NISM-Series-XV - Research Analyst Certification MCQ - Chapter 1 - Introduction to Research Analyst Profession
NISM Research Analyst Certification MCQ of Chapter 1: Introduction to Research Analyst Profession
- These Research Analyst MCQs only for practice. Selected from the Official NISM Sereis XV Research Anslyst Book
1) What is the main function of a Research Analyst?
a) Buying and selling stocks
b) Helping clients make investment decisions
c) Managing corporate accounts
d) Conducting marketing campaigns
✅ Correct Answer: (b) Helping clients make investment decisions
📖 Explanation: Research Analysts collect and analyze data to provide investment recommendations.2) Research Analysts primarily rely on which type of data?
a) Macroeconomic data
b) Company-specific financial statements
c) Industry trends
d) All of the above
✅ Correct Answer: (d) All of the above
📖 Explanation: Analysts use multiple data sources to assess investment opportunities comprehensively.3) What does "sell-side" refer to in the context of Research Analysts?
a) Analysts working for brokerage firms and publishing research reports
b) Analysts working for mutual funds and hedge funds
c) Analysts who only focus on stock price movements
d) Analysts who exclusively analyze government securities
✅ Correct Answer: (a) Analysts working for brokerage firms and publishing research reports
📖 Explanation: Sell-side analysts issue reports for public consumption and work for brokerage firms.4) Buy-side analysts primarily serve which type of clients?
a) Retail investors
b) Mutual funds and hedge funds
c) Banks and insurance companies
d) Small business owners
✅ Correct Answer: (b) Mutual funds and hedge funds
📖 Explanation: Buy-side analysts provide internal research for asset management firms and institutional investors.5) Independent Research Analysts typically earn revenue through:
a) Selling research reports to subscribers
b) Commission from stockbrokers
c) Trading stocks themselves
d) Investment banking fees
✅ Correct Answer: (a) Selling research reports to subscribers
📖 Explanation: Independent analysts sell research reports on a subscription basis to investors and institutions.6) Which of the following is NOT a key responsibility of a Research Analyst?
a) Evaluating economic factors
b) Forecasting industry trends
c) Managing a company’s financial accounts
d) Analyzing company performance
✅ Correct Answer: (c) Managing a company’s financial accounts
📖 Explanation: Research Analysts do not manage corporate finances; they analyze companies for investment decisions.7) What is one key benefit of industry analysis before company analysis?
a) It eliminates investment risks
b) It provides context for company performance
c) It ensures stock prices will rise
d) It guarantees accurate forecasts
✅ Correct Answer: (b) It provides context for company performance
📖 Explanation: Industry trends help analysts understand a company’s potential within its sector.8) Which of the following is a macroeconomic factor affecting investment decisions?
a) A company’s profit margins
b) Interest rates
c) Marketing strategies
d) CEO salaries
✅ Correct Answer: (b) Interest rates
📖 Explanation: Interest rates, inflation, and GDP growth are key macroeconomic factors influencing investments.9) Why is it important for analysts to interact with company management?
a) To promote the company’s stock
b) To verify and gather qualitative insights
c) To increase stock trading volume
d) To advertise investment products
✅ Correct Answer: (b) To verify and gather qualitative insights
📖 Explanation: Direct interaction helps analysts assess management vision and strategy.10) What is a key risk when relying on management interviews for research?
a) Analysts may misinterpret financial statements
b) Management may exaggerate positive aspects of the company
c) The stock price might not change
d) The industry trends may not be relevant
✅ Correct Answer: (b) Management may exaggerate positive aspects of the company
📖 Explanation: Analysts must cross-verify management claims with independent data sources.11) Which of the following is NOT a best practice when meeting company management?
a) Conducting pre-meeting research
b) Asking direct and relevant questions
c) Accepting confidential, non-public information
d) Cross-checking management claims with other sources
✅ Correct Answer: (c) Accepting confidential, non-public information
📖 Explanation: Analysts must follow ethical guidelines and avoid using insider information.12) What is one method to verify the claims made by a company’s management?
