PFRDA Assistant Manager Phase 1 (Paper 2) Mock Test- 1 (General Stream) - Insurance Exams MCQ

The correct answer is The change in equilibrium GDP resulting from a change in autonomous spending.

Key Points

• The multiplier effect describes how an initial change in autonomous spending (such as investment, government spending, or exports) leads to a larger change in overall economic output.
• The size of the multiplier depends on the marginal propensity to consume (MPC) and the marginal propensity to save (MPS).
• A higher MPC leads to a larger multiplier effect, as more of the initial spending is re-spent in the economy.
• The formula for the simple multiplier is 1 / (1 - MPC).

Additional Information

• Multiplier Effect
  • Explains how an initial change in autonomous spending leads to a larger change in equilibrium GDP.
• Marginal Propensity to Consume (MPC)
  • The fraction of additional income that households spend on consumption.

The correct answer is Current Account Deficit.

• Current Account Deficit or CAD is the shortfall between the money flowing in on exports, and the money flowing out on imports.

Key Points

• A country's current account is one of the two components of its balance of payments, the other being the capital account.
  • The current account consists of the balance of trade, net factor income (earnings on foreign investments minus payments made to foreign investors) and net cash transfers.
  • The current account balance is one of two major measures of a country's foreign trade (the other being the net capital outflow).

The correct answer is Inventory

Key Points

• Non-Monetary Items
  • Include assets that do not have a fixed or determinable amount of money, such as inventory, fixed assets, and intangible assets.
• Monetary Items
  • Include cash and items that will be settled in cash, such as accounts receivable, accounts payable, and bank overdrafts.
• Inventory
  • It is classified as a non-monetary item because its value can fluctuate based on market conditions and it is not a fixed amount of money.
• Cash and Cash Equivalents
  • They are always considered monetary items as they have a fixed or determinable amount of money.

The correct answer is 138

Key Points

Auditor:

• An auditor is an authorized person who verifies and reviews the financial records and financial statements of a company and ensures that they are prepared in accordance with the norms.
• He also checks whether any tampering or manipulation has been done with the financial data with the aim of hiding any fraud or malpractice within the company

Important Points

• As per section 138 of the Companies Act, 2013, a certain class of companies are required to appoint an internal auditor for conducting an internal audit.
• This Internal audit of the company's functions and activities shall be conducted by a chartered accountant, a cost accountant, or such other professional as the Board may determine.

Additional Information

• Section 228: This section of the Companies Act 2013 describes a method of inspection, inquiry, or investigation in relation to foreign companies.
• Section 356: This section describes the powers of the Tribunal to declare dissolution of the company as void.
• Section 192: This section relates to Restriction on non-cash transactions involving directors

The correct answer is Issuance of shares at a discount.

Key Points

• The Companies Act, 2013 restricts the issuance of shares at a discount, with exceptions provided only under specific conditions.
• Chapter IV details the provisions related to share capital, including the allotment and issuance of sweat equity shares, voting rights, buy-back of shares, debentures, etc.
• Sweat equity shares can be issued to directors or employees at a discount, but under specific conditions outlined in the Act.
• Buy-back of shares is permitted, but it must comply with the conditions specified in the Act, such as sources of funds and limits on buy-back.

The correct answer is ​The optimum order size that minimizes the sum of ordering and holding costs.

Key Points

• Economic Order Quantity (EOQ) is a fundamental principle of inventory management, aiming to minimize the total inventory holding and ordering costs.
  • It represents the ideal order quantity a company should purchase to minimize its total costs associated with ordering and holding inventory.
• Smallest quantity to minimize holding costs: While partially correct, EOQ specifically balances both ordering and holding costs.
• Maximizing sales potential: EOQ does not directly relate to sales but rather to cost efficiency in inventory management.
• Avoiding stock-outs: While managing stock levels is part of inventory management, EOQ primarily focuses on cost minimization.

The correct answer is Introduction of microfinance institutions and mobile banking services.

Key Points

• Microfinance institutions provide small loans and other financial services to low-income individuals and small businesses, helping to improve access to finance in underserved communities.
• Mobile banking services allow individuals to conduct financial transactions using their mobile phones, increasing access to banking services for those without access to traditional bank branches.
• These developments help to promote financial inclusion by providing affordable and accessible financial services to a wider population.
• Other recent developments in the financial sector include the adoption of blockchain technology for transaction processing, which enhances transparency and security in financial transactions.

