QCM : Fundamentals of Corporate Securities and Finance — 9 questions

Questions et réponses du QCM

1. What is trade credit primarily considered as in business operations?

A long-term investment tool used by companies
A method of raising equity capital through share issuance
A short-term financing arrangement extended by suppliers to buyers
An international financial instrument used in cross-border trade

A short-term financing arrangement extended by suppliers to buyers

Explication

Trade credit is primarily a short-term financing arrangement where suppliers allow buyers to purchase goods or services on credit, deferring payment to a later date. It facilitates business liquidity and sales, making it a vital short-term source of finance for companies.

2. What is the typical range of the credit period allowed in trade credit agreements?

15 to 30 days
30 to 90 days
90 to 180 days
180 to 365 days

30 to 90 days

Explication

Trade credit generally allows for a period ranging from 30 to 90 days, depending on industry practices and negotiations, providing a balance between liquidity and sales incentives.

3. What is the primary role of different share types in a company's capital structure?

Equity shares are mainly used for raising long-term debt, while preference shares are for short-term financing.
Both equity and preference shares are primarily used to provide liquidity to shareholders.
Preference shares give voting rights and control over company decisions, while equity shares provide fixed income.
Equity shares provide ownership and voting rights, while preference shares offer fixed dividends and priority in payments.

Equity shares provide ownership and voting rights, while preference shares offer fixed dividends and priority in payments.

Explication

Equity shares primarily provide ownership and voting rights in a company, whereas preference shares offer fixed dividends and have priority over equity shares during liquidation. This distinction defines their main roles in the company's capital structure.

4. Which type of share has preferential rights over dividends and assets during liquidation but usually lacks voting rights?

Equity share
Preference share
Debenture
Euro issue

Preference share

Explication

Preference shares have priority over equity shares in dividends and asset claims during liquidation, but generally do not carry voting rights, distinguishing them from ordinary equity shares.

5. How do debentures differ from or are similar to other debt instruments?

Debentures are unrelated to debt instruments and are equity shares.
Debentures are a specific type of debt instrument, often unsecured and long-term.
Debentures are the only form of debt instrument issued by companies.
Debentures are a type of equity security that also function as debt instruments.

Debentures are a specific type of debt instrument, often unsecured and long-term.

Explication

Debentures are a specific type of debt instrument issued by companies, typically unsecured and long-term, making them a subset within the broader category of debt instruments.

6. Who among the following is typically responsible for issuing debentures?

Shareholders
Company management
Company itself
Government regulatory body

Company itself

Explication

Debentures are issued directly by the company as a form of long-term debt instrument, representing a loan from investors that the company promises to repay with interest.

7. Which of the following correctly describes a Euro Issue?

The issuance of shares or securities within the company's home country
The issuance of shares or securities in foreign markets outside the home country
A type of short-term trade credit arrangement
A special class of preference shares for international investors

The issuance of shares or securities in foreign markets outside the home country

Explication

A Euro Issue refers to the issuance of shares or securities outside the company's home country, often aimed at raising capital in foreign markets.

8. Which organization infrastructure underpins the depository system for securities in India?

SEBI (Securities and Exchange Board of India)
NSDL (National Securities Depository Limited)
RBI (Reserve Bank of India)
Stock Exchanges like NSE and BSE

NSDL (National Securities Depository Limited)

Explication

NSDL (National Securities Depository Limited) is the primary infrastructure provider for depository services, facilitating the electronic holding and transfer of securities.

9. What is a primary function of trade credit that benefits businesses?

Providing long-term funding for capital investments
Facilitating supply chain efficiency and liquidity management
Replacing the need for equity capital
Reducing the need for legal contracts with customers

Facilitating supply chain efficiency and liquidity management

Explication

Trade credit facilitates supply chain efficiency by providing liquidity and enabling business growth through deferred payments, thus supporting smooth operations.

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Trade Credit — function?

Provides liquidity and encourages sales.

Trade Credit — function?

Provides short-term liquidity, encourages sales.

Equity Share — rights?

Ownership, voting, residual profits.

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