a) Relying solely on CEO statements
b) Conducting competitor and supplier checks
c) Ignoring management insights
d) Only analyzing quarterly reports
✅ Correct Answer: (b) Conducting competitor and supplier checks
📖 Explanation: Cross-referencing information from industry sources helps ensure accuracy.13) What is a key ethical responsibility of a Research Analyst?
a) Promoting stocks aggressively
b) Avoiding conflicts of interest
c) Giving only positive recommendations
d) Selling financial products
✅ Correct Answer: (b) Avoiding conflicts of interest
📖 Explanation: Analysts must remain unbiased and disclose any personal financial interests.14) Why is clarity in communication important for Research Analysts?
a) To ensure clients understand their recommendations
b) To attract media attention
c) To sell reports at a higher price
d) To avoid answering client questions
✅ Correct Answer: (a) To ensure clients understand their recommendations
📖 Explanation: Clear and concise communication helps investors make informed decisions.15) Which of the following is NOT a desired skill for a Research Analyst?
a) Strong numerical ability
b) Understanding financial statements
c) Persuasive sales skills
d) Good written and verbal communication
✅ Correct Answer: (c) Persuasive sales skills
📖 Explanation: Analysts focus on research and analysis rather than selling financial products.16) What is the primary purpose of a research report?
a) To provide objective investment recommendations
b) To promote stocks to investors
c) To increase trading volume
d) To advertise brokerage services
✅ Correct Answer: (a) To provide objective investment recommendations
📖 Explanation: Research reports should be fact-based and unbiased to help investors make informed decisions.17) Why should Research Analysts use data analytics tools like Excel?
a) To manipulate financial data
b) To analyze trends and forecast financial performance
c) To replace fundamental analysis
d) To avoid reading financial statements
✅ Correct Answer: (b) To analyze trends and forecast financial performance
📖 Explanation: Tools like Excel help in processing large datasets and performing financial analysis efficiently.
18) What is a key advantage of using financial statements for analysis?
a) They provide historical data to evaluate trends
b) They predict future stock prices
c) They focus only on qualitative factors
d) They remove all investment risks
✅ Correct Answer: (a) They provide historical data to evaluate trends
📖 Explanation: Financial statements reveal a company’s past performance and help forecast future trends.
19) Which skill is crucial for reading financial statements effectively?
a) Marketing knowledge
b) Technical analysis expertise
c) Strong numerical ability
d) Graphic designing
✅ Correct Answer: (c) Strong numerical ability
📖 Explanation: Analysts must interpret numbers in financial reports to assess company performance.
20) Which is NOT a key macroeconomic factor analyzed by Research Analysts?
a) GDP growth rate
b) Interest rates
c) Inflation levels
d) A company’s social media strategy
✅ Correct Answer: (d) A company’s social media strategy
📖 Explanation: Macroeconomic factors include GDP, inflation, and interest rates, while social media is a marketing tool.
21) What is the importance of analyzing a company's business model?
a) To understand revenue generation and competitive advantages
b) To predict future stock prices
c) To decide management salaries
d) To compare stock exchange policies
✅ Correct Answer: (a) To understand revenue generation and competitive advantages
📖 Explanation: A company’s business model reveals how it operates and sustains profitability.
22) Which financial metric helps measure profitability?
a) Earnings per Share (EPS)
b) Interest coverage ratio
c) Debt-to-equity ratio
d) Current ratio
✅ Correct Answer: (a) Earnings per Share (EPS)
📖 Explanation: EPS indicates how much profit a company generates per share of stock.
23) What is the role of SEBI in relation to Research Analysts?
a) Regulates and sets ethical standards
b) Determines stock prices
c) Provides investment advice
d) Trades stocks on behalf of investors
✅ Correct Answer: (a) Regulates and sets ethical standards
📖 Explanation: SEBI ensures Research Analysts follow guidelines and maintain ethical standards.
24) Which of the following is an example of a qualitative factor in company analysis?
a) Debt levels
b) Management quality
c) Revenue growth
d) Profit margins
✅ Correct Answer: (b) Management quality
📖 Explanation: Qualitative factors include management integrity, corporate strategy, and industry reputation.
25) What should analysts avoid while preparing reports?
a) Bias or misleading information
b) Industry benchmarks
c) Historical performance analysis
d) Financial ratios
✅ Correct Answer: (a) Bias or misleading information
📖 Explanation: Research reports should be objective, data-driven, and free from bias.
