Ramesh Singh : Miscellaneous - 2


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QUESTION: 1

Consider the following statements.

1. A bond bearing zero-coupon rate sold at a price lower than its face value. Investors book profit when they sell it.

2. Such bonds are popularly used by the governments to raise short - term funds.

Which of these statements is/are correct?

Solution:
  • A bond bearing zero-coupon rate (i.e. no interest) sold at a price lower than its face value. Investors book profit when they sell it (at its face value).

  • Such bonds are popularly used by the governments to raise long term funds. In a situation of a rate cut by the RBI, zero-coupon bonds gain value-it means they sell at higher prices. When there is a rate increase, the opposite happens.

QUESTION: 2

Consider the following statements.

1. A graphic representation of the gap of a firm shows in its actual and minimum costs products

2. X-inefficiency suggests that firms typically operate at higher costs than their minimum attainable costs

Which of these statements is/are correct?

Solution:
  • A graphic representation of the 'gap' of a firm shows in its actual and minimum costs products. As per the tradition, the firms always operate on minimum attainable costs.

  • As opposed to this, x-inefficiency suggests that firms typically operate at higher costs than their minimum attainable costs. This takes place due to many inefficiencies (such as organising the works, lack of coordination, lack of motivation, bureaucratic rigidities, etc.).

  • Large corporates usually face this problem as they lack effective competition which could 'keep them on their toes'.

QUESTION: 3

WildCat Strike is a strike called on by a group of employees without the support of:

Solution: A strike called on by a group of employees without the support of their organised Trade union.

QUESTION: 4

Consider the following statements.

1. The loan which is forwarded by the bank only against the creditworthiness and some collateral of the borrower is known as ‘unsecured loan'.

2. Such loans are also known as signature loans and personal loans.

Which of these statements is/are correct?

Solution:
  • The loan which is forwarded by the bank only against the creditworthiness of the borrower is known as ‘unsecured loan. Such loans are also known as signature loans and personal loans.

  • If the loan is supported by some form of collateral (of secondary types, such as land, building, etc.), then it is 'secured loan. Basically, loans are provided by banks against two kinds of securities—the credit worthiness of the borrower (known as the primary security) and collateral (known as the secondary security').

QUESTION: 5

Consider the following statements about Transfer Earnings.

1. The return that an asset must earn to prevent its transfer to the next best alternative use.

2. Any earning above the transfer earnings is known as its 'economic rent'

Which of these statements is/are correct?

Solution:
  • The return that an asset must earn to prevent its transfer to the next best alternative use.

  • Any earning above the transfer earnings is known as its 'economic rent'.

QUESTION: 6

Consider the following statements about Transfer Payments.

1. The expenditure by the government for which it receives no goods or services

2. Expenditures on tax collection is an example of this

3. They are counted in the national income of the economy

Which of these statements is/are correct?

Solution: The expenditure by the government for which it receives no goods or services. For example, the expenditures on tax collection, social sector, unemployment allowance, etc. As such expenditures are not done against any products they are not counted in the national income of the economy.

QUESTION: 7

Consider the following statements.

1. This takes place when a firm bases its headquarters in a low tax country while keeps its material operations in the high tax countries.

2. This way, firms cut their tax payment liabilities.

3. This is illegal and is a method of tax avoidance.

Which of these statements is/are correct?

Solution: This is legal and is a method of tax avoidance.

QUESTION: 8

Which of these statements are correctly matched?

1. Debt swap - Exchanging one debt by another for a fresh term of repayment schedule at the same or usually lower interest rates.

2. Interest Rate Swap - Exchanging one debt of a particular interest rate for another at the lower interest rate.

3. Product Swap - Exchanging one product for the other as wheat for milk.

Which of these statements is/are correct?

Explained: Self-explanatory

Solution:
QUESTION: 9

Which of the following are the examples of sunk cost?

Solution: The costs in commercial activities that have been incurred and cannot be reversed. The cost of an advertisement, research and development, etc. are examples of such costs. Sunk costs are a big deterrent to new entrants in the commercial world as after the venture has failed these costs cannot be recovered— there is no two-way process here.

QUESTION: 10

Consider the following statements about Short Selling.

1. Selling shares without possessing them

2. After the prices fell to a certain extent the short-seller covers his position by cheaper shares booking the difference in price as profits

3. It is also known as bull operation

Which of these statements is/are correct?

Solution: Selling shares without possessing them. After the prices fell to a certain extent the short-seller covers his position by cheaper shares booking the difference in price as profits. It is also known as bear operation.

Short-sellers, however, could get caught on the wrong foot if the market reverses the downtrend.

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