Additional Information

• Financial Inclusion
  • Refers to efforts to make financial products and services accessible and affordable to all individuals and businesses, particularly those who are underserved or excluded from the traditional financial system.
• Recent Developments
  • Blockchain Technology: Enhances transparency and security in financial transactions.
  • Basel III Regulations: Strengthen regulation, supervision, and risk management within the banking sector.
  • High-Frequency Trading (HFT): Utilizes sophisticated algorithms to execute trades at extremely high speeds.
  • Private Equity Funds: Invest in private companies, providing capital for growth and development.

The correct answer is Economies of scale

Key Points

• Economies of scale occur when a company's production increases, leading to a decrease in the average cost per unit through more efficient use of production resources, particularly fixed costs.
• This phenomenon helps firms become more profitable as they grow, assuming that the cost of inputs does not rise disproportionately.
• It is particularly significant in industries requiring heavy capital investment, such as manufacturing and transportation.

Additional Information

• Marginal utility
  • Describes the benefit or satisfaction a consumer gains from consuming one more unit of a good or service.
• Price elasticity
  • Refers to how the quantity demanded of a good responds to a change in the price of that good, epitomizing the economic concept of elastic and inelastic goods.
• Law of diminishing returns
  • States that in productive processes, adding more of one factor of production, while holding all others constant, will at some point yield lower incremental per-unit returns.
• Break-even point
  • The production level at which total revenues for a product equal total incurred costs, thus assessing the feasibility and profitability of producing an item.

The correct answer is The company must file a private placement offer letter with the Registrar of Companies (RoC) before issuing any securities.

Key Points

• Private placement allows companies to raise capital by issuing securities to a select group of investors.
• The offer or invitation to subscribe to securities through private placement must be made to no more than 200 persons in aggregate in a financial year, excluding qualified institutional buyers and employees of the company.
• Companies must file a private placement offer letter with the RoC in Form PAS-4 before issuing any securities.
• All payments for securities under private placement must be made through banking channels and not in cash.
• A special resolution from the company's shareholders is required to approve the private placement.

Additional Information

• Private Placement
  • A method for raising capital by issuing securities to a select group of investors.
  • Requires filing a private placement offer letter with the RoC in Form PAS-4.
  • Payments must be made through banking channels and not in cash.
  • A special resolution from shareholders is required for approval.
• Offer Limit
  • Cannot exceed 200 persons in aggregate in a financial year, excluding qualified institutional buyers and employees of the company.

The correct answer is Marginal Costing.

Key Points

• Absorption Costing includes all manufacturing costs, both fixed and variable, in the cost of a product.
• Activity-Based Costing allocates overhead costs based on each product's activities or transactions.
• Marginal Costing (also known as Variable Costing) involves considering only variable costs (costs that change with the level of output) for decision-making, ignoring fixed costs (costs that remain constant regardless of the level of production or sales).
• Standard Costing involves comparing actual costs incurred to standard costs pre-determined by the company to find variances.
• Historical Costing records assets and liabilities at their original purchase cost.

The correct answer is Schedule 7.

Key Points

• Corporate Social Responsibility is mentioned under Schedule 7 (Section 135) in the Companies Act, 2013.
• The term "Corporate Social Responsibility" in general can be referred to as a corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare.
• In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013.
• India is the first country in the world to mandate CSR spending along with a framework to identify potential CSR activities. Hence, Statement 1 is incorrect.
• The Act encourages companies to spend 2% of their average net profit in the previous three years on CSR activities. Hence, Statement 2 is incorrect.
• The CSR provisions within the Act are applicable to companies with an annual turnover of 1,000 crores and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crores and more.
• The Act requires companies to set up a CSR committee that shall recommend a Corporate Social Responsibility Policy to the Board of Directors and also monitor the same from time to time.

Additional Information

• Any donation to the PM CARES Fund will quantify as CSR.
  • The Chief Minister’s Relief Fund or State Relief Fund for Covid-19 is not included in Schedule VII of the Companies Act, 2013, and therefore any contribution to such funds shall not qualify as admissible CSR expenditure. Hence, Statement 3 is incorrect.
  • Schedule VII of the Companies Act, 2013 provides the list of activities that can be included in CSR.
  • However, donations to the State Disaster Management Authority to combat Covid-19 can be counted as admissible CSR expenditure.

The correct answer is Induced investment.

Key Points

• Induced investment is the additional investment made by firms in response to increased demand for their products.
• The Multiplier-Accelerator model combines the multiplier effect (the impact of increased spending on overall economic output) with the accelerator effect (the impact of increased output on investment).
• Autonomous investment refers to investment that does not depend on current income or output levels.
• The marginal propensity to consume (MPC) is the fraction of additional income that households spend on consumption.
• The marginal propensity to save (MPS) is the fraction of additional income that households save.