26) Which entity supervises Research Analysts in India?
a) Reserve Bank of India (RBI)
b) Securities and Exchange Board of India (SEBI)
c) Ministry of Finance
d) Stock Exchanges
✅ Correct Answer: (b) Securities and Exchange Board of India (SEBI)
📖 Explanation: SEBI regulates Research Analysts under the SEBI (Research Analysts) Regulations, 2014.
27) What is an important quality of a good Research Analyst?
a) Strong analytical thinking
b) Sales skills
c) Ability to take investment risks
d) Personal stock investments
✅ Correct Answer: (a) Strong analytical thinking
📖 Explanation: Analysts must analyze data objectively to provide reliable investment recommendations.
28) What is one ethical practice required of Research Analysts?
a) Disclosing conflicts of interest
b) Influencing stock prices
c) Promoting stocks for personal gain
d) Manipulating financial statements
✅ Correct Answer: (a) Disclosing conflicts of interest
📖 Explanation: Transparency is essential to maintain trust and credibility in financial markets.
29) How does industry analysis help Research Analysts?
a) It provides insights into market trends and competitive forces
b) It guarantees stock price increases
c) It focuses only on a company’s marketing strategies
d) It eliminates investment risks
✅ Correct Answer: (a) It provides insights into market trends and competitive forces
📖 Explanation: Understanding industry trends helps analysts predict company performance.
30) Why is independence important for Research Analysts?
a) To ensure unbiased investment recommendations
b) To increase personal stock investments
c) To support specific financial products
d) To collaborate with brokers for higher sales
✅ Correct Answer: (a) To ensure unbiased investment recommendations
📖 Explanation: Analysts should maintain independence to avoid conflicts of interest.31) What should Research Analysts do before meeting company management?
a) Conduct thorough research on the company and industry
b) Avoid forming any opinions beforehand
c) Only focus on financial reports
d) Ask management for future stock price targets
✅ Correct Answer: (a) Conduct thorough research on the company and industry
📖 Explanation: Pre-meeting research helps analysts ask informed and relevant questions.
32) Which of the following is NOT a responsibility of a Research Analyst?
a) Identifying investment opportunities
b) Predicting exact stock prices
c) Analyzing economic trends
d) Evaluating financial statements
✅ Correct Answer: (b) Predicting exact stock prices
📖 Explanation: Analysts assess trends and risks but cannot guarantee future stock prices.
33) What is a major risk when relying solely on management interviews?
a) Management may provide biased or misleading information
b) Stock prices may fluctuate
c) Competitors might gain an advantage
d) The company might refuse to meet analysts
✅ Correct Answer: (a) Management may provide biased or misleading information
📖 Explanation: Analysts should cross-check management claims with independent data sources.
34) What is the main reason for conducting economic analysis?
a) To determine industry growth potential
b) To influence government policies
c) To set interest rates
d) To regulate the stock market
✅ Correct Answer: (a) To determine industry growth potential
📖 Explanation: Economic trends help analysts assess the future performance of industries.
35) What is a crucial aspect of report writing for analysts?
a) Keeping it clear and concise
b) Using complex financial jargon
c) Writing lengthy reports
d) Avoiding disclosures of assumptions
✅ Correct Answer: (a) Keeping it clear and concise
📖 Explanation: Reports should be easily understandable for investors and clients.
36) What is a key ethical responsibility of Research Analysts?
a) Disclosing potential conflicts of interest
b) Encouraging insider trading
c) Manipulating stock prices
d) Promoting personal investments
✅ Correct Answer: (a) Disclosing potential conflicts of interest
📖 Explanation: Transparency is crucial to maintain investor trust and market integrity.
37) Why should Research Analysts verify financial data from multiple sources?
a) To ensure accuracy and reliability
b) To manipulate stock prices
c) To support company management’s claims
d) To confuse investors
✅ Correct Answer: (a) To ensure accuracy and reliability
📖 Explanation: Cross-verification prevents reliance on potentially misleading or biased data.
