earnings before Interest, Depreciation Tax and Amortization. EBITDA = Revenue - Total cost of sales = Operating profit - Other Overheads. 31. Arbitrage in simple terms arbitrage is nothing but the usage of securities risk freely in different markets to earn profits. for e.g, buying of some shares in the market where the price is low and selling in the market where there is a higher price. 31. Who first launched floating interest rate bonds in the capital market in India? Franklin Templeton is the first firm to introduce floating rate interest bond in Indian market in 2001. 32. Difference between the BSE and NSE not their expansion NSE Stands for National Stock Exchange. It has more than 2000 stocks from different sectors listed with it. It is fully automated electronic order processing exchange. Nifty is major index of NSE and it comprise of 50 scripts from different sectors.
  6. 6. BSE Stand for Bombay Stock Exchange. It is India's Oldest Stock Exchange with listing of over 4000 scripts with it. This not fully automated yet but progress towards full automation is underway. SENSEX is major index of BSE and it comprise of 30 scripts from different sectors. 33. How is an investment decision different from a financing decision? The financing decision involves the sources of funds which are needed for the business investment. we choose among different resources to acquire funds from them. For example, we should sale out our new shares, borrowing from a bank or taking credit from the suppliers. while in the investment decision the funds acquired are invested or we may say the comapnay's capital is invested in purchasing the assets(fixed assets and current assets). 34. what is mean by Due Diligence due diligence means investigation or audit in the companies, that to reasonable person should take before entering into an agreement or a transaction of another party. 35. what is exotic option?? and what do you mean by plain vanilla option? Exotic options are derivatives that have features which are different and compex then commonly traded products these are not exchange traded but are traded OTC due to their built to order nature. On the other hand plain vanilla options are simple options like calls and puts which are Exchange traded as well as OTC traded. 36. 5. Differences between Debentures and shares 1. debenture are the creditors to the company. share hodlders are the owners to the company 2. debenture holders they dont have voting power. Share holders have voting rights. 3. Debebture interest rate is paid at predetermined fixed rate. Dividend on share depends on profits of the company; 37.wht u mean by equity share
  7. 7. Equity is an ordinary share of any company which invested or holded by company's share holders and dividend or interest on those shares are given to the shareholders based on the company's profit. If the company not earning profit then the shareholders will not receive any dividend or interest untill the company not start making profit Equity is the ordinary share which is invested in the company by the shareholders. it includes risk as well as return based on the company's profit. 38 what is float discuss? when the rate & prices are not stable that is float Float in stock market: Float is the total number of equity shares that are ready for free trade in secondary market. Float is the period between opening and closing of a transaction Float in Companies Act 1956: Float is the amount of money to be raised for the company 39.Company why should issue Debentures and shares, Which one should issue better for company and why? to raise capital it issue debentures and shares but if interest is low, company should go for issuing debentures because if it issue shares ownership dilutes it results decrease in EPS The company raises capital/finance using 2 methods. 1)Internally. 2)Externally. Internally the finance is raised by the issue of the debentures that is raising the money on intrest from the borrowers. Externally the finance is raised by the issue of the shares,preference shares and equity shares. if the rate of interst is less than tha company should issue a debenture beacuse there is a low risk .but if interst is to much high than company should issue share 40.what is difference between primary market & secondary market? PRIMARY MARKET: IT IS ALSO CALLED NEW ISSUE MARKET.HERE INVESTOR WILL BUY SECURITIES BUT CAN'T SELL THERE. SECONDARY MARKET: IT IS ALSO CALLED STOCK MARKET OR STOCK EXCHANGE. IT IS AN ORGANIZED MARKET WHERE SECURITIES ARE TRADED I.E BOTH BUYING AND SELLING ACTIVITIES TAKEN PLACE.
  8. 8. 41. what Are Hedge Funds? Hedge funds are risk free funds. Hedge is using for risk avoiders. so these hedging is give higher protection with minimum gain for EX; LAND INVESTMENT, GOLD INVESTMENT 42. what is meant by index in stock marketing Index in stock marketing means that shows current market position related to companies. 43.wht is preference share capital..? Preference capital means the shareholders of a company holding preference share are not the owners of the co.The preference share holders get fixed percentage of dividend from the profit earned by the company.Also they get preference over equity share holdrs during the time of payment of dividend and during the time of winding up of the company . 44. What Is A Mutual founds mutual fund means collect the fund from the small investor and this fund is mobilized from the different fund are also financial securities. 45. Why the company prefering prefence capital rather than debenture capital? with an object of diversifying the risk during the loss years of the company preference shares are issued. but in case of debentures even during the times of loss years also interest should be paid along with fixed interest. and more over preference dividends payments can also be paid during next years profit of the companies in case of cumulative preference shares. so for all this reasons company issue preference shares instead of debentures. 46. WHAT IS THE DIFFERENCE BETWEEN Speculation and Investment? investment:1.the investor invest for long term gain purpose 2. the investor hold securities for long period. 3.risk is less as compare to speculation 4.the rate of return is less as compare to speculation speculation:1.the investor invest for short term gain purpose 2.the investor hold securities very short period say 1 or 2 days 3.risk is high 4.rate of return is more invole buying and silling of securities 45. nikkie stock exchange belongs to which country japan stock exchange
  9. 9. 46. full form of sensex? IT IS A SENSITIVITY INDEX OF BSE 47. What do you mean by favorable balance of trade Having exports which exceed imports 48. whats Dollex 30? DOLLEX-30 is the dollar version of BSE Sensex, 49. whats Derivative? In finance, a derivative is a financial instrument (or, more simply, an agreement between two parties) that has a value, based on the expected future price movements of the asset to which it is linked— called the underlying asset—[1] such as a share or a currency. There are many kinds of derivatives, with the most common being swaps, futures, and options. Derivatives are a form of alternative investment 50. what is the green shoe option referred to in stock market if a stock is over subscribed then it is referred as green shoe subscription 51. how can i invest in bse? Open a demat account and DP account. Then you can select the stock you want. 52. why is forex market and gold market are in inverse action? basically forex market is related to equity and gold related to treasury. according to finacial term there are two types of investment equity sector and trasury sectot,when there is lot of risk inmarket golg goes up and forex goes down because people move towards safe investment.dude to this it relate to inverse in action. 53. What is the Mutual Funds? What is the Portfolio Management Services (PMS)? What is the difference between Mutual funds and Portfolio Management services? Give me detail explanation?? mutual fund is a one of the financial service. collecting saving from the public and the savings will be investment in different companies stocks, bonds and debenchers.this function done by fund manager. port folio means collection of investment allowed by company or individual person .or combination of various investments. the combination may be equity shares and prefrencce shares and bonds and mutual funds,
  10. 10. hey differ in the target investors. Mutual funds' target investors are retail while those of PMS are High net-worth individuals.. 54. when will establish first stock exchange? 1460 in antwarp,belgium. 55.