The correct answer is Rs. 6,000.
Important Points

Hence, Amount received on first call = Rs. 6,000.

The correct answer is Current.

Key Points

• Current Ratio
  • Calculated by dividing current assets by current liabilities, the Current ratio assesses a company's ability to pay off short-term obligations.
• Quick Ratio
  • Excludes inventory from current assets and provides a more stringent measure of liquidity.
• Debt to Equity Ratio
  • Measures a company's financial leverage by comparing total debt to shareholders' equity.
• Return on Assets
  • Measures a company's profitability relative to its total assets.
• Gross Profit Margin
  • Measures the proportion of revenue remaining after deducting the cost of goods sold.

The correct answer is INR 10 crore

Key Points

• Chapter XII mandates the constitution of an Audit Committee for companies with significant paid-up capital to ensure proper financial oversight.
• The Audit Committee is responsible for overseeing the financial reporting process, internal controls, and audit functions.
• The threshold for constituting an Audit Committee is set at a paid-up capital of INR 10 crore or more.
• This requirement aims to enhance corporate governance and accountability in companies with substantial financial resources.

Additional Information

• Audit Committee
  • A committee is responsible for overseeing the company's financial reporting, internal controls, and audit functions.
• Threshold Requirement
  • The requirement to constitute an Audit Committee applies to companies with a paid-up capital of INR 10 crore or more.
• Corporate Governance
  • Enhanced corporate governance practices are promoted through the establishment of an Audit Committee.

The correct answer is Short-term borrowing costs are higher than long-term.

Key Points

• Economic expansion: Typically associated with a normal or steep yield curve, not an inversion.
• Increasing interest rates: This can cause the yield curve to steepen rather than invert.
• Short-term borrowing costs are higher than long-term: An inverted yield curve occurs when short-term interest rates exceed long-term rates, often seen as a predictor of economic recession.
• A buyer's market: Refers to market conditions favoring buyers over sellers, unrelated to the shape of the yield curve.
• Central bank easing: Usually aims to lower interest rates and stimulate the economy, potentially steepening the yield curve.

The correct answer is Depreciation Methods

Key Points

• Cash Flow Statements are prepared to show the inflows and outflows of cash within an organization.
• They are divided into three main categories: Operating Activities, Financing Activities, and Investing Activities.
• Depreciation is considered a non-cash item and is added back to net income in the Operating Activities section.
• Cash and Cash Equivalents include currency and bank balances, which are also considered in Cash Flow Statements.

Additional Information

• Operating Activities
  • Includes cash flows from core business operations.
• Financing Activities
  • Includes cash flows related to borrowing and repaying loans, issuing shares, and paying dividends.
• Investing Activities
  • Includes cash flows from the purchase and sale of assets, such as equipment and investments.
• Cash and Cash Equivalents
  • Includes highly liquid investments that are readily convertible to cash.

The correct answer is Goods and money markets.

Key Points

• The IS-LM model combines the equilibrium conditions in the goods market (represented by the IS curve) and the money market (represented by the LM curve).
• The IS curve shows combinations of interest rates and output where the goods market is in equilibrium (investment equals savings).
• The LM curve shows combinations of interest rates and output where the money market is in equilibrium (money demand equals money supply).
• The intersection of the IS and LM curves represents the simultaneous equilibrium in both markets.
• The model is used to analyze the effects of fiscal and monetary policy on aggregate demand and output.

The correct answer is Motivating and inspiring employees to achieve a shared vision

Key Points

• Transformational leaders focus on creating a vision that inspires and motivates employees to exceed their own expectations.
• They encourage innovation and creativity by challenging the status quo and encouraging new ways of thinking.
• Transformational leaders build strong relationships with their followers, fostering a sense of trust and commitment.
• They act as role models, demonstrating the behaviors and attitudes they wish to see in their followers.

Additional Information

• Enforcing Rules and Regulations
  • A task associated with transactional leadership, focusing on compliance and control.
• Setting Short-Term Goals
  • Often a managerial task involving the management of daily operations and short-term objectives.
• Monitoring Performance
  • Part of the managerial role, involving the oversight of employee performance and providing feedback.
• Delegating Tasks
  • A managerial activity focusing on assigning responsibilities to subordinates.

The correct answer is Only 2, 3 and 4.