38) What is an example of a qualitative factor in company analysis?
a) Return on equity (ROE)
b) Management credibility
c) Earnings per share (EPS)
d) Debt-to-equity ratio
✅ Correct Answer: (b) Management credibility
📖 Explanation: Qualitative factors include management quality, corporate culture, and competitive advantage.
39) What is the role of financial modeling in research analysis?
a) Forecasting company performance based on assumptions
b) Increasing stock trading volume
c) Replacing fundamental analysis
d) Avoiding qualitative factors
✅ Correct Answer: (a) Forecasting company performance based on assumptions
📖 Explanation: Financial models use assumptions to predict a company’s future financial performance.
40) Why should Research Analysts avoid using insider information?
a) It is illegal and unethical
b) It guarantees higher returns
c) It is only relevant for traders
d) It has no impact on research reports
✅ Correct Answer: (a) It is illegal and unethical
📖 Explanation: Insider trading violates market regulations and can lead to severe penalties.
41) What is an essential component of a good research report?
a) Clear presentation of facts and assumptions
b) Recommendations without supporting data
c) Emotional opinions about stocks
d) Exaggerated stock price targets
✅ Correct Answer: (a) Clear presentation of facts and assumptions
📖 Explanation: A research report should be objective, data-driven, and transparent.
42) What is the significance of understanding industry drivers?
a) It helps analysts assess company growth potential
b) It guarantees stock price increases
c) It focuses only on company management
d) It determines government policies
✅ Correct Answer: (a) It helps analysts assess company growth potential
📖 Explanation: Industry trends influence the future performance of companies within that sector.
43) Why do Research Analysts study company financial statements?
a) To evaluate profitability and financial health
b) To set stock price targets
c) To replace industry analysis
d) To predict government policies
✅ Correct Answer: (a) To evaluate profitability and financial health
📖 Explanation: Financial statements provide insights into revenue, expenses, and overall company performance.
44) What is a key principle of ethical research analysis?
a) Independence and objectivity
b) Favoring specific companies
c) Hiding conflicts of interest
d) Encouraging speculation
✅ Correct Answer: (a) Independence and objectivity
📖 Explanation: Analysts must provide unbiased research and avoid external influences.
45) Why should Research Analysts communicate their findings effectively?
a) To help investors make informed decisions
b) To increase trading volume
c) To attract media attention
d) To manipulate stock prices
✅ Correct Answer: (a) To help investors make informed decisions
📖 Explanation: Clear communication ensures that investors understand research findings and recommendations.
46) What is a fundamental principle in preparing research reports?
a) Transparency in data sources and assumptions
b) Providing speculative stock price targets
c) Promoting stocks aggressively
d) Avoiding data verification
✅ Correct Answer: (a) Transparency in data sources and assumptions
📖 Explanation: Research reports should disclose data sources and methodology to maintain credibility.
47) What is an essential quality for Research Analysts?
a) Attention to detail
b) Persuasive marketing skills
c) Preference for short-term gains
d) Lack of financial knowledge
✅ Correct Answer: (a) Attention to detail
📖 Explanation: Analysts must carefully examine data to identify trends and investment opportunities.
48) What is the primary objective of Research Analysts?
a) To provide well-researched investment recommendations
b) To guarantee stock price increases
c) To trade stocks on behalf of clients
d) To focus only on short-term gains
✅ Correct Answer: (a) To provide well-researched investment recommendations
📖 Explanation: Analysts aim to offer data-driven insights for informed investment decisions.
49) What is the main objective of fundamental analysis in equity research?
a) Predicting future stock prices with certainty
b) Evaluating a company’s financial health and growth potential
c) Speculating on stock price movements
d) Ignoring financial statements
✅ Correct Answer: (b) Evaluating a company’s financial health and growth potential
📖 Explanation: Fundamental analysis helps assess a company’s intrinsic value based on financial and industry data.
50) Which document provides detailed financial information about a company?
a) Press releases
b) Company’s annual report
c) Stock exchange notices
d) Newspaper articles
✅ Correct Answer: (b) Company’s annual report
📖 Explanation: The annual report includes financial statements, management discussions, and company performance details.
51) What is the purpose of ratio analysis in financial research?
a) To compare financial performance across companies and industries
b) To manipulate stock prices
c) To avoid financial statement analysis
d) To forecast exact market trends
✅ Correct Answer: (a) To compare financial performance across companies and industries
📖 Explanation: Ratio analysis helps evaluate profitability, liquidity, and financial stability.
52) Why is a SWOT analysis useful for Research Analysts?
a) It helps assess a company’s strengths, weaknesses, opportunities, and threats
b) It replaces financial analysis
c) It guarantees higher stock prices
d) It eliminates investment risks
✅ Correct Answer: (a) It helps assess a company’s strengths, weaknesses, opportunities, and threats
📖 Explanation: SWOT analysis provides insights into a company’s internal and external factors affecting its business.
53) What is one major risk of relying only on past financial performance?
a) Future performance may differ due to market conditions
b) Stock prices will always rise
c) Industry trends remain constant
d) Government policies never change
✅ Correct Answer: (a) Future performance may differ due to market conditions
📖 Explanation: Past performance is useful but does not guarantee future success due to changing economic and industry conditions.
54) What is the importance of risk management in investment research?
a) It helps investors understand potential downsides before making decisions
b) It removes all investment risks
c) It guarantees profit from investments
d) It focuses only on company growth
✅ Correct Answer: (a) It helps investors understand potential downsides before making decisions
📖 Explanation: Risk management identifies and mitigates investment risks before they impact returns.
55) What is a key consideration when evaluating management quality?
a) Experience and ethical track record
b) Number of stocks they own
c) Personal net worth
d) Their marketing skills
✅ Correct Answer: (a) Experience and ethical track record
📖 Explanation: Strong leadership, experience, and integrity are critical for successful management.
56) Which financial statement provides information on a company’s profitability?
a) Balance sheet
b) Cash flow statement
c) Income statement (Profit and Loss account)
d) Notes to accounts
✅ Correct Answer: (c) Income statement (Profit and Loss account)
📖 Explanation: The income statement shows a company’s revenue, expenses, and net profit.
57) What is an important trait of a good Research Analyst?
a) Curiosity and analytical thinking
b) Emotional decision-making
c) Ignoring financial reports
d) Making speculative recommendations
✅ Correct Answer: (a) Curiosity and analytical thinking
📖 Explanation: Research Analysts must be curious and data-driven to make objective recommendations.
58) What is a fundamental principle of corporate governance?
a) Transparency and accountability
b) Insider trading
c) Favoring certain investors
d) Hiding financial information
✅ Correct Answer: (a) Transparency and accountability
📖 Explanation: Corporate governance ensures ethical management and protects investor interests.
59) Why should Research Analysts disclose conflicts of interest?
a) To maintain transparency and credibility
b) To increase stock trading volume
c) To influence stock prices
d) To gain insider information
✅ Correct Answer: (a) To maintain transparency and credibility
📖 Explanation: Ethical analysts disclose conflicts to avoid biased recommendations.
60) How does inflation impact investment analysis?
a) It affects purchasing power and interest rates
b) It ensures higher stock prices
c) It removes business risks
d) It guarantees higher company profits
✅ Correct Answer: (a) It affects purchasing power and interest rates
📖 Explanation: Inflation influences economic conditions, impacting company profitability and stock performance.
61) What is the role of behavioral finance in investment decisions?
a) It examines psychological biases affecting investor behavior
b) It focuses only on financial statements
c) It predicts future stock prices
d) It eliminates investment risks
✅ Correct Answer: (a) It examines psychological biases affecting investor behavior
📖 Explanation: Behavioral finance studies how emotions and biases impact financial decision-making.
62) Which of the following is NOT an essential component of a research report?
a) Clear investment thesis
b) Company financial analysis
c) Personal opinions without data
d) Risk factors and assumptions
✅ Correct Answer: (c) Personal opinions without data
📖 Explanation: A research report must be fact-based and supported by data.
63) Why is diversification important in investment strategy?
a) It reduces overall portfolio risk
b) It guarantees higher returns
c) It eliminates financial losses
d) It replaces company analysis
✅ Correct Answer: (a) It reduces overall portfolio risk
📖 Explanation: Diversification spreads risk across different investments, reducing exposure to market volatility.