Key Points

Non-tax revenue receipts for the Union Government:

• The Non-Tax Revenue is the recurring income earned by the government from sources other than taxes.
• The government collects interest as non-tax revenue on the loans and funds advanced to states for various purposes.
• The government collects non-tax revenue in return for providing/facilitating any goods or services.
• Tax revenue is charged on income earned by an individual or an entity (direct tax) and on the value of transaction of goods and services (indirect tax) while non-tax revenue is charged against services provided by the government.
• Sources:
  • Spectrum Fees
  • Dividends from Public Sector Undertaking
  • Interest Received on Loans given by the Government. Hence, statements 2, 3 and 4 are correct.

Disinvestment Receipts: is a component of non-debt capital receipts. Hence, statement 1 is incorrect.

The correct answer is ​To create new financial products or strategies that enhance firm value or reduce risk.

Key Points

• Financial engineering involves the design, development, and implementation of innovative financial instruments and processes, primarily to solve financial problems and enhance value through risk management and opportunities exploitation.

Additional Information

• Auditing: A function typically performed by accountants or external auditors, not financial engineers.
• Tax compliance: Handled by tax professionals or accountants.
• Capital structure management: While financial engineers may be involved, this is primarily the role of corporate finance managers.
• Daily financial operations: Generally, this is the role of financial managers or controllers.

The correct answer is Transfer Payments

Key Points

• National Income includes wages and salaries, rent, interest, and profits as components.
• Transfer Payments are payments made without any exchange of goods or services, such as social security benefits or unemployment benefits.
• National Income measures the total value of goods and services produced within an economy over a specific period.
• Components of National Income contribute to the overall economic output and are part of the production process.

Additional Information

• Transfer Payments
  • Payments made without any corresponding production of goods or services, such as social security benefits, unemployment benefits, and subsidies.
• Wages and Salaries
  • Payments made to employees for their labor services.
• Rent
  • Income received from leasing land or property.
• Interest
  • Income earned from lending money or capital.
• Profits
  • Income earned by businesses after deducting costs and expenses from revenue.

The correct answer is Unemployment rate that occurs when the economy is at full employment.

Key Points

• The natural rate of unemployment includes frictional and structural unemployment but excludes cyclical unemployment.
• It is the level of unemployment consistent with a stable rate of inflation.
• When the economy is at the natural rate of unemployment, it is considered to be operating at full employment.
• Policies aiming to reduce unemployment below the natural rate can lead to accelerating inflation in the long run.

Additional Information

• Natural Rate of Unemployment
  • The level of unemployment that persists in the long run even when the economy is at full employment.
• Cyclical Unemployment
  • Unemployment that results from economic recessions and fluctuations in the business cycle.

The correct answer is Pareto Efficiency

Key Points

• Pareto Efficiency, a concept from welfare economics, describes a state where it is impossible to make one individual better off without making another individual worse off.
• This principle is used as a benchmark to evaluate the efficiency of economic systems and resource allocations.
• It is often used to assess the effectiveness of public policies in terms of their ability to improve societal welfare without detriment to any community.

Additional Information

• Keynesian Equilibrium
  • Describes a state in an economy where demand equals supply (aggregate demand equals aggregate supply).
• Nash Equilibrium
  • A concept of game theory where each player's strategy is optimal when considering the choices of other players.
• Rational Expectations
  • Assumes that individuals form forecasts about the future based on all available information in an unbiased and consistent manner.
• Invisible Hand
  • Adam Smith's famous concept that individuals' self-interested actions can lead to positive social outcomes as if guided by an invisible hand.

The correct answer is Kaizen

Key Points

• Kaizen emphasizes small, incremental changes that continuously improve processes and reduce waste.
• Just-in-Time (JIT) focuses on producing only what is needed, when it is needed.
• Six Sigma aims to reduce defects and improve quality through rigorous data analysis.
• Total Productive Maintenance (TPM) involves proactive and preventive maintenance to improve equipment efficiency.
• Cellular Manufacturing involves organizing production workstations in a sequence that supports a smooth flow of materials and components.

Additional Information

• Just-in-Time (JIT)
  • A production strategy that strives to improve a business's return on investment by reducing in-process inventory and associated carrying costs.
• Six Sigma
  • A set of techniques and tools for process improvement aimed at reducing defects and variability.
• Total Productive Maintenance (TPM)
  • Focuses on maintaining and improving the integrity of production and quality systems through proactive and preventive maintenance.
• Cellular Manufacturing
  • Organizes the production floor into small, self-contained units (cells) that include all necessary resources to complete a product.

The correct answer is Operating Expenses.

Key Points

• Costs related to ESOP are recognized as part of the operating expenses.
• It reflects the cost of the employee benefits provided as compensation.
• An ESOP is a benefit program that gives workers a stake in the company by offering them shares of stock.
• It comes with tax advantages for both the company and employees and is a popular way for employers to get everyone on the same page.