64) How do interest rates affect company valuations?
a) Higher interest rates generally reduce company valuations
b) Interest rates have no impact on valuations
c) Lower interest rates increase borrowing costs
d) Rising interest rates always lead to higher profits
✅ Correct Answer: (a) Higher interest rates generally reduce company valuations
📖 Explanation: Higher interest rates increase borrowing costs and reduce future cash flow valuations.
65) Why do Research Analysts use discounted cash flow (DCF) analysis?
a) To estimate a company’s intrinsic value based on future cash flows
b) To ignore financial statements
c) To speculate on short-term stock movements
d) To avoid valuation calculations
✅ Correct Answer: (a) To estimate a company’s intrinsic value based on future cash flows
📖 Explanation: DCF analysis projects future cash flows and discounts them to present value.
66) What is a key limitation of financial ratios in company analysis?
a) They do not consider qualitative factors
b) They always guarantee accurate forecasts
c) They predict future stock prices
d) They do not use historical data
✅ Correct Answer: (a) They do not consider qualitative factors
📖 Explanation: Ratios provide numerical insights but do not account for factors like management quality or brand strength.
67) Which of the following is a liquidity ratio?
a) Current ratio
b) Return on equity (ROE)
c) Price-to-earnings (P/E) ratio
d) Debt-to-equity ratio
✅ Correct Answer: (a) Current ratio
📖 Explanation: The current ratio measures a company's ability to meet short-term liabilities.
68) Why should analysts study a company's competitors?
a) To assess relative strengths and weaknesses
b) To ignore company-specific risks
c) To manipulate financial data
d) To guarantee better stock performance
✅ Correct Answer: (a) To assess relative strengths and weaknesses
📖 Explanation: Competitor analysis helps determine how a company compares within its industry.
69) What is the primary purpose of valuation in investment research?
a) To determine a stock’s fair price
b) To manipulate stock prices
c) To avoid analyzing financial statements
d) To increase stock trading volume
✅ Correct Answer: (a) To determine a stock’s fair price
📖 Explanation: Valuation helps analysts assess whether a stock is overvalued, undervalued, or fairly priced.
70) What does "beta" measure in investment analysis?
a) A stock’s sensitivity to market movements
b) A company’s revenue growth
c) The strength of a company’s brand
d) The effectiveness of a marketing campaign
✅ Correct Answer: (a) A stock’s sensitivity to market movements
📖 Explanation: Beta indicates how much a stock moves in relation to the overall market.
71) Why is it important for Research Analysts to understand corporate actions?
a) They impact stock prices and shareholder value
b) They guarantee higher returns
c) They replace financial analysis
d) They eliminate investment risks
✅ Correct Answer: (a) They impact stock prices and shareholder value
📖 Explanation: Corporate actions like dividends, stock splits, and buybacks influence investor decisions.
72) What is the significance of the price-to-earnings (P/E) ratio?
a) It measures how much investors are willing to pay for each unit of earnings
b) It determines a company’s debt burden
c) It assesses a company’s liquidity
d) It predicts future market trends
✅ Correct Answer: (a) It measures how much investors are willing to pay for each unit of earnings
📖 Explanation: A high P/E ratio suggests high growth expectations, while a low P/E may indicate undervaluation.
73) What is a key drawback of relying solely on historical financial data for investment decisions?
a) Past performance does not guarantee future results
b) It eliminates investment risks
c) It provides absolute certainty
d) It replaces industry analysis
✅ Correct Answer: (a) Past performance does not guarantee future results
📖 Explanation: Market conditions and company strategies change, affecting future performance.
74) Which statement about market capitalization is true?
a) It represents the total market value of a company’s outstanding shares
b) It measures net profit
c) It is calculated using only company assets
d) It determines stock liquidity
✅ Correct Answer: (a) It represents the total market value of a company’s outstanding shares
📖 Explanation: Market cap = Share price × Number of outstanding shares.
75) What is the importance of forecasting in research analysis?
a) It estimates future company performance
b) It guarantees stock price appreciation
c) It eliminates investment risk
d) It replaces financial statement analysis
✅ Correct Answer: (a) It estimates future company performance
📖 Explanation: Forecasting helps investors anticipate future earnings and cash flows.
76) What is "margin of safety" in investment analysis?
a) The difference between intrinsic value and market price
b) The minimum required return for investors
c) A company’s operating margin
d) The level of cash reserves
✅ Correct Answer: (a) The difference between intrinsic value and market price
📖 Explanation: A higher margin of safety reduces downside risk in investments.
77) Why is it important for Research Analysts to have strong communication skills?
a) To clearly present investment recommendations
b) To increase stock trading activity
c) To convince investors to buy stocks
d) To avoid writing research reports
✅ Correct Answer: (a) To clearly present investment recommendations
📖 Explanation: Effective communication ensures investors understand analysis and recommendations.
78) What role do stock exchanges play in securities markets?
a) They provide a platform for buying and selling securities
b) They regulate government policies
c) They guarantee stock price appreciation
d) They only allow institutional investors to trade
✅ Correct Answer: (a) They provide a platform for buying and selling securities
📖 Explanation: Stock exchanges facilitate trading and provide liquidity to investors.
79) What is the role of a depository in stock markets?
a) Holding securities in electronic form
b) Issuing new shares
c) Regulating mutual funds
d) Controlling interest rates
✅ Correct Answer: (a) Holding securities in electronic form
📖 Explanation: Depositories like NSDL and CDSL store securities in dematerialized form.
80) What is meant by "top-down approach" in investment analysis?
a) Analyzing macroeconomic factors before selecting individual stocks
b) Investing only in large-cap stocks
c) Ignoring economic trends
d) Selecting stocks randomly
✅ Correct Answer: (a) Analyzing macroeconomic factors before selecting individual stocks
📖 Explanation: The top-down approach starts with economy-wide analysis before narrowing down to specific companies.
81) What is the primary function of mutual funds?
a) Pooling investor funds to invest in diversified securities
b) Trading derivatives for profit
c) Offering fixed deposit schemes
d) Replacing stock exchanges
✅ Correct Answer: (a) Pooling investor funds to invest in diversified securities
📖 Explanation: Mutual funds provide diversification and professional fund management.
82) What is a key factor in evaluating a company’s debt level?
a) Debt-to-equity ratio
b) Gross profit margin
c) Dividend payout ratio
d) P/E ratio
✅ Correct Answer: (a) Debt-to-equity ratio
📖 Explanation: The debt-to-equity ratio shows a company’s financial leverage and risk.
83) Which of the following is an example of a fundamental factor affecting stock prices?
a) Interest rate changes
b) Investor emotions
c) Social media trends
d) Technical indicators
✅ Correct Answer: (a) Interest rate changes
📖 Explanation: Fundamental factors such as interest rates, inflation, and economic policies affect stock valuations.
84) What is meant by the "bottom-up approach" in stock analysis?
a) Analyzing individual companies before considering macroeconomic factors
b) Investing only in small-cap stocks
c) Ignoring company-specific details
d) Selecting stocks based on market rumors
✅ Correct Answer: (a) Analyzing individual companies before considering macroeconomic factors
📖 Explanation: The bottom-up approach starts with company analysis before looking at broader industry and economic trends.
85) What does Return on Equity (ROE) measure?
a) Profitability relative to shareholder equity
b) Total revenue growth
c) Debt repayment capacity
d) Cash flow from operations
✅ Correct Answer: (a) Profitability relative to shareholder equity
📖 Explanation: ROE shows how efficiently a company generates profits from shareholders' equity.
86) Which document contains details about a company’s financial performance and future plans?
a) Annual report
b) Social media post
c) Investor rumors
d) Employee salary reports
✅ Correct Answer: (a) Annual report
📖 Explanation: A company’s annual report provides insights into its financial health, strategies, and performance.
87) Which of the following ratios measures a company's ability to meet short-term liabilities?
a) Current ratio
b) P/E ratio
c) Earnings per share
d) Return on assets
✅ Correct Answer: (a) Current ratio
📖 Explanation: The current ratio measures liquidity by comparing current assets to current liabilities.
88) What is the primary purpose of financial forecasting?
a) To estimate future company performance based on assumptions
b) To guarantee stock price movements
c) To avoid fundamental analysis
d) To replace past financial data
✅ Correct Answer: (a) To estimate future company performance based on assumptions
📖 Explanation: Forecasting helps analysts predict future earnings and cash flows.
89) What is the significance of free cash flow (FCF) in investment analysis?
a) It represents the cash available for reinvestment and shareholder returns
b) It predicts future stock prices
c) It measures only revenue growth
d) It is not used in valuation models
✅ Correct Answer: (a) It represents the cash available for reinvestment and shareholder returns
📖 Explanation: FCF is a key indicator of a company’s financial health and ability to invest in growth.
90) What does a high debt-to-equity ratio indicate?
a) High financial leverage and potential risk
b) Strong profitability
c) High stock price growth
d) Low capital requirements
✅ Correct Answer: (a) High financial leverage and potential risk
📖 Explanation: A high debt-to-equity ratio suggests that a company is relying heavily on debt, which may increase financial risk.
91) Why do Research Analysts study corporate governance?
a) To evaluate transparency and management accountability
b) To influence stock price movements
c) To manipulate financial reports
d) To avoid analyzing financial statements
✅ Correct Answer: (a) To evaluate transparency and management accountability
📖 Explanation: Good corporate governance ensures ethical practices and protects shareholder interests.
92) What is the key objective of investor protection regulations?
a) To ensure fair and transparent financial markets
b) To increase stock prices artificially
c) To promote only large-cap stocks
d) To favor institutional investors
✅ Correct Answer: (a) To ensure fair and transparent financial markets
📖 Explanation: Investor protection regulations safeguard retail and institutional investors from fraudulent practices.
93) What is an advantage of using technical analysis in conjunction with fundamental analysis?
a) It provides timing insights for buying and selling stocks
b) It eliminates investment risk
c) It guarantees profit
d) It replaces financial ratios
✅ Correct Answer: (a) It provides timing insights for buying and selling stocks
📖 Explanation: Combining both approaches helps investors make well-informed decisions.
94) What is the role of an independent Research Analyst?
a) Providing unbiased investment research to clients
b) Selling stocks on behalf of brokerage firms
c) Managing company financials
d) Influencing market sentiment
✅ Correct Answer: (a) Providing unbiased investment research to clients
📖 Explanation: Independent analysts offer objective research without affiliations to brokerage firms.
95) Which of the following is NOT a method of company valuation?
a) Technical indicators
b) Discounted cash flow (DCF) analysis
c) Price-to-earnings (P/E) ratio comparison
d) Enterprise value (EV) calculations
✅ Correct Answer: (a) Technical indicators
📖 Explanation: Technical indicators focus on price patterns, while valuation methods assess intrinsic value.
96) What is the primary purpose of investment research reports?
a) To provide data-driven recommendations for investors
b) To influence stock prices
c) To manipulate investor sentiment
d) To replace financial statements
✅ Correct Answer: (a) To provide data-driven recommendations for investors
📖 Explanation: Research reports help investors make informed decisions based on data analysis.
97) What is the significance of book value per share (BVPS)?
a) It represents the net asset value per share
b) It determines stock price volatility
c) It measures company revenue growth
d) It eliminates investment risks
✅ Correct Answer: (a) It represents the net asset value per share
📖 Explanation: BVPS shows the book value of assets attributable to each share of stock.
98) What is an example of a leading economic indicator?
a) Stock market performance
b) Corporate earnings reports
c) Historical GDP data
d) Tax records
✅ Correct Answer: (a) Stock market performance
📖 Explanation: Leading indicators predict future economic trends, while lagging indicators reflect past performance.
99) Why do Research Analysts evaluate a company's earnings quality?
a) To assess the sustainability of reported profits
b) To manipulate financial statements
c) To increase stock volatility
d) To avoid analyzing revenue trends
✅ Correct Answer: (a) To assess the sustainability of reported profits
📖 Explanation: Earnings quality measures the reliability and consistency of a company’s profit reporting.
100) What is the impact of high inflation on equity markets?
a) It reduces purchasing power and increases borrowing costs
b) It guarantees higher stock prices
c) It eliminates market risk
d) It has no impact on investments
✅ Correct Answer: (a) It reduces purchasing power and increases borrowing costs
📖 Explanation: High inflation can lower corporate earnings and affect investor confidence.
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